Tag Archives: Government taxation and revenue

Business

Here’s how to report Roth IRA conversions on your taxes

Leave a comment

If you made a Roth individual retirement account conversion in 2022, you may have a more complicated tax return this season, experts say. 

The strategy, which transfers pretax or non-deductible IRA funds to a Roth IRA for future tax-free growth, tends to be more popular during a stock market downturn because you can convert more assets at a lower dollar amount. While the trade-off is upfront taxes, you may have less income by converting lower-value investments.

“You get more bang for your buck,” said Jim Guarino, a certified financial planner and managing director at Baker Newman Noyes in Woburn, Massachusetts. He is also a certified public accountant.

More from Personal Finance:
Tax season opens for individual filers on Jan. 23, says IRS
Here are 3 key moves to make before the 2023 tax filing season opens
After ‘misery’ for tax filers in 2022, IRS to start 2023 tax season stronger, taxpayer advocate says

If you completed a Roth conversion in 2022, you’ll receive Form 1099-R from your custodian, which includes the distribution from your IRA, Guarino said. 

You’ll need to report the transfer on Form 8606 to tell the IRS which portion of your Roth conversion is taxable, he said. However, when there’s a mix of pretax and non-deductible IRA contributions over time, the calculation may be trickier than you expect. (You may have non-deductible contributions in your pretax IRA if you don’t qualify for the full or partial tax break due to income and workplace retirement plan participation.)

“I see a lot of people making a mistake here,” Guarino said. The reason is the so-called “pro-rata rule” which requires you to factor your aggregate pretax IRA funds into the calculation. 

How the pro-rata rule works

JoAnn May, a CFP and CPA with Forest Asset Management in Berwyn, Illinois, said the pro-rata rule is the equivalent of adding cream to your coffee then finding you can’t remove the cream once it’s poured.

“That’s exactly what happens when you mix pretax and non-deductible IRAs,” she said, meaning you can’t simply convert the after-tax portion.

For example, let’s say you have a pretax IRA of $20,000 and you made a non-deductible IRA contribution of $6,000 in 2022.

If you converted the entire $26,000 balance, you would divide $6,000 by $26,000 to calculate the tax-free portion. This means roughly 23% or about $6,000 is tax-free and $20,000 is taxable. 

Alternatively, let’s say you have $1 million across a few IRAs and $100,000, or 10% of the total, is non-deductible contributions. If you converted $30,000, only $3,000 would be non-taxable and $27,000 would be taxable.

Of course, the bigger your pretax IRA balance, the higher percentage of the conversion will be taxable, May said. Alternatively, a larger non-deductible or Roth IRA balance reduces the percentage. 

But here’s the kicker: Taxpayers also use the Form 8606 to report non-deductible IRA contributions every year to establish “basis” or your after-tax balance. 

However, after several years, it’s easy to lose track of basis, even in professional tax software, warned May. “It’s a big problem,” she said. “If you miss it, then you’re basically paying tax on the same money twice.” 

Timing conversions to avoid an ‘unnecessary’ tax bump

With the S&P 500 still down about 14% over the past 12 months as of Jan. 19, you may be eyeing a Roth conversion. But tax experts say you need to know your 2023 income to know the tax consequences, which may be difficult early in the year.

“I recommend waiting until the end of the year,” said Tommy Lucas, a CFP and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, noting that income can change from factors like selling a home or year-end mutual fund distributions. 

Typically, he aims to “fill up a lower tax bracket,” without bumping someone into the next one with Roth conversion income.

For example, if a client is in the 12% bracket, Lucas may limit the conversion to avoid spilling into the 22% tier. Otherwise, they’ll pay more on the taxable income in that higher bracket.

“The last thing we want to do is throw someone into an unnecessary tax bracket,” he said. And boosting income may have other consequences, such as reduced eligibility for certain tax breaks or higher Medicare Part B and D premiums.

Guarino from Baker Newman Noyes also crunches the numbers before making Roth conversion decisions, noting that he’s “essentially performing the Form 8606 calculation during the year” to know how much of the Roth conversion will be taxable income.

