It's Just Money

So, Warren Buffett is in favor of keeping the Estate Tax, huh?

Doesn't make for scintillating blogging, but I gotta say it.  I agree with the Oracle of Omaha.

A little background for those not familiar with the estate tax.  When you die, everything you owned at death is tallied up, life insurance proceeds are added, and that sum is called your estate.  Your estate is everything you are leaving behind.  Under current law, if your estate is more than $2 million, the federal government imposes a tax on the amount that exceeds the magic $2 million mark.  The tax rate goes up to 45%.

The arguments against the tax go like this.  "The death tax is an opportunistic penalty on those who have been successful and accumulated significant assets.  It disproportionately penalizes small business owners and family farmers who often have most of their net worth tied up in those businesses and no liquidity with which heirs can pay the death tax.  Heirs are forced to liquidate or sell the business in order to pay the IRS."

Arguments for?  Equalizing opportunity across generations.  As Mr. Buffett puts it, "You don't get to be a quarterback ... because your father was a quarter back 20 years ago."  In other words, without the estate tax, the families who currently control most of the nation's resources will continue to do so by birthright rather than merit.  Money, as we know, controls business, politics, and even academics.  Thus generations of wealthy descendants from one successful individual will continue to wield a disproportionate amount of power.

On those points, I agree with Mr. Buffett.  But there's more.  This is my view as a financial planner.

Speculative Charitable Giving, how the tax laws create an incentive for you to gamble with your charitable contributions

If you are a gambler, you know that there are many ways to tip your dealer.  You can throw him a chip after being dealt Blackjack.  If you cash out a winner, you can throw 5-10% back to the dealer as you leave your seat.  My favorite way is to "play the tip."  Basically, you place the tip (which is not subject to table minimums) just above your own bet.  If you win the hand, the dealer's tip is also paid its winnings and your tip just doubled, or more.

As an example, let's say that I am playing at a $10 table.  I can bet $10 for myself, and $2 for the dealer.  The dealer will thank me for the bet and deal the cards.  If I lose my hand, my $10 bet plus the dealer's $2 tip is lost to the house.  If I win with a non-blackjack hand, I win $10 for my bet, the dealer's tip wins $2, and the total $4 goes to the tip jar.  I win, dealer wins, everybody is happy.  We would both be even more happy if I am dealt a blackjack, which pays 1.5 to 1.  Instead of $10, I win $15.  Instead of $2, the dealer wins $3 for a total tip of $5.

Okay, you get it?  So, what does this have to do with charitable giving and tax laws?  Plenty.

Buy versus Lease Part 1

If you spend any time reading personal finance books, websites or blogs, you will quickly see that buying a car outright, in fact a reliable used car, is considered favorable to leasing a car.  I have always believed this to be true, but have never done the math.  So, last night, I took some time to research how lease payments are calculated and the tax treatment if the vehicle is used for business purposes.  Lease payment calculators are available online, but none of them breakdown the math involved.  Believe me, understanding the math is critical in not getting screwed if you plan to lease.  You can check out my buy vs lease calculator.  It may need some work, but it definitely does the math.

The results are complicated because there are sooo many variables.  For example, higher interest rates favor buying, while shorter loan/lease terms favor leasing.  Lower down payments favor leasing, while the ability to deduct a portion of your mileage from income taxes favors buying, unless the vehicle is used for small business purposes.  Fairly obvious, if you keep the purchased car for a few years longer than the loan/lease term, you come out WAY ahead.  That, to me, is the biggest benefit to buying over leasing.

But to get the argument for leasing, I found a site called leaseguide.com.  Their article on lease vs buy was clearly slanted to the leasing camp.  Not a big surprise considering they are a site dedicated to selling a "lease kit" for twenty bucks to help you make a good deal on your lease.  I took their article on the benefits of leasing, and respond to each of their points below.

Estate Tax Repeal Unfair

What's your take on the Estate tax?  There was a very well written article by Richard Rockefeller (yes, of those Rockefellers) in the portland Press Herald.  If you can't find the article there (and I couldn't), it's reprinted here.

I don't have anything to add to this.  Do you disagree?  I would love to hear why.

When the Taxman Cometh, Tell Him to Come Back Later

We're pretty much a nation of procrastinators.  Anyone disagree?  When it comes to financial matters, even more so.  Have you ever been to the Post Office on April 15?  It's a circus!  Like literally, one year I went and found people handing out free ice cream, jugglers, and clowns!

So, what's better than just barely making a deadline?  Well, getting an extention, of course.  But wait!  Before you file that extention, and the IRS expects 10 million of you to do so, there are some rules that you should follow.