Jeffrey B. Kahn, Esq. and Windus A. Fernandez Brinkkord Discusses Possible Federal Reserve Rate Hike, Jeb Bush Tax Plan Proposal, California Tax Agencies and their Collection Tools, Financial Planning and the IRS On ESPN Radio – September 11, 2015 Show
Topics Covered:
- The Federal Reserve – Should I Stay Or Should I Rise?
- It’s Kickoff Time For The Political Season Of Presidential Candidate Tax Proposals! – Jeb Bush’s Tax Plan
- State Of California Taxation and Collection Tools Used By The State.
- Questions from our listeners:
- What’s a credit score?
- Is it really true that I could settle my tax debt with the IRS for a discounted lump-sum payment?
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Jeff states: Yes sometimes we just have to take the money and run!
Good afternoon! Welcome to Inside Advantage – Your Financial And Tax Radio Show. This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.
Windus states: And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Senior Vice President Of Investments at Trilogy Financial Services.
You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.
Jeff states: When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!
Windus states: And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.
Jeff states: Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.
Jeff states: Well today it’s “Full House Friday” because we have the whole Inside Advantage crew at bat – Amy Spivey will be calling into the show a little later and here in the studio with me and Windus is my paralegal, Susannah Kahn. Hi Susannah.
Sue says hi and chit chats with Windus and Jeff.
Jeff states:
For today’s show we have coming up:
Segment 2 material: It’s Kickoff Time For The Political Season Of Presidential Candidate Tax Proposals and the first one to talk about is Jeb Bush’s plan.
Windus states:
Also coming up is:
Segment 3 material: We are going to talk about how the State Of California taxes its citizens and what you need to know.
And of course towards the end of our show, we will be answering some of your questions.
Jeff states: So for today’s top story:
The Federal Reserve – Should I Stay Or Should I Rise?
Posted September 10, 2015 in Yahoo Finance. http://finance.yahoo.com/news/september-rate-hike-wont-175650188.html
Jeff continues: Next week will be a big one for U.S. markets as the Federal Reserve is due to hold its monthly policy meeting over two days on Wednesday and Thursday. The September meeting is a pivotal one, as investors are 50/50 on whether the bank is planning to raise interest rates this month or hold off in light of the recent market turmoil.
Windus states: In general, the rate that the Federal Reserve (or as everyone calls it the Fed) is talking about raising is the Discount Rate. The Discount Rate is the short term rate in which commercial banks borrow from the local federal reserve. When this rate is low, banks can turn around and lend out to people at lower rates. When this rate is high, banks have to charge higher rates when lending money out to people.
Windus continues: It is a common misunderstanding that the Discount Rate is a mortgage rate. It isn’t, but the Discount Rate does impact mortgage rates. Because when banks borrow from the Fed to turn around and make loans, if they now have to borrow at a higher rate from the Fed, they have to charge more interest to people on the loans they take from the bank. Therefore, when the Fed raises the Discount Rate, so does everything else.
The Fed Divided
Jeff states: The article in Yahoo Finance states that Fed officials appear to be divided on whether to raise rates, as comments from the central bankers in past weeks show that there are several opinions on the matter.
Jeff continues: Some Fed officials believe that low rates for an extended period could eventually trigger asset bubbles. Those who support a rate hike point to the job market’s improvement, saying that the U.S. economy is ready to stand on its own. However, on the other hand, worries about inflation and China’s economic slowdown are making some central bankers nervous about a hike.
Why do banks borrow from the Fed?
Windus states: People think that banks should have their own money to lend and so why do banks borrow from the Fed.
Windus continues: Banks are required to maintain a certain level of reserves. The required reserves are determined by the outside assets and liabilities of each depository institution, as well as the Fed itself, but the percentage typically used is 10%. In 2007 and 2008, this number was 3%. Partially due to the default of loans to financial institutions to prevent them from breaching this required deposit amount. In 2007 and 2008, banks stopped lending for two reasons, loans were higher risk and they were having to keep more money on their balance sheets, but also because they have to meet this monetary deposit requirement and didn’t want to come under pressure. Therefore, the Fed lowered the Discount Rate to make it easy for banks to borrow from them to cover this requirement and ultimately free up money for the bank to lend again.
Jeff states: But we all know the flood gates of easy loans did not open. Instead the banks kept the funds for investment because the risk was too great for them to start lending again.
