Monthly Archives: July 2016

Senators seek tax relief for student loan burdens

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

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College graduates in 2015 owed an average of slightly more than $35,000 on their education loans. Overall, student debt is around $1.3 trillion and growing.

With those kinds of numbers, it’s no surprise that in many cases debt-burdened students look for ways to lessen their loan loads. In rare cases, lenders reduce or completely erase the loan balances.

But what is a surprise to these cash-strapped scholars is the tax bill that comes with that loan forgiveness. Federal tax law says that in most instances, the amount of erased debt is taxable income to the person who used to owe.

A group of Democratic U.S. senators wants to change that tax law.

Student debt dragging down economy

Sens. Bob Menendez of New Jersey and Elizabeth Warren of Massachusetts have introduced S. 3266, the Student Loan Tax Relief Act. Joining as original cosponsors of the bill are their Democratic colleagues Sens. Ron Wyden of Oregon, Debbie Stabenow of Michigan and Cory Booker of New Jersey.

“Students and families are being crushed by student debt, dragging down the economy and holding back an entire generation in its pursuit of the American dream,” said Menendez, who serves on the tax-writing Senate Finance Committee. “If you’re able to get your student loans forgiven and secure a fresh financial start, you shouldn’t then be saddled with an unexpected tax bill.”

Consumer advocate Warren echoed that sentiment, saying the legislation “will give peace of mind to borrowers who have earned the right to have their student loans discharged by ensuring they don’t get stuck with a big tax bill when that happens.”

Streamlining tax-free student loan forgiveness

There are a few cases where student loan debt is forgiven, such as when the borrower suffers total and permanent disability or dies. And only in rare cases the forgiven debt isn’t taxed.

But generally, says Warren, the tax consequences of student loan forgiveness is a mess. “Sometimes the government charges students taxes and other times there are no taxes if the student loans are forgiven,” according to the junior senator from Massachusetts.

S. 3266 would clarify student loan forgiveness tax situations by amending the Internal Revenue Code to exempt student loans discharged through the federal income-based repayment and income-contingent repayment programs.

In addition to the current disability tax exemption, erased loan amounts would no longer be considered taxable income in cases of the debtor’s death, as well as in cases where fraud was committed by a school.

The fraud provision already is part of a separate bill introduced earlier by Stabenow.

Mostly symbolic pending the election

While the Student Loan Tax Relief Act is good news for struggling students and their families looking for ways to reduce their educational debt, don’t start the loan forgiveness process just yet.

Right now, the bill is largely symbolic.

I’m not questioning the sincerity of the 5 Democrats who support it. But the timing of the measure’s introduction just happens to coincide with Democratic National Convention, underway now in Philadelphia.

And the Party’s 2016 platform includes a section decrying “crushing student debt” that discusses support for loan forgiveness and discharge efforts.

Plus, unless the bill is acted upon soon by the Senate, which is unlikely since that chamber is controlled by the Republican Party, it will die at the end of the current congressional session later this year.

But look for the Student Loan Tax Relief Act to be reintroduced in early 2017 when the 115th Congress convenes. Depending on how the November election turns out, it could then become law.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Cleveland Cavaliers face $54M NBA luxury tax

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

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What’s the Cleveland Cavaliers’ first championship, and the first one for the city since 1962, worth? Apparently $54 million.

That’s the amount of luxury tax that the National Basketball Association team reportedly faces.

I suspect everyone involved with the team — even the owner who will have to shell out the big bucks, and definitely all Cavs fans — think that the tax is money well spent.

Luxury tax rules

Before we get to the details of Cleveland’s cost of winning the NBA title, a quick terminology discussion.

The NBA and Major League Baseball each impose luxury taxes on teams that exceed the annually set payroll caps. Although the fees are called a tax, it’s not a tax in the strict sense of the word. No government collection is involved.

Rather, the professional sports leagues levy and collect from teams that exceed a predetermined limit set by the league. The baseline is the team’s aggregate payroll. Once a team goes over that amount, the surcharge, or competitive balance tax, kicks in and the money is distributed among the league’s financially weaker teams.

Basically, it’s an effort to ensure that richer teams with owners willing to spend their money don’t dominate the league.

Paying to play better

Sometimes, though, the tax doesn’t matter. This year it’s Cleveland in the NBA. In MLB, the Los Angeles Dodgers have faced a luxury tax the last 3 years.

Cleveland’s profligate spending, as determined by the NBA, paid off. The Dodgers are still waiting.

But what both teams show is that taxes don’t really matter when it comes to sports. That applies to the teams, as well as the players.

