Considering a Roth IRA? Check state taxes first

11:30 AM Check, considering, first, State, taxes No Comments

| By Scott Hanson, CNBC.com

If you live in a high-tax state such as New York but plan to retire to an income-tax haven like Florida, a Roth IRA may not make sense.

Just about every article I've read on Roth IRA conversions discusses their benefits for people who might be in a high tax bracket once they retire.

What these articles invariably fail to mention is the negative impact that state income taxes could have and why, depending on where you plan to live, a Roth conversion might actually not be the best decision for everyone.

When you convert a 401k plan account or traditional IRA to a Roth IRA, you're making the conscious decision to pay income taxes today for the promise of a tax-free income tomorrow. This can be a wise choice if you are fairly confident that a) you'll be in a higher tax bracket during retirement, and b) Congress won't dramatically change the tax rules on Roth IRA withdrawals.

Those with high incomes who are saving and investing successfully—and who believe they'll continue to have a high income once they retire—seem prone to a certain line of reasoning: Because the promise of tax-free income from a Roth IRA is so appealing, why not just take some retirement savings today, pay the tax at current levels and then sit back and enjoy tax-free income during retirement? After all, just about "everyone" thinks that taxes will be higher in the future, right?

But converting money from a 401k or IRA to a Roth IRA triggers not only federal income taxes but also taxable income in the state in which you currently reside. While there are seven states -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- with no state income tax, many others have prohibitively high rates.

The top income-tax rate in New York, for example, is around 9 percent, while California's top rate is north of 13 percent.

If you reside in a state with high income-tax rates and convert money to a Roth IRA, you'll not only be forced to pay Uncle Sam, you'll also find yourself writing a check for thousands of dollars to help fund your state government.

This is obviously one reason so many people, once retired, flee high tax-burden states for states with lower taxation rates.

You must consider that because retirement withdrawals are taxed based on the rates of the state in which you reside when you actually take those withdrawals, a traditional 401k or IRA withdrawal will be state tax–free if you live in a state with no income tax. Again, it makes no difference if the withdrawal is coming from a traditional IRA or a Roth IRA -- the withdrawals are taxed the same (0 percent) in places with no state income tax.

If you plan on moving out of your current high-taxed state to retire in a location with no state income tax, why would you want to convert anything to a Roth IRA? By doing so, you would be taking money that would be state income tax–free during retirement and making those dollars taxable today.

Simply put: If your current primary residence has high state income taxes, you could be forking over a considerable amount of money today for absolutely zero benefit during your golden years.

There are some circumstances where a Roth conversion still might make sense, such as during a period of prolonged unemployment, but for those who are confident they'll be leaving their state when they retire, a Roth conversion is simply a bad idea the vast majority of the time.

This same logic applies to contributions to Roth 401k plans. Again, using the traditional plans may have greater benefit if you leave your high-taxed state once you retire.

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The tea party and your taxes

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By Liz Weston

IRS battle brings back designation social assistance in the spotlight.

The IRS-tea-party scandal plagues the Obama administration has shed light on a murky and controversial area of the nation agonizingly complex tax code.

At the heart of the scandal is the control name "501(c)(4)", is relatively little known, although it is used Association, AARP, the League of women voters, the national right to life Committee and the Sierra of many high-profile nonprofit groups including the National Rifle Club.

Status groups for 501(c)(4) approved income through the alleged service offer are exempt from federal taxes they in the public life of the country. But some say the tax exempt status to a subsidy for amounts paid by the rest of us.

Some important things to know:

A group called 501(c)(4) is to be operated "exclusively for the promotion of social welfare," per the IRS. It is a 501(c)(3), which the IRS tax code designation for a charity is different.In contrast to charities this "social welfare"organizations can operate unlimited lobbying and may promote even political candidates although these activities not their primary purpose-to be an important subject of the dispute.Unlike contributions to charity the contributions to these social groups are not tax-deductible. Contributions, however, can anonym-- in contrast to donations to purely political organizations that are legally public information.
Liz Weston

The exemption for "social welfare" groups comes a whole century the tax laws of 1913, according to the Wall Street Journal Law Blog. The intention seems to have been, civic and non profit groups that could not as charity classified, but still contribute to help the general welfare.

From the 1950s, expanded gradually to allow the IRS to the label for some political activity so long not main purpose of the company.

Also in the 1950s, the Supreme Court reinforces the rule that 501 (4) don't have s to its donors. The Supreme Court decided in the NAACP v. Alabama that the constitutional right to freedom of association could be kept secret membership due. The idea was that the publication of the lists members subjected to harassment.

