By Any Other Name

In Shakespeare's classic drama Romeo and Juliet, star-crossed protagonists from feuding families meet and fall in love. In Act II, when the impossibility of their courtship has become clear, Juliet leans out her balcony and declares to her lover "What's in a name? That which we call a rose by any other name would smell as sweet." The line, of course, implies that Romeo's last name should mean nothing, and the two should be together.

Shakespeare may or may not have been right about love and roses. But what about taxes? Does that which we call a "tax," by any other name smell as sour? Apparently, Washington thinks not -- if you pay attention to all the new euphemisms, you'd think Washington has given up imposing new "taxes" entirely!

In 1952, the IRS started charging "user fees" when the government provides special benefits to a recipient beyond those given to the general public. Today the government raises over $200 billion per year in fees for services like approving retirement plan applications, driving heavy vehicles, entering national parks, and even walking to the top of the Statue of Liberty. But "user fees" are still "fees," and Americans seem to have figured out that trick. So, what now?

Now we're seeing even more clever names for what most of us would consider plain old taxes. Take, for example, the new "unearned income Medicare contribution" that goes into effect on January 1. This is a 3.8% levy on "investment income" (interest dividends, capital gains, rents, royalties, and annuities) for individuals earning over $200,000 or joint filers earning over $250,000. Washington created it as part of the Obamacare package, along with an increase in the Medicare tax on earned incomes over those same thresholds. But, while they call it a "Medicare contribution," the money doesn't actually go into the Medicare trust fund. It goes straight into the general revenue fund, where Washington can spend it on whatever they want.

The "unearned income Medicare contribution" isn't Obamacare's only euphemism for "tax." Beginning on January 1, 2014, applicable large employers with 50 or more employees have to offer their employees minimum essential coverage or pay a $2,000/employee "assessable payment." That's a nondeductible "assessable payment," by the way, so the actual cost might be even higher. Sure sounds like a tax to us.

Finally, there are taxes in disguise that have the same bottom-line effect as more direct taxes. If you start taking Social Security benefits before your normal retirement age and earn more than the retirement earnings test exempt amount ($14,640 for 2012), you'll pay a Social Security earnings penalty of one dollar for every two dollars you earn above that limit. Doesn't that sound like a 50% tax? (The penalty drops to one dollar for every three dollars in earnings above $33,880 in the year you reach normal retirement age, then disappears after that year.)

The good news here is that we can help. Whether you're looking to pay less "tax", minimize your "unearned income medicare contribution," sidestep the "assessable penalty," or avoid the "Social Security earnings penalty," planning is your plain-English solution. So call me -- and make sure you do it now before Washington comes up with any more new names for taxes! And remember, we're here for your family, friends, and colleagues, too!

Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.

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