Saturday, September 27, 2014

No Capital Gains Tax

Pretty much all my life I have been a scrimper, saver and investor. 

But now I am retired and have three school age children. You don't get there by accident. We've blogged on how during our working years we spent most of our "spare time" earning additional income. We've blogged from time to time about our investments and investing strategy. During our productive working lives, instead of buying fancy cars, frequenting snazzy joints, or taking luxuriant vacations, there were years when we saved 30 to 40 percent of our income. Those savings went straightaway into retirement and non-retirement brokerage accounts to be traded and invested, as the case may be. 

Now that we are retired things have changed. Our savings no longer come from income. We live day to day and month to month on our pension, supplemented by dividends paid out by stocks in our brokerage accounts. Our savings grow now only to the extent our investments grow. 

Occasionally we have major expenses that require dipping into those investments. We are not yet pulling money out of retirement accounts (we hope to avoid doing so until Uncle Sam requires such starting at age 70 and one-half). This means when selling stock and withdrawing the proceeds, we consider tax implications, if for no other reason than to make quarterly estimated tax payments timely to the IRS and state tax authorities.

During my working days we liquidated a large block of stock once to put on a major home addition, about doubling the size of our house. We also traded stocks and derivatives frequently during the days and months leading up to the 2008 financial meltdown, shorted stocks during the meltdown, and put money back in the stock market in the meltdown aftermath, beginning with its recovery in March 2009. These purchases and sales resulted in myriad taxable transactions, and substantial income tax liabilities, which we duly reported to the IRS and promptly paid.

While I won't let tax considerations prevent me from selling stocks to cash out before a market falls, or to fund the purchase of a rising star in a bull market, it is a bit different when I sell for financial need. When selling to fund household purchases I've historically tried to avoid selling big blocks of stocks with large capital gains, lest we incur a substantial tax liability from the sale of those highly appreciated securities. 

Last month I had to sell some stock, so I scoured our brokerage account records and tried to select for sale stocks that yielded the right amount of tax liability -- not too little but not too much.  

Then I thought, why the heck am I even thinking about this? Unless we win the lottery, when we do our 2014 taxes, once we take out the minimum standard deduction from our income and subtract our personal deductions, we will be down within the 15 percent ordinary income tax bracket, which means that all, or essentially all of our long term capital gains will be taxed at the resounding rate of 0 percent. That's right -- no tax, nada, nothing! Zero! 

The 0 percent capital gains tax rate compares to, and graduates up to a rate of 23.8 percent (including the Medicare surcharge) for taxpayers earning $407,750 per year per year or more (filing as an individual) to $457,600 per year or more (married, filing jointly).

Here is a description of how the no-tax system works,
You may owe 0% on your investment profits 
Despite the tax hikes included in the misnamed American Taxpayer Relief Act, long-term capital gains and qualified dividends earned in your taxable brokerage firm accounts are still taxed at 0% when they fall within the 10% and 15% federal rate brackets.
Many more people than you might think occupy these bottom two brackets. Remember: your bracket is determined by the amount of your taxable income, which equals adjusted gross income reduced by allowable personal and dependency exemptions and by the standard deduction amount (if you don’t itemize) or your total itemized deductions (if you do itemize).
IRS Form 1040, Schedule D, Capital Gains and Losses
  • Say you are a married joint filer with two dependent kids. You claim the standard deduction for 2014. You could have up to $102,000 of adjusted gross income (including long-term capital gains and dividends from securities) and still be within the 15% rate bracket. Your taxable income would be $73,800, which is the top of the 15% bracket for joint filers in 2014.
  • Say you use head of household filing status. You have two dependent kids and your claim the standard deduction for 2014. You could have up to $70,350 of adjusted gross income (including long-term capital gains and dividends) and still be within the 15% rate bracket. Your taxable income would be $49,400, which is the top of the 15% bracket for heads of households in 2014.
  • Say you have no kids and claim the standard deduction for 2014. You could have up to $47,050 of adjusted gross income (including long-term capital gains and dividends and still be within the 15% rate bracket. Your taxable income would be $36,900, which is the top of the 15% bracket for singles in 2014.
  • If you itemize deductions, your 2014 adjusted gross income (including long-term capital gains and dividends) could be even higher, and your taxable income would still be within the 15% rate bracket.
To be perfectly clear, if your total taxable income, including long-term capital gains and qualified dividends, is less than the top of the 15% rate bracket, you will owe the Feds nothing for all your capital gains and dividends. If part of your gains and dividends fall within the 15% bracket and part of them fall outside, you will only owe 15% of the part that falls outside — unless your income is so high that the 20% maximum rate kicks in.
Here are the story elements in tabular form.




The next time someone tells you the tax code burdens and discriminates against people on the bottom end, think about it. We are getting a free ride baby! 


Friday, September 26, 2014

DHS Gravy Train Splatters On Bozeman

It's pawned off as a "Rescue" vehicle, which is not what the Bozeman Police do.
When the federal government reaches around elected representatives of the local government, handing out favors and arming the local police for assaults, America, we have a problem. That's what has come down in here in Bozeman, Montana, population 38,695.
When Mayor Jeff Krauss logged onto Facebook on Friday night, he was surprised to learn the city owned a new armored rescue vehicle.“It was a vehicle we never discussed. No one told me we needed this,” Krauss said. “It raised a lot of questions for me.” The vehicle, a Lenco BearCat G3, was fully paid for by a grant through the Homeland Security Grant Program.

