My 1st Million At 33 – yes, you can do it too

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  • Archive for the 'Tax' Category

    AMT tax permanently patched after fiscal cliff deal reached

    Posted by Frugal on 1st January 2013

    The tax deal has been reached in both Senate and the House. There were very little spending cut, and some tax increases for the people earns the highest income above $400K. Here is the summary on the tax changes:

    1. 2% social security tax cut is reverted. This affects everyone who has an income. You will see payroll tax increases (or rather reverted back) by 2%.

    2. The Bush tax cuts expire for income higher than $400K on individual filing, and $450K for filing jointly. Marginal bracket rises back to 39.6% from 35%. Most people including me get to keep the same brackets from Bush tax cut.

    3. AMT (alternative minimum tax) exemption amount is now $78750. Without the fix, it would have been reverted back to $45000 which has never been indexed to inflation. Going forward, this exemption amount will be indexed to inflation. With this change, some tens of millions of US households won’t be hit by AMT. Because it’s indexed to inflation now, it would reduce my federal tax by a couple of hundred dollars (while paying $2000 more in social security tax).

    Essentially, there has been no changes, except the 2% social security tax reversion for everyone. The additional 3.8% medicare tax on capital gain will only apply to income higher than $400K/$450K for single/joint filing I believe.

    For more details, you can follow this link for original text.

    Posted in Tax | Comments Off

    Start your tax planning now for next year

    Posted by Frugal on 20th September 2011

    I always check my taxes for next year at around end of September every year. That gives me 3 months to withhold any additional taxes for next year to avoid any under-payment penalty. I also check my accumulated capital gain/loss to plan for certain tax loss sales if any.

    By paying taxes from withholding your paycheck, they get treated as if they are paid evenly throughout the year. You won’t get hit by any quarterly assessment of tax penalties, just because you pay them closer to the end of year. If you run a business, this option is not available to you, and Uncle Sam wants you to pay up every quarter.

    This year due to extra stock option sale earlier in the year (before stock markets crashed), I need to withhold all of my income for the next three months. It certainly doesn’t feel good to “work for free” especially after I have already paid so much in taxes. My combined state & federal marginal bracket is at about 50%. It is amazing how much government can take, and still manage to run a deficit year after year.

    Oh, well. Certainly, paying taxes is far better than taking unemployment benefit checks. My best wishes to anybody who has been left behind by the rolling recessions in the economy.

    Posted in Tax | 1 Comment »

    I’m not donating to American Red Cross for Japan’s Earthquake

    Posted by Frugal on 13th March 2011

    The earthquake disaster in Japan has been terrible. My prayers go to all the suffering victims. I have been trying to find a good charity for the earthquake in New Zealand, and unfortunately there comes another one, and bigger.

    On Yahoo’s news, it listed 8 charities for donation. American Red Cross is one of them. However, after some research digging at CharityNavigator.org and google, I won’t be giving my money to American Red Cross.

    Most of the American charities could be as corrupted as other big institutions. Majority of all big charities have a CEO that gets paid for $300K to $600K annually. If you find a charity CEO that is only paid at about $200K, it’s pretty good already. American Red Cross pays its CEO $446,867, with the highest salaried at $566,629. What bothers me the most is that the past poor handling of American Red Cross in Katrina and Haiti. In fact, there seems to be a consistent record of such at Red Cross.

    While I don’t want to put any final words or judgment on American Red Cross, I plan to give my money to Americares or Convoy of Hope. All of the amount of my donated money is hard-earned, and I want to share it with the poor victims, not the highly salaried CEOs.

    One day when I can retire from my day job, I hope to start a charity. I would not take any payment from doing it because that was how naive I have always thought how any charities should have been run.

