What does falling gas prices mean for the average taxpayer like you and me?
Currently the Federal tax is 18 cents and Missouri charges an additional 17.7 cents for a combined 35.7 cents. Now that is a percentage, like sales-tax when we purchase groceries. Now that means we pay a 35% sales tax on gas between the state and federal layers of government.
Sure, gas-taxes have not been raised in 20 years. Does that mean we should raise them now? Why should we raise the gas-tax?
The original tax was to pay for highway spending. Drivers were charged per gallon of gas purchased. Yes, it is a sales-tax, use-tax, like much of the purposed carbon-tax. Or should we change the purpose of the gas-tax to a carbon-emissions tax?
In prior blogs, I described how tax-dynamics work over time. Individuals and businesses find ways to pay less tax. The American tax-payer now pays less gas-tax by driving fuel efficient cars. Hybrid cars and electric are more common. Some corporations have converted their vehicles from gasoline to natural gas. Some public transit systems use bio-diesel.
And how should the tax-payer react when gas prices rise, if we do raise taxes? Well, of course, the tax-payer would pay more at the pump for gas. Then when gas goes up he pays again. Yes, the tax-payer would get bitten twice. He would pay for the additional gas-taxes and then pay the higher price to purchase the gas.
Politicians are wrangling with this issue and how to fund the government with your money. Till then, we will continue to buy gas, work, and provide for our families while our elected officials “lead”.
Taxation, Dynamics, and Economic flow
People will do many things to keep more money in their pocket. Many clients hire an accountant to save them money. Why? The cost-benefit of accountant-expense out-weighs the dollars of additional taxes paid.
Many states have raised taxes on tobacco, alcohol and recently soda in Berkley, CA. Those taxes were suppose to raise additional revenue, but many times fall short. Why would that be? Those projections many times are based on one-year forecasts. Those sales-tax projections do not account for market conditions, revenue shifting, and competition. Illinois did this and lost much revenue. Many of my friends buy gas in Missouri, but live in Illinois. The price difference is worth the drive to purchase gas, tobacco, and alcohol.
Many other examples exist. Macy’s has great products and customer-service. But is the Wal-Mart merchandise a good substitute? It is a discussion that would have a wide-range of opinions.
Price conscious people will find alternatives. The same applies with corporations,as they report to the street every quarter.
When the economy changed in 2008, Americans changed their buying habits. With less money, people purchased alternatives. Business innovated ways to save money. Waste Management and Laclede Gas now run their fleet of trucks and cars now on natural gas.
Living economics has an article about comparable products in a fluid environment. Products ‘A’ and ’B’ are similar. The demand will be the same if the price is the same. If we increase tax on ‘A’, people will purchase more of ‘B’. People may say that is only theory. The real-life application is purchasing gas. Do we shop around for the gas-prices? There’s an app for that available on your smart-phone.
Taxes are the same way. Many times, the tobacco taxes were raised enough that smoking habits changed. These price increases discouraged non-smokers from starting. The sharp-increases in price has forced smokers to quit, reduce consumption, or find alternatives. Smokers may change brands. E-cigarettes are a good example of this in recent years. People pay taxes but will go down street and across town for a better price. Business will do the same.
So what can the tax-payer expect for this 2015 tax-season?
The usual W-2, 1099’s and the like can be expected. And a new form will arrive as well. The 1095-A or 1095-B is the Affordable Care Act (ACA) reporting of your healthcare coverage for the year. In simple terms it will show healthcare coverage, month by month, for each family member. The tax-payer has the responsibility to calculate the assessments.
Several tax credits and tax deductions are gone. The sales-tax paid and the educator deductions expired. The energy-credit ended. Tuition credit has not been renewed. And that just names a few of the expiring tax-credits.
So unless Congress and President Obama cooperate, you can expect fewer credits and smaller deductions which will result in a smaller refund.
On personal deductions, we have looked at unreimbursed expenses related to work and your car. But how about education expenses to keep your job?
Licenses and continuing education (CE) also apply to this as well. Many professions like accountants, lawyers, and financial planners have CE requirements for continued licensing. IT professionals have CE to stay current with the changing technology. Bonding and other employment requirements can be deducted here as well. Supplies, materials, tools, and personal protection gear can be deducted also. Either schedule ‘A’ or ‘C’ can be used. Now ‘A’ does have a two percent floor for those unreimbursed expenses and some other additional components. Schedule ‘C’ does not have that with the self-employment.
However with self-employment, additional taxes are to be paid. And Schedule ‘C’ has some additional components as well.
Again, ask your tax professionals for advice regarding your tax situation.
On personal deductions, we have looked at unreimbursed expenses related to work and your car.
