Top 1% of U.S. income earners are avoiding paying taxes

Tax avoidance by the top 1% is far worse than previously estimated by the IRS. Richard Rubin, writing for the 3/22/21 Wall Street Journal, reported that the top 1% fail to report (and pay taxes on) about 21% of their income. "For the top 0.1%, unreported income may be nearly twice as large as conventional IRS methodologies would suggest." Researcher Daniel Reck of the London School of Economics (in a U.S.  National Bureau of Economics paper) reports that tax avoidance by the ultra wealthy is getting worse due to more sophisticated schemes. 

"IRS audit rates and enforcement staffing have declined steadily for a decade amid budget cuts. President Biden and other Democrats have proposed reversing that trend with a significant expansion of the U.S. tax Agency."

Reverse mortgages for seniors

 The Consumer Financial Protection Bureau just released a new guide for older homeowners called You have a reverse mortgage: Know your rights and responsibilities. The new guide is the latest tool in the CFPB’s suite of reverse mortgage resources, which provides easy-to-understand information for prospective and current reverse mortgage borrowers.

The guide is designed to assist reverse mortgage borrowers meet their ongoing responsibilities under a Home Equity Conversion Mortgage, the most common type of reverse mortgage loan. 

Topics include:

• The reverse mortgage loan requirements
• How a borrower may pay-off their reverse mortgage loan
• What happens after the borrower moves out of the home or dies
• What default means and how a borrower may find help
• What heirs may need to know

The guide also includes a glossary of commonly used terms and a list of resources that borrowers can use to find help.

The CFPB’s reverse mortgage resources are free and available to download or order.

For more information on reverse mortgages, visit consumerfinance.gov/reversemortgage.

Although the You have a reverse mortgage: Know your rights and responsibilities guide does not address protections for reverse mortgage borrowers affected directly or indirectly by COVID-19, you can learn more about these protections by visiting the Unified Housing Hub.

Student Loan Forgiveness

While Congress and the president ponder whether to forgive some federal student loan debt, students with substantial student loans should look into existing student loan forgiveness programs. Keep in mind that student loan forgiveness applies ONLY to federal loans, NOT private loans from banks and credit unions.

Borrowers in any profession may be eligible for income-driven repayment plans (for federal student debts) that set monthly payments based on current income and family size. After 20 or 25 years, depending on the plan, borrowers can have the remainder of their debt forgiven. 

Currently that forgiven debt is considered TAXABLE INCOME! Yikes! But this situation is likely to change with the Covid relief bill, at least through 2025.. 

You might end up paying more under an income-driven repayment plan than with the standard 10 year repayment due to stretching out repayment for 20-25 years. You'd pay a lot of interest. Andy who wants to be paying student loan debt when your own kids are starting college. 

Resources to help student loan borrowers: 

US government Loan Simulator at https://studentaid.gov/

Student Loan Sherpa https://studentloansherpa.com/

Hang in there for a while  as Congress decides whether to forgive some student loan debt.

How to avoid a credit card surprise when a spouse dies: Joint accounts are NOT the same as "authorized user"

 When my father died my mother notified the credit card company that promptly cancelled her credit card. I never did find out if it was a joint account or if my mother was an authorized user on my father's account. My mother worked full time as a teacher once her youngest was in school. No one had a more secure income than my mother: Social Security and New York State Teacher's Pension. No employed person can beat that security of guaranteed, inflation-adjusted income. I contacted the credit card company, wrote letters, sent documentation of my mother's income... didn't work. Finally I added my mother as an authorized user on one of my cards where she was essentially the only user. Which turned out to be a good thing as I could monitor her spending and ensure there were no fraudulent charges. This benefit became more apparent as she aged and started having memory problems.

I always wondered if my mother hadn't notified the credit card company if she could have continued to use the card indefinitely. My father's obituary wasn't published in The New York Times.

So, is that credit card with your name (your mother) on it really "your" card or are you (your mother) a joint user or authorized user. A joint account holder is equally responsible for repayment and thus won't lose charging privileges is the other joint user dies (or divorces). If you are simply an authorized user, you could be in for a surprise at the death of the primary card holder.  

Some credit cards allow the primary card holder to set spending limits for the authorized user. This can be a good way for parents to help a young adult learn to use a credit card responsibly. It's easy to remove an authorized user from a credit card. 

Not all banks (credit card issuers) offer joint accounts. 

Time to check on your or your aging parents' credit cards.

How to say 'no' to financial help for family

 Often family members ask for financial assistance, especially in trying times like the pandemic. What if you would like to say yes but your finances say NO? Often it is an adult child asking parents for money. It's one thing if it's the first time, the parents can spare the money, and the adult child has a legitimate request. It's a totally different situation when the parents are enabling an irresponsible child.

A book that explores this topic is: parent to the end: How baby boomers can parent for peace of mind, foster responsibility in their adult children, and keep their hard-earned money by Linda M. Herman. 