Read original article here

US

Mega Millions jackpot is $785 million. Here’s the tax bill

Leave a comment

Anadolu Agency | Anadolu Agency | Getty Images

Of course, the advertised amount is only what you’d get if you were to choose to take your winnings as an annuity spread over three decades. The lump-sum cash option — which most winners choose — for this jackpot is $403.8 million, as of midday Tuesday.

Regardless of how you’d decide to receive your windfall, taxes would take a bite out of it.

$96.9 million in taxes would be shaved off cash option

Assuming you’re like most winners and were to choose the cash option, a mandatory 24% federal tax withholding would reduce the $403.8 million by $96.9 million. That would cut your take to $306.9 million.

However, you could expect to owe more to the IRS at tax time. The top federal income tax rate is 37% and applies to income above $578,125 for individual tax filers and $693,750 for married couples who file a joint tax return.

This means that unless you were able to reduce your taxable income by, say, making large tax-deductible charitable contributions, you would owe another 13% — or about $52.5 million — at tax time. That would bring your winnings down to $254.4 million. 

There also could be state or local taxes depending on where the ticket was purchased and where you live. Those levies range from zero to more than 10%.

Most Mega Millions players, though, won’t have to worry about paying millions of dollars to the IRS or state coffers: The odds of a single ticket matching all six numbers to land the jackpot is about 1 in 302.6 million.

Meanwhile, the Powerball jackpot is $291 million (with a cash option of $147.9 million) for Wednesday night’s drawing. The chance of hitting the motherlode in that game is slightly better: 1 in 292 million.

Read original article here

Business

How to save above 401(k) deferral limits with after-tax contributions

Leave a comment

If you’ve already maxed out 401(k) plan contributions for 2022 and you’re eager to save more for retirement, some plans have an under-the-radar option, experts say.

For 2022, you can defer $20,500 into a 401(k), plus an extra $6,500 for investors 50 and older. But the total plan limit is $61,000 per worker, including matches, profit sharing and other deposits. And some plans let you exceed the $20,500 deferral limit with so-called after-tax contributions. 

“It’s definitely something higher-income people may want to consider at the end of the year if they’re looking for places to put additional savings,” said certified financial planner Ashton Lawrence, a partner at Goldfinch Wealth Management in Greenville, South Carolina.

More from Personal Finance:
Investors can defer up to $22,500 in a 401(k) and $6,500 in IRAs in 2023
63% of Americans now live paycheck to paycheck as inflation outpaces wages
IRS: Here are the new income tax brackets for 2023

After-tax versus Roth accounts

After-tax contributions are different than Roth 401(k) plans. While both strategies involve saving money after taxes, there are some key differences.

For 2022, if you’re under 50, you can defer up to $20,500 of your salary into your plan’s regular pretax or Roth 401(k) account. The percentage of plans offering a Roth 401(k) saving option has surged over the past decade.

However, some plans offer additional after-tax contributions to your traditional 401(k), which allows you to save more than the $20,500 cap. For example, if you defer $20,500 and your employer kicks in $8,000 for matches and profit-sharing, you may save another $32,500 before hitting the $61,000 plan limit for 2022.

While the number of plans offering after-tax 401(k) contributions has been rising, it’s still less common among smaller companies, according to an annual survey from the Plan Sponsor Council of America.

In 2021, roughly 21% of company plans offered after-tax 401(k) contributions, compared to about 20% of plans in 2020, the survey found. And almost 42% of employers of 5,000 or more provided the option in 2021, up from about 38% in 2020.

Despite the uptick, after-tax 401(k) participation declined in 2021, dropping to about 10% from nearly 13% the previous year, the same survey showed.

Leverage the ‘mega backdoor Roth’ strategy

Once you’ve made after-tax contributions, the plan may allow what’s known as a “mega backdoor Roth” strategy, which includes paying levies on growth and moving the funds for future tax-free growth.

“That’s a nice way to go ahead and start boosting that tax-free money for those future years,” Lawrence said.