It was a land rush for organizations that creep another decision of the Supreme Court in the year 2010, to charge s non (4). The High Court ruled in the case of citizens United, that the Federal Government political spending by companies, unions or associations limit could not. That free individuals, companies and organizations, anonymously and without boundaries for social effectively circumvent limits of straight political contributions to charitable organizations.

Exempt from spending rules and driven by anonymous donors, these nonprofits spent more than so-called "Super PACs" - big political action Ausschusse-- election 2010 according to a report of the Center for public integrity and the Center for responsive politics. More than tripled that nonprofit effort for the elections 2012, comprising nearly one-third of all dollars spent on interests from "outside".

Some of this money out were large and well known, like crossroads GPS and priorities United States. Some smaller groups were derided as "pop up" because nonprofits they formed, money and disappeared before she could get too much control.

Blurred even as the boundary between politics and social issues, was the IRS still charged with deciding was how much political advertising too much in the granting of 501(c)(4) status.

So, now we come to the tea-party scandal. Applications in the amount soared as a 501(c)(4), decided an IRS Office in Cincinnati infamous applications by conservative groups for special control, demanding answers on long questionnaires, and in some cases request lists of donors to sort out.

The IRS has been not much hot water in this, as it turned out, that Earth President Richard Nixon used the Agency inspecting and otherwise harass his political enemies.

And it is fair to suggest that a chastened IRS does not go against the abuse of the welfare State will push back anytime soon.

So what now? Can we influence how they are and remain anonymous donation campaigns to let things? We abolish duty-free status for social welfare groups, and taxes would, like companies that spell big trouble for all sorts of small nonprofit groups? Carve we an exception for social welfare groups, primarily political, are get their tax breaks but the disclosure of its donors? If so, what criteria should we use, and who should be responsible for the enforcement of the rules?

When it comes to either taxes or in politics, there is often no easy answers. The two combine, and will be hard to find any answer.

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It is time, '' Poor' taxes'

1:30 PM taxes No Comments

| By Anthony Mirhaydari, MSN Money

The stroke on the nation's budget crisis is this: we need more people, workers and paying control. We need schaffen-the poor and jobs - to come to work.

The quality of work, driven by a healthy ambition, what makes America tick.

It is embedded deep into our national psyche an idea. Waves of pilgrims and immigrants cross sign not the oceans for welfare checks; They came for the opportunity to earn a better life through blood and work.

If the inner fire is extinguished, the economies are suffering. Innovation stands. Vitality is hidden. Expand budget deficits, and the masses to keep clamor for redistribution of the tax reform charade going in a modern context because tax revenues are dwindling, use spending exploded. Debt accumulates. Panic strikes. Other words, mixes the situation than a culture of leisure in Europe is faced with a bloated welfare system and "the rich enjoy one" mentality, disastrous effects.

The United States is on the same dangerous path. Busy advancement is replaced by inaction of foreign bondholders and financed a narrowing group of wealthy taxpayers. Also, few are feeling the sting of the Uncle Sam wasteful way. And too many are wages in the private sector with Government replace.

The only way out is to stop Coddling and "Control" the "poor". Here is what I think and why.

I games with the definitions here, attempting to enter two great points.

Anthony Mirhaydari

The first is that America on an unsustainable fiscal course. The problem of the debt/deficit is acute. Every day the national debt hits a new high. It stands nearly 16.8 trillion $ or more than $53.100 for every man, woman and child in this country.

Only the opposition party in Washington has set have the goal of balanced budget. And even then not the Republican House budget draft for 10 years to compensate for. Democrats in Congress and in the White House, don't think that this is a priority. The proposal by Senate Democrats never balanced and we ran a deficit amounting to 2.1% of GDP in the year 2023.

There are no easy solutions.

We need their social programs and reduce the cost of health care, of which none of the voters is popular. And we need the reality well, is that you do not is not to close deficit and taxes, government spending, if pay about half of the country's federal taxes.

Opinion polls, that to eliminate the only "solutions" such as foreign aid and to support raising taxes for rich Americans. That will solve the problem. The tax increases for the rich into the fiscal Cliff business are recorded in January in only about 68 billion $ per year draw. The current annual budget deficit is more than $1 trillion.

An analysis of the third way policy group found that even if we make the rich with any realistic tax increase, the national debt would still double over the next 30 years. Sorry folks, just don't work that mathematics.

In addition, the rich were the tax increases, greater share of the burden before January. According to the Congressional Budget Office paid in 2009 the upper 20% of households by income 94.1% of all income tax Verpflichtungen--65% 1979 compare you this with the declining share of the middle 20% (2.7% vs. 10.7%) and the lowest 20% (6.6% compared to 0%, due to increased tax credits).

