Tickets, fines and penalties cost real money

By Kevin M

An article this week from USA Today (Speeding ‘cushion’ may dwindle due to recession) reports that the 5-10-mph speeding “cushion” we’ve been enjoying most of our lives may be disappearing as cities and states work to close budget gaps.

The article confirms what many of us have suspected for some time: “…it’s clear that many communities are turning to traffic citations for added revenue in tough financial times.”

This news highlights an expense most of us rarely think about: non-compliance expense. What ever we think of it, it’s very real and never more than now.

Is this actually an expense?

OK, this isn’t a category most people think of as an expense in the conventional sense, but we live in a society which is heavily regulated and there are more laws regarding ordinary behavior than most of us can imagine. It’s important to realize that there are fines attached to our non-compliance with those laws and regulations, so we need to keep that fact in mind even in those moments when we may be feeling a bit, shall we say, rebellious.

Technology is increasingly rendering non-compliance a fools bet. It doesn’t matter if you agree with a law or not, non-compliance can cost you money, or worse, so it’s best to relent, obey the rules, and just get used to it. If you feel passionate about a certain law, take it up with your political representatives, but never respond by ignoring it.

When driving your car, be aware of speed limits and slow down a little—especially now! Remember to use your signals at intersections and when making lane changes. Stop pushing and tailgating and be on the look out for other vehicles and especially for pedestrians and bike riders—never forget that you CAN kill someone while driving.

Obey stop signs by actually coming to a complete stop, and always assume that there is a traffic camera at any red light you approach—increasingly, that assumption is proving correct.

Not only will you decrease your chances of getting into an accident, but your best defense against an unseen police car parked on the side of the road is to be doing the right thing when you drive by. If you make safe driving a habit, you won’t have to worry so much about the police in the first place. Violations will result in unneeded fines and points on your license which may produce insurance surcharges.

Bad habits can cost too

Avoid talking on your cell phone while driving, even if it is legal in your jurisdiction. It’s a real distraction that can land you and others in a difficult situation. Save it for emergency use only, and when needed, use it on hands free mute mode.

A couple of years ago I was rear ended by a car that had been hit by a lady talking on her cell phone. What was completely ridiculous was that it happened at a RED traffic light. Several cars were stopped at the light, including me, and the lady missed not only the red light, but also the cars parked in front of it. Some information after the fact indicated that it wasn’t her first accident involving use of her cell phone. Sometimes we get so used to something that we fail to realize what can go wrong. Cell phone are just such a item.

Do not ignore the DUI laws in your state or think you’ll never be caught. Maybe you won’t, but if you are the consequences of fines, surcharges and loss of license can be steep.

Be sure to pay at any metered parking spaces you use, and for any toll booths you enter. Getting a $50 fine for ignoring a 50 cent toll makes no financial sense what ever.

Keeping clean and being a good neighbor

Be aware of the laws and regulations surrounding your business and do your best to comply. Always pay your income taxes, otherwise fines and penalties accumulate. If you can’t pay the tax, file the return anyway (with a partial payment at least) and request a payment arrangement or settlement, but never fail to file because you don’t have the money. Failure to file or failure to disclose income penalties are much higher and can result in criminal penalties as well.

As a rule, pay a fine or a tax, then fight it later, but failure to pay can lead to the issuance of a bench warrant, which can lead to an arrest, which can lead to higher fines and the need for legal representation.

The same goes for how you live. No matter how strong the urge, you don’t need to be playing your electric guitar at three o’clock in the morning, or running around your neighborhood (or anywhere else) in a drunken stupor.

In conflicts, give people the benefit of the doubt and be prepared to give way unless an unsafe condition might be caused by your backing down. Be polite and reasonable with people you meet or transact business with, and always keep your carnal desires in check. No matter how right or innocent you may think you are, the other party, as well as witnesses, a police officer or a court of law, might think otherwise.

The cost of non-compliance

Every year there are millions of lawsuits filed over issues we can’t even imagine, and according to the World Almanac, over 10 million arrests were made by police in 2006. With numbers that high, never assume it can’t happen to you because you’re too smart or too good a person.

The cost of living is high enough without incurring preventable expenses. As regulated and litigious a society as we have become, do your best to stay on top of legal developments (without obsessing on them) and be sure to be at least in general compliance. Always operate in good faith and show at a minimum a general intent to comply.

Since the legal, tax and regulatory nets are so tight, it may not be possible to avoid non-compliance entirely, but we should do our best to keep them to a minimum.

What do you think—is “compliance expense” a legitimate expense in our world? What are you doing to keep it to a minimum?