    Posted in Estate & gift | 1 Comment »

    One of the best charity: Blood donation

    Posted by Frugal on 16th February 2011

    I used to donate blood before I have children. With small children in the family, my life is always extremely busy and circles around children. This year however I finally made a vow to donate blood as often as I can. What made me a little sad is that because of all the constraints & regulation, even if I donate at maximum possible frequency which is every 56 days, or about 6 times a year, there is only so much blood that I can give (1 pint per visit). Human lifetime is so limited, and we can only give so much. I was going to fill up my office wall with Red Cross stickers. I guess I won’t be able to do that.

    Even though I’m often so busy that I don’t even have 1 hour to spare for blood donation, that one hour is probably the best relaxation time for me for months. I lie there, staring at the fluorescent lights, imagining how helpless the sick people must have been at the hospitals lying on the same beds. And I always make a prayer during the blood donation that whoever receives my blood can recover as soon as possible with God’s granted grace. Yeah, sometimes the donated blood won’t get used in the allowable time, but that is just part of the business.

    To be able to donate blood, one obviously must be healthy. The last time I donated blood, Red Cross told me that if my diastolic blood pressure is more than 100, I won’t be able to continue to donate blood. I measured 100 exactly. She advised me to start taking my blood pressure medicine, and don’t delay anymore. When I came home, my 4 year old kept staring at the bandage around my elbow. Finally, his curiosity overcame him. He asked me what happened to me. I told him that I gave blood. And he couldn’t understand. Then I showed him a youtube on blood donation. He was a little scared, a little amazed, and somewhat confused. I hope one day when he grows up, he will understand and also donate blood for good.

    I have always made it imperative to teach my children about charity. I want them to understand that how lucky they are to enjoy all the material things around them, and that if ever we own anything, it is given by God. We all come to this world with nothing, and we will leave this world with nothing. I am not sure if my kids will understand all of these one day, but I have great faith & hopes just by looking into their innocent eyes.

    Posted in Estate & gift, Uncategorized | Comments Off

    Tax rebate checks coming

    Posted by Frugal on 29th April 2008

    Economic stimulus is coming. And many retailers are looking for you to spend your check. In the recession, it’s a good time to spend money if you have it.

    Of course, the amount of my rebate check is $0. I’m not getting any. But it’s not like I’m making a lot more. The tax rebate calculation and tax system was unfair to places with a very high living cost structure. Even though you are supposed to have a “high” income on a national basis, your high income simply doesn’t go far enough after all the needed expenses.

    So what’s my advice on your rebate check? You guess it. You should SAVE it. The current economic slowdown is not going away yet. You will have plenty of chances to spend it on good purposes later.

    But if you have to spend, make sure you spend it wisely. Find good deals. Pay down your credit card debts. Pay down your college loans. Build your emergency savings. These are just basics. I hate to repeat what Suze Orman would say, because what she says is obviously boring. But the truth is often boring, and not pleasing to your ears or heart. There is never a get-rich-quick scheme (or if there is, it won’t last very long at all). To accumulate more net worth, you simply have to save/earn more and spend less. I know every reader here would like to earn more instead of to save more. But saving more is actually a whole lot easier than earning more.

    Anyway, if you still don’t know how much you may be getting, here is a calculator from IRS for you to figure it out. Hopefully, it’s something non-zero for you.

    Posted in Debt/Frugality, Tax | 1 Comment »

    Obama’s plan for the tax man

    Posted by ML on 5th February 2008

    Todayis “Super Tuesday”. Chances are that a clear Republican winner will emerge at the end of the day but the Democratic contest will still be too close to call. FWIW, my personal choice for the presidency would be Ron Paul (Yes, unlikely), McCain, then Obama, in that order. McCain is the only Republican that stands a chance in the general election according to polling results summarized at RealClearPolitics.

    The DC Current column in this week’s Barron’s (subscription) featured an interview with Austan Goolsbee, Obama’s economic policy advisor, and we have a preview of tax policy under President Obama. Some highlights:

    He would hike most rates on dividends and capital gains from their current top of 15% to between 24% and 25% in order to generate new revenue and pay for middle-class tax simplification… That’s less than the 28% rate under Ronald REagan, and nore than the 20% rate under Bill Clinton.