These trends more than the differences in wages for this period. In other words, the tax code has become increasingly progressive and redistributive.

The fact is, that this is a Government by the people and for the people, but there may be fewer and fewer people funded him. The data suggest that a household in around $60,000 can bring in without having to pay any income tax. (It would have to pay more social security and Medicare taxes.)

By the numbers is a middle-class income. Income tax purposes it but too poor to pay.

The risk is that a tyranny of the majority will be tempted to tax even more wealth by top earners in response to the lousy economy, making everything worse for everyone.

To close the deficit, spending must be cut (see my last column "why do we need ' death panels '" for an idea). We need to expand the base, so that even low-income households have some skin in the game. We had a balanced distribution of the income tax burden as President Bill Clinton and the Republican congressional budget surpluses ran and the economy at the height of geschnellt-- despite the fact that income shares between rich and poor were unequal then than they are now.

If we would have rolled back about what the Bush tax cuts for those in the January-rather than just the who - would we bagged additional revenue more than $100 billion per year have. If we all would then be planned tax increases have admitted to meet, including higher property taxes, it would have already been in a total value of around 400 billion $ per year, or 40% of the current deficit.

Ideal if politicians can bring the economy back in gear and get back the 6 million full-time jobs, we have lost since 2007, will expand the taxable value of course, as more people to find better jobs earn more to climb out of poverty and pay more taxes. (We need are actually 11 million new jobs for those responsible also for the increase of the population.)

But stop the relentless and ultimately losing focus on the rich, who would be "their fair share of numbers" a good first step-make, because it will only further damage business confidence, reduced investment and setting, and reduces the incentives for entrepreneurs to take risks. When that happens, we all suffer.

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How the fiscal cliff deal will hit your taxes

9:30 AM cliff, fiscal, taxes No Comments

John W. Schoen , NBC News

Yes, your taxes are going up. But you dodged a much bigger bullet.

Those increases are relatively modest compared to what the fiscal cliff would have imposed, however.The last-minute ‘fiscal cliff’ deal to reverse Congress’ ruinous, self-inflicted package of federal tax increases and spending cuts will raise the average American household’s tax bill by $1,250 this year, or about $25 a week.


For most Americans, the biggest impact will come from the expiration of a two-year payroll tax “holiday” enacted two years ago to boost the economy. That tax break amounted to two percent of wages.

“For a lot of people the increased withholding from payroll tax expiration will be significant and they’ll really see that and feel that as a legitimate tax increase,” said Joseph Rosenberg, an analyst at the Tax Policy Center. “But there was a lot of tax relief that has been extended."

Without a deal, taxes would have jumped by more than $500 billion in 2013 as almost every tax cut enacted since 2001 was set to expire. That would have cost the average household almost $3,500 per year, or about $67 a week, according to the Tax Policy Center.

The deal hammered out in the waning days of 2012 preserves most of those tax cuts – except on the very top of the income ladder. Even then, the final deal raised the definition of “wealthy” from $250,000 for couples ($200,000 for individuals) to $450,000 for couples ($400,000 for individuals). Those thresholds also apply to many small businesses that pay taxes at individual rates.

The averages, though, apply to a statistically tiny group of people who fall in the middle of every variable in the new law. Thanks to dozens of provisions that will hit different households making the same income in different ways, your overall tax bill will almost certainly change by more – or less – than $25 a week.

You won’t really know until you fill out your 2013 tax return a year from now. But here are some of the ways your tax bill may change:

PAYROLL TAXES: The most immediate, and visible impact will be a relatively small increase (about two percent of your wages) that will come out of your first paycheck of the year. You’ll keep paying that “extra” tax until you’ve reached the wage limit subject to the tax, which this year rises to $113,700. (This tax shows up in the FICA line on your paycheck.) If you hit that limit before the end of the year, you stop paying the tax.

Though you’re paying more than last year, your payroll tax rate is now back to where it was in 2009, before Congress and the White House cut the tax to help boost the economy. That measure added about $20 a month to the average household’s spending power. Now, the government wants that money back to help close the deficit.

INCOME TAXES: Though taxes are going up a bit, all but the wealthiest households dodged the biggest fiscal cliff tax bullet: the expiration of the Bush-era tax cuts. Many economists feared that if those cuts were reversed all at once, the resulting dramatic tax increases would have siphoned off billions of dollars in consumer spending that would have sent the U.S. economy back into recession.