By Kevin M

A disturbing report came out last week in an article on Yahoo Finance in regard to state income tax refunds being delayed. In Cash-Strapped States Delay Paying Income-Tax Refunds it was reported that several states will be delaying the issuance of refunds this year in response to budget issues.

The article said that the delays represent “…essentially an involuntary no interest loan from the taxpayer.”

Projections indicate that this is a trend will continue into the foreseeable future. The Christian Science Monitor reported in December that (What recovery? Budget deficits get worse for states) 48 states face budget deficits for fiscal 2010, and at least 41 are projected for 2011.

There’s an almost comfortable tendency these days to blame all bad-isms on the state of the economy, and while the recession has certainly had a negative affect on state finances, budgetary overreach shares the blame in at least equal measure. As an example, a shocking story has recently been in the news that state and local pension plans for public workers are facing something on the order of a collective $1 trillion shortfall in funding for future benefits. This is just one example, but I think it confirms that state budget problems may be longer term than we like to think.

If that’s the case, we might expect refund postponements and other budgetary shell games to continue well into the future and some strategy is now the order of the day.

2009 is a done deal, but NOW is the time to prepare for April 2011

It’s virtually ironic that owing will actually give you more control of your money in this particular situation.

The ideal is to have a very small refund on both your federal and state returns, that way you aren’t giving the government an interest free loan, but you’re also not writing a check on April 15th. Unless you’re a CPA it probably won’t be possible to have your withholding come within a few dollars of your final liability, but we should all be looking to get as close as possible and, failing that to actually owe at least a little to the state.

You can do a rough projection of your tax situation for 2010 and get an approximation of your state tax liability, then adjust your withholding taxes accordingly. Withhold no more than will provide you with a small state refund, or even better, a small liability. Add up income from all sources, subtract KNOWN deductions, calculate the tax liability on the remaining income, then set your payroll withholding or quarterly estimates to come in slightly below the calculated liability.

Here in Georgia, the Department of Revenue includes an easy to use “Schedule For Estimating Georgia Income Taxes” form at the back of the state income tax general instructions booklet, and I’d be willing to bet a similar form can be found in other state tax instruction books as well.

If you’re unsure or if your legs get wobbly…

Be careful however in using the do-it-yourself approach if you live in California, New York or other states with notoriously complicated tax codes. If that’s the case, a projection shouldn’t be undertaken by anyone other than an experienced, computer-armed CPA or tax preparer. There’s more to know in some state tax codes than ordinary people have time to learn.

If your tax situation is fairly straightforward, the problem may be solved simply by adding an extra exemption or two on your state withholding through the human resources department at work.

If your tax situation is fairly complex, or if the idea of projecting your own tax liability freaks you out, by all means, pay a few extra dollars to have it done by a professional.

Tax codes are more complex than they were just a few years ago, even at the state level and unless you work in the field you may not know the various nuances of your state tax code or of pending changes that could affect your liability. Most tax preparers charges far less for an income tax projection than they do for preparing your return, and it could be money well spent.

Pick a number between zero and 500

While the preferred situation will be to owe a little money on your state return, you don’t want to get over-aggressive in owing here. State tax authorities will impose penalties if your final liability exceeds a certain threshold, typically $500. As such, you’ll want to owe some number greater than zero, but less than $500, otherwise your overall liability will be higher than it would be otherwise. We’re looking to avoid having our money tied up for an indefinite period of time here, not to get stuck paying more than we should.

It’s too late to fix the situation for the tax year just past, but we have plenty of time to prepare our tax liabilities so that we don’t end up providing an “involuntary no interest loan” to our respective states next spring. I’m OK with “rendering unto Caesar that which is Caesar’s”, but I’d like to keep that which is mine, if it’s all the same.

How about it, any CPA’s, accountants, tax preparers or good old-fashioned concerned citizens want to weigh in with some ideas on this?

OOYR Preface: Proper understanding of the big picture is the first, best strategy for preparing and rearranging your life to prosper in the future. In order to prepare effectively for the future—in regard to careers, spending, saving or investing—we must first have a realistic assessment of the situation at hand and where it can reasonably be expected to lead. In the current economic environment, an optimist isn’t one who expects a quick return to the prosperity of yesterday, but rather the person who considers the economy in realistic–though perhaps dismal—terms, and prepares his life, finances and occupation in a proactive manner. The post below, which provides that necessary perspective, is an article written by Charles Hugh Smith at OfTwoMinds.com, and reprinted here by permission. His blog is perhaps the most concise and easy to understand analysis of the state of the economy and the forces driving it as you will find anywhere. Charles is also the author of the e-book Survival+: Structuring Prosperity for Yourself and the Nation. Both the blog and the ebook are highly recommended.

