Congress

Senate OKs tax break for Olympic medalists

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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With the 2016 Summer Olympics starting this week in Rio de Janeiro, members of Congress are again doing their version of the “USA, USA” chant. They’ve introduced legislation that would make the money won by U.S. Olympic medalists tax-free.

It’s not a new effort. For the last few Olympic games, lawmakers in both the House and Senate have proposed the tax break for winning U.S. competitors. Those proposals have always failed.

This year, however, it looks as if Congress might, to borrow an analogy from the summer event, clear the legislative hurdle.

Olympic athletes’ tax break

Before recessing for the Republican and Democratic presidential nominating conventions in mid-July, the Senate passed the United States Appreciation for Olympians and Paralympians Act.

The bill, S. 2650, would amend the tax code so that Olympic medalists wouldn’t have to report as income the cash prizes that the U.S. Olympic Committee presents them. That’s $25,000 for winning a gold medal, $15,000 for a silver and $10,000 for bronze.

In addition, the value of the medals themselves, which under current law are considered taxable compensation, also would be tax-free. The International Olympic Committee requires the medals to contain a minimum amount of the metal for which they are named.

The same tax exemptions would apply to U.S. Paralympic medalists.

However, any related earnings that Olympians receive, such as corporate sponsorships, would remain taxable income.

Deserved tax relief

Sen. John Thune, R-S.D., who introduced the bill, says it “sends the right message to Team USA, both present and future.”

Olympic athletes deserve the tax relief, says Thune, as repayment for their “years of relentless training and hard work, a significant financial commitment, and an immeasurable amount of sacrifice. It’s no understatement to say that for these high-performing athletes, the chance to compete for an Olympic medal on this world stage is an opportunity second to none.”

Retroactive tax relief

The House, like the Senate, is in recess until Sept. 6, so it won’t get a chance to act on the taxation of Olympic athlete compensation until after the 2016 summer games have concluded.

The measure, however, would apply to medals and prize money that competitors receive for this and future Olympic years.

The bill’s cosponsor, Sen. Chuck Schumer, D-N.Y., headed this week to Lake Placid, New York, the official United States’ Winter Olympics training facility.

The upstate New York town also was in 1980 the site of arguably America’s greatest Olympic victory, the U.S. men’s hockey team’s “Miracle on Ice” defeat of the Soviet Union national team. The Americans’ subsequent win over Finland earned the players that year’s ice hockey gold medal.

Before departing for the iconic Olympic location, Schumer urged House members to pass the bill when Congress returns to Washington, D.C., next month.

The Internal Revenue Service shouldn’t impose a victory tax on athletes who work hard training year-round, said Schumer.

Do you agree with Thune and Schumer that U.S. Olympic athletes deserve to escape tax on their medal winnings?

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.

Low tax receipts point to Nov. 5 debt deadline

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!

By Bankrate

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Congress has until Nov. 5 to raise the federal debt limit. If lawmakers don’t act by then, Uncle Sam won’t be able to pay his bills.

The deadline was set by U.S. Treasury Secretary Jacob Lew in an Oct. 1 letter to the Republican and Democratic leaders on Capitol Hill.

The debt limit is the amount of money that the United States can borrow to meet its existing legal obligations. These include payments of Social Security and Medicare benefits, military salaries, interest on the national debt and tax refunds.

Uncle Sam’s credit limit

The debt limit is not to cover new borrowing, but debts that have already been incurred.

Once upon a time in Washington, D.C., raising the debt limit was routine. Since 1960, Congress has agreed 78 times to permanently raise, temporarily extend, or revise the definition of the debt limit. Those increases have come under a Republican administration 49 times and while a Democrat was in the White House 29 times.

In recent years, however, the process has become politicized.

Members of Congress have used the debt ceiling deadline as a way to pressure colleagues and the president to accept other legislation. This happened in 2011 and 2013, with the U.S. borrowing authority going down to the wire in both cases.

Limits on extraordinary measures

In anticipation of possible problems with raising the debt ceiling, the Treasury secretary can use what are called “extraordinary measures” to slow the impending default.

These include such things as not investing fully in federal employee retirement funds and delaying securities rollovers. Essentially, it’s Uncle Sam’s large-scale version of robbing Peter to pay Paul.

Those measures, however, will only last into early November, warns Lew.

Lew says that “on or about Thursday, November 5 … we would be left to fund the government with only the cash we have on hand, which we currently forecast to be below $30 billion.”

That’s only around half of what the federal government needs on certain days, writes Lew.

Not enough tax money

Part of the reason that Uncle Sam is running out of money, says Lew, is that the recently paid quarterly corporate and individual tax amounts were lower than Treasury projected.

At the same time, Lew says, investments in certain large trust funds, including military retirement trust funds, were higher than projected.

Uncle Sam’s bottom line: We’re heading into the red.

Will lawmakers with specific legislative agendas hold the country’s financial stability hostage? Maybe. It has happened before.

In his letter, Lew warns against such politicking, saying it could cause “catastrophic damage” to the U.S. economy and global financial markets if, for the first time in history, America fails to meet all of its obligations. Lew also warns that simply waiting until the deadline is imminent also is unwise.

“Moreover, we have learned from previous debt limit impasses that failing to act until the last minute and engaging in partisan brinksmanship can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” writes Lew. “To remove these unnecessary and avoidable threats, I respectfully urge Congress to take action as soon as possible and raise the debt limit well before Treasury exhausts its extraordinary measures.”

Congress now has less than a month to act. We’ll see how seriously representatives and senators will take Lew’s pleas.

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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.