The new law left income tax rates alone, except for the new top bracket above $400,000 for individuals ($450,000 for couples) who will now pay 39.6 percent on every dollar over that amount, up from the current 35 percent. (They’ll pay the lower rates on money earned in lower brackets, just like everyone else.)

CREDITS AND DEDUCTIONS: Some upper-income households will also pay more because they’ll lose some of their tax breaks on itemized deductions for things like mortgage interest. Those will now be capped for individuals making more than $250,000 (couples more than $300,000.) They’ll also see their $3,800 personal exemption – the tax break everyone gets – phased out.

Parents will get to keep a $1,000 child tax credit that had been set to drop to $500. The new law also reversed a $600 cut in the $3,000 credit for child and dependent care that was due to take effect. Parents will continue to get the up-to-$2,500 tax credit for college tuition that was set to be cut.

CAPITAL GAINS, DIVIDENDS: Money you earn from capital gains or dividends on investments will still be taxed at 15 percent – unless your total income is more than $400,000 for individuals ($450,000 for couples. Those in the top bracket will now pay 20 percent – up from 15 percent.

Dividends and gains on investments held in a qualified account like a 401(k) will still be deferred until you withdraw the money when you retire. The new law also preserved increased limits for how much you can contribute tax-free.

ALTERNATIVE MINIMUM TAX: This stealth tax monster, which had threatened some 28 million unsuspecting households in 2013, has been permanently killed. Originally designed as a separate set of rules to close tax loopholes for “wealthy” families, the law’s architects forgot to take inflation into account, pushing more and more middle-income households into its path every year.

For years, Congress has “patched” the law at the last minute to save its new victims from an average $3,000 tax bump. The process also overstated how much the government collected because “official” estimates assumed it would be collected.

The new law makes that patch permanent. But that also means the budget now reflects the loss of those revenues, widening “official” deficit estimates.

DOCTOR FEES: Congress has also relied on a similar accounting gimmick with Medicare fees paid to doctors which are “cut” every year for bookkeeping purposes – and then “patched” at the last minute. The new law restores those cuts – which would have surgically removed 27 percent of your doctor’s Medicare income this year – but only for 2013. So you doctor still faces the prospect of a 27 percent cut in 2014.

UNEMPLOYMENT BENEFITS: Since the recession, Congress has added several “tiers” of extended unemployment insurance for jobless workers. The fiscal cliff would have eliminated extended benefits for those out of work the longest. The new law keeps them in place – but only for one year.

Low-income families also dodged cuts in the earned income tax credit that were set to take effect in 2013.

ESTATE TAXES: The fiscal cliff was also set to take a big bite out of money passed from one generation to the next. Last year, estates of up to $5,120,000 (per person) were exempt from federal tax, which then kicked in with a top rate of 35 percent for amounts over that. The fiscal cliff would have cut the tax-free limit to $1 million per person and raised the top rate to 55 percent.

The new law preserved the $5 million tax-free threshold and raised the top tax rate to 40 percent.

Though many of the deep ‘fiscal cliff’ spending cuts were postponed in the new law, Congress has yet to complete work on that side of the budget ledger, leaving a number of federal programs in play that could affect household budgets.

And while many of the just-enacted tax provisions are “permanent,” it remains to be seen how long they remain in force.

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Buffett: Raising taxes on rich won't chill economy

5:00 PM Buffett, chill, economy, Raising, taxes No Comments

Super investor Warren Buffett, the chairman of Berkshire Hathaway, speaks with TODAY's Matt Lauer about Cyber Monday sales figures, consumer confidence and the future of the American economy.

By Ben Popken, TODAY contributor
Raising taxes on the rich won't dampen economic growth and would "raise the morale of the middle class," billionaire investor Warren Buffett told the TODAY show Tuesday.

Echoing a theme he has stressed often, Buffett downplayed the idea that higher taxes for the wealthy, as proposed by the Obama administration as part of a deal to resolve the "fiscal cliff," would scare off critical investment for job creation. Republicans argue that raising taxes on people in higher tax brackets would choke off investment and slow the economy at a time when it can ill afford it.

Buffett disagrees. "No, and I think it would have a great effect on the morale of the middle class," said Buffett, in the first of two live interviews with TODAY's Matt Lauer. "They've had to watch guys like me pay below the rate by that paid by the people in my office."

Also known as the "Oracle of Omaha" for his investing acumen, Buffett's views on the economy are widely followed, including on whether we're really going to go off the "fiscal cliff" of $500 million in tax hikes and spending cuts.

The CEO of Berkshire Hathaway has been vocal on the economy lately, proposing in a New York Times op-ed Monday that there be a minimum tax for the wealthy.