A number of lethal traps hobble structural reforms to the failing Status Quo.

While I often refer here to cycles, trends and feedback loops, there is another class of forces called traps which are self-explanatory: once entered, traps are difficult or impossible to escape due to their inherent (ontological) nature. While all the traps have conceptual elements, each is very much grounded in the real world.

For example: once a nation misallocates its capital into unneeded malls, office towers and exurban housing which now sit vacant and decaying, that capital can never be recovered.

Here are few such traps:

1. Stagnation Trap. A pernicious positive feedback loop is at work as the Plutocracy and State continually increase their share of the national income: their power and influence increase proportionately, which then enables even more wealth acquisition and ever greater influence.

The primary consequence of this widening gap between the ever-poorer middle class taxpayers and the ever wealthier State and Plutocracy is a structural divergence between the interests of the Plutocracy and the State and those of the middle class. This widening structural imbalance of power and share of the national wealth creates an ontological (inherent) cynicism and profound political disunity which is reflected in the blocking of any structural solution by the State and Plutocracy.

Since the structural problem is State and Plutocracy over-reach, any real solution will necessarily reduce their shares of the national income and limit their joint powers. Loathe to accept even the smallest reduction in their income and power, both the Plutocracy and the State (including all those dependent on its various fiefdoms) resist all structural change with every force at their command.

The inevitable consequence is a profound structural stagnation in which real reform is betrayed in the name of compromise, the same simulacrum “solutions” which leave the powers and income of the State and Plutocracy fully intact are trotted out under new Orwellian names (“Save the American Homeowner Act,” etc.) and all discussions of truly structural solutions are ruthlessly eliminated from the mass media or belittled/undermined in classic propaganda manner.

Thus the State and Plutocracy prefer stagnation and eventual collapse to any present-day reduction in their income and power. This is the stagnation trap: in resisting structural change, the State and Plutocracy guarantee a stagnation which inevitably leads to collapse of the very system of privileges and powers they seek to maintain.

2. Scalability Trap. This is a way of describing the inevitability of job losses in any industry as it scales up to technologically optimum (automated) production. Oftwominds.com correspondent K.D. (who coined the term Scalability Trap, as far as I can tell) termed this process a “modernity tax,” or the cost of modern productivity.

It might be also be considered a “technology/trade tax on employment.” That is, if an economy refused technological production then it could not trade such expensively produced products profitably. Even the lowest-cost labor is more expensive than machines because machinery does not get sick, does not need to be trained, does not spoil production with errors, does not riot when idled, etc.

Just as the agricultural workforce of the U.S. has fallen to 2% from 50% as mechanization scaled up, any work which can be largely automated (not just manufacturing, but software coding, tax preparation, etc.) will fall into a scalability trap once the technology is available to automate production.

3. Capital Trap. In my lexicon, there are three distinct applications of this term:

A. Banking/finance capital trap. As bank assets fall in value (mortgages on foreclosed homes and commercial real estate, credit-default derivatives, mortgage-backed securities, etc.) then banks’ capital requirements increase dramatically. Additional reserves are simply trapped capital as the capital constraint will lead to a downward spiral of higher interest rates for borrowers (as banks try to “earn their way out of insolvency”), a slowdown in borrowing (due to higher risk management/qualification standards), more loan defaults (as those who planned to roll over old debt find they no longer qualify to do so), and thus more erosion of bank capital as bad-debt/impaired loan losses keep mounting.

B. National investment trap. The U.S. as a nation has poured staggering sums of its national wealth into speculatively built, rapidly depreciating real estate: malls nobody wants to rent or own, roads to weedy subdivisions, 20 million empty homes, office towers with 90% vacancy rates, empty storefronts, etc. The capital in all this unnecessary real estate is trapped because it cannot be sold–it is illiquid except at fire-sale prices, at which point the remaining shards of capital are finally freed but the owners have to book catastrophic losses in the capital.

Rather than be declared insolvent, the owners (often the banks holding foreclosed properties) leave the capital trapped, hoping for some magical rescue via a new real estate bubble.

This misallocated capital hurts the owner and the nation in another way: trapped in impaired and unneeded real estate, it cannot be invested elsewhere where it might earn a real return. Unfortunately, America’s suburbs, malls and office parks are now “capital traps” of national savings.

To read the rest of this very insightful post please go to Interlocking Traps.