What’s it cost to be a successful golfer in California? Phil Mickelson says his tax rate in California for 2013 is 62%. He doesn’t like it. Naturally he is called a whiny rich guy and told to suck it up.
What is his real rate? He will be paying a real federal rate, considering the itemized deduction phase-out, of 40.788%. His California rate will be an insane 13.3%. That will be deductible on his federal return, so the net combined income tax rate is about 48.662%,
But there’s more! Golfers are independent contractors, so they have to pay self-employment taxes. That rate is 3.8% in 2013, but 1.45% can be deducted on the federal return, so the net is about 3.19%. That gets his rate up to about 51.856%, or so.
In 2011, Lefty’s combined rate worked out to about 42.589%. That means his effective rate increased by about 9.266%. But that understates it. Think of Phil Mickelson as a business. His after-tax profit on a given income level has taken a real hit. Where after-tax income was about 57.411 cents out of every dollar in 2011, now its about 48.144%. That means his after-tax income has fallen by about 16% – nearly 1/6. Don’t think it matters? Try it sometime with your own after-tax income.
A 16% cut in margins would be a worry in any business. Mr. Mickelson is in a business where he can boost his margins by nearly 8% with a moving van. He’d be an odd businessman indeed if he didn’t give the idea serious consideration. And he will have plenty of company.
Jason Dinesen, Further Thoughts on Preparer Regulation:
My concern is more for the EA [Enrolled Agent] name itself. I really fear that EAs are getting pushed further and further to the margins. We’ve always been on the margins, so how much further can we be pushed?
The problem is, there’s no good solution for how to enhance and protect the EA name, because there’s so few of us.
So again, where do EAs fit in? There’s just not a good answer or good solution.
Martin Sullivan, “Now it’s about loopholes.”
Republicans want to use revenues from base-broadening solely to reduce rates. Democrats want to use revenues from base-broadening solely to raise revenue. (The quote in the title of this post is from senior Obama advisor David Plouffe.)
We will never be able to begin the tax reform process in earnest until Republicans and Democrats settle their differences on the total amount of revenue the federal government can collect. It was actually Bowles and Simpson who outlined the process: First, you settle on a number for the amount of revenue you want to raise (if any). In their case the amount of revenue was $800 billion over 10 years (using a different baseline). Second, you broaden the base as much as possible. The money from base-broadening is first devoted to deficit reduction and whatever is left over is used for rate reduction.
That requires agreement on how much we can afford to spend. Until that answer changes from “MOAR!” it won’t be enough.
Brian Strahle, ALERT: California Sales Tax Refund Opportunity: Optional Service Contracts. If you bought a service contact on a Dell and paid California sales tax, you may have a refund coming.
Peter Reilly, Tax Planning – Repairman Jack Style
Missouri Tax Guy, Tax Issues with early Distributions from Retirement savings.
William Perez, Qualified Charitable Distributions from IRAs for 2012. You have until January 31.
Jack Townsend, More on Conscious Avoidance
Yes. Are Taxes Progressive in the US? (Paul Neiffer)
Not if you are Phil Mickelson. Can You Use the 1040EZ? (Trish McIntire)
News you can use: JUST SAY “NO” TO HENRY AND RICHARD (Robert D. Flach)