"I'm confident," said Buffet when asked about how he was feeling about the economy. "I can't speak for others, but at Berkshire Hathaway, we buy and sell stocks every day. America's a winner."

Lauer brought up a recent quote from Honeywell CEO David Cote who told Meet the Press that he and others like him were feeling a lack of confidence in the political process, so much so that the uncertainty was making them keep their money on the sidelines and preventing them from making additional investments, including hiring.

"At Berkshire Hathaway, we're investing 9 billion in plant equipment, a record, breaking last year's record. It's always uncertain," said Buffett.

"December 6th 1941 was uncertain," said Buffett, referring to the day before the attack on Pearl Harbor. "We just didn't know it."

When asked whether Congress would really enact a strong proposal such as the one Buffett made in his Times op-ed, which suggested setting a minimum 30 percent tax for millionaires, Buffet said, "I wouldn't be surprised. They're going to make a deal."

Now there's a new Buffett book, "Tap-Dancing to Work" that trace his career through 80 different FORTUNE Magazine articles over the years. If there's one thing that stuck out from the timeline, Carol Loomis, FORTUNE editor, who collected and expanded the articles for the book, told TODAY, it's "how consistent he's been in his thinking. He's never changed."

"I couldn't be more boring," said Buffett. "I just look at the facts and wherever they lead me, I go."

Is this the secret to Buffett's success? Lauer asked Loomis. It's hard, she said, because other investors "get emotional."

Buffett is known for finding undervalued companies with strong fundamentals and good management. "It's simple, but not easy," said Loomis. "That's why other people can't do it. He's thinking about business 24/7."

Lauer asked if this book was a goodbye letter of sorts. "What's it going to mean to the world when he hangs up his investing shoes?" he asked.

Loomis said, "He will be remembered. His role in life will be remembered for the next century. I don't know whether investing or philanthropy is going to be the lead item. People are going to be reading about Buffet 100 years from now."

About that retirement... "Got a date in mind?" Lauer asked the 82-year old businessman.

Buffett just laughed.

Read a free excerpt from the book Tap-Dancing to Work.

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Rising taxes would hit middle-class spending: White House

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Reuters

WASHINGTON - A White House report says that if that Congress allows taxes to go up on middle-class families, consumers will spend $200 billion less in 2013.

The report by the White House's National Economic Council and Council of Economic Advisers, released on Monday, was the latest salvo by President Barack Obama to encourage lawmakers to extend tax cuts for families making less than $250,000 a year and fix a tax aimed at making sure wealthy people pay a minimum amount.

The newly re-elected Democratic president is negotiating with Republicans in Congress over the "fiscal cliff" - a combination of tax increases and spending cuts that would go into effect next year if the two sides do not reach a deal to stop it.

While the White House and Republican leaders wrangle over raising taxes on the wealthy - a key campaign promise of the president's - Obama would like Congress to pass measures now to lock in lower tax rates for the middle class, the primary constituency he courted in his re-election campaign.

"The president has called on Congress to act now on extending all income tax cuts for 98 percent of American families and not to hold the middle-class and our economy hostage over a disagreement on tax cuts for households with incomes over $250,000 per year," the report said. "The Senate has passed this bill and the president is ready to sign it."

The White House also wants lawmakers to fix the alternative minimum tax, which was set up decades ago so that wealthy Americans could not avoid taxes using legal tax breaks and loopholes. The AMT was not indexed for inflation and has to be updated or "patched" every year to avoid sweeping in millions of less affluent taxpayers.

"Allowing the middle-class tax rates to rise and failing to patch the Alternative Minimum Tax could cut the growth of real consumer spending by 1.7 percentage points in 2013," the report said.

"This sharp rise in middle-class taxes and the resulting decline in consumption could slow the growth of real GDP by 1.4 percentage points, which is consistent with recently published estimates from the Congressional Budget Office."

The CEA estimated that consumers would spend nearly $200 billion less next year as a result of higher taxes. The drop would hurt the retail industry, which has accounted for nine percent of employment growth since the U.S. recession ended in June 2009, the report said.

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Starbucks avoids UK taxes — and it's legal

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LONDON — Starbucks' coffee menu famously baffles some people. In Britain, it's their accounts that are confusing. Starbucks has been telling investors the business was profitable, even as it consistently reported losses.

This apparent contradiction arises from tax avoidance, and sheds light on perfectly legal tactics used by multinationals the world over. Starbucks stands out because it has told investors one thing and the taxman another.

