An article in Forbes online suggests that reduction in the percentage of Adjusted Gross Income, for medical expenses to be deductible, should be reason for many taxpayers to keep better records going forward. Read more about the deductible Medical expenses and income taxes here.
If I’ve got any authority in Hays, Mrs. Lake isn’t going to pay this town a cent of license for showing, and if any man attempts to stop this show, then just put it down that he’s got me to fight.Wild Bill Hickok, http://www.brainyquote.com
Some may wonder which came first, shaping stones and bone into spearpoints and arrowheads, or the village council that decided Mog and Og needed approval, licenses and regular inspections of their enterprise.
Eight thousand years later, an enterprising small business person who ventures into performing a service or providing a product, is supporting a community. She has not just her own family’s living to support, but an entire “industry” of bureaucrats, at the local, state and federal levels of Government. And in California particularly, as a businessperson, earning a living that minimizes the costly regulations that have environment, employment practices, taxes, fees and so forth, driving small businesses under.
Deciding to start one’s own enterprise, in California, and certainly elsewhere, requires a great deal of capital up front, a niche market, and establishing quickly an efficient organization. Mentors, business seminars and other resources can provide training and encouragement, but skilled and dedicated owners and employees find, serve and retain clients. Many, like myself, who have decades of employee experience, soon realize the challenge of one’s own business to balance investment, expenses, and fees against recurring income to make a decent return in the first and succeeding years. It takes planning, and frequent tweaking of the business model. The bureaucracy is another thing entirely.
After filing the regulatory paperwork with the State, including forming a Limited Liability Company, we loaned the business personal funds for the contractual and mandated types of insurances, paying filing fees, and notarizing documents, setting up business banking, bookkeeping, and a Google GSuite of Cloud-based calendar, business email and document storage. Since we were still working for our respective employers, tax considerations of incorporation or forming and LLC were and remain an important issue. Prior to earning a cent, our Liabilities were looking to be a very big motivator to getting our business moving forward.
As a residence-based service business, our enterprise does not operate in an office building, nor manufacture products, nor maintain an inventory. Operating out of a residence located in an unincorporated area, I learned that reporting the actual physical location – separate from the mailing address – in business organization documents would mitigate municipal taxes, inspections and other recurring fees. (The mailing address bears the nearby municipality name.)
But there are other concerns as well. Operating a business, even one that travels to a customer site as our business does, is required to file for a business license. The “gray area” that no municipal clerk whose job it is issuing business licenses and collecting fees, would likely err on the side of the entrepreneur – is whether a license to do business in every municipality that one performs a service – is required. Of course, every municipality’s City Hall will state categorically that a license is required by a business according to a list of industry types. Some types require fees and inspections from safety professionals, zoning and building code enforcement officials. Business coaches I have spoken with, concur that paying fees willy-nilly can quickly eat away an enterprise’s bottom line. While membership in associations that help small entrepreneurs may be a necessary expense, I am considering that expertise gained in those associations may help steer a small business toward profitability.
At least, one of my prospective clients is a State agency, so there is an opportunity, however slight, that money coming out of my pocket, might eventually trickle somewhat back to me. And while I might appreciate a Wild Bill Hickok helping me fight City Hall, I think even he might be outgunned, particularly if he has not paid the required 2019 firearm licensing and entertainment business fees.
There are two certainties in life: Death and taxes. And a third, “if it sounds too good to be true, it isn’t true”. But there is also another truth. Politicians, bureaucrats and their backers (the news media, bankers, billionaire investors, or celebrities), all stir up chaos for their opponents, whip up groups of like-minded people by pretending to care for them, and make all sorts of speeches promising better times ahead.
Will Rogers, via Brainyquote.com
The only difference between death and taxes is that death doesn’t get worse every time Congress meets.
While people my age have heard all this nonsense before and are less inclined to go along, the palaver is not meant for my age group. Psychological journals, in various published studies, revel in the obvious. Young adults between 18 – 27, are more idealistic, much less structured in goals, exhibit more fluid work ethic, and are more motivated by income “fairness” and other talking points they read on social media. By the time men and women reach their Thirties, with stable jobs, goals, and families, these issues, rhetoric, and ‘social-justice’ activism become much less an influence. But the common talking points in social media and in politics today is how unfairly wealth is distributed. As a child, I was raised that hard work, skilled effort, ethics and morals would, over time elevate my station and economic success. There was plenty of room for anyone to become wealthy and provide for their families without blaming and taking from others. What changed?
Paying their “fair” share?
In 2019, I fear that people who have contributed to the economic well-being of the country for the least amount of time or produced the least amount of economic goods and services are being made fools of, by the wealthiest, least added-value members of society: politicians and bureaucrats funded by taxpayers. It is not that young people are in any way less important or less credible in their contributions and feelings, but forty percent of the Congress is far wealthier than those they represent. While every taxpayer in the United States can voluntarily contribute more to fund the Government, donate to charities for causes they feel strongly, and volunteer to aid those they feel are under-served, are there any who voluntarily give more than they are legally required? But most demand that Government support causes and constituents that are better served through local donations. And despite all the rhetoric we hear, does any public servant reside in public housing, use public transportation, or donate salaries and perks to the underprivileged?