Investors Brace For Market Shock
Windus states: The article in Yahoo Finance goes on to state that as the Fed has waded out into uncharted territory by keeping interest rates low for such a long period and so many are unsure of how a rate hike will affect markets. Many investors worry that a rate increase will wreak havoc on share markets and have begun to prepare their portfolios.
Windus continues: The article suggests that for investors expecting a rate hike next week, financial sector stocks are an attractive bet, as most banks will be able to pass the cost of regulatory changes on to consumers, thus protecting their bottom lines. And in other sectors like healthcare and technology, the article suggests that investors are choosing stocks with low debt levels as borrowing is expected to become more costly with a rate increase.
Slow And Steady
Jeff states: Whether the Fed chooses to raise the Discount Rate this month or holds off until October or December, most analysts agree that a rate increase is coming sooner or later. However, some say the market’s panic is overdone as the Fed has promised to move slowly with consecutive rate increases after the first hike.
Windus states: What people do not understand is that the Discount Rate has never been this low in the history of the Discount Rate. This rate is what we refer to as one of the Fed’s tools to stabilize the economy. Right now, unemployment is 5.1%, the lowest we’ve seen 2008. This rate fell much quicker than the Fed anticipated. If the economy continues to improve at this employment rate, the Fed needs to raise the Discount Rate.
Why does the Fed need to raise the Discount Rate?
Jeff asks Windus: Why do they need to raise the rate?
Windus replies: If the Fed doesn’t raise the rates, then in the next recession, there will be less monetary policy options for the Fed to implement to get the economy moving. Another concern about leaving the Fed rates low is that this could cause a bubble. For example, a housing bubble by driving the purchase of more homes due to lower rates, we’ve seen that impact on the markets in the last 10 years. Not something that we’d like to have a repeat of.
Windus continues: Now not raising them in September isn’t the end of this, in fact they meet again in October and December and will likely raise before the end of the year regardless of what they do in September. In fact, it is possible that they will raise this rate more than once this year if they do raise it in September.
Jeff states: The Fed has stated that before making any subsequent rate adjustments, it would first evaluate the outcome of its first rate hike and could even lower rates again if there is a negative economic reaction following the increase.
Windus states: Ultimately, we are looking at a quarter of a percent rate hike in the month of September, maybe. That would be a rate hike from 0% to .25%. AND the long term current goal is to have this rate back up to 3.5% or 3.75% before the need to lower it occurs again. The longer we take to raise it, the less likely it will be that the Fed can get it there before the next recession! The current Fed funds rate is .25%, the current Discount Rate is .75%
Well it’s time for a break but stay tuned because it’s Kickoff Time For The Political Season Of Presidential Candidate Tax Proposals and the first one to talk about is Jeb Bush’s plan.
You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.
BREAK
Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord and in the studio with us is my paralegal, Susannah Kahn.
It’s Kickoff Time For The Political Season Of Presidential Candidate Tax Proposals!
Jeff states: And for our first candidate we will be talking about Republican presidential candidate, Jeb Bush who Wants Fewer Tax Breaks for Wealthy Than Most in the GOP.
His tax proposal was published in the Wall Street Journal on September 9, 2015 http://on.wsj.com/1hZcdlJ. It states that Mr. Bush would change income-tax rules and curb deductions that he says often unfairly benefit high-income households
Windus states: Mr. Bush’s proposal is the first of many tax plans to come out of this election season. The election season is becoming like the holidays…starts too early and goes on too long. Can’t beat it so we may as well join it!
Windus continues: The general idea that I am picking up on is that this candidate will want to reduce taxes for the middle class but target increases on the wealthy.
Jeff asks Windus: What defines wealthy in the United States?
Windus replies: Income is commonly used to determine “wealthy” and that is certainly what is being used to determine it for the Presidential candidates. Before you assume you’ll want the wealthy to be taxed at a higher rate, you may want to see how this would impact you and that is where some good financial planning comes into play because…
Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.
Jeff states: Now the upper middle class is most commonly defined as the top 1% with household incomes above $525,000 annually, as of 2013 and as many presidential hopefuls learned in the past, the promise to raise taxes is not a winning campaign platform yet you cannot promise tax cuts without finding offsetting new revenues.
Windus states: Mr. Bush believes his tax cuts will spur economic growth and the more growth, the more new tax revenues. Specific to his plan, taxpayers who earn more than $200,000 annually “will bear a greater share of our income-tax burden than they do today”. “So the top 5% will bear a greater share,” he said, “And the top 10% as well.”
