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Sunday, May 20, 2018

Guest Post - Best Counties for Property Taxes

Here is a guest post from RewardExpert that recently did a review of property tax rates, assessment ratios, and exemptions throughout the country to find the counties in different U.S. regions with the lowest tax burden relative to home prices and local incomes. This is a reminder that property taxes are based on many factors and that lots can be gathered from numerous sources of data readily available. It's also a reminder that in some states, the tax base is only a portion of the value (assessment ratio). Someone recently told me that in Georgia only 40% of the assessed value is taxed and then homeowners also get a $2,000 exemption. There are many factors to consider in comparing property taxes on homes.

Every year homeowners have to deal with paying property taxes. While they may be a hassle, property taxes are an important source of revenue for local governments. Nevertheless, no one wants to pay more than they have to, and location can make all the difference. RewardExpert – a free service that helps users take full advantage of credit card and travel rewards – today [5/14/18] released its ranking of the Best U.S. Counties for Property Taxes to help prospective homebuyers determine where they can catch the biggest break on their property taxes. The report breaks down the top five counties in each of the six major geographical regions of the country.  

“Buying a home is a big move and is often a family’s biggest financial investment,” says RewardExpert CEO and co-founder Roman Shteyn, “and it can seem unfair to continue paying for a house that has already been bought and paid for, so choosing the right place to invest can help mitigate long-term expenses.”
The best counties for property taxes by region are:
  • #1 in the Northeast is Sussex County, Delaware. The southernmost and most rural of Delaware’s three counties, takes first place in the region due to its assessment ratio: the county levies taxes on only 50 percent of the market value of a property, which reduces its already low 0.75 percent nominal property tax to an effective 0.37 percent rate. As a result, the average tax bill in Sussex County is a very reasonable $1,228.
  • #1 in the South Atlantic is Darlington County, South Carolina. Like most states in the region that assess real property at full market value, South Carolina provides for an exemption of the first $100,000 of a home’s assessed value. For an average home in the county, this results in a tax bill based on only $39,000 of the median property value of $139,000: average annual property tax bills in Darlington County are a mere $146.
  • #1 in the South Central region is Crawford County, Arkansas.  The South Central region is dominated by counties in the states of Arkansas and New Mexico due to low property assessments. In Crawford County, one of the most populous counties in the Ozarks region of the state, residents enjoy very low property tax bills, which at an average $192 amounts to barely more than one-tenth of a percent of the average home value of approximately $145,000.
  • #1 in the Midwest is Grant County, Indiana. With many states in the Midwestern region that have either mandated assessment ratios substantially below 100 percent of fair market value, the degree to which counties in Indiana crowd out very competitive counties in other states is surprising. Grant County has a median sale price of $75,945 for homes in the county, which results in tax bills that are lower here than anywhere else: $24.50 per year for the average county homeowner.
  • #1 in the Mountain West is Pueblo County, Colorado. Colorado dominates the region for low property taxes. Residential property is currently assessed at an extraordinarily low 7.96 percent of fair market value. Pueblo County, with its modest property values, boasts exceptionally affordable yearly tax bill of $371 or less, in spite of the fact that an average home in Pueblo County sells for $205,000, and the nominal tax rate is a not insubstantial one percent.
  • #1 in the Pacific West is Klamath County, Oregon. Klamath County takes first place for simple and straightforward reasons: it is home to some of the most modestly priced real estate in the region (the median sale price is $194,000), it charges a reasonable tax rate of 1.23 percent, and Oregon has no property transfer tax. While the average tax bill of $2,378 is high compared to counties in other regions, this figure is lower than in any other county in the Pacific West with a population greater than 25,000.
“It’s the ultimate American Dream to own a home,” says Shteyn, “however it requires serious understanding of the full financial implications to ensure you’re making a sound investment. As they say, location is everything when it comes to real estate, and that also applies to property taxes.”

To determine the ranking, RewardExpert analyzed data from federal, state, and institutional sources to determine which U.S. counties have the lowest, most affordable property taxes. In addition to county-specific property tax (millage) rates, the report takes into consideration home prices, average incomes, and state- and county-level policies concerning assessment or equalization ratios.

For further information and to view the full report, visit the RewardExpert website.

