Money Blue Book

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands: Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.“

- Honorable Learned Hand, U.S. Appeals Court Judge, Helvering v. Gregory, 69 F.2d 809 (1934).

The above quote is one of my favorite tax quotes from law school and one that I concur with wholeheartedly. It was a historical statement from a well known and respected former United States Appeals Court Judge regarding the minimalist extent of our obligation as citizens to pay taxes. The opinion reflects the view that we have no ethical or even patriotic duty to pay taxes beyond what has been legally assessed upon us. Thus, as the message advocates, it is within our compete given right to do everything within legal boundaries to minimize our personal tax liability exposure. If society deems the income and tax bracket disparity to be unfair or unjust, it is our duty as voters to ensure the government legislates fairly, rather than evade individual tax obligations out of protest.

Difference and Distinction Between Tax Avoidance and Tax Evasion

The practice of tax avoidance is essentially the credo of most tax attorneys and tax preparers. It is completely legal and there should be no moral or patriotic implications as it is in complete compliance with the law. Tax avoidance is simply the practice of working within the legal confines of tax law and regulations to maximize tax deductions while minimizing tax liability. In contrast, tax evasion works outside the rules by trying to duck legal obligations by hiding income through nondisclosure, or improperly taking deductions that one is not qualified for. There is a clear distinction between the two.

However, many people seem to inaccurately equate legal tax avoidance with the same type of immorality implications of those who practice tax evasion. For example, there are some who point out that wealthier people, through clever tax manipulation and deductions are able to drastically keep their tax liability very low. Even the Oracle of Omaha himself, Billionaire Warren Buffet noted that he only paid a 17.7% tax rate on his $46 million of taxable income in 2006, while his own employees paid an average 32.9% tax rate. His own receptionist reportedly paid a 30% tax rate.

This might not seem fair in my eyes or yours, but none of these moral questions obligate Warren Buffet or anyone else from having to pay more taxes than they are required to do so, as long as they fully comply with all existing tax regulations. If there was truly an injustice or immoral component or dichotomy to the current tax structure, it is the obligation of the federal government to implement a fair taxation policy, and ours as voters to ensure that the government do so.

We Should Not Confuse the Government’s Duty To Create A Fair Universal Tax System As Our Own

It’s been said that there are certain things in life that are simply inevitable, including death and taxes. Society needs taxes to function and requires an empowered government to execute the uniform exaction. Making the tax system voluntary would obviously never work because individuals would not be able to effectively enforce the collection without resorting to vigilante tactics. Thus it’s a necessity to have a strong government that can legislate and enforce tax codes, and mandate obligatory payments based on whatever sliding scale system it deems in the best interest of society. We have expressly given the government this power to legislate fair marginal tax brackets and to create an equitable system of tax deductions and tax credits to promote certain values and interests for the betterment of society.

It is not our own individual duty to draft our own federal tax returns to what we personally think will benefit the government. That duty has already been delegated away. Our responsibility as citizens is to operate in good faith within that tax framework to ensure we legally abide by the rules. If the day comes when we deem change is necessary, then our role is to change the individuals to whom we have delegated this legislative power to. However, our framed roles as taxpayers never expands beyond mere compliance.

So Long As We Abide By All Legal Tax Codes, We Are Free To Maximize Opportunities

Because our tax system is universally applied with every single income producing resident subject to it, we should not feel any moral, ethical, or patriotic duty to pay extra beyond what is demanded of us. So the next time you sit at your desk to prepare your tax return, you should not feel guilty about being able to cleverly duck certain tax obligations through legal manipulation. So long as you are fully abiding by the tax code, you are fully in the right. Our duty is to put the right people in power to make these difficult social and moral choices for the betterment of society. Once the universal tax codes have been laid in place, we are perfectly within our right to use every legal trick, tax loophole and strategy to minimize our own tax assessment to the betterment of ourselves.

As the taxpayer, we are under no obligation to provide any more to the government than we are required to. The tax code and our tax obligation is not in the nature of church tithing that we voluntarily offer out of altruistic feelings or charitable obligation. It’s a regulated and systematic way for the government to mandate fairness and to ensure equality of its citizenry. There is no tip that needs to be paid to the government. This is not a restaurant and the servers are not being paid minimum wage and dependent on our generosity. So long as we abide by legal regulations and aren’t resorting to the illegal practice of tax evasion, we are within our legal and moral right to try to reduce our own tax liability down to zero (if possible).

Thus the next time you feel guilty about being able to successfully and properly claim a whole slew of deductions, don’t be. There is nothing inherently wrong with the legal practice of tax avoidance. Thus, pay what you owe and nothing more. That’s the most responsible thing we can all do.

After much online speculation and rampant rumors about the economic stimulus payment date, the Internal Revenue Service (IRS) has finally cleared up the confusion and released the official economic stimulus tax rebate payment schedule. You can read the IRS timetable announcement on its website (view IRS news release).

The IRS has announced that it will begin sending more than 130 million economic stimulus tax rebate payments starting May 2, 2008. Those who chose to receive their 2007 tax refund payments via direct deposit will get priority in receiving their stimulus tax rebates. Those who chose to receive their tax refund payments via regular postal service will receive their tax rebate checks in mid May, after the initial wave of tax rebate payments have been sent to those who chose the quicker direct deposit option.

Tax Rebate Receiving Order Will be Based On Social Security Number

The order that the tax rebate checks will be sent out will be according to the last 2 digits of the Social Security Number (SSN) used when you filed your federal tax return. Please examine the stimulus payment chart below to determine when you will be receiving your tax rebate. As the IRS noted on its announcement, because the order will be based on the numerical order of Social Security Numbers rather than by name or household, there is a high possibility that neighbors, family members, and friends may not receive their tax rebate checks at the same time.

The Official Economic Stimulus Tax Rebate Payment Schedule - (for Federal Tax Returns Received and Processed by April 15, 2008):

How To Make Sure You Get Your Tax Rebate Check

If you want to get your tax rebate check sooner, you should make sure to elect the direct deposit option if you haven’t already done so. Secondly, you should make sure you file your 2007 federal tax return by the April 15, 2008 deadline. If for whatever reason your tax return is filed after April 15, you should receive your economic stimulus payment about two weeks after receiving your tax refund. For those requesting filing extensions, if you want to receive your tax rebate by the end of this year, you must file your tax return by October 15, 2008. To accommodate people whose tax returns are processed after April 15, the IRS has indicated that it will continue sending weekly payments even after the end of the above schedule.

As I indicated in my 2008 Tax Stimulus Rebate commentary article, if you are already in bankruptcy or have tax liens for delinquent or outstanding debts such as – unpaid student loans, child support, or tax obligations, all or part of your economic stimulus payment may be withheld or intercepted. The IRS has indicated that it will send a letter to the taxpayer explaining the tax rebate offset, if any.

How Much Will My Economic Stimulus Payment Check Be?

Explanations and detailed answers to your tax rebate questions can be obtained by viewing the official IRS publications and announcements on the matter. Here are some links to official IRS answers to tax rebate questions, where most of the commonly asked questions are addressed. The more complicated and issue-filled tax rebate questions relating to Chapter 7 and Chapter 13 bankruptcy filings have been winding up as comments on my tax rebate article. I will continue answering them to the best of my ability based on my legal experience and knowledge on the matter. However, while my comments may be construed as general background information, they should not be blindly followed as definitive legal advice. Remember to always perform your own due diligence and research.

This is so classic. On March 11, 2008, this financial commentary by “financial guru” Jim Cramer was featured on his popular Mad Money television show on CNBC. The customary Cramer angry rant was made in response to a call and write-in question about the serious viability and liquidity concerns regarding Bear Stearns, one of the world’s largest global investment banks and brokerage firms, and a company that has been hit particularly hard by the subprime mortgage meltdown. The abbreviated Mad Mail question and exchange can be viewed on Jim Cramer’s CNBC Mad Money Blog. Frankly, his response should be written in all caps, since he tends to holler his answers. I wouldn’t be surprised if Jim Cramer later requests to have it take down out of sheer embarrassment.

This is what blindly listening to the advice and commentary of financial gurus and pundits in the mainstream financial media outlets like CNBC will get you:

Tuesday, March 11, 2008 On Mad Money

• Dear Jim: “Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?” – Peter
• Jim Cramer: “No! No! No! Bear Stearns is fine. Do not take your money out. Bear sterns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear. That’s just being silly. Don’t be silly.”

Friday, March 14, 2008:

With liquidity problems snowballing and financial conditions deteriorating, Bear Stearns reaches for a life preserver, and works out a financial rescue deal with JP Morgan Chase and the United States Federal Reserve to help keep the 5th largest U.S. bank afloat. Bear Stearns’ chief executive, Alan Schwartz, explaining why the bank turned to the Fed and a rival bank, said:

• “Our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.” (Reuters).

With the mood deathly grim and takeover speculation rampant, investors bail – sending Bear Sterns stock price plunging on record volume, losing more than 45% of its total market capitalization in one fell swoop.

Sunday, March 16, 2008, And The Day After

Facing the brink of imminent collapse and financial insolvency, Bear Stearns is bailed out and acquired by JP Morgan Chase, preventing the worst case scenario of bankruptcy protection. The company is acquired for only a tiny fraction of what it was once worth at a mere $2 per share for a total all stock deal of $236 million. The Federal Reserve agrees to provide additional funding to help the dying bank and prevent widespread panic and frenzy (CNN). Next day, the price of Bear Sterns stock plunges by almost 85%, sending deathly chills down the back hairs of all investment banks and those in the financial sector. Companies that dabbled in subprime mortgage backed securities continue to wait anxiously for the credit crunch guillotines still making their rounds.

My Take On Jim Cramer’s Advisory Statement and The Moral Of the Story

While Jim Cramer’s statment about Bear Stearns seems utterly ridiculous now, on the flip side, there is a slight possibility that perhaps he wasn’t addressing the stock price of Bear Stearns but rather those customers who had investment and brokerage accounts held at the ailing company. He didn’t exactly recommend that investors buy or hold Bear Stearns stock in that particular comment, although, he has made such comments in the past. If the latter was what he meant, Jim Cramer, as an educated financial commentator, should have framed his comment better by addressing FDIC and SIPC protections to alleviate account holder concerns. But instead of discussing the relevance of broker bankruptcy protections, he chose to address the performance and on-going concern issues of Bear Stearns. This leads me to believe he was in fact rendering an opinion about Bear Stearns as an equity investment, and was completely blindsided by the investment banker’s later revelations about its liquidity.

…Which leads me to the whole point of this article. Do not believe everything you hear from financial pundits and so-called experts or gurus. All investors should learn to perform their own research and due diligence. No one can predict the movement of market action and stock prices. While the stock market is inherently designed to be efficient with demand complimenting supply, the truth of the matter is that not all crucial information is in the public domain. As someone who works in a legal field with some first hand and indirect observation of what goes on behind the scenes, I can assure you that there is a lot of inside trading and underhanded conflict of interest transactions going on, despite the SEC, DOJ, and FTC’s valiant attempts to root out the evil do-doers.

The movement of the market is also heavily influenced by the emotional lemming-like horde mentality of investors. Like ESPN sportscasters, financial reporters can only truly and accurately report what they observe on the spot. No one has the magical crystal ball to see into the future. They may attempt to make reasonable projections, but those stock picks, like March Madness basketball pool selections, are frequently wrong. The only way to weather investment storms and financial unpredictability, is to remain diversified and invest in broad stock indexes such as low commission mutual funds and exchange traded funds (ETF’s).

Warning: Before you apply for a 0% balance transfer credit card offer, you need to read and heed the following words of advice. If you want to know how the actual zero percent balance transfer process works, please read this guide to making balance transfers as well – in tandem with the article below. Both will help better educate you regarding this powerful but rule-laden process.

Using A Balance Transfer Card As A Financial Safety Net

While some debt reduction pundits discourage the use of balance transfer credit cards, I respectfully disagree with their blanket rejection of this invaluable financial tool. While I concur that the use of credit cards is not for everyone and misuse can lead to out of control credit card debt, I think the responsible use of credit should be viewed as an integral aspect of debt reduction and sound financial planning.

I myself have relied and depended on 0% balance transfer offers in the past to get through periods of financial difficulty. There were several times in my life when I incurred major unexpected expenses that I was unable to financially cover on my own – examples such as large unanticipated tax bills and emergency car repair charges. Other times I simply did not have the cash flow available to pay off my monthly bills despite having a stable, entry level job at the time. Rather than resorting to something reckless like stooping for a high interest payday loan, I applied for credit cards that offered introductory 0% APR interest rates on 12 month balance transfers. With the infusion of instant money on 0% balance transfer credit, I was able to weather the financial storm, rather than relying on the charity of family or friends. Balance transfers help you bail yourself out of difficult times but still maintain that key financial independence, and doing so in a responsible and planned out way.