    To insure against a negative impact on innovation and new business formation, Obama would have a zero rate on capital gains for entrepreneurs, venture capitalists and small-business owners forming new enterprises.

    And for ordinary income, Obama would allow the top marginal rates to return to the Clinton era’s 39.6% versus 35% today. Obama would also eliminate all tax shelters and loopholes.

    Fore moderate wage earners who take the standard deductions, tax filing would be simplified. The Internal Revenue Service would figure out their taxes for them and send them a one-page form to sign, reducing preparation costs.

    Even with a Republican in the White House, it’s probable that the Bush tax cuts will not become permanent given the Democratic control of Congress. However, a further increase of the capital gains rate to 25% (from the Clinton era’s 20%) would have pretty dire consequences for the stock market.

    Posted in Investing, Tax | 1 Comment »

    2008 Tax rebate in more details

    Posted by Frugal on 25th January 2008

    Look for your tax rebate in the mail soon, if you didn’t earn too much last year.

    The details of the tax rebate are not all out yet, but here is what I can collect:
    1. The minimum earned wage needs to be $3000 for you to qualify for at least the $300 per person rebate, or $600 per couple, plus $300 per dependent child.

    2. The maximum before phasing out is $75000 for individual, and $150K for couple. As far as I can tell, those numbers are AGI or adjusted gross income. Therefore, all itemized or standard deductions don’t help you in this case. The phase-out goes pretty quickly. Once you reach $187K for couple, you get zilch or nada. But if you have children, the phase-out limits are higher. But I can’t find that number from all the press releases.

    3. There seems to be an exception to #1. If you’re a retiree, and only have investment income, it appears that if you have paid some taxes, you can still get the $300 to $600 tax rebate. There was one example from marketwatch.com, and that’s about all that I can find.

    Obviously, not all tax rebates will be spent. But this is probably a more fair way of dropping helicopter money. And I must applaud the quick actions by President and the Congress. Anything that is too late will not be useful at all.

    A more important thing for the financial markets is that the loan limit on Fanni Mae and Freddie Mac will be raised to $729,750 or 125% of the median house price in the area. That is a huge increase. So it will help the jumbo loan interest rates, if you qualify for the payment. I tried a loan amount of $600K, with $150K or 20% down. Using 30 years fixed at 5.5%, $15K property tax, $1000 home insurance, and $200 monthly HOA fee (about the ballpark for the single family prices in 2006), one must fork out $5000 per month for housing. Since one needs to pay some payroll tax, if not income tax, plus one needs to eat and drive, I assumed that the monthly pre-tax income probably needs to be $12K per month, or $144K annual salary.

    Again, I truly wonder how people can afford those homes a few years back (if it wasn’t negative ARM).

    Posted in Tax | 8 Comments »

    AMT tax patch for 2007 passed in House Committee

    Posted by Frugal on 2nd November 2007

    I have been watching for the AMT bill for sometime. The AMT bill affects me personally since my family income is right at the window of a middle-upper class income for a Californian, not too high to be called rich, but high enough to pay A LOT of AMT taxes (about $5000).

    $5000 tax bite would definitely make some difference to a paycheck to paycheck Californian, and I think that will worsen the falling California housing market. I’m sure no one has ever planned for such a tax hike of $2000 to $5000. Without the patch, the AMT exemption was going to fall from last year of $62550 to $45000. Insignificant change, but meaningful dollars. Now that it appears that the tax bill would be passing, the AMT exemption would increase to $66250 instead.

    Because of realized capital gains this year, I’m earning ZERO income for my last 5 biweekly paychecks for the remaining year, so that I can pay extra federal and state taxes for the realized capital gains. If I need to pay AMT taxes, it would put my long term capital gain at about 20% federal bracket, instead of normal 15% for long term gain. Of course, the california tax of 9.3% is on top of everything. Effectively I must pay about 25% on my capital gain tax, even when I don’t need to pay AMT tax.

    Anyway, tax & inflation. That’s the game that we have to play as defense versus government.