Windus continues: The way in which he plans on doing this is two-fold:
1. Allowing a tax deduction of interest on debt, which makes borrowing more attractive; and
2. Permitting what is called “carried interest” which allows investment-fund managers to pay lower taxes on much of their compensation.
Jeff states: So Mr. Bush is proposing that we treat more than just mortgage interest as a tax deduction but interest on other debts as well and when this increased level of borrowing, there will be greater economic activity.
Windus states: Another interesting aspect of his plan is to have few tax brackets…this would actually help wealthier taxpayers, but not so much for us California taxpayers who pay high state taxes because the deductions for state and local taxes would be eliminated and all other deductions would then be capped at 2%.
Jeff states: Now, just like everyone, Mr. Bush believes his tax cuts will spur economic growth. And it is entirely possible, if passed they could. Of course this is not something that is easy to judge until the action is taken and we can see its impact.
Windus states: Change is difficult. I understand we need change. Some of this just sounds like it may be very costly for those essentially earning more than $150,000 and living in California. And that may not be different for any of the tax reformation proposals we will be reading about in the next year which is why you should consider making a sound financial plan.
Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.
Well it’s time for a break but stay tuned because we are going to tell you we are going to talk about how the State Of California taxes its citizens.
You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.
BREAK
Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord and in the studio with us is my paralegal, Susannah Kahn.
And calling into the studio from my Walnut Creek Office to make this a “Full-house Friday” is my associate attorney, Amy Spivey.
Chit chat with Amy
Jeff states: We always talk about the IRS and its enforcement of the Federal Tax Laws so I thought that for this segment we would focus on State Taxation in this great State Of California.
State Of California Taxation.
Amy states: Unlike the Federal level which has one tax agency handling the administration, enforcement and collection of all Federal Taxes (income, employment, excise), the State Of California tax system is organized into three separate tax agencies:
- Franchise Tax Board (FTB) which deals with State Income Tax
- Employment Development Department (EDD) which deals with State Payroll Tax
- Board Of Equalization (BOE) which deals with Sales & Use Tax, and Other Taxes & Fees
Windus: Amy, you would think that with our nation being so large that it would be the other way around where the Federal tax agency level would be divided up into different agencies and the State Of California operating with one tax agency?
Amy replies: True and most States do operate with a single tax agency like the Federal government. But as I said California is different and so to effectively deal with the State, you need to know how it agency operates.
Jeff states: OK Amy so let’s talk about FTB.
Franchise Tax Board (FTB)
Amy replies: FTB is responsible for administering two of California’s major tax programs: Personal Income Tax and Corporation Tax. Some other tax enforcement programs administered by the FTB:
1, City Business Tax Program – The FTB will exchange data with participating cities. City data helps the FTB identify self-employed individuals who are not filing required individual and business entity income tax returns, and state tax data helps cities identify businesses that may have a local business tax filing requirement.
2. Criminal Investigations – The FTB’s investigative efforts help bring individuals and business entities into compliance with tax laws and reduce the tax gap. The FTB will also publicize their investigation results as a means to deter other taxpayers from non-compliance with the tax laws.
3. Voluntary Disclosure Program -. The Voluntary Disclosure Program allows qualified entities, qualified shareholders, or beneficiaries that may have incurred an unpaid California tax liability or an unfulfilled filing requirement to disclose their liability voluntarily and avoid criminal prosecution.
Windus asks: Does the IRS have each of these same programs in place as the FTB?
Amy replies: It does have a Criminal Investigation Division which also administers the Voluntary Disclosure Program. By the way we have a lot of clients who have undisclosed foreign bank accounts who have engaged our services to enter into the Voluntary Disclosure Program and avoid criminal prosecution. As to information sharing, the IRS does get information from the State but not directly from local governments so it really is up to the State as to what information from local governments they include with what is being shared with IRS.
Jeff states: OK Amy so let’s talk about EDD.
Employment Development Department (EDD)
Amy replies: The EDD is responsible for the state programs involving unemployment insurance, disability insurance, payroll tax collection, and job training/workforce services. To better administer its programs in California’s two trillion dollar economy with nearly 16 million employed Californians, the EDD is divided into nine different branches.
The main one we deal with is the Tax Branch (TB) which administers the collection, accounting, and auditing functions of California’s payroll tax program. The program consists of Unemployment Insurance and Employment Training Tax, which are employer contributions, and State Disability Insurance and Personal Income Tax, which are withheld from employees’ wages. Each year, the EDD collects approximately $50 billion dollars in payroll taxes and processes more than 30 million employer tax documents and remittances.
