Masonry Magazine January 1968 Page.15
TAXES
By MIRIAM McD. MILLER
Beginning with this issue, MASONRY is pleased to announce the inauguration of a monthly column on taxes, and how they may affect you.
December Tax Planning
Early December is generally considered to be the best time to think about what your tax bill is going to be on the following April 15th. It may be in your best interests to try to accelerate certain controllable deductions from the first weeks in January to the last weeks in December. On the other hand, if you have had a high amount of deductions in 1968, you may wish to delay payment on some deductible items until after the first of the year.
While there are many, you may give thought to some of the following possible income shifting moves: the sale of property to establish a loss; the sale of securities also to established a loss; should you try to collect in advance or defer amounts due you, or, fees from some customers; should you accelerate any interest payments, perhaps make an additional mortgage payment; are there any business expenses that you could pay during this tax year rather than wait until 1969; have you used up the limit in charitable deductions; would optional overtime work in the closing weeks of the year put you into a higher tax bracket; should you be sure to pay all outstanding medical bills or should you delay paying them; if you are a close corporation, should you not delay declaring a dividend until next year and instead make a reasonable increase in a few salaries; would your employees prefer to have a year-end bonus in the first of the new year.
Income shifting at the end of the year is always dependent on the particular financial situation of a taxpayer. However, this year December tax thinking is affected by the fact that the surcharge law was passed in 1968. As you are well aware, the surcharge for individuals in 1968 is 7.5% and in 1969 will be 5%. For a calendar year corporation, the surcharge is to drop from 10% in 1968 to 5% in 1969. Thus, because of a coming lower surcharge in 1969, it would follow that this December is an even more important time to think of possibly deferring income and accelerating deductions than the usual December.
However, what will happen to the surcharge when the new Congress meets is still anybody's guess. A clue may lie in a recent speech by Congressman Wilbur Mills, who has such great influence on tax legislation. Congressman Mills said "Let there be no mistake, however, that, regardless of what administration is in office, the troublesome issues of a constantly increasing upward trend in expenditures and an inability of our revenue system-even in times of prosperity to keep up with these increasing expenditures present a critical situation that simply has to be corrected. At this time, with the information presently available to us, if we are to avoid another deficit, I see little possibility for letting the surtax expire on June 30, 1969, unless additional very stringent economies are placed in effect."
One final reminder for December tax thinking. In 1968, for the first time, a contribution to an H.R. 10 plan (self-employed retirement plan) is fully deductible. Prior to 1968, only 50% of the contribution could be deducted by the self-employed individual. Even under the new law, there is still a limitation on an H.R. 10 plan contribution. That limitation is the lesser of 10% of earned income or $2500. So, you may wish to go ahead with a contemplated H.R. 10 plan before this tax year ends.
How Much For Charity?
Except for the deduction allowed for charitable contributions, the amount by which income is reduced as a result of it, would be taxed at an individual's highest tax rate. Then, the question arises, just how much do charitable contributions actually cost? Commerce Clearing House has prepared a Table which shows the net cost of charitable contributions in 1968. The cost of charitable contributions vary from individual to individual and the higher the tax bracket, the less the contribution costs.
Based on $100 of contributions for individuals for 1968, the net cost would be:
TAXABLE INCOME | SEPARATE RETURNS | JOINT RETURNS
:---|:---:|:---:
$ 4,000-$6,000 | $76 | $80
6,000 8,000 | 73 | 80
8,000 10,000 | 70 | 76
10,000 12,000 | 66 | 76
12,000 14,000 | 61 | 73
14,000 16,000 | 58 | 73
16,000 18,000 | 55 | 70
18,000 20,000 | 52 | 70
20,000 22,000 | 48 | 66
52,000 54,000 | 33 | 46
With regard to corporations, the CCH Table shows that if the corporation's taxable income does not exceed $2,500, the net cost per $100 of contributions in 1968 is roughly $76. If the taxable income of the corporation exceeds $25,000, then the net cost per $100 of contributions in 1968 would roughly be only $47.
Form 1040
Some five million taxpayers who live in New York and the New England states will receive a new variation of Form 1040 this coming year. By using color, red, white, and blue no less, the Internal Revenue Service hopes to save taxpayers from making errors in the sections of Form 1040, where most errors are made. If the experiment proves of value; then the rest of us may be receiving colorful Form 1040's to complete. The Commissioner of Internal Revenue reported that almost one in every nine individual returns had an error in 1967. Of the 2.9 million returns audited by the IRS in 1968, 1.5 million were found to have underpaid the tax due by $2.9 billion and some 202,000 returns had errors that caused overpayments totaling $296 million, which had to be refunded.
There are live problem areas cited by the Commissioner in which taxpayers' errors most frequently lead to the audit of a return. These are mistakes in claiming exemptions for dependent, deductions for contributions, medical expenses, and interest payments, and reporting of interest received.
About the Author.
Following graduation from Tulane University Law School in 1955, Miriam McD. Miller entered private practice in New Orleans. Later, she joined the General Counsel's Office of the Federal Communications Commission in New York City for one year. For the next six years, she worked for the Department of Labor, primarily with the Davis-Bacon, Wage and Hour laws. Mrs. Miller and her husband, an attorney for the National Labor Relations Board have two children and reside in Arlington, Virginia.
Editor's Note:
The cases and interpretations in this column are not intended as legal advise. Individuals should contact their own attorney or tax consultant on specific problems.