Depending on the plan rules, you may transfer the money to a Roth 401(k) within the plan or to a separate Roth individual retirement account, explained Dan Galli, a CFP and owner at Daniel J. Galli & Associates in Norwell, Massachusetts. And with many details to consider, working with an advisor may be worthwhile.

However, “there’s a fair number of professionals — from CPAs, attorneys, wealth managers and financial planners — who don’t understand or are not familiar with in-plan Roth [401(k)] rollovers,” he said.  

There’s a fair number of professionals — from CPAs, attorneys, wealth managers and financial planners — who don’t understand or are not familiar with in-plan Roth [401(k)] rollovers.

Dan Galli

Owner at Daniel J. Galli & Associates

While the “knee-jerk reaction” is to roll after-tax 401(k) funds out of the plan into a Roth IRA, investors need to “know the rules” and possible downsides, such as losing access to institutional pricing and funds, Galli said.

“There’s no right or wrong,” he said. “It’s just understanding the advantages, and my impression is most people don’t understand that you can do this all within the 401(k).”

Read original article here

Business

New minimum tax could hit Berkshire Hathaway and Amazon hardest, study shows

Leave a comment

Berkshire Hathaway Chairman Warren Buffett seen at the annual Berkshire shareholder shopping day in Omaha, Nebraska, U.S., May 3, 2019.

Scott Morgan | Reuters

Researchers applied the Inflation Reduction Act’s new 15% corporate minimum tax onto 2021 company earnings and found that the burden would only be felt by about 78 companies, with Berkshire Hathaway and Amazon paying up the most.

The study from the University of North Carolina Tax Center used past securities filings to map the tax, which goes into effect in January, onto companies’ 2021 earnings.

The researchers found that the 15% minimum would have taken a total of $31.8 billion from 78 firms in 2021. Berkshire led the estimated payout with $8.33 billion, and Amazon follows behind with $2.77 billion owed based on its 2021 earnings.

The study notes the limitations of looking solely at public company data within a single year. The researchers recognized that these estimates may be subject to change, especially as company operations change under the tax in 2023.

President Joe Biden signed the minimum book tax into law, along with the rest of the Inflation Reduction Act, in August. The tax is specifically meant to target companies earning more than $1 billion per year.

The Joint Committee on Taxation had previously estimated that it would affect around 150 firms, with the costs falling specifically on the manufacturing industry. The bipartisan JCT also predicted $34 billion in revenue in the first year of the tax, slightly more than the theoretical 2021 revenue estimated at UNC.

According to the study, the next-highest taxes would be paid by Ford, AT&T, eBay and Moderna, all of which would owe more than $1.2 billion in payments based on their 2021 financials.

Read original article here

World

India’s bold GST reform expands tax base but too soon to celebrate?

Leave a comment

Five years after it was launched, the simplified GST scheme has resulted in tax collections in India rising to record levels.

Anand Purohit | Moment | Getty Images

It’s been 5 years since India introduced its Goods and Services Tax, and while the government’s revenue collection has soared, some analysts say it may be too soon to celebrate.

India — the world’s fifth largest economy with more than $3 trillion in GDP — has managed to double its tax base since the introduction of GST in July 2017.

While collections have increased and compliance improved, analysts point out that it doesn’t necessarily lead to economic growth.

GST collections grew from around 7.2 trillion rupees, or $90 billion, in the fiscal year 2017-2018 to 14.8 trillion rupees in the fiscal year ending March 2022, government statistics show. 

Even though revenue collection from GST is higher in absolute terms, some question if the growth in collections will endure.

“GST cannot boost growth. Rather, growth boosts GST collection. So, future GST collection will be dependent on the growth performance of the Indian economy. If growth further slows down, then GST collection will be affected negatively,” senior fellow with New Delhi-based think tank Observer Research Foundation Abhijit Mukhopadhyay told CNBC.

“Somehow a thumb rule has emerged that if the monthly GST collection crosses 1 trillion rupees, or $12 billion, then it’s a success,” he said.