    Posted in Tax | 5 Comments »

    Help in Finding a Good Charity

    Posted by Frugal on 29th October 2007

    This year I still have about $2000 left for my charity giving budget. But I haven’t found a good charity to donate to. I only have about one month left to do it, because I will be traveling internationally to visit my parents at the end of the year.

    The biggest problem that I have with charities is that their CEO is paid way too much. Many are paid north of $150K up to $200K. Some are even paid more than $300K to $500K. Charity Navigator did a study on 2007 CEO compensation study for charities. The average salary is $145,270. The charity may say whatever they want, but the fact is non-profit also means no-profit. A CEO (or superintendent for a school district) for non-profit organizations is after all very different from a for-profit organization. There is no gross margin or pricing issues for products. The only effect from a better paid CEO and/or less efficiently organization is that the target that they serve ends up with less money. Taking money out of what poor people would receive is much easier than taking money out from a competitive and capitalistic marketplace of products.

    I’m sure the salary is justified for some of the CEO, but I don’t have time to sift through all the details. Furthermore, when I need to justify for why I’m not spending my $2000 on my wife for jewelries or on my kids for more fancy toys, I must really spend my charity money for a VERY GOOD purpose. Every year, I easily donate more cash to charity than my total spending on jewelries for my wife and toys for my kids. But my wife understands that charity donation is spent for good purposes. Departing from your own cash is difficult certainly, but it is just part of the process needed to learn the truth about how every human being is part of the God’s family.

    If you can know a charity that is involved with children and/or hunger (the causes that my wife and I are most interested in), and that 95% of the money goes to non-admin and non-advertisement activities, and the CEO’s salary is about $100K or less, please let me know. I would really appreciate it. Many thanks.

    Posted in Estate & gift, Miscellany | 33 Comments »

    I am owed with an uncollectable $4500

    Posted by Frugal on 31st July 2007

    Any good ideas on how to collect an uncollectable personal debt?

    I loaned $5000 to my friend back in 2001. It was meant to get him temporarily thru a job loss. So I never asked for any interest on my loan. Maybe he had a series of bad luck, or something. He found another job, and then got laid off again. It was during those high-tech recession. Later he managed to pay me back $500, which obviously wouldn’t cover any interest money that I would have lost. In any case, I counted it towards the principal.

    As months and then years gone by, he is still unable to pay me back, and ran up his credit card debts. In fact, his credit scores were so poor that he couldn’t get any more credits nor even open a new bank account. Throughout these years, as a good friend to him, I have always being lenient to him by not giving him any pressure at all in repaying me. I only reminded him twice probably in 6 years that he should have a repayment plan. I also made it clear to him that requiring him to come up with a plan is really meant to get him in some financial order, rather than repaying me. Without a plan, an undisciplined person can’t go anywhere.

    Then I sort of given up on him ever repaying me back. I simply asked him to help me document a personal loan loss with his social security number, plus signing/back-dating this loan document. This way I can properly deduct a long-term capital loss on my Schedule D, which would be allowed for this category, if such loan were not interest-free, and not meant to be a personal gift. I told him that he doesn’t need to pay me back, and that the worst consequence financially to him would be that he would have a personal and taxable gain of $4500, on which he most likely doesn’t need to pay any taxes (since it appeared that he didn’t have income that was taxable).

    Throughout the entire process, I have never felt upset by him, but rather felt very sorry for him about his financial state. What was very unfortunate for him as a person was that he didn’t help me at all on documenting this. Rather, several months later, he simply disappeared. His phone number nor his address worked.

    What a friend that I had! Despite this, I would still treat him as a friend if I see him again.

    Of course, this unpaid loan hasn’t made my wife happy at all. Especially when my friend was buying the latest notebook computer, while I still had desktop, and that he has been using cell phones for years, when I had none. But given a choice of consuming my way to bankruptcy or saving my way to great wealth, I will always choose the latter option.

    Posted in Debt/Frugality, Tax | 12 Comments »