Scott Lovingood writes:
Two specifics that should be addressed immediately.
Stop double taxation
1) Eliminate the estate tax. You pay taxes on everything you make and then you get taxed again when you die? Tell me that makes any sense.
2) Stop taxing Dividends on personal accounts- Companies have already paid taxes on the profit they generate. Encourage payouts of dividends. They provide safe distributions of cash to stock owners and encourage more stable stock markets. Dividends are a huge part of a long term wealth strategy but the current structure of taxation prevents many companies from issuing them.
This one may take a little while longer. Stabilize and limit the tax code. Now I know that doesn’t sound like much but that tax code has grown out of control. What started as something relatively simple, now encompasses volumes. Each year Congress passes more changes, more taxes, more credits, more exemptions, more of everything. It taxes a law degree and years of study to geta good grasp of the system.
Make every tax be voted on separately every four years. Congress should be held accountable for the taxes they pass. They should not be allowed to blaim previous administrations. Shoulder the onus for governing and make the tough choices.
Remember the telephone tax refund credit refund from 2006? A tax that had been around for decades that should have eliminated. By forcing Congres every four years to vote on taxes you can develop a stable system for companies and individuals to operate within. It also eliminates the ability for Congress to make last second changes that cause no end of headaches.
Everyone focuses on the healthcare system and the cost it has on the economy. Look at the cost of our current tax system. The number of people who sole focus is helping companies reduce their taxes. Simplify the system and streamline it. Take the breaks off the economy.
Ask the Wealth Squad
Taxpayer asks:
I don’t understand. I have my stocks on a program that reinvests the dividends back into the stock. My broker says that this increases my bases. But my CPA says that I have to report this on my taxes. Why is this if I haven’t sold the stock?
Taxgirl says:
Dividend Reinvestment Programs (often called DRIPs) are programs where dividends that would have normally been paid out in cash are reinvested instead, as your broker described.
However, this doesn’t change the nature of the dividends – they still qualify as dividends and you have to report them on your tax return. You will receive a form 1099-DIV reporting the amounts paid or reinvested.
Your broker is also correct that this increases your basis. The dividends are used to “buy” more stock and it increases the value of the stock. When you sell, you’ll use the original purchase price + the reinvested dividends to calculate your basis for purposes of capital gains.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!
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Many proponents of the flat tax have advocated for the elimination of tax on dividends and interest, leaving only a tax on wages and “earned income”. The argument for the elimination of such a tax is that it would encourage investments and savings and thus, stimulate the economy. The argument against the proposition is that it unfairly places a tax burden on those who must work for a living and not rely on “passive income” (dividends and interest). What do you think:
Should Congress eliminate the tax on dividends and interest and implement a flat tax on wages and “earned income”?
