By David Pilley
on May 7, 2013
There have been numerous ideas on how to boost our sluggish economy. The most recent idea has been austerity, or cutting back on government-funded programs. A 2010 study promoting austerity was recently debunked
by a Harvard graduate student, thanks to him spotting “Microsoft Excel” errors. Slashing government programs will not create growth. Slashing CEO pay, however, will. The average CEO is paid over 350 times
the amount of an average worker. This, combined with stagnant wages and inflation, is a big reason why the average Joe is finding it more difficult to make ends meet.
According to information from AFL-CIO
, the average CEO was paid 42 times the salary of the average worker in 1982. Now, it has ballooned to over 350 times. While the average worker makes $20 per hour—according to the Bureau of Labor Statistics
—the average CEO’s salary is $12.3 million a year, or about $7,000 per hour
. That’s the AVERAGE amount. This number includes salaries, bonuses, perks, stock awards, stock options, and other incentives. Eric Schmidt, the former CEO of Google, made $101 million
in 2012. ($100 million of it was an equity award offered by Google.) That breaks down to about $809 per minute, or $48,548 per hour
. The average worker made about $35,204 the entire year
in 2012. If someone can justify how a person can make more in an hour than what the average Joe makes in an entire year, I’d love to hear the argument. (You’ll be happy to know that, after stepping down as CEO, Schmidt’s salary now is just $1.25 million.)
Most people would agree that the CEO deserves a higher salary than the average worker, but 350 times is not a popular or even healthy number. The US far and away has the highest executive pay in the world, both in absolute numbers and in the ratio (354:1
) to workers’ average wage. The average CEO in Canada gets paid 204 times the average worker. In England, the ratio is just 84:1, and Japan’s CEOs get paid an average of 67 times its average workers’ pay. The US, Canada, and England all currently have national unemployment rates between 7 and 8 percent, while Japan’s last measured unemployment rate (September 2012) was only 4.2 percent. Why the huge gap between American CEOs and global CEOs’ salaries?
And why are the average worker’s wages stagnant? According to the Bureau of Labor Statistics, productivity has increased 82 percent
since 1992, but income has only increased 10 percent
in the same time period. The federal minimum wage sits at $7.25, an amount that has not increased since 2009. We constantly say we’re the best country in the world, but Australia’s minimum wage is twice ours (equivalent to $16.45 per hour). Why doesn’t America have the best worker wages? General prices of goods and services go up in varying increments every
year, but only a handful of states accordingly adjust their minimum wages. Furthermore, many Americans making two or three times the minimum wage are having trouble affording basic needs. Eighty million—nearly half
of all working-age adults in the US—did not go to the doctor last year
, one-fourth of all working-age adults did not fill an expensive prescription or skipped recommended tests, and one-fourth of working-age adults with good insurance
had to forgo treatment. Forty-seven million Americans are on food stamps, and it isn’t because they’re all lazy. About one-third of Americans are obese, and a lot of it has to do with the fact that people cannot afford healthy produce and are relegated to buying fast food loaded with sugar and corn. In a recent study of 25 major US cities
, only the average household of Washington, DC, could afford to buy a new car.
The average American’s wages have increased just 10 percent in the past 20 years. During the same time, the average CEO’s salary has increased from 42 times our salary to 354 times our salary. Americans are overworked and underpaid, and CEOs are neither. Not much can be done to rectify this situation, other than shame. The corporate world lies in a bubble, and people on the outside need to be aware of this problem. Why are people who play with money for a living making more and also incurring less risk than people who do physical labor every day? The stock market recently plummeted
after fake information on Twitter about a made-up attack on the White House. Why is this kind of information being used in the stock market? Calling out companies who give their executives six-figure bonuses, while subsequently outsourcing jobs, is not solely the job of late-night satirical news programs. The increasing wage gap between CEOs and average Joes hurts our economy, and something needs to be done so our recent recession does not repeat itself or deepen into a depression!