Among other things, rising inflation is likely to subdue demand and lead to lower collections, Mukhopadhyay said. “Rise in commodity and food prices has substantially contributed to the GST collection. If inflation keeps increasing, it will eventually have a dampening effect,” he said.

What India’s GST has achieved

The goods and services tax — which was enacted by the government of Prime Minister Narendra Modi —subsumed 17 local levies like excise duty, service tax and value-added tax and 13 other charges.

Under the nationwide tax regime, these varied taxes were replaced by four rate structures ranging from 5% tax on essential items to the top rate of 28% on things like cars and luxury items. 

“GST remains a landmark tax reform of independent India, despite many implementation issues that have been experienced in its first five years,” Rajan Katoch, a former heavy industries secretary of India, told CNBC. 

Not only has it strengthened coordination within the federal state, it has also “improved tax buoyancy, curbed evasion of indirect taxes and drawn more and more smaller taxpayers into the formal system,” Katoch said.

The introduction of the GST mechanism helped subsume multiple indirect tax rates to provide a cleaner and predictable structure.

Radhika Rao

Senior economist and executive director, DBS Bank, Singapore

Before GST was introduced, India’s tax system — often intricate and impenetrable — was notoriously difficult to navigate.

The “good and simple tax,” as Modi has described it, has expanded the numbers of registered GST taxpayers to 13.6 million from around 6 million five years ago, according to figures cited by Indian Finance Minister Nirmala Sitharaman in an article in local media.

Impact on foreign investment, ‘black money’

There are divergent views on whether GST has made India a more attractive investment destination or if it has been effective in curbing “black money” — undeclared income on which no tax has been paid.

Black money has long been known to play a part in India’s economic activity. In 2012, the Indian finance ministry released a “white paper” on black money, defined by the government as “any income on which the taxes imposed by government or public authorities have not been paid.”

Former industry secretary Katoch claims that GST has had an impact on black money.

“Since [GST] has resulted in the formalizing of transactions that previously were of an informal nature, yes, it would have led to a reduction in black or unaccounted cash flows,” he said, adding it’s difficult to estimate the extent of the reduction.

But not everyone agrees.

“Black money is generated in real estate, trade and politics. In all three cases, cash transactions continue. Neither demonetization nor tax reform have had much impact,” Sanjaya Baru, a New Delhi-based economist told CNBC.

Demonetization refers to the controversial move by the Modi government in 2016 to withdraw notes of high denominations as legal tender as a way to flush out black money.

The government had hoped that the tax reforms would increase India’s attractiveness to foreign investors, but this may not have been borne out, according to Baru, who was media advisor to former Prime Minister Manmohan Singh.

“In theory, GST is supposed to make India more attractive to foreign investors, especially in the manufacturing sector,” he said. “In practice, however, [foreign direct investment] in manufacturing has not been very impressive.”

GST cannot boost growth. Rather, growth boosts GST collection. So, future GST collection will be dependent on the growth performance of the Indian economy.

Abhijit Mukhopadhyay

Senior fellow, Observer Research Foundation, New Delhi.

India’s Doing Business ranking by the World Bank climbed to the 63rd place in 2020 from 100th position in 2017 – a jump of 37 places in a span of 3 years.

While it cannot be directly attributed to India’s tax reforms, tax payment is one of nearly a dozen factors used to measure the ease of doing business in the countries ranked.

“The administration’s reform efforts targeted all of the areas measured by Doing Business, with a focus on paying taxes, trading across borders, and resolving insolvency,” the World Bank’s 2020 report said.

Political wrangling ahead

Rising inflation is not the only cloud on the horizon for the GST scheme.

India is expected to make a politically precarious decision in August about whether to bring petrol, diesel and so-called “sin goods” like liquor and tobacco under GST, a federal tax.

“Petro products should be included within the GST framework. That can increase revenue drastically, and will also dampen inflation,” said Mukhopadhyay from the Observer Research Foundation.