Many, like one of my old college buddies, are worked up frequently about the lack of fairness and greed exhibited by members of a certain American political party, though there is plenty of blame to go around. Tonight, I am more worked up by my miscalculation on our annual income tax returns for Federal and State. We owe a large amount of income taxes due to the change in the approved deductions and income limits for other deductions. This is due to the “Trump Tax Cut” enacted in 2018. Researching the new tax policy, there are two ends of the economic spectrum that are benefiting, though the wealthiest Americans are benefiting far more.
Who benefits from the new tax plan?
With change in the standard deduction, doubling it to $24000 for those who file a joint return, many do not have to file complex returns. While there is some who think that increasing the “standard deduction” will reduce the incentive to make charitable contributions by lower middle-income workers, the tax policy really changes the taxes owed by the higher wage households- reducing the graduated scale of highest earning workers from 39 to 37 percent. And if those individuals are business owners, the rate may drop to 20 percent.
The people are hungry: It is because those in authority eat up too much in taxes.
For those caught in the “middle”, such as older taxpayers whose grown children are no longer family deductions, their seniority at work may elevate their incomes to higher tax brackets, and all the expenses of living and home ownership, there are disincentives to continuing to be an employee. But retirement also may come at a cost. Withdrawals from qualified retirement plans prior to age 59.5 incur income taxes and penalties. Some states like California tax retirement pensions, and with public service pensions largely unfunded, these states increase taxes to provide benefits and sacrifice the maintenance of infrastructure – roads, schools, and vital services.
Entrepreneurs and tax sense
Like many, I chose security of being an employee over most of my working life. But being a “worker” and not a “business owner” in 2019 has its tax disadvantages. Fair, ethical, and legal provisions used in the last twenty years have been significantly changed. While younger workers at lower wages and with young families may find some benefit from new tax provisions, others in the “Middle Class” are not as fortunate. Older, still working, married adults with now-adult children, who may still be providing for certain of their needs – no longer can claim them as deductions for tax purposes. Those fortunate to own homes in high property tax states, are limited in the amount they can claim federally- basically paying taxes a second time on the same income. Others, such as small business owners have complex tax rules to follow. The “Trump Tax Cut” seems to be flawed.
Some regulations should have come with bold print. With retirement savings such as employer 401K plans, IRAs and healthcare savings accounts available, these come with certain stipulations. Pre-tax income placed in flexible health spending accounts must be used within the calendar year or are lost; certain employer health plans can place pre-tax earnings in an account which can grow year after year, even into retirement, but must be used for medical expenses – or are taxed heavily. And for higher wage earners, traditional Individual Retirement Accounts, money invested for the purpose of reducing income taxes does not provide the immediate benefit sought.
The wealthiest Americans are fairing a lot better in 2019 than before. While true that the top 20 percent of all wage earners contribute the largest share of the revenue to fund the Government (50 percent of working Americans pay little income tax, while three percent contribute most of all), the overall taxes for those wealthiest Americans – many of whom are business owners – dropped significantly. I’m beginning to think that wealthy politicians are being disingenuous. They are not feeling nor acting in private like the outraged they claim to represent.
If people want to participate more fully in the “American Dream”, operating a successful business seems to be the vehicle to do so in 2019 and into the future. Except perhaps in California, or should the country decide to follow the anti-capitalist and anti-constitutional policies that have been voiced since the President’s election. A look at statistics indicates that the country is not in jeopardy of an economic crisis as some suggest. In the United States in 2017, the median family income was $61,000; in California, $81, 000, according to the US Census Bureau. While there are many who are at the extremes in California and elsewhere, there are many who have gained wealth and property through operating successful businesses.
Paying closer attention to income tax, balance sheets, and government policies that affect income is necessary. But that comes with age and the acquisition of property. All the rest is just politics.
righting a wrong
Of all the things that politicians do that gets people’s dander up, then-President Obama signed into law a bill that rights a wrong for combat-injured veterans. For more than a hundred-thirty thousand veterans whose combat injuries ended their careers, the government has ended taxing their severance pay. The veterans affected served from 1991 (Desert Storm) through the present.
The IRS bulletin :
The Combat-Injured Veterans Tax Fairness Act of 2016, enacted December 2016, allows certain veterans who received lump sum disability severance payments additional time to file a claim for credit or refund of an overpayment attributable to the disability severance payment. The law directed the Secretary of Defense to identify disability severance payments paid after January 17, 1991, that were included as taxable income on Form W-2, Wage and Tax Statement, but were later determined to be nontaxable and to provide notice of the amount of that payment. The Department of Defense is mailing letters to affected veterans (letters 6060-A and 6060-D) in July 2018.