Herman doesn't explicitly state how to say no but provides examples of times when parents should say no. 

Forget "perfect." Get over it; stop trying to be perfect. Sometimes good enough is sufficient. 

Throwing good money after bad. Some adult children are irresponsible and giving them more money isn't the answer. 

The value in boundaries. Saying no and setting limits can send a powerful message to adult children.

Who's watching out for you?Adult children may feel like they have the right  to your support. But one of the rights of having earned that money is the right to keep it and secure your own future. Don't be too quick to give away your financial security. 

Read the book for the details!

Thanks to Glenn Ruffenach of The Wall Street Journal

Understanding the women’s wealth gap webinar March 31

 The consumer Financial Protection Bureau presents:

Understanding the women’s wealth gap

Thursday, March 31, 2021, 2-3:30 p.m. ET

Join us for facts about the women’s wealth gap and the unique challenges many women encounter on their journey to financial well-being. The presentation addresses the impact of COVID-19 on women, the challenges women face in retirement, and how intimate partner violence can impact women’s pursuit of financial well-being.

According to the five principles of effective financial education, programs can be more effective when they matched to people’s specific circumstances, challenges, and goals. This webinar can help you improve your effectiveness through a better understanding of the people you serve.

Audio and presentation: https://cfpbgov.webex.com/cfpbgov/onstage/g.php?MTID=ecb0a2d5242e62395cda06f7d5217f67e

Event number: 199 468 0363

Audio only:
Dial-in:   +14043971590
Access code:   199 468 0363
Event Password: tvD2B6JKav3@ (88322655 from phones)

Strategies to pay for college webinar March 25, 2021

 Strategies to pay for college

Thursday, March 25, 2021, 2-3 p.m. ET 

Presented by the Consumer Financial Protection Bureau

Join us for a presentation on how to finance higher education. You’ll hear from our Office for Students and Young Consumers on the federal financial aid process, college funding sources, and college budgeting techniques. What’s more, we will discuss nonfinancial ways to help students reach their higher education goals.

Audio and presentation:  https://cfpbgov.webex.com/cfpbgov/onstage/g.php?MTID=e1d33a400bde6b8f04104c4c1ace9d61b

Event number: 199 682 7962

Audio only:
Dial-in:   +14043971590
Access code:   199 682 7962
Event Password: 3VfPQmvpm*42 (38377687 from phones)

Income Tax Changes: Standard Deduction and Charitable Contributions

In the past you could deduct charitable donations only if you itemized your personal deductions, rather than taking the standard deduction. But due to the recent increase in the standard deduction, most taxpayers don’t itemize. For 2020, the standard deduction is $12,400 for single filers and $24,800 for married couples filing jointly. For 2021, it’s $12,550 for single filers and $25,100 for married couples filing jointly.

For 2020 and 2021 you don’t need to itemize deductions to claim a $300 charitable deduction. In 2021 married couples filing jointly can deduct up to $600. The limit for 2020 was $300 per return, not per person.

People who do itemize their deductions can get an even bigger benefit from charitable contributions in 2021. Donors who itemize can deduct cash donations of up to 60 percent of their income, through 2025. After that, the maximum deduction will revert to 50 percent of income. But the CARES Act temporarily increased that limit to 100 percent of income, for 2020; the December law extended it for 2021. The 50 percent rule still applies to noncash contributions.

Source: Some Changes That May Affect Next Year’s Tax Return by Ann Carrns. March 15, 2021

Who benefits from Democrat's 2021 American Rescue Plan compared to who benefitted from Republican's 2017 Tax Cuts and Jobs Act

 The following analysis was conducted by the non-partisan Tax Policy Center:

"According to a new analysis by the Tax Policy Center, the Senate version of the American Rescue Plan (ARP) would reduce federal taxes in 2021 by an average of $3,000 and raise after-tax incomes by 3.8 percent. Families with children would get an average tax cut of more than $6,000 under the bill, which now goes to the House for final approval."

(The American Rescue Plan is what is commonly referred to as the Pandemic Bill currently in the process of passage in Congress.)

"Simply in terms of whose taxes are cut, the bill is in stark contrast to the 2017 Tax Cuts and Jobs Act. In 2021, low- and moderate-income households (those making $91,000 or less) would receive nearly 70 percent of the tax benefits from the Senate measure. Among families with children, those low- and middle-income households would get nearly three-quarters of the benefit. By contrast, nearly half of the TCJA’s 2018 tax cuts went to households in the top 5 percent of the income distribution (who made about $308,000 that year)."

Check out the bar graph comparing the vast differences in who benefited from these two major bills at: 

https://www.taxpolicycenter.org/taxvox/pandemic-bill-would-cut-taxes-average-3000-most-relief-going-low-and-middle-income-households

"The ARP, passed only with Democratic votes, distributes more than two-thirds of the tax cuts to low- and middle-income households while they received only about 17 percent of the TCJA’s tax benefits."