Articles by Eli Pollock

Ten Myths about your Finances


money

I often hear “truths” about personal finance that just aren’t true. They are more like myths. Here are some:

Myth #1: The rich do not pay taxes. We have all heard this one. It seems that there are secret tax deductions that only the rich are aware of. They find out about them from their secret accountants, who are the only ones who have access to them. Perhaps these deductions are written up in a secret book called Protocols of the Elders of Accountants. If this myth is true, why don’t these special accountants ever advertise their services? Why doesn’t a Google search bring up these secrets?

The truth is that the rich pay a lot of taxes, possibly over 40% of their total income. So, the next time you hear this said, please ask to see a copy of the tax return and confirm for yourself that it is a myth.


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Tax Disasters


Every once in a while, I see someone in a tax pickle for which there is no solution. The “pickles” may differ, but there is one common denominator: Most of the time you did it to yourself. Naturally, it is extra painful when you realize that you have only yourself to blame for the mess. Here are some examples of situations that can happen when you least expect them.

The Earned Income Credit

This is a classic. The earned income credit is the great money giveaway. Essentially, if you are poor with children, you will get back extra money – lots extra. Let’s take the following case: Family A has three children and an income of $25,000. They will be handed a gift by the government: $10,445, to be exact. Yes, over $10,000 in free money! There is a catch, however: Your investment income (interest, dividends, and capital gains) must be under $3,400.


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Your Income Taxes 2016


taxes

The new tax season brings no earth-shattering tax law changes. The big news, of course, is the election of Donald Trump. His tax plan does call for modifications, anticipated for 2017. He certainly wants to reduce tax rates. Therefore, those with the ability to “income shift” should do so. That means arranging to earn less this year and more next year to take advantage of next year’s lower rates. If you are self-employed, for example, you could delay collecting money from your customers until January. You could also pay all outstanding expenses in 2016 that are not due until 2017, which will lower your profit this year. Since income taxes are only levied against profit, you will save. This strategy is for the wealthy, who are the ones really affected by this.


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Fair Share and Welfare


taxes

 There has been a lot of talk the past eight years about “income inequality,” a term which means that some people in our society have excessive amounts of money while others struggle to meet their needs. While that may be true, instead of thinking about creative ways to attack this complicated problem, the liberal left, Robin Hood-like, zeroes in on something called “income redistribution.” In other words, the solution is higher taxes on big earners and corporations in order to transfer that money to low income people via expanded welfare.

Many Americans receive such welfare in the form of food stamps, Medicaid, and Section 8 housing. Given this reality, the question I want to discuss here is, does it really pay to work for a living and shell out for taxes, or is it better to just live on the dole?


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The Amazing New World of Discounted Gift Cards


gift cards

Once upon a time, people gave gifts. For holidays, birthdays, and special occasions, your friends and family would buy you a necktie or transistor radio, a necklace or a crock-pot. The problem was that no one knew your taste in neckties or whether three crock-pots were already languishing in your cupboard. This situation resulted in many exchanged gifts. For the vendor, this meant a loss of profit, due to the manpower needed to handle the exchanges. Furthermore, the returned merchandise was often not in pristine condition or was poorly re-packaged, creating a product that could no longer be sold as grade-A. On December 26th, the stores had to deal with long return lines and lost profits.

One could always give a gift certificate, of course, which allowed the recipient to buy what he or she preferred. It was a good deal for the stores, as it meant no return on that transaction, no ruined merchandise or repackaging, and one more little goodie: slippage, from the word “slip,” as in “to fall by the side.” It refers to the fact that if the gift certificate was not redeemed, the store got free money!


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Bunching: A Tax-Saving Technique


taxes

Because I have written many articles in these pages about lowering one’s taxes, I am often asked this reasonable question: “I have only one job and an uncomplicated financial situation. Can’t I do my taxes myself using good old Turbo-Tax?”

Yes, you can, but even those with simple returns can save money by using a tax strategy called “bunching.” Imagine a single young woman who works as a nurse and earns $55,000 a year. She does not own a house and therefore cannot claim a deduction for a mortgage. Should she itemize her deductions or claim the “standard deduction”?

A little background: There are two kinds of tax deductions: “above the line” and “below the line.” This line has a name; it is called “adjusted gross income.” The deductions above the AGI are allowed so long as you paid them. The most common of these is putting money in pensions and IRAs.


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