Monday, October 25, 2010

(Updated) Omnibus Obama Tax Avoidance Tips Collection--Just in Time for 2011Tax Planning

UPDATE: Don't vote Obama in for another term--he's not finished with his "social justice" agenda yet.

• Don’t smoke—the new increase in cigarette tax is going to make it onerous, and the cigarette tax avoidance is going to throw SCHIP into jeopardy. It never should’ve been funded through an easily-avoidable vice tax.

• Don’t make an adjusted gross income over $125,000 for singles, or $250,000 for couples--you'll be considered "rich" and be hounded for more taxes.

• To avoid AMT, don’t make over $75,000 adjusted gross income.

• Donate taxable “things” to charity rather than money when the costs to own it (purchase, maintenance, taxes, insurance, etc.) exceed 28% of the value (such as vehicles, stocks, jewelry, homes, etc.).

• Don’t own anything that stands a good chance of experiencing rising taxes on it—homes, cars and computers (through real or personal property tax), etc.

• Avoid the proposed health insurance tax by switching to an HSA, FSA, or just paying cash. Look for “flat-fee” doctors, and pay them annual lump-sum payments.

UPDATE: Since HR 3200 has passed, there's a calculator to help you determine if buying insurance or paying the penalty instead would be cheaper.

UPDATE: HSAs are still legal, even with the new health care law, and they provide one very important benefit: tax sheltering. There's no limit to how much you can contribute, and the balance rolls over every year, so you don't lose money--you just have to spend it on "qualified health care expenses", and this may come in handy as a Medicare workaround.

UPDATE: Eat a healthy, fruit-and-veggie rich diet so as not to have to choose between food and medicine—make food your medicine, and grow it at home to avoid running up against sales taxes. You may end up running afoul of the new Food Safety Act, which covers "any facility that produces, processes, and/or packages and distributes food"--this may end up including your kitchen and garden.

• Create more Obama-increased tax deductions—so far, it’s anything having to do with kids (through the Earned Income Credit and other deductions/credits).

• If the proposed “universal savings” plan becomes law, move IRA/401k money to Roth accounts, then move to tax-advantaged funds or indexes, or triple tax-free zero coupon bonds or municipal bonds—this avoids the possible confiscation and taxation of our retirement money. So far, there has been no talk of attacking the Roth accounts, and if the tax-free status of regular IRAs is restored, all you have to do is recharacterize what money you have in the Roth—it doesn’t cost anything, whereas converting the traditional IRA to a Roth WILL incur taxes, but it will undoubtedly be cheaper than the fines or taxation on the total amount. We still have a year for this planned savings nationalization, so you can still move money before a large tax increase takes effect.

• Avoid rising sales taxes and costs of food by growing your own as much as possible.

• Avoid rising gas prices, gas taxes, personal property taxes, insurance, maintenance costs, and registration fees by not owning a car.

• Avoid rising energy/utility costs and taxes by minimizing use of water, electricity, and gas unless you have independent sources (off-grid). Strive to get independent sources or re-use grid sources (like gray water) for more than one thing—like watering the garden.

• Avoid sales taxes by buying second-hand through non-retail places (garage sales, yard sales, and rummage sales). Swap/barter if possible.

UPDATE: Also use this to avoid the coming VAT tax. VAT only applies to NEW items, not used ones, so buy second-hand to avoid this too.

• Avoid taking more pay in a taxable form (wages, tips, and salaries)—instead, ask to get it in the form of perks, which are tax free (for now).

• Move money into whole life insurance policies for tax protection, and then cash out later for tax-free proceeds—this is how wealthy people move money to their heirs without running afoul of the estate tax.

• Change your type of income from active (wages, tips, salaries) to passive (dividends, rents, royalties, capital gains) to lower your tax burden if needed.

UPDATE: As of this writing (4/11/10), Obama's looking at taxing UNEARNED and PASSIVE income as regular income, but it isn't law yet--stay tuned for this change. If I hear anything, I will be the first to post it.

UPDATE: For 2011, there is a new investor tax law that aims to squelch basis-loss from sales of FIFO, LIFO, or HIFO investments. Always sell the LIFO investments to keep taxes to a minimum, and donate or will the others, but DO NOT SELL! IF THEY ARE STILL IN YOUR NAME BY THE TIME THEY are SOLD, THEN you INCUR THE TAXES. It's best to donate to charity or leave in your will those investments which have the highest gain from basis cost to current cost. Be assured this law will be repealed in 2012 when we get a new president.

• Look into the requirements for local public assistance programs—I know this may seem contradictory, but most of them only have eligibility based on active income and not assets. Lower your (taxable) active income if necessary to match the requirements. YOU paid into the system, so get some of it back! Look at it as Obama paying you for a change.

• Find ways around incurring a tax through alternate means (such as bikes for transportation, or cargo containers/storage units for homes), or combine items to consolidate taxes (such as RVs or vans for homes—both transportation and home. Mobile homes used to fit this bill because they were considered a vehicle if the wheels and license plates were still on them, but have now become “homes” and subject to property tax where they haven’t been banned outright).

Use your imagination and whatever limits and loopholes the law and tax systems allow—judging by the latest CBO deficit estimates, you’ll be living like this a long time, so you may as well get comfortable. Don’t be surprised if groups of people pool their money together and buy farms or multi-family dwellings outright, effectively setting up small communes—only the farmers did well in the last Depression. The group can always agree to sell when the recovery permits, or some members can offer to buy out others who wish to leave.

This list will update as more information becomes available.


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