What does that mean for your taxes? Will they try and roll back the 2017 Federal Tax cuts by decoupling from the Federal Income tax? Or will they simply raise rates on sales, income and gasoline taxes? Budget desires include increased Medicaid funding, infrastructure, and schools. Because the Virginia Constitution requires a balanced budget, the only solution will be to raise taxes. There are really no other states to flee to from Virginia if you work here. Perhaps Tennessee and Kentucky. West Virginia, Maryland and DC all have higher tax rates than Virginia. Retirees may start spending 184 days in Florida. And for high wage earners most of these tax increases will not be deductible on your Federal income taxes. So, if you live in Virginia be prepared.
Asset Forfeitures and Balancing the Budget
One little known source of revenue to the Federal Government is the ability to forfeit assets used in a crime. Let’s take the current defendant du jour, Jeffrey Epstein, a billionaire, who has been accused of sex trafficking and sexual abuse of minors. He allegedly used his plane to transport underaged women to various properties owned by her for illicit purposes. On that basis, if proven, the plane and the properties where these young women were taken could be forfeited. There are allegations that he paid people not to testify against him, that would open up his vast portfolio for potential forfeiture, if proven. In other words, a billionaire, may lose everything to asset forfeiture. In truth his fortune pays about 3 minutes of interest of U.S. Government debt, but if a few more billionaires are snagged, you could start to get some real money.
Mandatory Disclosure of Tax Return information
Congress is seeking a copy of the President’s Tax returns. What is the possibility that they could seek yours as well. The answer is the right is very limited. The right to tax return information is spelled out in Section 6103 of the Internal Revenue Code. Congress does not have a blanket right to an individual’s return information. Only certain committees have that right, and it can only be shared in a Closed Executive Session Meeting of that Committee. Sec. 6103(f). That means that only members of that Committee can be present and see the returns.
So what happens if someone does leak a person’s tax information. If its willful, they face a $5,000 fine and up to Five years in prison. If its accidental its a $1,000 fine and up to one year in prison. Sec. 7213 and 7213A. And if that person works for the United States (query do Congressmen or their staffs work for the United States), they are to be immediately terminated. Cases construing 18 U.S.C. Sec. 597 refers to election of Federal Officers as members of Congress. Thus, it would appear that any Congressman who leaks return information upon conviction would no longer be allowed to serve in office. So, there are protections which include some pretty stiff consequences.
Merry Christmas you filthy animal
We have a triple whammy as we enter the new year. New tax rules with more limited itemized deductions, a Government shutdown, and rising interest rates. Historically, when rates rise real estate prices go down or stagnate, when the Tax Act of 1986 was passed and took full effect with the loss of subsidies for investment in real estate, real estate prices plummeted. This could get ugly. The moral is this. If you want to buy real estate, it might be a good time to wait for prices to drop a little (especially if we have a drawn out government shutdown in the DC area). This of course has to be balanced with the risk that interest rates may rise further. So, be careful out there. Oh, and have a Merry Christmas and remember to celebrate Christ’s birth as the reason for the season.
Go Fund Me and the Tax Grinch
In this Holiday Season, I’ve been seeing lots of requests to give through GoFundMe. Whenever money changes hands the Government is not far behind seeking its cut. So, let’s tax example. Missy needs a new liver and the surgery will cost $500,000. She has no insurance and asks her friends to help through a GoFundMe site. She has some very generous friends and receives $200,000. So, how does the IRS view this largess.
Is it a tax deductible gift? No. Its akin to passing the hat at the funeral.
Is it subject to gift tax? If the amount given is in excess of $14,400, then it you have to file a gift tax return not that you would owe any such taxes.
Is it subject to income taxes? That’s the tricky part. The amounts given were probably gifts given out of generosity or out of love and affection. But, in some cases the IRS has taken the position that it is income. A couple of things you has to be wary of.
First, I would not recommend deducting medical expenses on your tax return if they were financed out of a GoFundMe account. That’s double dipping.
Second, if the GoFundMe money is not used for a deductible purpose, it might be income. If it is used for lawyer’s fees or rent or it in essence replaces a lost wage because you lost your job or to fund a project from which you will use funds to live on, then perhaps its income.
One other question, is who set up the GoFundMe page in the first place? If it was the recipient, then the Service may take the position that it was income and not only income but earned income subject to self-employment taxes. For example long term disability payments are considered earned income. If they were used for medical, report the receipt and then deduct the medical, that way, you avoid the potential of being audited later.
Hopefully, the IRS will clarify the rules on this. The mantra is be careful.