The Harvard Business Review recently published an article outlining an interesting strategy which should make negotiations more civil, speedy and fair.
It works like this. If the other side’s position is unreasonable, one’s initial reaction is often to be just as unreasonable, believing that the issue will be resolved somewhere in the middle, and thus be reasonable. This may ultimately be the result but often only after investing a lot of time and money to get there. It stands to reason that if the parties come to a negotiation with realistic starting positions, the negotiations that follow should be relatively civil, speedy and fair.
But how can a negotiator who wants to be fair at the outset be sure that his or her counterpart will do the same? This is where the “final-offer arbitration challenge” can help to reach fair agreements efficiently. It works like this: To encourage reasonableness, one side should make their offer demonstrably fair from the outset. Then, if the other side is unreasonable, they should be challenged to take the offers to an arbitrator who must not compromise, but must choose one or the other offer. This approach should result in offers that are more aligned from the beginning. Thus it is to everyone’s benefit if the parties come to the negotiations with reasonable offers in hand.
This is not unlike the way thoughtful parents have resolved disputes between two siblings. Have one cut the last piece of cake in half, and have the other choose first.
According to a recent article in the Journal of Accountancy, passwords continue to be a major security risk. SplashData’s report compiling millions of leaked passwords has found that since 2011 the most frequently used passwords are “123456” and “password”. In addition to using weak passwords people often use the same one for everything. This obviously puts other systems one uses at risk. Further, audits of IT systems security find passwords written down in all sorts of places and unsecured password documents stored in employee computers and mobile devices.
Managing a lot of different passwords can be a daunting task. Some advisors suggest you may want to consider a password manager that securely stores your passwords for various sites. This way you only need to remember only the STRONG password you create to access the password manager. Just search online and you will find several options.
One CPA has devised a standard approach to organizing all his passwords. He starts with his first old ten-digit phone number, followed by the name of the account (i.e. Delta, Amazon, etc.) and ending with a four-digit personal identification number (PIN). This results in a strong password and you only have to remember the PIN.
With a little creativity, one could create a similar organized system to manage what for many has become an overwhelming challenge.
Now is the time to think about year-end tax planning strategies. While no significant change in tax rates is expected for 2016, there are still year-shifting maneuvers that could be employed if you expect to be in either a higher or lower tax bracket for 2016.
For instance, if you anticipate being in a lower tax bracket next year, you should consider delaying sale of assets producing gains, deferring any year-end bonuses and pushing out collection of outstanding accounts receivable. At the same time you should look at accelerating deductions into the current year by prepaying property taxes or January’s mortgage. You might also try to bunch medical and dental expenses into the current year if you expect them to exceed the adjusted gross income floor limitation for both years. Moving future charitable contributions into the current year as well as converting stock losses by selling before year-end should be considered.
On the other hand, if you expect to be in a higher bracket in 2016, the above strategies should be employed in reverse. Accelerate those income items over which you have control into the current year while pushing out deductible expenses until next year.
Again this year, one must keep an eye on the impact of the net investment income tax, which applies if the taxpayer’s modified adjusted gross income (MAGI) exceeds threshold amounts. Those threshold amounts are $250,000 for married filing jointly (and surviving spouses), $125,000 for married filing separately, and $200,000 for all others. The tax is 3.8% on the lesser of net investment income or the amount by which your MAGI exceeds the threshold amounts. To mitigate the impact of this tax one might consider moving income producing investments into tax-exempt bonds, thus lowering MAGI. Since the investment income tax applies to income from passive activities, you should explore whether any steps could be taken to reclassify such income as non-passive.
And, as always, you should make the maximum contributions allowable to retirement plans, especially if your employer makes a matching contribution.
In a study done last year, the nonpartisan Congressional Budget Office disclosed that the total amount of federal debt held by the public equaled 74% of the gross domestic product. While it represents one of the highest levels in history, the CBO projects that, if the current laws remain unchanged, the publicly-held federal debt would exceed 100% of GDP by 2039. The CBO says “Beyond the next 25 years, the pressures caused by rising budget deficits and debt would become even greater unless laws governing taxes and spending were changed.”
While the CBO projects the federal debt held by the public will decline slightly over the next few years, the picture gets darker after that. The CBO reports the rising debt levels and growing budget deficits result from increased spending for Social Security and health care entitlements. They say, “Barring changes to current law, that additional spending would contribute to larger budget deficits toward the end of the 10-year period that runs from 2015 to 2024, causing federal debt, which is already quite large relative to the size of the economy, to swell even more.”
To curb this path of unsustainability, the CBO suggests significant changes to tax and spending policies, such as “reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under current law, or adopting some combination of those approaches”.
Senator Rob Portman, R-Ohio said “when it comes to the real fiscal problems we face, when it comes to the mandatory spending that is driving our country towards bankruptcy and threatening to undermine programs like Social Security, Medicare, and Medicaid – on which millions of Americans rely – we have done nothing. Today’s report is another reminder that we cannot continue to kick the can down the road. We need reform, and we need it now.”
House Representative Steny H. Hoyer, D-Md. tells us that the CBO study “ought to be a stark reminder that Congress must work together to promote fiscal sustainability over the long term. If we fail to do so” he says “the result will be fewer opportunities for American families.”
Pending federal legislation allowing states to tax internet sales could potentially means big changes for retailers in the way they process and account for their sales and use taxes. Of course, the International Council of Shopping Centers states “this bill signals that leveling the playing field for all retailers is a top priority for Congress this year”.
The Internal Revenue Service’s Criminal Investigation Division is cutting the number of investigators to the lowest level in forty years. This division investigates all sorts of financial crimes involving such activities as tax fraud, money laundering, identity theft, narcotics and counter-terrorism.
The number of special agents employed by the agency at its peak in 1995 totaled 3,358. As a result of budget pressures, the number is expected to drop to 2,130 by 2016. IRS Commissioner John Koskinen says the lack of resources means fewer investigations are being initiated.
Last year the IRS budget was cut by about $ 600 million as a result of sequester when Congress failed to reach agreement on the budget. Most other federal agencies saw their budgets returned to pre-sequester levels, but not the IRS.
Koskinen estimates the IRS, through criminal investigations, as well as audits, collection and other efforts, brings about $ 50 billion to $ 60 billion a year into the federal coffers. This translates to 5 to 6 times the IRS annual budget of about $ 11 billion. Last month the U.S. House of Representatives voted to cut the IRS enforcement budget for 2015 by over $ 1 billion. Koskinen estimates this latest cut will reduce revenues by $ 3 billion to $ 5 billion.
It seems to me we are stepping over dollars to pick up pennies
It’s a little scary to contemplate that Social Security trust funds are projected to be exhausted in the not-too-distant future. But that is the subject recently studied in a 2013 report from the Congressional Research Services (CRS).
If the trust funds cannot pay current expenses out of current income or accumulated assets, they are considered to be exhausted or insolvent, and that means the Social Security trusts funds cannot pay full current benefits on time. The report projects that without change, the trust funds will be insolvent by 2033. And that same year the program is projected to have enough income to pay only about 77% of scheduled benefits. The law provides that any individual who meets the eligibility requirement is entitled to benefits, which means the government is legally obligated to pay benefits to such individuals. If the government fails to pay the benefits provided by law, beneficiaries could take legal action. Insolvency does not relieve the government of its obligation to provide benefits.
The CRS study puts forth various scenarios that might take place in the future regarding Social Security benefit payments. If Congress has the will to act sooner rather than later, the less draconian the required changes necessary to maintain full benefit payments will be. The affect of earlier changes would be spread over a large number of workers and beneficiaries over a longer period of time. And prompt action would also allow Congress to more gradually phase in the necessary changes, rather than waiting until 2033 and abruptly cutting benefits and/or raising taxes. Early action would also make it easier for workers to plan for their retirements.
