GREG ROBERTS’ ON THE MONEY: Did you miss Tax Freedom Day?
The IRS has 7,000 fewer full-time employees now than it had at the end of 2010, and this fact represents good news and bad news for the 1 percent of taxpayers that get routinely hit with full blown tax audits.
For tax year 2012, fewer of us are likely to get audited right away, but that doesn’t mean that a tax cheat won’t ultimately have to face the music. Actually sequestration and its attendant furloughing of IRS enforcement personnel is, at best, a pyrrhic victory for the audit-prone. When the audits do take place, the penalties will be larger, as will the accrued interest.
Then too, the distribution of CP2000 forms has not waned this year. This form states that “the income and/or payment information that the IRS has on file doesn’t match the information you reported on your tax return. This could affect your tax return; it may cause an increase or decrease in your tax, or may not change it at all.” At a minimum, however, receiving any letter from the IRS typically generates angst for the recipient.
Pundits have labeled the day during the year when we have earned enough income to pay all of the taxes we are on the hook for as Tax Freedom Day. In case you missed the celebration, it occurred on April 18 last month. The bottom line is that we Americans work, on average, about 3½ months to earn enough money to pay all of the federal, state, and local taxes that we will owe for 2013.
We South Carolinians can take some solace in the fact we only had to work until April 3 to meet all of our tax obligations for the year, but those living in New York had to toil until May 6 and our friends in Connecticut until May 13.
Actually, Tax Freedom Day this year took place five days later than it did last year due to a triple whammy of tax increases for tax year 2013. Top income earners will face a top tax rate of 39.6 percent in 2013, plus some of the tax increases brought about by The Affordable Care Act (Obamacare) were implemented this year. Believe it or not, two of the five days being added this year the result of the expiration of the payroll tax cut, which increased payroll taxes back to 6.2 percent of income this year. Elizabeth Malm, an economist with the Tax Foundation, noted that “This year is kind of unprecedented.”
If Congress had required us to work long enough this year to cover all of the budgeted federal spending this year, we would all have had to work until May 9.
The fact that the job market is improving is also good news and bad news, since as individuals earn more income as a result of their new jobs, they will pay more taxes on that income.
Consider this, the Tax Foundation found that we pay more in taxes each year than we pay for food, clothing and housing combined. Comparatively speaking, things were worse in 2000, since Tax Freedom Day took place that year on May 6. By way of contrast, in 1900, Americans had paid their tax bills for the year by Jan. 22.
Finally, don’t you wish that you had the counsel of tax experts of the caliber that Apple has? A Senate panel found that Apple sheltered $74 billion of profits from any taxes over the past four years. The investigation found no evidence that Apple did anything illegal. Aides to the subcommittee said they have never seen a company use a subsidiary that didn’t owe corporate income taxes to any country. Apple CEO Tim Cook testified before the committee and told the senators that Apple does not use tax gimmicks, but that multinational U.S. companies should not face U.S. corporate tax rates on their overseas earnings.
Got a financial planning question for Greg? You may email him at email@example.com.
Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience.