finance

Banking: Credit vs. Debit (update)

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Credit vs. Debit (1)

When I talk about credit vs. debit, I’m not speaking about the retail/revolving line of credit cards, we’re discussing the debit card purchases or PIN based transactions vs. using your bank card like a credit card for signature-based transactions. The question was asked, “is one better than the other?” My response, although rather vague at the time was “it depends”. The person sitting across from me then edged me on…”depends on what?!” So, I put my pen down and sat back in my chair then looked over my glasses at her earnestly and said, “whether you have money in your bank account at the time of the transaction for it to be declined or approved.” The young lady was still looking confused, so I decided to break it down a bit more for the sake of additional questions (I was in a hurry to complete an assignment).

“If you use your PIN, the terminal uses your current collected balance to determine if there is sufficient funds available to approve the purchase. In the event you don’t have enough money to cover the transaction or purchase amount, then using credit to sign for your items, is a way to save you the embarrassment of being declined at the time of check out. That is, if you have set up the ‘debit card overdraft coverage’ option with your bank. (something I would not advocate, unless it’s a case of I have no money to by food for me and my children).”

atm or debit (1)

I could tell that my young friend still wasn’t getting it so I turned around in my swivel chair, got up and walked towards my bookshelf, searched for Journey Into Finance by E.N. Towner, flipped through the pages of Chapter 1 found what I was looking for and handed her the book. “Read Chapter 1, and if you have any further questions, call me to set up an appointment to discuss them.” That was how I earned my first paying client. We set up a counseling session for every other Saturday in the morning. I called our session “Banking: Getting on Track”, which can be purchased for a limited time at a ridiculously low price of $25.00.

Update- while running some errands today, I stopped to pick up a few groceries at Walmart. The lady in line ahead of me was attempting to use her debit card as a credit card and was told by the cashier that they no longer allow a debit card to be used as credit. Skeptical The lady was confused as she began searching for a credit card to use instead of her debit card. The cashier said, “they’re starting to do this so that people can’t take a stolen debit card to purchase large ticket items”.

*Feeling a bit cynical about corporate America- I thought to myself, serves them right. Turning good workers away (cashiers) who request to see some identification, would normally prevent these type of thefts  just to save money to invest in programmed machines instead!*  Whoa, it’s time to head home and do some meditating ’cause I’m feeling some kinda way today. Somebody had to say it, I’m just keeping it real. Short, sweet (kind of), and packed with information.

(UPDATE) 

After some complaining from customers, the terminal owners offered merchants the convenience of a non- PIN based option for their purchases. Now if you pay attention, you’ll see the option of NO PIN. This is especially helpful for credit cards and can work with the debit cards as well for signature based purchases. 

That’s all for now. Thanks for reading, until next time…like, share, and/or comment.

Wishing you peace and prosperity,

ET

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Taxes (part 2)

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Better late than never…

While doing research for eligible deductions on my taxes (always seek out a professional tax preparer or an accountant), I came across some interesting information about who can claim the Earned Income Credit (EIC) and dependents:

Homeless shelter. Your home can be any location where you regularly live. You don’t need a traditional home. For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test.

Military personnel stationed outside the United States. U.S. military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Extended active duty. Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you don’t serve more than 90 days.

Birth or death of child. A child who was born or died in 2015 is treated as having lived with you for more than half of 2015 if your home was the child’s home for more than half the time he or she was alive in 2015.

Temporary absences. Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility.

Kidnapped child. A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. The child must be presumed by law enforcement authorities to have been kidnapped by someone who isn’t a member of your family or the child’s family. This treatment applies for all years until the child is returned. However, the last year this treatment can apply is the earlier of: 1. The year there is a determination that the child is dead, or 2. The year the child would have reached age 18. If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC.

The Kidnapped Child exception, really struck a nerve with me. Unbelievable that such an exception would be needed. However, I thought it was important enough to note and share.

I’m sure many of you have already filed your taxes; however, for the few procrastinators out there with questions, this should help clear up some of the confusion.

Rules If You Have a Qualifying Child

If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. This chapter discusses Rules 8 through 10. You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child.

You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. (You cannot file Form 1040EZ.) You also must complete Schedule EIC and attach it to your return. If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. No qualifying child. If you don’t meet Rule 8, you don’t have a qualifying child. Read chapter 3 to find out if you can get the earned income credit without a qualifying child.

Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. The four tests are: 1. Relationship, 2. Age, 3. Residency, and 4. Joint return.

Figure A. Tests for Qualifying Child AND OR Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild) Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew) A qualifying child is a child who is your and younger than you (or your spouse, if filing jointly) Under age 24 at the end of 2015, a student, and younger than you (or your spouse, if filing jointly) was . . . Permanently and totally disabled at any time during the year, regardless of age Joint Return Who is not ling a joint return for 2015 (or is filing a joint return for 2015 only to claim a refund of income tax withheld or estimated tax paid) Who lived with you in the United States for more than half of 2015. Relationship Residency Age You can’t claim the EIC for a child who didn’t live with you for more than half of the year, even if you paid most of the child’s living expenses. The IRS may ask you for documents to show you lived with each qualifying child. Documents you might want to keep for this purpose include school and child care records and other records that show your child’s address. ! CAUTION If the child didn’t live with you for more than half of the year because of a temporary absence, birth, death, or kidnapping, see Temporary absences, Birth or death of child, or Kidnapped child in this chapter. TIP Caution: Figure A is an overview of the tests to claim a qualifying child. For details, see the rest of this chapter.

Page 10 Chapter 2

Rules If You Have a Qualifying Child Page 11 of 37  The 5 calendar months need not be consecutive. A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. School defined. A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet don’t count as schools for the EIC.

Vocational high school students. Students who work in co-op jobs in private industry as a part of a school’s regular course of classroom and practical training are considered full-time students.

Permanently and totally disabled. Your child is permanently and totally disabled if both of the following apply. 1. He or she cannot engage in any substantial gainful activity because of a physical or mental condition. 2. A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

Substantial gainful activity. Substantial gainful activity means performing significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. Full-time work (or part-time work done at an employer’s convenience) in a competitive work situation for at least the minimum wage shows that the child can engage in substantial gainful activity. Substantial gainful activity isn’t work done to take care of yourself or your home. It isn’t unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. However, doing this kind of work may show that the child is able to engage in substantial gainful activity. The fact that the child has not worked for some time doesn’t, by itself, prove the child cannot engage in substantial gainful activity. For examples of substantial gainful activity, see Pub. 524.

Residency Test Your child must have lived with you in the United States for more than half of 2015. You can’t claim the EIC for a child who didn’t live with you for more than half of the year, even if you paid most of the child’s living expenses. The IRS may ask you for documents to show you lived with each qualifying child. Documents you might want to keep for this purpose include school and child care records and other records that show your child’s address. *Note-  CAUTION ! United States. This means the 50 states and the District of Columbia. It doesn’t include Puerto Rico or U.S. possessions such as Guam.

That’s all for now…

Happy tax season.

ET

 

Taxes

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Tax Time

So, I’ve dreaded writing about this topic since January, 2016. Mostly because I despise the taxing work of collecting the reports for claiming taxes! The earned income credit was my friend, but now, I have to collect more paperwork to get more deductions. So, I’ll have to research the IRS website to find out what laws have changed and scan more receipts. Welp, that’s life and it is what it is until I decide how to get off the grid. In the meantime, here is a good read about the history of taxes throughout time in chronological order.

 

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TAX HISTORY CHRONOLOGY

EGYPT

During the various reins of the Egyptian Pharaohs tax collectors were known as scribes.  During one period the scribes imposed a tax on cooking oil.  To insure that citizens were not avoiding the cooking oil tax scribes would audit households to insure that appropriate amounts of cooking oil were consumed and that citizens were not using leavings generated by other cooking processes as a substitute for the taxed oil.

GREECE1

In times of war the Athenians imposed a tax referred to as eisphora.   No one was exempt from the tax which was used to pay for special wartime expenditures.  The Greeks are one of the few societies that were able to rescind the tax once the emergency was over.  When additional resources were gained by the war effort the resources were used to refund the tax.

Athenians imposed a monthly poll tax on foreigners, people who did not have both an Athenian Mother and Father, of one drachma for men and a half drachma for women.  The tax was referred to as metoikion

ROMAN EMPIRE

The earliest taxes in Rome were customs duties on imports and exports called portoria.1

Caesar Augustus was consider by many to be the most brilliant tax strategist of the Roman Empire.  During his reign as “First Citizen” the publicani were virtually eliminated as tax collectors for the central government.  During this period cities were given the responsibility for collecting taxes.  Caesar Augustus instituted an inheritance tax to provide retirement funds for the military.  The tax was 5 percent on all inheritances except gifts to children and spouses.   The English and Dutch referred to the inheritance tax of Augustus in developing their own inheritance taxes.

During the time of Julius Caesar a 1 percent sales tax was imposed.  During the time of Caesar Augustus the sales tax was 4 percent for slaves and 1 percent for everything else.1

Saint Matthew was a publican (tax collector) from Capernaum during Caesar Augustus reign.  He was not of the old publicani but hired by the local government to collect taxes.

In 60 A.D. Boadicea, queen of East Anglia led a revolt that can be attributed to corrupt tax collectors in the British Isles.  Her revolt allegedly killed all Roman soldiers within 100 miles; seized London; and it is said that over 80,000 people were killed during the revolt.  The Queen was able to raise an army of 230,000.  The revolt was crushed by Emperor Nero and resulted in the appointment of new administrators for the British Isles.1

GREAT BRITAIN

The first tax assessed in England was during occupation by the Roman Empire.

Lady Godiva
Lady Godiva was an Anglo-Saxon woman who lived in England during the 11th century. According to legend, Lady Godiva’s husband Leofric, Earl of Mercia, promised to reduce the high taxes he levied on the residents of Coventry when she agreed to ride naked through the streets of the town.

When Rome fell, the Saxon kings imposed taxes, referred to as Danegeld, on land and property. The kings also imposed substantial customs duties.

The 100 years War (the conflict between England and France) began in 1337 and ended in 1453. One of the key factors that renewed fighting in 1369 was the rebellion of the nobles of Aquitaine over the oppressive tax policies of Edward, The Black Prince.

Taxes during 14th century were very progressive; The 1377 Poll tax noted that the tax on the Duke of Lancaster was 520 times the tax on the common peasant.

Under the earliest taxing schemes an income tax was imposed on the wealthy, office holders, and the clergy. A tax on movable property was imposed on merchants. The poor paid little or no taxes.

Charles I was ultimately charged with treason and beheaded. However, his problems with Parliament came about because of a disagreement in 1629 about the rights of taxation afforded the King and the rights of taxation afforded the Parliament.

The King’s Writ stated that individuals should be taxed according to status and means. Hence the idea of a progressive tax on those with the ability to pay was developed very early.

Other prominent taxes imposed during this period were taxes on land and various excise taxes. To pay for the army commanded by Oliver Cromwell, Parliament, in 1643, imposed excise taxes on essential commodities (grain, meat, etc.). The taxes imposed by Parliament extracted even more funds than taxes imposed by Charles I, especially from the poor. The excise tax was very regressive, increasing the tax on the poor so much that the Smithfield riots occurred in 1647. The riots occurred because the new taxes lowered rural laborers ability to buy wheat to the point where a family of four would starve. In addition to the excise tax, the common lands used for hunting by the peasant class were enclosed and peasant hunting was banned (hooray for Robin Hood).

A precursor to the modern income tax we know today was invented by the British in 1800 to finance their engagement in the war with Napoleon.  The tax was repealed in 1816 and opponents of the tax, who thought it should only be used to finance wars, wanted all records of the tax destroyed along with its repeal.  Records were publicly burned by the Chancellor of the Exchequer but copies were retained in the basement of the tax court.4

COLONIAL AMERICA
Colonists were paying taxes under the Molasses Act which was modified in 1764 to include import duties on foreign molasses, sugar, wine and other commodities. The new act was known as the Sugar Act.Because the Sugar Act did not raise substantial revenue amounts, the Stamp Act was added in 1765. The Stamp Act imposed a direct tax on all newspapers printed in the colonies and most commercial and legal documents.

POST-REVOLUTION AMERICA
In 1794 Settlers west of the Alleghenies, in opposition to Alexander Hamilton’s excise tax of 1791, started what is now known as the “Whiskey Rebellion” The excise tax was considered discriminatory and the settlers rioted against the tax collectors . President Washington eventually sent troops to quell the riots. Although two settlers were eventually convicted of treason, the President granted each a pardon.