If Congress waits until 2033 the trust funds’ annual deficit could be eliminated with a cut in benefits of about 23%, rising to 27% by 2087. If Congress acts today, the necessary changes would be about half as large as those needed if Congress waits until the trust funds become insolvent.
Scary, yes. But we should hope for the changes to be made sooner than later.
As you may be aware, for the last few years the Internal Revenue Service has been strongly urging taxpayers to file their income tax returns electronically. Tax return preparers have been required to IRS e-file individual income tax returns since 2012, with certain allowable exceptions. One of those exceptions is that the taxpayer can opt-out of e-filing and choose to file on paper. Although you may have a reason for not wanting to e-file, for the 122 million taxpayers who did e-file last year there are actually several good reasons for doing so.
E-file is actually the best way to file an accurate and complete return since tax software is designed to do the math and help you avoid mistakes. E-filing means the IRS does not have to re-type your tax return at their service center, which means less chance that the IRS will make a mistake when processing your return. When e-filing you will receive a confirmation that the IRS has received your tax return. This is proof that the IRS received your tax return and has started processing it. E-file also meets strict security guidelines and uses the best encryption technology. Since the start of the e-file program, the IRS has safety and securely processed more than 1.2 billion e-file individual tax returns.
If you would like to receive your refund earlier, e-filing is definitely the way to go. Because there is nothing to mail and your return is less likely to contain errors, e-filed returns have a shorter turnaround time. Most IRS refunds were issued in less than 21 days. An even faster way to get your refund is to combine e-filing with direct deposit into your bank account.
With the e-file program you have several different payment options available. If you owe taxes, you can e-file and set an automatic payment date on or before the April 15th due date. You can pay by check, money order, debit card or credit card. You can also transfer funds electronically from your bank account.
E-file is easy. You can e-file your federal return through IRS Free File at IRS.gov. You can also use commercially available software or simply ask your tax preparer to e-file your return.
Try it. You’ll like it.
Theft of personal information, such as social security numbers, to commit fraud on tax returns, to claim refunds or credits to which a taxpayer is not entitled to or commit other financial crimes is on the rise. Using this information, thieves often file fraudulent returns early during the filing season to avoid information matching. So you should have a pretty good indication that you are a victim of identity theft if you receive a notice from the IRS stating that more than one tax return has been filed using your information or wages are shown from an employer that you have not worked for. For the 2011 tax filing season, it has been estimated that identity theft related fraud was involved in the filing of 1.5 million tax returns representing $5.2 million. If you are a target, it can take months to clear your name, during which time a legitimate refund you should have received is withheld.
Typical methods used to gain access to your personal information include email or telephone phishing or dumpster diving. Some taxpayers receive phony IRS emails telling them they have a refund pending or are under investigation. The IRS does not send unsolicited tax-account related emails requesting personal and financial information. If you receive a suspicious email from the IRS report it by calling the IRS at 800-829-1040 or forwarding the email to phishing@IRS.gov.
The following are some of the preventative techniques one can employ to avoid identity theft:
• Arrange for masked social security numbers (SSN) where possible, e.g. on insurance cards.
• Resist giving your SSN or other personal information to businesses just because they ask for it.
• Protect your computer by using firewalls and anti-spam or anti-virus software. Regularly change passwords for internet accounts with sensitive information.
Remember – an ounce of prevention is worth a pound of cure.
In order to have your “hobby” considered a business, you must be pursuing the activity with the intent of making a profit. If this is not the case, the activity will be subject to the IRS hobby loss rules, which provide that such losses are generally deductible only to the extent of income produced by the activity. Furthermore, hobby expenses (only to the extent of hobby income) are deductible as a miscellaneous itemized deduction and are subject to the two-percent-of-adjusted-gross-income floor.
Referencing a recent article in The Tax Adviser, the determination of whether or not your hobby can be classified as a business involves a number of considerations.
But to end on a positive note, an activity is generally presumed NOT to be a hobby if net profits result in any three of five consecutive tax years ending with the tax year in question.