Using A Balance Transfer Card To Make Money and Profit

While I’ve used 0% balance transfer offers for emergency parachute purposes, I’ve also used them to earn free interest money. By depositing the 0% balance transfer funds into a high yield savings account, I was able to make money from what was essentially zero interest loans. Whether your need or want for credit depends on a single card or multiple card offers, the risks and pitfalls with balance transfers remain the same. Balance transfer cards are certainly very lucrative and powerful financial tools, but they have rules that must be followed and adhered to.

Here are some of the key mistakes and pitfalls to avoid, that all balance transfer enthusiasts must pay attention to. These are all key balance transfer components that have a high tendency to trip people up. Proper knowledge and credit education can help cardholders avoid turning their balance transfer lifelines into balance transfer disasters.

1) Some 0% Balance Transfer Offers Have Balance Transfer Fees – When you apply for a balance transfer offer, there are two important components you must find out – the balance transfer APR interest rate and the balance transfer fee, if any. The interest rate is the percentage rate that you will need to pay the card company if you carry an unpaid credit balance from month to month. With new introductory 0% balance transfer offers, the interest rate should be zero.

The balance transfer fee is the one time cost of executing the balance transfer transaction. The usual fee percentage is 3%, but many cards set maximum fee limits of $50-$75 for the one time charge. However there are some special balance transfer cards that offer 0% interest rates with no balance transfer fees. The terms and conditions of no balance transfer fee cards usually expressly indicate that pursuant to the 0% balance transfer offer, the transfer fee is waived. Those types of offers are perfect for consumers looking to transfer high interest debt to a zero percent credit card and for those looking to weather a financial emergency, because it’s possible to avoid all upfront or subsequent fees completely. On the other hand, those looking to profit or make money from balance transfer arbitrage usually don’t mind the balance transfer fees as much, because their goal is to maximize their total 0% credit line.

If you don’t want to go through the trouble of examining the detailed fine print of all available credit card offers, I’ve done most of the work for you:

• List of All 0% Balance Transfer Cards – Includes a complete list of all 6-12 month offers with everything from 0% to 3% balance transfer fees.
• List of 0% No Balance Transfer Fee Cards – Only balance transfer cards with no fees are listed. The length of each introductory 0% APR period varies.

2) Keep Track of the Balance Transfer Duration and Expiration Date – Along with the interest rate and balance transfer fee, savvy consumers need to know and remember the length of the 0% introductory period. The length of most promotional offers is usually 6-12 months although the period varies based on individual card terms. The introductory balance transfer clock usually starts when the first balance transfer request is made. So long as there are no credit card term violations such as a late monthly payment, the 0% interest rate remains in effect for the duration of the promotional period. Once the transfer has been made, I highly recommend calling or emailing your card issuer to request the exact expiration date of the balance transfer. I suggest that you circle the target date on your calendar. I personally use my Yahoo email calendar function to set online reminders for myself a month and a week before balance transfer expiration.

3) Don’t Make A Cash Advance Instead Of A Balance Transfer By Mistake – Do not make the very critical and significant mistake of requesting a cash advance rather than a balance transfer. While they may seemingly operate in similar ways, they are not the same. A cash advance is initiated when you cash one of those credit card convenience checks that the card issuer occasionally sends you, or when you use your credit card at an ATM machine to access your credit limit. Always avoid cash advances if you can because unlike 0% balance transfer offers, a cash advance usually has very high fees and high interest rates. If you make a cash advance, it effectively destroys the benefit of your introductory 0% balance transfer offer. Always make sure and verify that it is indeed a balance transfer being made, and not a cash advance.

It should be noted that certain credit card issuers like Citibank do issue balance transfer checks. Rather than requiring from you a credit card balance to transfer, Citibank will upon request, simply send you a balance transfer check for the entire balance transfer amount you request. The check can be deposited into any bank account you wish like any ordinary check. While it may resemble a cash advance convenience check, it is labeled and categorized differently.