The Seattle-based group, with a market capitalization of $40 billion, is the second-largest restaurant or cafe chain globally after McDonald's. Accounts filed by its UK subsidiary show that since it opened in the UK in 1998 the company has racked up over 3 billion pounds ($4.8 billion) in coffee sales, and opened 735 outlets but paid only 8.6 million pounds in income taxes, largely due because the taxman disallowed some deductions.

Over the past three years, Starbucks has reported no profit, and paid no income tax, on sales of 1.2 billion pounds in the UK. McDonald's, by comparison, had a tax bill of over 80 million pounds on 3.6 billion pounds of UK sales. Kentucky Fried Chicken, part of Yum Brands Inc., the no. 3 global restaurant or cafe chain by market capitalization, incurred taxes of 36 million pounds on 1.1 billion pounds in UK sales, according to the accounts of their UK units.

Yet transcripts of investor and analyst calls over 12 years show Starbucks officials regularly talked about the UK business as "profitable", said they were very pleased with it, or even cited it as an example to follow for operations back home in the United States.

Troy Alstead, Starbucks' Chief Financial Officer and one of the company officials quoted in the transcripts of calls Reuters reviewed, defended his past comments, saying the company strictly follows international accounting rules and pays the appropriate level of tax in all the countries where it operates. A spokeswoman said by email that: "We seek to be good taxpayers and to pay our fair share of taxes ... We don't write this tax code; we are obligated to comply with it. And we do."

When presented with Reuters' findings, Michael Meacher, a member of parliament for the Labour Party who is campaigning against tax avoidance, said Starbucks' practice "is certainly profoundly against the interests of the countries where they operate and is extremely unfair ... they are trying to play the taxman, game him. It is disgraceful."

There is no suggestion Starbucks has broken any laws. Indeed, the group's overall tax rate - including deferred taxes which may or may not be paid in the future - was 31 percent last year, much higher than the 18.5 percent average rate that campaign group Citizens for Tax Justice says large U.S. corporations paid in recent years.

But on overseas income, Starbucks paid an average tax rate of 13 percent, one of the lowest in the consumer goods sector.

The UK tax authorities and the U.S. Internal Revenue Service (IRS) said confidentiality rules prevented them from commenting.

A LOSSMAKER WITH FAT MARGINS
You could think of Starbucks' differing versions of its experience in the UK as two different coffees. To its investors, it sells an espresso - strong and vibrant. The UK taxman gets a watered-down Americano.

The contradiction between the two stories becomes evident from scrutiny of its group reports and the transcripts of 46 conference calls with investors and analysts.

Like most big corporations, Starbucks' group earnings statements do not break down its profits and tax payments by country, although on calls it occasionally shares details about larger markets such as the UK. But companies operating in the UK are obliged to lodge accounts at the company register, Companies House, to give a picture of the unit's financial performance.

In the 2007 financial year to end-September, Starbucks' UK unit's accounts showed its tenth consecutive annual loss. Yet that November, Chief Operating Officer Martin Coles told analysts on the fourth-quarter earnings call that the UK unit's profits were funding Starbucks' expansion in other overseas markets. Then-Chief Financial Officer Peter Bocian said the unit had enjoyed operating profit margins of almost 15 percent that year - equivalent to a profit of almost 50 million pounds.

For 2008, Starbucks filed a 26 million pounds loss in the UK. Yet CEO Schultz told an analysts' call that the UK business had been so successful he planned to take the lessons he had learnt there and apply them to the company's largest market - the United States. He also promoted Cliff Burrows, former head of the UK and Europe, to head the U.S. business.

Schultz said he looked forward to Burrows "now applying that same drive and business acumen to leading our U.S. business."

In 2009, accounts filed in London claimed a record loss of 52 million pounds for the financial year to September 27, while CFO Alstead told investors on a call that the UK unit was "profitable."

For 2010, the UK unit reported a 34 million pounds loss, and Starbucks told investors that sales continued to grow.

Starbucks UK unit's accounts for the year to September 2011 showed a 33 million pounds loss. Yet John Culver, President of Starbucks' International division, told analysts on a call earlier that year that "we are very pleased with the performance in the UK."

When Reuters asked Starbucks' CFO Alstead which version was accurate - Starbucks' accounts for the UK taxman, or its comments to investors, he said: "The UK is very troubled, unfortunately. Historically it has performed a little bit better than it does now."

He did not explain why the UK business was so disappointing, but said Starbucks was "taking very aggressive actions" to improve its performance, including changing its cost structure.

Meacher, the politician, said Starbucks' experience reflects broader problems in the UK system, which allows companies to pay less tax than they morally should. Tax campaigners say that failure is partly policy: successive governments have urged the tax authority to take a pro-business stance. The UK is one of the few rich countries not to have general anti-avoidance legislation, which the government is preparing now.