What do you think?

Tuesday, May 8, 2018

Guest Post - Self-Employed Tax Statistics by the Numbers

Here is a guest post from Danielle Higley,* TSheets by QuickBooks with some interesting data on self-employed individuals.

Filing taxes is no simple task, especially for self-employed workers. In fact, according to a recent study by QuickBooks Self-Employed, it’s one of their top five struggles!

When asked to name the toughest part about taxes, 30 percent cited “filing the forms correctly,” 30 percent listed “filling out the paperwork,” 32 percent said “estimating how much tax to pay,” and 20 percent said “saving enough money for taxes.” The final 17 percent reported it was difficult to find deductions they could take.

As for how they file their taxes, interestingly enough, the results are basically split three ways: A third use tax filing software, a third go through an accountant, and a third still file using paper.

The most common reason for self-employed workers to use an accountant is they’ve never done their taxes before and they don’t want to start. Around 1 in 5 say they use an accountant because filing themselves takes too much time, while 17 percent say they’ve attempted to do their own taxes in the past but failed, so they prefer to use an accountant.

Hiring an accountant to ensure taxes are done correctly is smart, especially when 36 percent of self-employed workers report having been audited by the IRS. That’s extraordinarily high compared to the .7 percent of total taxpayers audited in 2016 (according to CNBC). Even individuals who make over $1 million a year are less likely to have their returns audited — sitting at just over 5.8 percent.

Young taxpayers are among those most likely to be audited. According to the survey, 11 percent of people aged 54 and up have been audited, compared to 46 percent of those aged 18-24.

Another reason is it’s incredibly easy for a self-employed worker to get behind on their taxes. Forty-two percent underestimate how much they’re supposed to pay, while 30 percent aren’t able to afford their taxes. Interestingly, 32 percent were either unaware they needed to pay taxes or forgot to pay them, while 10 percent said they didn’t know how.

In the end, 36 percent of self-employed workers say they don’t pay any taxes — 17 percent said it was because they don’t make enough money, 10 percent said it was because their losses exceed their profits, and 9 percent gave no reason.

Around 30 percent of self-employed workers say they don’t report all their income — including 6 percent who say they don’t report any. Part-time self-employed workers are actually twice as likely to underreport their income.

One sign that many folks find taxes confusing is 1 in 10 self-employed workers surveyed didn’t know about the country’s most recent tax reform. Of those who were aware of it,  a third said they expect to pay more in 2018, while half that said they expect to pay less. Regardless, when asked what area of taxes they want to learn more about, the No. 1 response for self-employed workers was anything and everything tax-related.

What do you think?

*Danielle Higley is a copywriter for TSheets by QuickBooks, a time tracking and scheduling solution. She has a BA in English literature and has spent her career writing and editing marketing materials for small businesses. Last year, she started an editorial consulting company.

Sunday, May 6, 2018

Yet One More Proposal for Relief of New State Tax Deduction Cap

The Tax Cuts and Jobs Act (PL 115-97; 12/22/17) limits the itemized deduction for state and local taxes to $10,000 ($5,000 if married filing separately). As with most of the individual tax changes including the lowered tax rates, this change only exists for 2018 through 2025.

Several states don't like this change, particularly states like New York, New Jersey and California with high state taxes. New Jersey enacted S 1893 on 5/4/18. It allows local governments to create funds where property owners can "donate" to the fund and get an 90% credit against their property tax. The federal benefit is that this is a charitable donation which shows up on the federal return as a charitable deduction rather than as a state tax deduction. Sounds like a good deal.  Too good to be true?

Perhaps now that a state has enacted such a law (although local governments still need to create the funds), Congress or the IRS will step in to let us all know if this works. While similar state tax credit funds have been around for a while, the state credit amount is usually lower. The problem is that if the "donor" gets a big benefit from the donation, was it really a charitable donation?

Other versions of this type of proposal are at the state level, such as California SB 227 which creates the California Excellence Fund. Donors get an 85% state tax credit. SB 227 passed in the Senate on 1/30/18 and is awaiting attention in the Assembly.