However, it is an ambitious goal and could become a political challenge. Duties on these goods are now collected by state governments, headed in some cases by political opponents and it will not be easy to persuade them to give up this lucrative stream of revenue.

Separately, the federal government is also facing other demands from state governments.

Since 2017, the federal government has been compensating state governments for some taxes revenues they lost as a result of GST.

“That ended, on June 30, but states are now seeking an extension, citing the two ‘lost’ pandemic years,” equity strategist with macroeconomics firm WealthMills securities in Mumbai Kranthi Bathini told CNBC.

For Modi’s government, this demand could be the beginning of a long political fight — even in states ruled by his ruling BJP or its political allies.

Read original article here

Business

IRS boosts mileage rate deductions as gas prices soar to $5 a gallon

Leave a comment

Guy Benhamou sends a picture of gas prices to friends while pumping gas at an Exxon Mobil gas station on June 9, 2022 in Houston.

Brandon Bell | Getty Images

If you’re self-employed or own a small business, you may soon be eligible for a little relief from soaring gas prices.

Starting on July 1, the standard mileage rate — used to deduct eligible business trips in a vehicle on tax returns — increases by 4 cents to 62.5 cents per mile, according to the IRS. The new rate applies to trips during the second half of 2022.

The rate for medical trips or active-duty military moving will also increase by 4 cents, allowing eligible filers to claim 22 cents per mile. But the rate for charitable organizations remains unchanged at 14 cents.

More from Personal Finance:
401(k) savers will get a ‘wake-up call’ in their next statement
Last chance for some tax filers to avoid late penalties is June 15
The pandemic stimulus checks were a big experiment. Did it work?

“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” IRS Commissioner Chuck Rettig said in a statement.

The change comes as gas prices continue to hit records, swelling to more than $5 per gallon nationally, sparked by an increased demand and shortages partially caused by the war in Ukraine.

Annual inflation grew by 8.6% in May, the highest increase since December 1981, according to the U.S. Bureau of Labor Statistics, with surging fuel costs significantly contributing to the gain. 

Midyear mileage changes are ‘unusual’

“It is unusual for the IRS to have a midyear change in the standard mileage rate,” said certified financial planner Tricia Rosen, principal at Access Financial Planning in Andover, Massachusetts.

There’s only been a half-yearly shift three times since 2008, she explained, with the most recent one in 2011. Each one happened after a spike in gas prices, she said.

It is unusual for the IRS to have a midyear change in the standard mileage rate.

Tricia Rosen

Principal at Access Financial Planning

To claim the deduction, keep good driving records

While it’s always important to track mileage, including travel dates, it will be even more critical in 2022 to make sure the correct rates apply to each trip, Rosen said. 

The standard mileage rate isn’t mandatory, according to the IRS. Taxpayers also have the option to calculate actual costs, which involves deducting a percentage of the vehicles’ total expenses. But either way, you’ll need detailed record-keeping.

“The IRS wants to see a logbook of business, medical and personal miles in order to prove that you are entitled to the deduction,” said Laurette Dearden, a CFP and CPA at the firm in her name in Laurel, Maryland. 

You’ll need to show the beginning and ending mileage, the business or medical purpose for the trip and the date in your logbook. But realistically, very few people keep these kinds of records, she said.

However, you can use mobile apps to automatically track mileage, which may make it easier at tax time, she suggests.

Read original article here

US

Millionaires call on the global elite to tax them more

Leave a comment

Protesters take part in a demonstration against the World Economic Forum (WEF) during the WEF annual meeting in Davos on May 22, 2022.

Fabrice Coffrini | Afp | Getty Images

A group of over 150 millionaires are calling on the elite attendees of this year’s World Economic Forum in Davos, to tax them more.

The group, known as “Patriotic Millionaires,” published an open letter on Monday reiterating calls for the attendees of WEF to “acknowledge the danger of unchecked wealth inequality around the world, and publicly support efforts to tax the rich.”

“Tax us, the rich, and tax us now,” the letter said, which included actor Mark Ruffalo and heiress Abigail Disney among its signatories.