A LICENCE TO LOSE MONEY
Presented with the contradiction between Starbucks' UK accounts and its comments to investors, Starbucks' CFO Alstead identified two factors at play, both related to payments between companies within the group.

The first is royalties on intellectual property. Starbucks, like other consumer goods businesses, has taken a leaf out of the book of tech companies such as Google and Microsoft. Such firms were identified by Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, in a September hearing on how U.S. companies shield billions from tax authorities. He said they were engaged in "gimmickry" by housing intellectual property units in tax havens, and then charging their subsidiaries fat royalties for using it.

Like those tech firms, Starbucks makes its UK unit and other overseas operations pay a royalty fee - at Starbucks, of six percent of total sales - for the use of its ‘intellectual property' such as its brand and business processes. These payments reduce taxable income in the UK.

McDonald's also charges its UK subsidiary a royalty for ‘intellectual property', although at a lower rate of 4-5 percent.

The fees from Starbucks' European units are paid to Amsterdam-based Starbucks Coffee EMEA BV, described by the company as its European headquarters, although Michelle Gass, the firm's president in Europe, is actually based in London.

It's unclear where the money paid to Starbucks Coffee EMEA BV ends up, or what tax is paid on it. The firm had revenues of 73 million euros in 2011 but declared a profit of only 507,000 euros. When asked how it burnt up all its revenue, Alstead pointed to staff costs and rent. The HQ has 97 employees.

Alstead said some of the unit's revenue was also paid to other Starbucks units, including one in Switzerland. He declined to say if fees paid for the use of the brand, which originated in the United States, are sent back to be taxed.

Professor Michael McIntyre at the Wayne State University Law School said it was rare for such fees to be repatriated to the United States, where corporate profits are taxed at up to 39 percent. In contrast in Switzerland, lawyers say, earnings from royalties can be taxed at rates as low as 2 percent.

Starbucks declined to comment when asked if it used offshore jurisdictions in this way.

ARM'S LENGTH
The UK tax authority, Her Majesty's Revenue & Customs (HMRC), allows companies to deduct intellectual property fees if firms can show the charges were made at "arm's length" - that is, if companies can show they would have agreed on the terms even if they were not connected.

One way to prove this is to show that a license for which a royalty is paid is key to the subsidiary's profitability, said Stella Amiss, international tax partner with accountancy firm PwC. After all, if you are paying for an asset that never generates a profit, you are probably paying too much. "You would need to show a track record of profitability," she said.

Starbucks says it abides by the ‘arm's length' principle, even if the company has not been profitable in the UK.

Accounts for McDonald's UK unit show it also pays trademark fees to associated companies, but these have generated profit. A spokeswoman for KFC said its UK unit did not pay such fees.

Accounting firm Deloitte, which audits both Starbucks' group accounts and those of the UK unit, declined to comment.

BEAN COUNTER
The second factor for the contradiction between Starbucks' local accounts and its comments to investors is a requirement to allocate some funds generated in the UK to other subsidiaries in its supply chain. "The profit sits where the value is created. That is a principle we subscribe to," Starbucks CFO Alstead said.

Starbucks buys coffee beans for the UK through a Lausanne, Switzerland-based firm, Starbucks Coffee Trading Co. Before the beans reach the UK they are roasted at a subsidiary which is based in Amsterdam but separate from the European HQ.

Alstead said that tax authorities in the Netherlands and Switzerland require Starbucks to allocate some profits from its UK sales to its Dutch roasting and Swiss trading units. This is a common requirement, which multinationals meet by setting prices, known as a "transfer prices", for goods that pass between different group entities. Experts say transfer prices are also a way for a company to minimize its tax bill.

It's not clear how Starbucks allocates such costs. What is clear is that while its UK subsidiary is making a loss, its Dutch roasting operation has only a small profit. In the past three years, the Amsterdam unit has had an average annual turnover of 154 million euros but recorded average profit of 1.6 million euros, or 1 percent of that, according to its accounts.

On average, 84 percent of the Amsterdam unit's annual revenue has gone on buying goods such as raw coffee beans, the electricity to roast them, and packaging.

Starbucks declined to give details, or comment on what the charges indicate about the price its roaster paid its Swiss unit for coffee beans. It also declined to say what profit the Swiss coffee-buying unit makes, although Alstead said it was "moderately" profitable. Swiss law does not require the unit to publish accounts.