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Players willing to pay tax price, too

LeBron James, the hometown hero (OK, he’s from Akron, but it’s in Ohio, so it counts) is a great example. When he left the Cavaliers in 2010 to join the Miami Heat, much attention was paid to the tax implications of his move. Since Florida has no personal income tax, that had to be a key reason he changed teams, right? Wrong.

I’m not saying James didn’t enjoy pocketing tax savings on his millions while he was playing home games in Florida. But after he won 2 NBA titles in South Florida, he headed home. The reason? He wanted to win a championship with his hometown team.

And he returned to Cleveland knowing full well he’d be paying Ohio’s top tax rate of 4.997% on his $24 million annual salary, the tops on the team.

Winning, not tax savings, mattered more. That’s why Kevin Durant is leaving the Oklahoma City Thunder and the Sooner State’s top tax rate of 5.25% for the Golden State Warriors, where he’ll face California’s 13.3% tax on millionaires.

Fan emotion overrides taxes

Fans also are willing to pay taxes for their sports teams. Cities, counties and states still go out of their way to give wealthy team owners tax breaks to keep or relocate their teams.

What can I say. I’m a sports fan, too. And when the hubby and I lived in Maryland, we supported using our taxes for Baltimore to build a new stadium to entice a National Football League team back to the city after the Colts were spirited away to Indianapolis in the middle of a cold, snowy March night. Still bitter? Yep.

But the anger at the loss of the Colts was assuaged when the Ravens won a couple of Super Bowls. And all us fans definitely weren’t thinking of the extra taxes when Baltimore’s football birds hoisted the Lombardi Trophy. We were champs!

Taxpayers paying for stadiums

Are the taxes a good idea? As a sports fan, I hate the luxury tax. If a team is willing to spend what it takes to win, so be it.

Basically, major league sports are the least capitalistic operations around, always tinkering with rules and adding things like luxury taxes to, as the saying goes, level the playing field. I say let the best, and best funded, teams win. If you can’t afford to play with the big boys, find another hobby.

As for the real taxes involved in stadium and arena financing, those also are terrible public policy. My Bankrate colleague Mark Hamrick spells out the many ways taxpayers lose on stadium funding.

Logically, I get it. And I agree that the team owners willing to pay for the best players also should foot the bill for the venues, too. But that said, sports skew the tax picture and many cities and their teams’ rabid fans are still willing to pay. Me included.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

$5M ‘reward’ for Trump tax return

 

 

 

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

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What are Donald Trump’s tax returns worth? $5 million to one curious rich person.

An anonymous individual has offered to donate that amount to a veterans’ charity if the presumptive Republican presidential nominee will release his tax returns.

The inquisitive donor, who wants to keep his identity private, reportedly will even let The Donald choose the charity.

Nonpartisan tax curiosity

The high-dollar effort to get a glimpse of Trump’s 1040s was announced by David Brock, a political operative and Hillary Clinton backer. However, the person willing to pay for the tax revelation is a member of the Grand Old Party, according to Brock.

“He’s an old-fashioned Republican who thinks this is about character and wants to ensure that the Republican delegates next week know what they’re getting into when they nominate Donald Trump,” Brock said of the donor.

Running out of time

Brock’s mention of the GOP convention, which kicks off Monday, July 18, in Cleveland, is important. The donor wants Trump’s taxes in the open before then, so his $5 million offer expires on Friday, July 15.

Too bad. It’s not my money, but the offer should be valid through the Nov. 8 general election.

Republicans who will officially choose their presidential candidate next week aren’t the only ones who deserve to see Trump’s taxes. All American voters regardless of political affiliation should see that Trump follows tax laws.

What we could learn

The tax filings could give us an idea of just how Trump makes his self-proclaimed billions.

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Or whether he’s not making as much as he says. Records from the New Jersey Division of Gambling Enforcement in connection with Trump’s Atlantic City operations show that Trump used tax breaks in 1978 and 1979 to arrive at earnings losses of $3.8 million, meaning he owed no taxes.

We also would get a look at what type of tax-saving strategies he employs and whether he is as hugely generous himself when it comes to charitable donations.

IRS audit excuse

Trump continues to say he won’t release his returns, which are under Internal Revenue Service audit, until the tax agency completes its examination. That’s his right.

But it’s also a diversion. Richard Nixon opened up his filings for public inspection when he was under IRS audit as president.

Maybe Trump will release his tax returns from the Cleveland convention podium. That certainly would make the event more exciting than is already predicted, but I’m not holding my breath.

In fact, I suspect that even, or especially, if he makes it to the Oval Office, Trump will keep doing things his way, which means keeping his tax returns secret.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.