But how about expenses to keep your job? Licenses and continuing education (CE) also apply to this as well. Many professions like accountants, lawyers, and financial planners have CE requirements for continued licensing. IT professionals have CE needs to stay current with the technology. Bonding and other employment requirements can be deducted here as well. Supplies, materials, tools, and personal protection gear (PPG) can be deducted also. PPG includes, gloves, safety shoes, dust mask, ear plugs, and the like.
Either Schedule ‘A’ or ‘C’ can be used. Now ‘A’ has a two percent floor for those unreimbursed expenses and other components. Schedule ‘C’ does not have that with self-employment. However, with self-employment, additional taxes are to be paid.
And schedule ‘C’ has some other components as well.
Again, ask your tax professional for advice regarding your tax situation
On the last posting of person deductions, we reviewed inheritances, financial gifts and required minimum distributions (RMD). Lets look at other deductions that may apply.
Does your boss have you drive to additional places? Do you make stops at additional laces besides the office to get your work done? Now commuting to your regular (fixed) work-location is not deductible, but the road-trips, pick-ups. deliveries, and other business side-trips are. Those miles are deductible as long as they are documented. They key-word is documented, somehow.
Do you have other unreimbursed expenses for work? Did you pay for recertification to keep yourself employed? State licenses and other state work-requirements fees can be deducted. Did you purchase tool and supplies for work. Personal protection gear likes gloves and safety shoes are deductible.
Did your employer only pay a portion of the reimbursement? The remaining portion can be deducted as well. Form 2106 has a place for that. The W-2 will list the employer portion.
For more tips and deductions please contact me at email@example.com or call at (636) 235-4397
Pub 463 Travel, Entertainment, Gift, and Car Expenses
So tax-season is now behind us. What is next? A dentist , when finishing a routine visit suggests the needed flossing and brushing, The same applies here. Are you keeping, soring, and organizing receipts? Have you planned for up-coming tax-events?
These are a few to look at. Child credits end at age 16. Most children come off after college is completed. The reduction of dependency and exemptions can have negative effects refunds. Financial gifts, inheritances, and required minimum distributions (RMD) may need to be planned for withholding enough tax. The dentist visit is painful when flossing and brushing have not been like they were supposed to be. Proper planning for both can reduce pain and heartburn.
What does a person need to do for the upcoming tax-season? First, start by sorting and categorizing expenses, mortgage statements, dividend statements, and interest statement, and self-employment figures. Your accountant may charge you for sorting and calculating a box full of receipts. Second, communicate with your tax-professional about changes in your income, business, and/or filing status that can affect the numbers of your return. Additionally, some credits and deductions will end this year. Those are the teacher’s $250 expense, mortgage insurance deduction, state sales-tax deduction, and the residential energy credit. So get ready for the tax-season to start.
So you moved and changed jobs. Are those things deductible? Why yes they are provided you meet the conditions. Yes, there is a time and distance test to meet first. Below is the distance test
Enter the number of miles from your old home to your new workplace
Enter the number of miles from your old home to your old workplace
Subtract line 2 from line 1. If zero or less, enter -0-
Is line 3 at least 50 miles?
□ Yes. You meet this test.
□ No. You do not meet this test. You cannot deduct your moving expenses.
Once those are met, then hotel, moving and storage costs can be deducted. See for form 3903 and pub 521. Members of the military may not have to meet those qualifications. That can be for change of duty-station.
The test for time related to amount of weeks worked during the year is 39 out of 52 weeks as a general rule. There are additional rules regarding self-employment, additional employers, and commuting area.
We will review those additional requirements at another time. And that is another reason to see your tax-professional.
What can you deduct under your individual taxes? Everyone knows about the mortgage interest. Additional ones are gambling losses, church tithe, state taxes, and non-reimbursed work expenses.
The mortgage interest can deducted by using schedule “A”. The bank is suppose to send a statement in the mail with this amount, the real-estate taxes paid and the mortgage insurance paid. These items also can be deducted. Sometimes, it may be better to take the home-office deduction (form 8829). That would be the case if an individual does not have enough deductions to itemize, but does have self-employment.
Gambling losses can be deducted up the amount of the winning, only if you itemize. But remember to keep a ledger or a diary to match up with the casino win/loss statement. And the losses cannot be carried forward to the next year.
Gifts to charities, church tithe, and mileage driven from volunteering can be deducted if you itemize. The donation receipts, tithe statements, and a mileage log tracking your giving-back to the community are the needed pieces here.
Unreimbursed expenses are tracked through Form 2106 which is either attached to schedule “A” to itemize or schedule “C” for self-employment. 50% of Meals, printing costs, vehicles costs, are added here. Or a person can take the mileage driven. Now individuals cannot deduct the mileage if they are going to the same place of employment every day. But mileage can be deducted for road-trips that are above the norm, where job-locations change, for employment interviews, and business trips.
But again, talk to your tax professional. Congress has been revising the tax-laws. Your tax-professional will have access to the latest changes in the deductions and credits.