Image adapted from original by Muriel Miralles de Sawicki
Posted: 5/6/2013 3:00:00 PM
| with 0 comments
By David Pilley
on April 25, 2013
With the country’s tax code as jumbled as a plate of spaghetti, it’s an inevitability that you will make a mistake. Whether it’s a forgotten W-2 or the wrong number of dependents, your completed 1040 form may have something you want to fix. You need to get the information right because incorrect financial information could trigger an audit. Who knows, you might be owed more than you expected in refunds. In the case of an error in your tax forms, you need to make an amendment by filing Form 1040X
should be filed if you need to correct information that will alter the amount of federal income tax you owe. Here are the situations you need to file this form:
You are claiming additional dependents (individuals in your household who are either under 19 years old, full-time students under age 24, or someone who is disabled) or removing dependents you previously claimed
You are reporting your proper filing status (single, married filing separately, married filing jointly, or widow/widower)
You are reporting additional income from a W-2 or 1099
You are claiming additional tax credits or removing them
You are making changes in itemized deductions or your personal exemptions
When you make a tax amendment, you need to complete both the 1040X and a new 1040 form
. You will fill out the new 1040 form with the correct information and then plug this information into page one of Form 1040X. On the right-hand side of the first page of 1040X, there are three columns stating original amount, net change, and correct amount. On page 2 of 1040X, there is a section titled “Explanation of changes
.” Here, you will need to explain the net change
between your original 1040 and your revised 1040. THIS IS THE MOST IMPORTANT SECTION OF FORM 1040X!
Explain here, in a couple of sentences, that you forgot to include a W-2 form or 1099 form, or that the number of dependents in your household was incorrectly reported. You also need to supply a copy of all your information along with your new 1040 and 1040X forms. Highlight the W-2 or 1099 form that changed your tax information
If you are amending a tax form with a 1040X, you must print out all necessary documents and send them to the IRS in paper form! Remember that you have three years
to make amendments to a 1040 form in order to receive tax refunds. (The top of this year’s 1040X has a box to check if your return is either for 2009, 2010, 2011, or 2012.) If you are amending multiple tax returns, be sure to have all the corresponding information with the right year! The amended tax return should be processed by the IRS in 8 to 12 weeks
. You can send it at any time within the three-year window, but it is highly recommended to send the amended return with Form 1040X during the IRS’ downtime
, between June and December. Filing a 1040X form should not trigger an audit. Having incorrect financial information in the past three years and not
reporting it would be the reason for an IRS audit, so you can’t go wrong if you amend your previous 1040 with an updated 1040X form, as long as all the updated information is now correct!
Posted: 4/25/2013 2:00:00 PM
| with 0 comments
By David Pilley
on April 22, 2013
It’s a week after the income tax deadline, and many of you may not have filed. Many of you may have also not paid your taxes in full or a portion of your taxes. There are penalties for both, but don’t go pulling out your hair just yet. First, almost half of Americans owe no federal income taxes because of having a low income or a large amount of deductions. Second, the penalty amount is not even that high (in the beginning, at least). And third, you may have an opportunity for a deadline extension. This article will show you why not to fret
if you are late with filing taxes.
Nearly half of Americans owe no federal income taxes in the first place. Exemption
from federal income taxes relies on adjusted gross income and the number of dependents
or deductions you have. For 2012, a married couple with two children can file joint taxes and owe no federal income taxes if they earned $27,100 and applied the standard deduction
of $11,900 and personal exemptions of $3,800 each. (The standard deduction
is an amount that can be subtracted from income if an individual is not itemizing deductions.) In my personal case as a single individual, the standard deduction was actually higher than the amount of taxable income I made from 2012, so I owed no federal income taxes from the standard deduction alone! Some income, like disability benefits and foreign income, are non-taxable up to a point. Some people who owe no federal income taxes may even get a refund, thanks to the earned income tax credit! Being eligible for paying no federal income taxes is not just for low-income individuals and families. The wealthy can lower what they owe with a combination of municipal bonds and itemizing deductions through charitable donations.
So, a lot of people do not pay federal income taxes. If you do, however, and you still owe after April 15, the penalties are not large
, as long as you paid a good portion of what you owe. It also helps to file because, for some odd reason, the penalty for not paying
your taxes and the penalty for not filing
your taxes are different! The penalty for filing late is 5 percent
of the total amount of unpaid taxes for each month that the tax return is late, but the penalty for not fully paying your federal income taxes is only ½ to 1 percent
of the total amount for each month it is late. The statute of limitations on back taxes is three years, and if both the failure-to-file and failure-to-pay penalty
occur in the same month, the maximum combined penalty that month will simply be 5 percent
. Therefore, the IRS puts more stress on filling out the paperwork than actually paying your taxes. If you owe $1,000 and you did file, you will simply be charged an extra five to ten dollars the first month; in the same scenario without filing, you would be charged an extra fifty dollars
the first month! The fees will accrue, so make sure you file or pay off the extra amount within the first three months.