Corporate profits are taxed at 24 percent in the UK and 25 percent in the Netherlands, whereas profits tied to international trade in commodities like coffee are taxed at rates as low as 5 percent in Switzerland, lawyers there say.

Starbucks was the subject of a UK customs inquiry in 2009 and 2010 into the company's transfer pricing practices. This was "resolved without recourse to any further action or penalty", a Starbucks spokesman said. HMRC declined to comment on the probe.

A CASH-RICH BORROWER
Starbucks' UK accounts show a third way it cuts its tax: inter-company loans. These are a common tactic for shifting profits to low-tax jurisdictions, according to a guidance manual used by the UK tax authorities, who try to limit the technique.

Such loans bring a double tax benefit to multinationals: the borrower can set any interest paid against taxable income, and the creditor can be based in a place that doesn't tax interest.

An examination of its accounts shows that Starbucks' UK unit is entirely funded by debt, and paid group companies 2 million pounds in interest last year. For comparison, McDonald's UK - which has 465 more branches than Starbucks - paid only 1 million pounds in interest to its group companies last year.

Starbucks hardly cuts its UK subsidiary a good deal. Its group bonds carry a coupon of Libor plus 1.3 percent. Libor, the London Inter-Bank Offered Rate, is an international interest rate benchmark frequently used in commercial lending. Starbucks charges its UK unit interest at Libor plus 4 percentage points. For comparison, KFC charges its subsidiaries around Libor plus 2 percentage points and the UK units of McDonald's pay affiliates interest at or below the Libor rate.

(c) Copyright Thomson Reuters 2012.

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About happy be - low U.S. taxes

6:54 AM about, happy, taxes No Comments

Think you pay too much in taxes? It could be worse. Could life in Denmark.

How your hard-earned money to the good people on the internal send revenue service, can help a new report by the Organisation for economic cooperation and development, take some of the sting out of writing, check.

The Paris-based group that tracks the economies of 34 Nations found that the strain is developed for the U.S. taxpayer only of the lowest in the world.

Entrepreneurs see their calling in medical pot as the national organization for the reform of marijuana laws organization at its national conference in Denver of this week celebrates its 40th year as the largest pro-marijuana, have hundreds of "Ganjapreneurs" share stories and tips gathered. Her career: Tough summer job market life Inc.: Office bullying is five houses for $500,000 or less to Empire

At first glance looks similar to America's top rate of 35 percent of the prices paid by other developed countries. However, the top marginal rate is; typical married couple with two children pays only 13.7 percent of total income taxes (down from about 20 percent in the year 2000), according to the OECD.

That compared with 35 percent comparable household income in Denmark. The average rate for the 34 developed countries, the OECD Membersfor were similar was 26 percent. (All figures are for the year 2009).

But our Danish family is not done yet:, that rate is 35 percent only for income taxes. How many European countries, impose Denmark also a value added tax - a kind of value added tax on a wide variety of were and services. 25 Percent, Denmark's VAT is the highest in Europe.

Additional taxes to take - such as a tax of 70 cents per litre wines - and you find on the highest tax burden in the developed world.

So-called "sin taxes" are everywhere in the developed world, but Scandinavian countries seem particularly susceptible to wine control: Sweden and Norwegians pay about $5 per litre of wine. Japanese smokers pay more than 60 cents per cigarette, according to OECD data.

All in the tax burden in Demark consumes approximately 48 percent of the country's GDP. In the United States, the load is about half that with 24 percent of GDP goes towards control. This is the United States at the lower end of the tax burden between the developed countries.

European Governments have some of the highest tax burden in the world: Sweden numbers control 46 per cent of GDP; France 42 percent is 37 percent of the Treasury and German figures. Canadians (31%), Japan (28 percent) and Australian (27 percent) have a higher tax burden than Americans.

If you are looking for a lower tax burden, you should head south of the border. Chile (18.2 percent) and Mexico (17.5 percent) are to devote only two OECD countries, which control a small proportion of GDP than the United States.

On the other hand, if you really hit control want to, you need to find out, one way to a citizen one of the oil-rich Gulf States, for the numbers of the Heritage Foundation.

The richest of all, Saudi Arabia, will control which consume only 6.6% of GDP. Thanks to a steady supply of petrodollars to pay Government expenditures are also single-digit share of GDP in Iran (6.1 percent), Nigeria (5.9 per cent), Qatar (4.9 percent), Bahrain (4.8 percent), Libya (3.4%), Oman (3 percent) and the United Arab Emirates (1.8 percent) control.

In Kuwait, the tax burden is only 1.5 percent of GDP - seems hardly value needed the money to the pick up.

© 2011 msnbc.com reprints

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