Jeff states: And what about BOE?
Board Of Equalization (BOE)
Amy replies: The BOE was established in 1879 by a constitutional amendment. The BOE was initially charged with responsibility for ensuring that county property tax assessment practices were equal and uniform throughout the state. Currently the tax programs administered by the BOE are concentrated in four general areas: sales and use taxes, property taxes, special taxes and the tax appellate program. Each year, the BOE collects approximately $56 billion dollars in taxes and fees amounting to about 30% of all state revenue.
Jeff states: So Amy its seems that in terms of the percentage of revenues collected that each of the three State tax agencies collects about 1/3rd of the State Of California’s revenues.
Amy replies: Yes Jeff that would be right.
Windus states: So Amy if one owns and operates a business here in California that business could be subject to tax enforcement and collection of taxes by the IRS and these three state tax agencies at the same time?
Amy replies: Yes that does happen and it is common that a business that becomes delinquent in its tax obligations usually is delinquent with more than one type of tax.
Jeff states: And so whether you are subject to the wrath of one tax agency or perhaps four tax agencies, you need to contact…
PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.
California Tax Agencies’ Collection Tools
Jeff states: Each taxing agency in California operates differently. So it is best to understand their rules and procedures if you are being targeted by the FTB, EDD or BOE.
Some of the collection actions that each tax agency will use:
- Filing tax liens – good for 10 years and by refiling can be extended another 10 years (whereas for IRS it is 7 and 7 years).
- Garnishing wages (State limited to 25%) (whereas IRS exempts a small amount of each paycheck from garnishment).
- Sending levies to your customers which obligates your customers to pay the government instead of paying you.
- Levying bank accounts (although retirement funds still exempt from levy).
- Publishing a taxpayer top delinquency list which anyone can access on the internet.
- Suspension of your California driver’s license.
- Suspension of other California issued licenses such as a contractor’s license.
Jeff states: Each taxing agency in California operates differently. Remember that State tax officials do not have your best interests at heart. They are not responsible for informing you of your rights or giving you tax advice. So to level the playing field and give you the advantage you need to contact…
PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.
Thanks Amy for calling into the show. Amy says Thanks for having me.
Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.
BREAK
Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord and in the studio with us is my paralegal, Susannah Kahn.
Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169.
You should also know that the securities and advisory services are offered through National Planning Corporation.(NPC) Member FINRA, SIPC, and a Registered Investment Advisor. Trilogy Financial Services and NPC are separate and unrelated Entities.
Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.
OK Susannah we are giving you the honor of pulling questions for us to answer.
Sue states: This is a question for Windus. Karen from Carlsbad asks what’s a credit score?
Windus replies: A credit score is a numeric rating determined by three credit bureaus: Equifax, Experian, and TransUnion. The most commonly used credit score is from FICO. This rating, which can vary by bureau, is defined by how much debt you have, whether you pay your bills on time, how many credit cards you have, and any unpaid bills, among other factors.
Your credit score (which can range from 300 to 850) affects most financial decisions: Buying a car, buying or renting a home, getting loans, and opening new lines of credit require credit score reviews by the people or companies who can grant you any of those things.
You can check your credit score in addition to your credit report, which you should do at least once a year to make sure it’s accurate and reflects credit cards or debts you actually have (and that no one else is using your name — and your credit — to buy stuff). Your credit score impacts basically your entire adult financial life so it’s important to know what it is and monitor it. You can do this for free without affecting your score at: www.annualcreditreport.com.
Sue states: Jeff I have a question for you from Ralph in Irvine who asks, is it really true that I could settle my tax debt with the IRS for a discounted lump-sum payment?
Jeff replies: That is possible with an Offer in Compromise. An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS would consider your unique set of facts and circumstances that covers the following:
- Ability to pay;
- Income;
- Expenses; and
- Asset equity.
IRS will generally approve an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time (that time is usually the remaining period left on the Statute Of Limitations For Collections). Be aware though that how the IRS arrives at how much they could expect to collect within a reasonable period of time can be very tricky which is the reason why most Offers submitted directly by taxpayers without professional guidance fail.
Jeff PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.
Jeff states: Thank you Sue for coming on to the show today and making this a “Full-house Friday”. Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.
Windus states: Have a great day everyone!
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