Finally, there is an opportunity for many people to file for an extension
. IRS Form 4868
allows individuals a six-month extension for turning in the paperwork. The IRS has a ton of paperwork to sift through in the first four months of the year—mostly because of its own doing—so they and tax professionals actually appreciate those who want to take a little more time to be as accurate as possible. However, Form 4868 needed to be completed by April 15
, so this option is no longer available. There are also penalties involved with the form if you do not pay your taxes. Form 4868 means you are asking for an extension on filing
; you still have to pay
something by April 15! The IRS will waive any penalties if you pay at least 90 percent
of what you owe. Of course, because you don’t exactly know what you owe, overpaying is a good idea. Form 4868 explicitly states that “You do not have to explain why you are asking for the extension.” It’s available for everyone.
Just make sure next year that you file the form, plus what you think you owe in taxes, before April 15.
When you are making a payment of federal income taxes, make sure to address the check or money order to “United States Treasury,” and when you are mailing it, do not forget to write out “Internal Revenue Service” on the envelope!
Posted: 4/22/2013 4:00:00 PM
| with 0 comments
By David Pilley
on April 8, 2013
Today (April 8) marks exactly one week before your taxes need to be filed. By now, if you haven’t already filed, you need to have correct documentation and the right forms to submit. Did you know there are over 800
various forms and schedules for income tax reporting? Filing your taxes can be tedious and confusing, so here is a checklist of important documents and forms you may come across during this time.
First, let’s start with the employers’ forms
. More commonly known as the “W Series,” employers’ forms are documents that report wages and tax withholding of employees. Form W-2
, the Wage and Tax Statement, is the most well-known. Every employee who gets a salary or wage from a company is supposed to receive a W-2 from his/her employer. Employees should have received these forms in the mail by the first week in February, as employers must mail them by January 31. Employees keep their W-2 copies for the April 15 personal tax reporting deadline, while employers must file the W-2 forms with the Social Security Administration by the end of February. Other forms in the series include W-4
. These two forms are completed whenever you are hired for a new job, and these forms are kept by your employer, rather than being mailed to the IRS. Lesser-known W Series forms include W-8
(completed by non-resident aliens and foreign corporations who do business in the US), W-10
(completed by daycare providers), and W-11
(completed by employers who have recently hired an employee who qualifies for a tax credit with the Hiring Incentives to Restore Employment [HIRE] Act). If you won at least $600 from gambling, a corporation will send you a W-2G
form. Yes, even when you get lucky, you still owe money to the Feds.
Besides the W Series, there are other important series of documents for informational purposes. The 1099 series
is used for reporting income other than wages, salaries, and tips. The most common situation to issue a 1099 form is for independent contractors
, people who get paid by a company but are not actual employees with benefits like health insurance or worker’s comp. In the same fashion as the W Series, 1099 forms are mailed to payers by January 31. The most common form is 1099-MISC
, which must be produced if an independent contractor is paid at least $600 during the fiscal year. Other 1099 forms include 1099-C
(regarding cancellation of debt
(regarding interest income), and 1099-S (regarding proceeds from real estate transactions). Two other information series of documents are 1098
(dealing with mortgage interest, student loan interest [1098-E
], and tuition [1098-T
]) and 5498
(dealing with contributions to an individual retirement account
, or IRA). It is important to remember that, as a recipient, you are not required to send 1099 or 1098 or 5498 forms to the IRS. It is the responsibility of the issuer
, such as the lender of your student loan or your IRA trustee, to report this information.
As an employee, you are to report to the IRS via the 1040 form
, or US Individual Income Tax Return. As with the rest of tax filing, there are multiple forms of the 1040 form. The 1040A
can be filed if you made under $100,000 last year and you are not itemizing deductions. The 1040EZ
form can be filed under the same circumstances as the 1040A plus not having any dependents. Most people, however, will fill out the 1040 form. The 1040 is just two pages long; however, it comes with 11 additional attachments, or schedules
. These schedules should be filled out for various purposes, such as itemizing deductions
(Schedule A), capital gains
(Schedule D), self-employment
(Schedule C), and income from property or royalties
(Schedule E). When you complete your 1040 form and mail it to the IRS, you will often need to attach these schedules, along with your W-2 form.