They explained in the letter that the inequality baked into the international tax system had created distrust between the people of the world and its rich elites.

To restore that trust, the group argued that it would take a “complete overhaul of a system that up until now has been deliberately designed to make the rich richer.”

“To put it simply, restoring trust requires taxing the rich,” the millionaires said.

They said that the WEF Davos summit didn’t deserve the world’s trust right now, given the lack of “tangible value” that had come from discussions at previous events.

Some of the millionaires even staged pro-taxation protests at Davos over the weekend.

Cost of living crisis

This latest call from the rich to be taxed more comes as rising prices ratchet up the cost of living for people around the world.

Patriotic Millionaires referred to an Oxfam brief, published Monday, which found a billionaire was minted every 30 hours during the first two years of the Covid-19 pandemic. Oxfam estimated that nearly million people could fall into extreme poverty at a similar rate in 2022.

Julia Davies, founding member of Patriotic Millionaires U.K., said that as “scandalous as it is that governments seem to be utterly inactive on dealing with the cost of living, it is equally scandalous that they allow extreme wealth to sit in the hands of so few people.”

Davies added that “global crises are not accidental, they are the result of bad economic design.”

‘Race to the bottom’ on corporate taxes 

Speaking to CNBC’s Geoff Cutmore on a panel in Davos on Tuesday, Oxfam Executive Director Gabriela Bucher said that last year’s multilateral agreement proposing that companies pay at least 15% tax on earnings, did not go far enough.

The Organisation for Economic Co-operation and Development tax reform agreement was signed by 136 countries and jurisdictions in October, though it is yet to be implemented.

Bucher pointed out that if the agreed rate had been set higher, at 25%, as recommended by tax experts around the world, this would raise a further $17 billion for the developing world.

Bucher was also concerned that the agreement, at the current level, would see a “race to the bottom” for corporate taxes and that countries with higher rates might actually bring them down.

“There’s a danger that we’re not really using this important tool at this moment when we have so many competing crises,” she said, referring to a hunger crisis in both the developing world and in wealthier countries because of the surging cost of living.

Bucher later went on to say that “you can accumulate as much wealth as you want, but if everything ends around you then it doesn’t make much sense.”

Read original article here

Business

Elon Musk will be most indebted CEO in America if Twitter deal closes

Leave a comment

The world’s richest person could soon add another title to his name – America’s most leveraged CEO.

Two-thirds of Elon Musk’s financing for the $44 billion deal to take Twitter private will have to come out of his own pocket. That pocket is deep. He has a net worth of about $250 billion.

Yet because his wealth is tied up in Tesla stock, along with equity in his SpaceX and The Boring Co., Musk will have to sell millions of his shares and pledge millions more to raise the necessary cash.

According to his SEC filings, Musk’s financing plan includes $13 billion in bank loans and $21 billion in cash, likely from selling Tesla shares. It also includes a $12.5 billion margin loan, using his Tesla stock as collateral. Because banks require more of a cushion for high-beta stocks like Tesla, Musk will need to pledge about $65 billion in Tesla shares, or about a quarter of his current total, for the loan, according to the documents.

Even before the Twitter bid, Musk had pledged 88 million shares of the electric auto maker for margin loans, although it’s unclear how much cash he’s already borrowed from the facility.

According to research firm Audit Analytics, Musk has more than $90 billion of shares pledged for loans. The total makes Musk the largest stock-debtor in dollar terms among executives and directors, far surpassing second-ranked Larry Ellison, Oracle’s chairman and chief technology officer, with $24 billion, according to ISS Corporate Solutions, the Rockville, Maryland-based provider of ESG data and analytics.

Musk’s stock debt is outsized relative to the entire stock market. His shares pledged before the Twitter deal account for more than a third of the $240 billion of all shares pledged at all companies listed on the NYSE and Nasdaq, according to Audit Analytics. With the Twitter borrowing, that debt could soar even higher.

