Fair Tax

Financial

The FairTax eliminates the tax bias against investment.
Under the FairTax, savings and investments are not taxed at all. As Americans save more money, the pool of funds in lending institutions grows. When you add to this the flood of capital currently trapped offshore, we realize a huge increase in the pool of capital, thereby causing the cost of borrowing funds to drop.
The FairTax dramatically increases investment levels compared to the current income tax system.
Investment is important to all wage earners because of the relationship that exists between real wage rates and the level of capital investment per worker. In fact, the most significant contributing factor to achieving higher real wages is the level of capital investment per worker. A worker or farmer, for example, is more productive if he has more machinery and equipment to work with, particularly new equipment that incorporates the latest technological innovations. Higher productivity leads to higher real wages.
Foreign capital investment will also positively impact domestic wage rates and our economy. After repeal of the income tax, the U.S. will be perhaps the most attractive place on earth to invest, attracting investment capital from around the world that will finance new plants and create jobs here in America.
Interest rates drop.
Interest rates include compensation to the lender for the tax that they must pay on the interest you pay them. Under the FairTax, interest rates drop immediately and quickly by approximately one-quarter toward the current tax-exempt rate.
Financial
The FairTax eliminates the tax bias against investment.
Under the FairTax, savings and investments are not taxed at all. As Americans save more money, the pool of funds in lending institutions grows. When you add to this the flood of capital currently trapped offshore, we realize a huge increase in the pool of capital, thereby causing the cost of borrowing funds to drop.
The FairTax dramatically increases investment levels compared to the current income tax system.
Investment is important to all wage earners because of the relationship that exists between real wage rates and the level of capital investment per worker. In fact, the most significant contributing factor to achieving higher real wages is the level of capital investment per worker. A worker or farmer, for example, is more productive if he has more machinery and equipment to work with, particularly new equipment that incorporates the latest technological innovations. Higher productivity leads to higher real wages.
Foreign capital investment will also positively impact domestic wage rates and our economy. After repeal of the income tax, the U.S. will be perhaps the most attractive place on earth to invest, attracting investment capital from around the world that will finance new plants and create jobs here in America.
Interest rates drop.
Interest rates include compensation to the lender for the tax that they must pay on the interest you pay them. Under the FairTax, interest rates drop immediately and quickly by approximately one-quarter toward the current tax-exempt rate.
Financial
The FairTax eliminates the tax bias against investment.
Under the FairTax, savings and investments are not taxed at all. As Americans save more money, the pool of funds in lending institutions grows. When you add to this the flood of capital currently trapped offshore, we realize a huge increase in the pool of capital, thereby causing the cost of borrowing funds to drop.
The FairTax dramatically increases investment levels compared to the current income tax system.
Investment is important to all wage earners because of the relationship that exists between real wage rates and the level of capital investment per worker. In fact, the most significant contributing factor to achieving higher real wages is the level of capital investment per worker. A worker or farmer, for example, is more productive if he has more machinery and equipment to work with, particularly new equipment that incorporates the latest technological innovations. Higher productivity leads to higher real wages.
Foreign capital investment will also positively impact domestic wage rates and our economy. After repeal of the income tax, the U.S. will be perhaps the most attractive place on earth to invest, attracting investment capital from around the world that will finance new plants and create jobs here in America.
Interest rates drop.
Interest rates include compensation to the lender for the tax that they must pay on the interest you pay them. Under the FairTax, interest rates drop immediately and quickly by approximately one-quarter toward the current tax-exempt rate.
Interest income, like all other income, is not taxed under the FairTax plan. Furthermore, there is no longer any need to track interest paid on loans for the purpose of mitigating income
tax liability. Under our current system a deduction, when applicable, allows taxpayers to make interest payments from pre-tax dollars to the extent of their marginal tax rate. Under the FairTax, people make all interest payments from 100 percent pre-tax dollars.
The FairTax causes the stock market to appreciate.
The value of corporate stock or a corporate bond is the present discounted value of the expected future income stream (net of tax) of the stock or bond. Thus, a stock’s value or a bond’s value is a function of two things: The expected future income from owning the asset and the interest rate. The FairTax increases the expected future return on assets and causes interest rates to fall 25 to 30 percent. Investors prosper greatly under this plan, since corporations face lower operating costs and individuals have more money to save and invest. The reform significantly enhances the retirement savings and/or retirement spending power of most Americans.

www.FairTaxNation.com
Interest income, like all other income, is not taxed under the FairTax plan. Furthermore, there is no longer any need to track interest paid on loans for the purpose of mitigating income
tax liability. Under our current system a deduction, when applicable, allows taxpayers to make interest payments from pre-tax dollars to the extent of their marginal tax rate. Under the FairTax, people make all interest payments from 100 percent pre-tax dollars.
The FairTax causes the stock market to appreciate.
The value of corporate stock or a corporate bond is the present discounted value of the expected future income stream (net of tax) of the stock or bond. Thus, a stock’s value or a bond’s value is a function of two things: The expected future income from owning the asset and the interest rate. The FairTax increases the expected future return on assets and causes interest rates to fall 25 to 30 percent. Investors prosper greatly under this plan, since corporations face lower operating costs and individuals have more money to save and invest. The reform significantly enhances the retirement savings and/or retirement spending power of most Americans.

