YOUR HOUSEHOLD'S SHARE OF UNFUNDED OBLIGATIONS: $527,000

This is a scary, but true fact that we all need to be worried about. I am sure you already have heard this, but...

(USA TODAY) – The federal government’s financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA Today analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record of $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation’s gross domestic product.

Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit that’s prompting heated debate between Congress and the White House over lifting the debt ceiling.

Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs also added to the financial hole.

Corporations would be required to count these new liabilities when they were taken on – and report a big loss to shareholders. Unlike businesses, however, Congress postpones recording spending commitments until it writes a check.

The $61.6 trillion in unfunded obligations amounts to $527,000 per household. That’s more than five times what Americans have borrowed for everything else – mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

“The (federal) debt only tells us what the government owes to the public. It doesn’t take into account what’s owed to seniors, veterans and retired employees,” said accountant, Sheila Weinberg, founder of the Institute for Truth in Accounting, a Chicago-based group that advocates better financial reporting. “Without accurate accounting, we can’t make good decisions”.

USA Today has calculated federal finances based on standard accounting rules since 2004 using data from the Medicare and Social Security annual reports and the little-known audited financial report of the federal government.

McCASKILL TO PAY BACK TAXES ON PRIVATE PLANE

Sen. Claire McCaskill, D-Mo., said she would pay $287,273 in property taxes owed on a private plane that she and her husband co-own.

McCaskill said she and her husband plan to sell the aircraft immediately. “I have convinced my husband to sell the damn plane,” she said on a conference call, according to Politico.com. “I will never set foot on the plane again.”

McCaskill was reported to have spent $76,000 from her Senate budget to travel on the plane over the past four years. McCaskill said she had not tried to evade taxes on the plane and noted that she had paid $38,800 in sales taxes on the aircraft.

She said she accepted full responsibility for the mistake, but noted that she should not have assumed that others would have made sure the property tax had been paid.

CONFISCATE IRAS AND 401K

Q. Last week a co-worker of mine claimed that Congress recently introduced a bill that called for a government take-over of IRA’s and 401K plans and would offer a 3% rate of return. Talk of the idea that Washington will not cut spending nor raise taxes and will go after the pension funds, as that is where the money is, has circulated the internet and talk radio for several years. One individual advised people to cash in their pension funds to pay their taxes and be happy with what is left! What is your take on this?

A: I read about this a while back and am not too concerned about the pension change. As you know, there are a lot of ideas that have floated in Washington that have never seen the light of day. I have not seen anything on this for over a year and it could have been one piece of one of those blog scares. There has not been anything in the tax announcements from our library or from the IRS.

SAVE TAXES BY HIRING YOUR CHILDREN (PART 1)

Summer is here and it is time to consider saving taxes by hiring the kids. If you own a business you can save family income and payroll taxes by putting younger family members on the payroll. You may be able to turn high-taxed income into tax-free or low-taxed income, achieve social security tax savings (depending on how your business is organized) and even make retirement plan contributions for your child. In addition, employment of a child under age 18 (or if a full-time student, age 19–23) may be a way to save taxes on the child’s unearned income.

Here are the key considerations:

Turning your income into tax-free or low-taxed income.

You can turn some of your income into tax-free or low-taxed income by shifting some of your business earnings to a child as wages for services performed by him or her. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s salary must be reasonable.

Example:
Suppose a business owner operating as a sole proprietor is in the 35% tax bracket. He hires his 17-year-old daughter to help with office work full-time during the summer and part-time into the fall. She earns $5,800 during the year (and doesn't have earnings from other sources).

The business owner saves $2,030.00 (35% of $5,800) in income taxes at no tax cost to his daughter, who can use her $5,800 standard deduction for 2011 to completely shelter her earnings. The business owner could save an additional $1,750 in taxes if he could keep his daughter on the payroll for a longer period and pay her an additional $5,000. She could shelter the additional amount from tax by making a tax-deductible contribution to her own traditional IRA.

More on shifting to family members next week.

VERY IMPORTANT INFORMATION FOR EMPLOYERS

Because of the declining employment, there was a .2% federal unemployment tax surcharge that the government placed in effect from January 1, 2011, through June 30, 2011.

Unless Congress takes action soon, the .2% federal unemployment tax FUTA will actually expire. An IRS spokesman indicated that if the surtax is not extended, employers will need to simply track FUTA taxes paid before July 1st and after June 30th.

We’ll keep you posted if things should extend the surtax. With low employment numbers where they are, I wouldn’t be surprised.

IRS ERRONEOUSLY GAVE OUT $151 MILLION IN AUTO TAX BREAKS

Do you remember the credit that government gave out a couple of years ago if you purchased a new car? The tax incentive was designed to boost vehicle sales by allowing taxpayers up to a certain income level to deduct some state and local taxes from buying a car, light truck, motorcycle or motor home between February 2009 and January 2010. The deduction expired Dec. 31, 2009, and hasn’t been extended.

Now the IRS tells us that they stumbled in handling a tax incentive designed to promote automobile sales, handing a tax incentive designed to promote automobile sales, handing out more than $151 million in erroneous deductions, as well as 473 credits given to people who were imprisoned, dead or underage.

The IRS missed 4,257 individuals who claimed more than $151 million in underserved tax deductions as part of the 2009 stimulus package program designed to boost automobile sales.

In 473 cases, the tax agency erroneously allowed 439 prisoners who were in jail the entire year, 16 dead people and 18 children under the age of 15 to claim just over $1 million in deductions.

MOODY'S ISSUES WARNING ON DEBT LIMIT

If you have been following my blogs, you know that I am concerned about the federal government’s debt load. Now theHill.com reports, "If policymakers cannot make progress on a deal to raise the debt limit in the next few weeks, the nation's credit rating could be endangered", Moody's Investors Service said Thursday. According to The Hill newspaper, "The credit rating agency said in a statement that it was surprised by the level of political gamesmanship surrounding the debt-limit debate," and that "a long-term deficit-reduction deal must be reached as part of a deal to raise the $14.3 trillion limit if the nation wants to protect its perfect AAA rating."

http://thehill.com/blogs/on-the-money/801-economy/164455-moodys-issues-debt-limit-warning

You don’t have to be a CPA to know that you cannot continue to spend more than you make.