But wait, there’s more! If you are creating a non-profit organization, you need to complete a 1023 form
. When it comes to reporting expenses through a non-profit, Form 990
needs to be filled out. If you make an error on your personal 1040 form and want to report it to the IRS, fill out a 1040X
. (The 1040X can be used for any error made in the past three years.) If you are reporting a change of address to the IRS, you need to complete Form 8822
. These and many other forms are available in PDF format through the IRS’s website
For future purposes, always remember to start on your taxes as soon as possible (aka JANUARY
). Waiting until a week before the due date will cause even more stress during this most stressful time of the year!
Posted: 4/8/2013 2:00:00 PM
| with 0 comments
By David Pilley
on March 25, 2013
It’s the end of March, and that means it’s crunch time for filing your taxes. Looking through your mountain of payment stubs and receipts and then filling out the tax forms can cause a big headache. There is relief when the 1040 form is finally submitted, but some people dread a possible outcome: the audit
. A financial audit is verification of a legal entity’s statements. The practice dates back to the 1300s, and the process of verifying expenses in this day and age can be a laborious one. Avoiding a visit from the IRS can be fairly easy, as long as you do not have excessive itemized deductions.
An itemized deduction
is money spent on certain goods and services throughout the year. These goods and services may include medical expenses, mortgage/loan interest, gifts, and state and local taxes. After a tax filer computes his/her adjusted gross income, itemized deductions can be used to subtract and find the taxable income amount. However, these deductions are only possible at a certain minimum amount. For example, deducting a medical expense
is possible only if it exceeds 7.5 percent
of the taxpayer’s adjusted gross income. If you made $20,000 and you have medical expenses of $5,000, you can deduct $3,500 of it, leaving you with a $1,500 amount to report as taxable income (1,500 is 7.5 percent of 20,000). In regards to me, I paid interest on my student loan during 2012. However, I only paid $180, and in order to itemize a deduction for my student loan interest, I would have had to have paid at least $600 this year.
The more itemized deductions you report, the more you are at risk for an audit because the valuation of some deductions is not an exact science. Here are some deductions
that might cause the IRS to contact you.
Real estate losses
. This is usually only a problem for landlords. If you take a loss on an active investment, meaning you are paying attention to the market and making adjustments when it goes up or down, the IRS won’t worry. However, if it is a passive investment
, look out. Apartment complex landlords are very strict on the timing of their payment policies because of this reason. Apartment rent doesn’t always go up or down with the market—aka a passive investment—so if a landlord is collecting rent and ends up with a loss, he/she will most certainly be audited.
Noncash charitable donations
. This can be a problem for anyone. Goodwill Industries relies heavily on donations, such as clothes, books, furniture, and electronics. If you donate frequently to Goodwill, you can report itemized deductions on your tax forms. However, you need to know the value of your donations! This can be an extremely tedious task because you can’t simply apply the prices of the items when you first bought them. You need to know the market value
of your items when you make the donations, and this may result in estimation. Assigning too high a value on your donated items can often lead to an audit.
Unreimbursed employee business expenses
. This is also known as the “Two-Percent Haircut
.” Expenses related to work that exceed two percent of your adjusted gross income can be deducted, and some people tend to abuse this guideline. Miscellaneous itemized deductions are those other than the list in the Internal Revenue Code, Section 67b
, which relates to interest, charitable contributions, medical/dental expenses, tax computation, and impairment-related work expenses. Acceptable miscellaneous deductions include passports for business trips, tools and supplies used in work, required work clothes and uniforms, work-related education, and work-related travel expenses. The line between what can be and what cannot be deducted is often thin. One example, if you work at two places in a day, you can deduct the expenses of getting from one workplace to the other. However, you cannot deduct the expenses of driving back and forth from work to home if you have just one job. You can also deduct the cost of required protective clothing, such as safety glasses and hard hats, but you cannot deduct every single suit and tie you buy for a job because these outfits are suitable for everyday wear. Always double-check
to make sure your miscellaneous itemized deductions are allowed before reporting them on your 1040!
To reduce the likelihood of errors on your tax form and avoid an audit, maintain accurate records year-round. Keep at least three years of your previous tax returns, keep your checkbook stubs, retain all receipts from purchases throughout the year, and maintain your bills in organized folders. It may be impossible to keep track of every single receipt you get and every single cash payment you give, but the more documentation you have, the less chance you will have of the IRS going through all of your expenses!
Posted: 3/25/2013 3:00:00 PM
| with 0 comments