In 1798 Congress enacted the Federal Property Tax to pay for the expansion of the Army and Navy in the event of possible war with France.  In the same year, John Fries began what is referred to as the “Fries Rebellion,” in opposition to the new tax.  No one was injured or killed in the insurrection and Fries was arrested for treason but eventually pardoned by President Adams in 1800.   Surprisingly, Fries was the leader of a militia unit called out to suppress the “Whiskey Rebellion.”2

The first income tax suggested in the United States was during the War of 1812. The tax was based on the British Tax Act of 1798 and applied progressive rates to income. The rates were .08% on income above £60 and 10 percent on income above £200. The tax was developed in 1814 but was never imposed because the treaty of Ghent was signed in 1815 ending hostilities and the need for additional revenue.

The Tax Act of 1861 proposed that “there shall be levied, collected, and paid, upon annual income of every person residing in the U.S. whether derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere, or from any source whatever.

The 1861 Tax Act was passed but never put in force. Rates under the Act were 3% on income above $800 and 5% on income of individuals living outside the U.S.

The Tax Act of 1862 was passed and signed by President Lincoln July 1 1862. The rates were 3% on income above $600 and 5% on income above $10,000. The rent or rental value of your home could be deducted from income in determining the tax liability. The Commissioner of Revenue stated “The people of this country have accepted it with cheerfulness, to meet a temporary exigency, and it has excited no serious complaint in its administration.” This acceptance was primarily due to the need for revenue to finance the Civil War.

Although the people cheerfully accepted the tax, compliance was not high. Figures released after the Civil War indicated that 276,661 people actually filed tax returns in 1870 (the year of the highest returns filed) when the country’s population was approximately 38 million.

The Tax Act of 1864 was passed to raise additional revenue to support the Civil War.

Senator Garret Davis, in discussing the guiding principle of taxation, stated “a recognition of the idea that taxes shall be paid according to the abilities of a person to pay.”

Taxes rates for the Tax Act of 1864 were 5% for income between $600 and $5000; 7.5% for income between $5001 and $10,000; 10% on income above $10,000. The deduction for rent or rental value was limited to $200. A deduction for repairs was allowed.

With the end of the Civil War the public’s accepted cheerfulness with regard to taxation waned. The Tax Act of 1864 was modified after the war. The rates were changed to a flat 5 percent with the exemption amount raised to $1,000. Several attempts to make the tax permanent were tried but by 1869 ” no businessman could pass the day without suffering from those burdens” The Times. From 1870 to 1872 the rate was a flat 2.5 percent and the exemption amount was raised to $2,000.

The tax was repealed in 1872 and in its place was installed significant tariff restrictions that served as the major revenue source for the United States until 1913. In 1913 the 16th Amendment was passed, which allowed Congress authority to tax the citizenry on income from whatever source derived.

It should be noted that the Tax Act of 1864 was challenged several times. The Supreme Court unanimously supported the tax. After the war the tax was declared unconstitutional by the same court because it represented direct taxation on the citizenry which was not allowed under the constitution.

1930’s
During the 1930’s federal individual income taxes were never more than 1.4 percent of GNP. Corporate taxes were never more than 1.6 percent of GNP. In 1990 those same taxes as a percent of GNP were 8.77 and 1.99 respectively.3
Social Security Tax Changes
Here is some interesting information about the changes in the FICA taxes since 1937. Thanks to Harold Eyer for pointing out this site.

The Tax History Project
This site is sponsored by the Tax Analysts group. The selections include “The Price of Civilization” which provides pictures and documents of tax policy during significant years of our history and “Presidential Tax Returns”. A recommended site.

 

That’s all folks.

Until next time…

Peace and Prosperity,

ET

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1 Adams, Charles, 1993, For Good and Evil: The Impact of Taxes on the Course of Civilization, Madison Books.
2 Rehnquist, William H. 1992 Grand Inquests :The Historic Impeachments of Justice Samuel Chase and President Andrew Johnson.William Morrow & Company, Inc. New York, NY.
3Steuerle, C. Eugene The Tax Decade
4 Adams, Charles 1998 Those Dirty Rotten TAXES, The Free Press, New York NY