What this means for some veterans
Veterans discharged from military service due to medical disability may receive a one-time lump sum severance payment. Disability severance pay is taxable income unless the pay results from a combat-related injury or the service member receives official notification from the Department of Veterans Affairs (VA) approving entitlement to disability compensation.
Anyone who received a disability severance payment that was taxed and determines later that the payment qualifies under one of the rules above can file a claim for credit or refund for the tax year in which the disability severance payment was made and was included as income on a tax return.
For veterans who received a lump sum disability severance payment after January 17, 1991, the Combat-Injured Veterans Tax Fairness Act of 2016 may provide additional time to claim a credit or refund for the overpayment attributable to the disability severance payment.
What you need to do
You must complete and file IRS Form 1040X, Amended U.S. Individual Income Tax Return, for the tax year the disability severance payment was made carefully following the instructions in the notice mailed by the Department of Defense in July 2018. You must mail the claim generally by the later of:
- 1 year from the date of the Department of Defense notice, or
- 3 years after the due date for filing the original return for the year the disability severance payment was made, or
- 2 years after tax was paid for the year the disability severance payment was made.
If you did not receive the notice from the Department of Defense and you received a disability severance payment after January 17, 1991, that you reported as taxable income, you can still file a claim as long as you attach the necessary documentation to your Form 1040X. You may contact the Defense Finance and Accounting Services to obtain your documentation for submission with the required Form 1040X. See the FAQs for additional information.
Text of the 2016 law:
Retirement pay, states of residence and taxes
Edited and sourced from military benefits :
I believe that we all should contribute what is fair to help our military and contribute to the efficient management of our nation. That said, we all know that taxation is out of control in many states, without regard to the military service retiree’s sacrifice during their career. This information should assist a veteran with decisions about where to spend retirement.
Compiled for 2018, a list of all 50 states that exempt (or don’t) all or a portion of military retirement pay. When and where you settle, after retirement, is up to you, but having some current information should help you with “Uncle’s” hand in your pocket.
- NO personal income tax: 9 states
- Full military retirement pay subject to tax: 8 states
- NO tax on military retirement pay: 20 states
- Partial tax on military retirement pay: 13
No state income tax ( no tax on retirement pay):
New Hampshire (dividend and interest taxes only)
Tennessee (dividend and interest taxes only)
8 States That Do Not exclude Military Retirement Pay from tax:
20 States Don’t Tax Military Retirement Pay:
West Virginia (as of 2018)
13 States With “Special Provisions” Or Other Consideration For Military Retirement Pay
Arizona – Military retirement pay may be excluded from state taxation up to $2,500.
Colorado – Depending on age, up to $24,000 of military retirement pay may be exempt from state taxes.
Delaware – Taxpayers up to the age of 60 may exclude up to $2,000 of military retirement pay, military retirees aged 60 or older exclude up to $12,500.
District of Colombia – Military retirement pay may be excluded from state taxation up to $3,000 for individuals 62 or older.
Georgia – has a provision for any retirement income including military retirement pay. Taxpayers who are 62 or older, or permanently and totally disabled regardless of age, may be eligible for a retirement income adjustment on their Georgia tax return. Up to $35,000 ages 62-64 and $65,000 for 65 and older.
Idaho – Retirement benefits to a retired member of the military 65 or older, or disabled and age 62 or older are excluded from state taxes. Such deductions must be reduced by retirement benefits paid under the Federal Social Security Act or the Tier 1 Federal Railroad Retirement Act. The total maximum deductions vary each year.
Indiana – Military retirees may deduct the lesser of actual retirement pay or $5,000, whichever is less. Certain conditions may apply.
Kentucky – All military retirement pay is exempt from state income tax for those who retired prior to 1997. For those who retired after 1997, military retirement pay is subject to state tax when the pay exceeds $41,110.
Maryland – Military retirees don’t pay state income taxes on the first $5,000 of their retirement income. Those over age 65, or who are totally disabled, or who have a spouse who is totally disabled, receive additional state income tax breaks which may vary from year to year.
Nebraska – Retirees must choose (within two years of the retirement date) a seven-year exemption option of 40% or a lifetime exemption option of 15% starting at age 67.
North Carolina – Military retirement pay may not be taxed at all if it meets certain requirements including if the veteran was “vested in the retirement system” for five years as of August 12, 1989. Otherwise, tax exemptions may be applicable up to $4,000 for single returns and $8,000 for joint returns.
Oklahoma – Military retirement pay is exempt either up to 75% or $10,000, whichever is greater, but cannot exceed federal adjusted gross income.
Oregon – Military retirees may qualify for a “federal pension subtraction”. Those considered “special-case” Oregon residents will have their military retirement pay taxed as regular income.
South Carolina – Military retirees with a minimum of 20 years of active duty may exempt up to $3,000 until age 65, after which an exemption of $10,000 applies.