Of course, Musk has plenty of cushion, especially since he continues to receive new stock options as part of his 2018 compensation plan. His 170 million in fully owned Tesla shares, combined with 73 million in options, give him a potential stake in Tesla of 23%, at a value of over $214 billion. The rest of his net worth comes from his more than 50% stake in SpaceX and his other ventures.

He received another 25 million options as part of the plan this month as Tesla continued to meet its performance targets. While Musk can’t sell the newly received options for five years, he can borrow against them.

Yet Musk’s 11-figure share loans represent an entirely new level of CEO leverage and risk. The risks were highlighted this week as Tesla’s share price slid 12% on Tuesday, chopping more than $20 billion from Musk’s net worth. Shares of Tesla were down less than 1% on Thursday afternoon.

Musk’s bet also come as other companies are sharply cutting back or restricting share borrowing by executives. More than two-thirds of S&P 500 companies now have strict anti-pledging policies, prohibiting all executives and directors from pledging company shares for loans, according to data from ISS Corporate Solutions. Most other companies have anti-pledging policies but grant exceptions or waivers, like Oracle. Only 3% of companies in the S&P are similar to Tesla and allow share pledging by executives, according to ISS.

Corporate concerns about excess stock leverage follow several high-profile blowups in which executives had to dump shares after margin calls from their lenders. Green Mountain Coffee Roasters in 2012 demoted its founder and chairman, Robert Stiller, and its lead director, William Davis, after the two men were forced to sell to meet margin calls. In 2015, Valeant CEO Michael Pearson was forced to sell shares held by Goldman Sachs as collateral when it called his $100 million loan.

Jun Frank, managing director at ICS Advisory, ISS Corporate Solutions, said companies are now more aware of the risks of executive pledging, and face greater pressure from investors to limit executive borrowing.

“Pledging of shares by executives is considered a significant corporate governance risk,” Frank said. “If an executive with significant pledged ownership position fails to meet the margin call, it could lead to sales of those shares, which can trigger a sharp share drop in stock price.”

In its SEC filings, Tesla states that allowing executives and directors to borrow against their shares is key to the company’s compensation structure.

“The ability of our directors and executive officers to pledge Tesla stock for personal loans and investments is inherently related to their compensation due to our use of equity awards and promotion of long-termism and an ownership culture,” Tesla said in its filings. “Moreover, providing these individuals flexibility in financial planning without having to rely on the sale of shares aligns their interests with those of our stockholders.”

The exact amount that Musk has borrowing against his shares remains a mystery. Tesla’s SEC filings show his pledge of 88 million shares, but not how much cash he’s actually borrowed against them. If he pledged the shares in 2020 when Tesla stock was trading at $90, he would have been able to borrow about $2 billion at the time. Today, the borrowing power of those shares has increased tenfold, so he could have room to borrow an additional $20 billion or more against the 88 million shares already pledged. In that case, only about a third of his Tesla stake would be pledged after the Twitter deal.

Yet if he’s increased his borrowing as Tesla shares have risen in value, he may have to pledge additional shares. Analysts say that if Musk has maxed out his borrowing on the 88 million shares (which is highly unlikely) and he has to pledge an additional 60 million shares to fund the Twitter deal, more than 80% of his Tesla fully owned shares would be pledged as collateral.

That would leave him with about $25 billion in Tesla shares unpledged. If he also has to sell $21 billion of Tesla shares to pay the cash portion of the Twitter deal, as well as the accompanying capital gains taxes, virtually all of his remaining fully owned stock would be pledged.

Either way, Musk will be putting a large share of his Tesla wealth at risk, which could make for a bumpy ride ahead for Tesla shareholders.

Borrowing against shares, Frank said, “exposes shareholders to significant stock price risk due to an executive’s personal financing decisions.”

Read original article here

US

Biden’s budget proposes tax hike on married filers over $450,000

Leave a comment

President Joe Biden introduces his budget request for fiscal year 2023 on March 28, 2022 in Washington.

Anna Moneymaker | Getty Images

President Joe Biden released his 2023 federal budget request on Monday, calling to hike the top marginal income tax rate to 39.6% from 37%, a proposal floated by the administration last year.