3) Always Make Sure You Pay Your Monthly Credit Card Bill On Time – This point is absolutely critical. Should you accidentally or intentionally default or fail to pay your monthly credit card bill on time, your introductory zero interest rate will reset at much higher rates. Normal credit card interest rates vary, but they usually average around 10-20% APR give or take. The rate might not seem like a lot but when you are talking about balance transfers, imagine defaulting on a $10,000 balance transfer offer and suddenly having to pay back the entire amount immediately or face significant interest fees. Thus, you want to always make sure you pay off your minimum balance on time every month. I cannot overemphasize enough – Do not fail to pay or make a single late minimum payment. In the event you are late, there is a small chance the card issuer may be generous enough to restore your introductory 0% balance transfer rate as a courtesy gesture. It worked for me at least once in the past, but then again, I had a blemish free payment history prior to that.

I highly recommend setting up automatic debit payments to have the minimum balance instantly withdrawn from your linked bank account when the monthly balance comes due. Setting upon account alerts is also a smart idea. You should always review your monthly statement regularly to check for any unintended or unknown charges, just in case.

As an additional reminder, if you are transferring a balance from another credit card, make sure the old card’s balance has been completely paid off and the bill has been set to zero before you stop paying it. Sometimes it takes a week or more for the balance transfer request to be made effective.

4) The 0% Balance Transfer Offer Does Not Extend To Purchases – While the credit card balance you transfer to the 0% card will carry the introductory zero fee rate, subsequent purchases using the credit card will not enjoy the same 0%, but rather will be applied towards the card’s ordinary interest rate for purchases. If you are using the card primarily as a balance transfer card, I recommend that you remove it from your wallet and place it at home so that you don’t accidentally use it to swipe a purchase. I always attach a “do not use” Post-It warning on my active balance transfer cards at home so I don’t use it by mistake. If you are interested in credit cards that offer 0% APR interest rates for both balance transfers and credit purchases, you will need to apply for those that have that particular promotion.

• Here is a list of 0% purchase and balance transfer credit card offers that I’ve compiled.

5) Payments Are Applied To Lower Interest Charges First – Almost all balance transfer fine print will specifically indicate that payments made by cardholders towards their card balance will be applied to lower interest charges first. This means that when you make a payment, it goes toward the 0% portion of your credit card balance first, not the higher-rate portion for purchases. This is crucial because it is completely counter-intuitive and opposite of what cardholders would logically do.

Let’s say you transferred a balance of $5,000, then made a purchase for $100. You will now be paying the regular credit card interest of 15% on that $100 item until the $5,000 balance is completely paid off. This is a balance transfer killer that you absolutely want to avoid since you will now be compelled to pay off the entire balance in full immediately or face recurring interest charges. If you want to make 0% interest purchases, then seek a credit card that offers 0% for both purchases and balance transfers.

6) Don’t Rush To Pay Off Your 0% Balance – You should try to take the most advantage of the interest free grace period offered by the balance transfer offer by putting the extra cash in a high yield savings account. At the end of the 0% grace period, you should then withdraw the money from the bank account and use the accumulated money, plus the interest it has earned, to repay your credit card bill. After paying off the balance, there should be leftover interest money – profit from taking advantage of the 0% balance transfer offer.

7) Don’t Cancel Your Balance Transfer Cards After The 0% Introductory Grace Period Is Over – While this one is merely advisory and not a crucial mistake like the ones above, I think there are a few solid reasons why you shouldn’t cancel your card after the balance transfer period is over. You should keep the card active because sometimes the card issuer will try to attract you with another complimentary 0% no balance transfer fee offer. Another reason is that closing your card account has the noticeable effect of dropping your FICO credit score because it lowers your total credit line available, and increases your credit utilization ratio. If you insist on canceling the card, at the very least you should roll the credit limit onto another card by the same credit issuer. That way, while you reduce the number of cards, you still maintain the same credit utilization.

Follow The Above Rules, And You Will Succeed With Balance Transfers

Another thing you might be wondering is – if these balance transfer deals are truly free and cost nothing, how do credit card companies make money from these type of offers? The answer lies in the fact that statistically, some balance transfer cardholders will inevitably fail to follow the card offer terms and wind up making one of the key blunders described above. Credit card issuers know that some consumers won’t pay attention to the details and will end up paying penalty fees and interest.

Remember to play by the credit card rules to fully profit and benefit from lucrative 0% balance transfer offers. Using a balance transfer is not really meant to be some clever trick or credit card hack – so long as you pay attention to details and educate yourself thoroughly, you too can learn to utilize it as one of your financial planning tools, just like me.