Questions & Answers

Question: What do I need to declare as income? Stipends, travel grants, fellowships, loans?
Answer: Loans are not income, so no taxes on it. There may be a tax benefit when you pay the interest on the loan.
Fellowships are income, and you report the income on the wages line and add it to any w-2 income you receive. This income is not subject to social security taxes.
Stipends are income and you will either receive a w-2 (wages) or a 1099-misc (contract work is self-employment requiring Schedule C and Schedule SE).
Travel grants could be income or not. Contact the grant administrator to see if your particular travel grant will be reported to IRS as W-2 (wages), 1099-misc (contract work) or reimbursement of expenses (not reportable to IRS as income).

Question: What part of fellowship income is tax exempt?
Answer: Fellowship income is reported the same as w-2 wages, but is not subject to social security. In the same way as w-2 wages, your standard deduction and personal exemption amounts are not taxable. For a 2006 tax return, if you are single and can claim your own personal exemption, then your standard deduction is $5150 and your personal exemption is $3300. If your income (from all sources) is greater than your standard deduction, then you are required to file a tax return… even if you do not owe taxes. You may find your fellowship income on a W-2 or on a 1098-T, depending on the administration of the fellowship.

Question: If I do not receive a W-2 for internship Stipend income, can I assume the income is not taxable?
Answer: I would assume that you did not receive your mail. Call the administrator for the stipend and verify that no W-2 was sent. Because some stipends are not taxable, you need to verify with the source to determine the tax reportable status of this money.

Question: How do I report fellowship income if I have no Social Security number? I came to this country in September, got a fellowship and now have to file a tax return.
Answer: Complete your tax return and report your fellowship on the W-2 wages line. Complete a W-7P request for a taxpayer ID. Mail these together to IRS. They will process the request for a taxpayer ID and then process your tax return.

Question: How do I report income from more than one state? How do I become a California resident?
Answer: IRS does not care what state you reside in. So for your federal tax return, just combine your income (w-2 wages).

U.S. INCOME TAX INFORMATION

U.S. INCOME TAX INFORMATION
TAX FACTS FOR US CITIZENS LIVING ABROAD, 2005
Who must file a return? Any US citizen (throughout this fact sheet the term US citizen includes both citizens and US resident aliens) who has worldwide income in excess of the sum of his or her standard deduction and personal exemption must file a return annually. For 2005 the standard deduction amounts for most people are $10,000 (married filing jointly), $5,000 (single or married filing separately), and $7,300 (head of household). The personal exemption amount is $3,200 for each taxpayer and dependent.
When is my tax return due? US citizens have an automatic extension to June 15 if their residence address is overseas on April 17, 2006. For overseas residents who must file tax returns for calendar year 2005, returns are due by June 15, 2006. However, any amounts owed must still be paid on or before April 17, 2006. The automatic extension applies only to filing the return; it does not affect the due date of any money owed. An international postmark by these dates counts as timely filed, so long at the postmark date is clearly legible.
What form should I file? As the foreign earned income exclusion can only be claimed on a Form 1040, US citizens overseas will normally file a Form 1040. Do not file a Form 1040A or Form 1040EZ if you have income earned from working overseas.
How do I claim the foreign earned income exclusion? To claim either the foreign earned income exclusion or the foreign housing exclusion, you must complete either Form 2555 or Form 2555EZ. The Form 2555EZ should only be used if you were a full year resident overseas with earned income of less than $80,000. If you were an overseas resident for only a part of the year, if you earned more than $80,000, or if you are claiming a foreign housing exclusion, file Form 2555.

What is the maximum foreign earned income exclusion? The maximum exclusion amount for 2004 and future years is $80,000, with possible inflation adjustments for tax years 2006 and later. Each individual taxpayer may claim the exclusion. Thus, a married couple when both work can each claim up to the exclusion limit for the income they earn. If both spouses are employed overseas and both earn $80,000 or more in 2004 the maximum earned income exclusion is $160,000. If one spouse earns more than $80,000 and the other earns less the exclusion may not be "shared." The spouse earning more than $80,000 will have taxable earned income equal to the excess of earned income over $80,000; the spouse earning less than $80,000 will be able to exclude only the amount earned as an individual.
May I claim both the foreign earned income exclusion and the foreign housing exclusion? Yes, if your earned income exceeds the foreign earned income exclusion limit ($80,000 single, $160,000 joint in 2004). To the extent your total foreign housing costs exceed 16 percent of the annual salary of a GS14, Step 1, US government employee, those excess costs may be excluded. Fortunately, the Internal Revenue Service provides the daily rate, which will be approximately $11,700 for tax year 2005. If rent, local housing or real estate tax, common area fees, utilities, etc., exceed this amount the excess amount may be excluded from income.

Where can I get more guidance on filing requirements for US citizens resident overseas? Internal Revenue Service Publication 54, "Tax Guide for U.S. Citizens and Resident Aliens Abroad" has more detailed information. You may also go to the IRS web site, http://www.irs.gov/.
If I want professional help in preparing my return whom may I consult? TieCare has a relationship with Global Tax Service, which provides expert tax preparation services for US citizens or resident aliens residing overseas. E-mail Rick Gray, CPA, at tiecare01@cs.com.