The higher rates apply to married couples filing together with taxable income over $450,000, heads of household above $425,000, single filers making more than $400,000 and $225,000 for married taxpayers filing separately, according to the Treasury Department.

If enacted, the change may hit higher earners beginning after Dec. 31, 2022, and income thresholds may adjust for inflation after 2023.

More from Personal Finance:
Most medical debt is coming off credit reports. What to do if yours doesn’t
How to avoid a tax filing rejection if last year’s return is still pending
There’s a tricky cryptocurrency question on your tax return

However, increases to income tax rates may be difficult to pass, with previous pushbacks from Sen. Kyrsten Sinema, D-Ariz.

Moreover, Democrats have a short window to reach an agreement before midterm election campaigns begin ramping up.

“There weren’t enough lawmakers in favor of raising the rate to 39.6% last year for it to make the cut in the House-passed reconciliation bill,” said Erica York, senior economist and research manager at the Tax Foundation. “And I don’t see anything that has changed to make it easier in an election year.”

It’s been years since the presidential budget actually went anywhere, and this seems like another one that’s kind of dead on arrival.

Howard Gleckman

Senior fellow at the Urban-Brookings Tax Policy Center

Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center agrees the individual tax proposals, including an increase on the highest marginal income tax bracket, may not be politically viable.

“It’s been years since the presidential budget actually went anywhere,” he said. “And this seems like another one that’s kind of dead on arrival.”

With the Congressional Budget Office scoring already complete for many of Biden’s past proposals, there’s the potential for Democrats to move quickly on an agreement.

However, a lot depends on Sen. Joe Manchin, D-W.Va., who blocked the House version of Biden’s Build Back Better, and his willingness to restart negotiations, Gleckman said.

Former President Donald Trump’s signature 2017 tax overhaul temporarily reduced the top marginal rate to 37% through Dec. 31, 2025. However, it will automatically revert to 39.6% when the provision sunsets in January 2026 unless extended by Congress.

Biden’s 2023 federal budget also asks for a “billionaire minimum tax,” a 20% income tax rate for the top 0.01% of earners and families with wealth exceeding $100 million, among other revenue raisers, which policy experts say may be a tough sell.

Read original article here

US

New Jersey governor floats property tax relief for homeowners, renters

Leave a comment

New Jersey Gov. Phil Murphy delivers a victory speech on Nov. 3, 2021, in Asbury Park, New Jersey.

Eduardo Munoz Alvarez | Getty Images

Property tax relief may soon be coming to New Jersey.

Gov. Phil Murphy has proposed the ANCHOR property tax relief program, extending savings to nearly 1.8 million households, as part of the state’s 2023 fiscal year budget.

Homeowners earning up to $250,000 per year may be eligible for rebates averaging $700, lowering the effective property tax rate to 2016 levels for many households, according to the plan.

More from Personal Finance:
IRS rule offers higher penalty-free withdrawals for early retirees
These 3 last-minute moves can still slash your 2021 tax bill
Sold your home? Here’s how to avoid a tax bomb this filing season

Renters making up to $100,000 may also qualify for a rebate up to $250, to help offset higher housing costs.

“This program will provide direct property tax relief to households regardless of whether they own or rent,” Gov. Murphy said. “While the state does not set property taxes, we believe that we must take action to offset costs and make life in New Jersey more affordable.”

The $10,000 cap on the federal deduction for state and local taxes for filers who itemize, known as SALT, has been a pain point as New Jersey faces the nation’s highest property taxes.

While some New Jersey and New York lawmakers have fought to include SALT reform in the Democrats’ spending package, the status of the plan is unclear.

Meanwhile, if New Jersey’s tax relief passes in the Democrat-controlled state legislature, it may distribute $900 million in property tax relief for fiscal year 2023.

The program aims to boost relief over a three-year period, increasing rebates to an average of $1,150 by 2025 for eligible families.

The proposal comes as many states are eying tax cuts, including income, sales, corporate, property and more, amid budget surpluses resulting from federal Covid-19 relief.

Read original article here