But California has one more proposal - AB 1485. This proposal has limited effect compared to other bills. This bill allows a 100% credit against an individual’s California income tax for a contribution to a charity located in California. The credit maximum is $500 ($1,000 for MFJ). No California deduction is allowed for the contribution. The stated goal is “to ensure California creates a robust and efficient tax incentive program that encourages all Californians to contribute to the charitable organizations serving their communities, coupled with accountability and transparency measures. Towards this end, California’s tax credit for charitable donations ensures that California taxpayers receive the maximum possible economic return on their investment and creates overall positive and sustained economic impacts for the entire state.” The bill’s effectiveness is to be judged by the number of taxpayers who claim the credit.

Critique: Unlike other proposals, such as SB 227, AB 1845 has a dollar limit. Also, the purpose might not be realistic because while for California tax purposes, the donor comes out even, if the individual does not itemize for federal purposes, there is no federal tax benefit of the donation. The FTB likely needs to define what it means to be a charity located in California and how a donor can tell (such as distinguishing a PO Box from an actual location). Also, why not say that the charity has to provide a certain portion of its benefits to Californians (or that is qualifies for a property tax exemption in California since the charity could note that on its website and the FTB can verify that). Clarification is needed on whether a charitable contribution deduction continues for donations above $500 ($1,000 if MFJ).

Will these provisions work? What if individuals use them and then Congress or the IRS says no?

What do you think?

Friday, April 20, 2018

Tracking Cryptocurrency Transactions for Tax Compliance

I was surprised to see today a survey result that 46% of cryptocurrency traders don't plan to report the transactions for income tax purposes (TeamBlind survey - see 4/17/18 article in The Wealth Advisor). There is, of course, no reason for not reporting income. The IRS is well aware that people have virtual currency transactions. It is also an agenda item for the Criminal Investigation Division of the IRS per their 2017 annual report.

To help track crypto transactions, there are a few software tools readily available.  A recent entry to this market is CryptoTrader.Tax.  Here is information from their recent press release (with permission of the company):

"CryptoTrader.Tax released a web-based tool developed with the intention of helping users calculate the capital gains and losses associated with their cryptocurrency investment endeavors. The tool is currently in the ‘beta’ phase of development, and can be accessed from their website at, www.CryptoTrader.Tax. CryptoTrader.Tax aims to provide its users with an easy and accurate tool to use when it comes time to do their taxes. It properly considers the user’s set time zone, trades across all exchanges, and the sale of their uploaded cryptocurrency income.

CryptoTrader.Tax uses a safe, streamlined workflow to gather the data needed to accurately calculate gains and losses. Users upload trade data via exported .csv files from supported exchanges or manually using the provided template. They can also upload several types of cryptocurrency income, such as mining, gifts, etc. The tool then generates detailed reports using the uploaded information. User’s can view an IRS 8949-esque form showing gains and losses for each sell of a coin or view a detailed breakdown of each sell with even more information. There are also views for income items and coins still being held at the end of the year. Future updates planned for the tool include: population of IRS forms, automatic trade importing from a wide variety of exchanges, and more."

You can find a few others out there as well. What is important is to check these out and use one. 

What do you think?

Monday, April 16, 2018

April 17 - Doubly A Big Tax Day!

April 17 is the due date for 2017 individual returns as well as for calendar year corporations. It's not April 15 for 2018 because that was a Sunday so even with e-filing, a weekend date moves the due date to the next weekday.  But, if that is a holiday in the District of Columbia, then it is the next day. April 16 is Emancipation Day in DC making April 17 tax day.  But, isn't everyday really tax day since we pay taxes every day?

But April 17, 2018 is also a big day because the U.S. Supreme Court will hear oral argument in South Dakota v Wayfair, et al. The issue is whether the physical presence standard for sales tax nexus, dating back to 1992 from the Court's decision in Quill, should be changed. The relevance is that per Quill, if a seller does not have physical presence in a state, it doesn't have to collect sales tax from its customers in that state. The customers must instead self-assess and pay the use tax (same amount as the sales tax). States don't like this because many consumers don't know about use tax and it is much easier to have vendors charge it and remit it.

I have more on the background and relevance (and links) at this blog for the Southwestern Federal Tax textbooks that I help write and edit - here.  I hope you'll take a look.

What do you think? Is the physical presence standard outdated or still necessary to allow e-commerce to continue to grow?