The Lenco BearCat®

Lenco trucks can be used in a variety of missions. The BearCat, our best selling truck, may be used as a S.W.A.T. or Military Counter Attack and Rescue Vehicle and is often used in hostile Urban Environments or as a Patrol/Reaction Vehicle on a Military Base. The BearCat, with its standard NIJ IV armor and 4WD system, can carry up to 10 people through varying terrain. The BearCat has been embraced by several DoD and DoE Security Forces and, because of its affordability, low maintenance expenses, ease of use and superior armor level, is increasingly the replacement vehicle of choice for up-armored Humvees. It may also be equipped with our optional Mechanical Rotating Turret with Cupola (Tub) and Weapon Ready Mounting System, suitable for the M60, 240B and Mark 19 weapons system.
We got the version with the turret baby, the better to shoot all comers with.
Commissioner Chris Mehl was on a police ride-along one night when he caught a glimpse of the vehicle parked at the Law and Justice Center. 
Mehl admits he thought it was odd when he saw it, but he has talked with police and is convinced it’s something the city needs. 
“I hope that we never use this, but it was free,” Mehl said.Krauss isn’t convinced. 
He said adding the “urban assault vehicle” to the police department’s fleet seems like an escalation of police activity. 
“I’m not convinced that we need this. It had never been identified as a need in my 11 years here,” Krauss said.
It's Free! You have to be kidding me -- our spendthrift debt addicted country is paying for this, meaning the assault toy is being financed squarely by my children.  Mehl claims to be an economist. In reality he is a liberal Democrat -- in his perverted world something is free when my children pay for it.

The gifting of the assault vehicle generated a torrent of on-line criticism -- including the following.
  • We need to make a clear statement here in Bozeman, do not turn our police department into an army. So this thing was hidden from the city government, that alone is reason to get rid of it, and take action against those paid city servants who did this.


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        It seems that these vehicles are only being given to Police Departments who have no constitutional legitimacy and not to Sheriffs departments that have to be concerned about elections.
        Likewise they are not "FREE", we pay federal taxes and those tax dollars bought these things. Aren't there a lot of more practical uses for tax dollars and even if not they should not be spent on these things for every PD in the country unless the taxpayers approve. I for one want my money back.
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        Look at your Bozeman taxes and you can see more of the "free" money that Chris Mehl gets to spend. No wonder the federal deficit can't be controlled. Too many big shot wanna-bes like Mehl spending free federal money. I liked him better when he was just wish-washy on all decisions.
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          This is part of the national craziness for insane weaponry which is clearly overkill (no pun intended). There is really something wrong with the City Commission if they allow this to stand. Eisenhower was right about the military-industrial complex...and now it has made its way to Bozeman. 
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            I was just going to mention the military-industrial complex. As major military operations wind down there is not a need for continual replenishment of equipment, so the govt. has to find a way to keep their military industrial sponsors busy, so why not give away free military equipment to small town America. Then the govt. can control more of our lives through the militarization of our police forces because now they hold the purse strings for all this "free" equipment. Total government equals total slavery of the masses.
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        Of course we need it... whom else is going to drive around and strike fear in the hearts of the absolutely dangerous terrorist that live in little old Bozeman, MT. Federal Government is absolutely ridiculous and any local government, especially Bozeman, should be absolutely ashamed to accept something like this.... just a local voter and concerned citizen speaking here. Oh and Vet.


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            If this is a regional asset "rescue" vehicle, how will this help find the missing hunter in the Crazy Mountains? Please don't lie to our faces about the use of this vehicle. You might as well call it the "unicorn/bigfoot population observation vehicle".


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                I bet that $250,000 could have gotten some really cool search and rescue toys, instead of an Army truck.

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                    Commissioner Chris Mehl says, "it didn't cost us anything". With all due respect It does costs us whether it be federal tax dollars of local tax dollars it does cost us.

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                    If this vehicle is necessary to the function of our law enforcement, why was its acquisition so clandestine? Better to have it and not need it than to need it and not have it? It only adds fuel to the distrust that many already have of law enforcement.
                    This should have been an open transaction.
                     
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                      There are so many things that are fundamentally wrong with this new "free" acquisition of the Bear Cat; first and foremost, we all know that in life, nothing is actually free and the repercussions of this type of vehicle on our social fabric might
                      be too complicated to name them all; our civil servants somehow thought to put
                      the wool over our eyes on this one and that is just scary. I was in favor of
                      the new law and justice center until I read this article. If we put half as
                      much effort in building a just and cohesive community, we wouldn't need this
                      armored vehicle in the first place.
                      Let's sell it and build a new community center with a pool, etc. - a place where community ties are built in a positive manner, where conversations can go somewhere for the betterment of all of us.
                      I can’t support a police force that thinks it needs an armored vehicle to protect and serve.
                      .
                    Here is the manufacturer's promo video -- see how the armored assault unit is used to deploy troops, provide cover for lines of snipers, break into homes and infiltrate gas. Defensive, huh?