As school halls fill with the chatter of children launching into another year of learning, perhaps there are opportunities to do the same for ourselves. This month’s newsletter is intended to help make better informed decisions regarding the current tax law uncertainty and reduce the ability of others to get more of your hard earned income.
How to Reduce Your Property Taxes
Since 2008, the market value of real estate has dropped in virtually every part of the United States. Unfortunately, to protect property tax revenue, the appraised value of these same homes has often not dropped in proportion to this property value shift.
What is Happening
A tax system that is based on the value of property works wonderfully when times are great. Increases in home values are an automatic revenue boost to those that depend on property taxes like cities, counties, school districts, and states. Unfortunately foreclosures and lower property values cause two problems:
|1||The amount of tax revenue earned on a single property goes down “IF” the appraised value of the property follows the market.|
|2||With every foreclosure and abandoned property, the number of taxing units also goes down.|
To address this problem, appraisers tended to delay any drop in your property value to slow the erosion of property taxes. In addition, the tax rate applied to property types was quietly increased.
So what can you do?
If you dread the annual letter informing you that your property tax is going to go up again what can you do? Your best bet to reduce your property tax is usually to approach the assessor and ask for a property revaluation. Here are some ideas to successfully reduce your home’s appraised value.
|Do some homework to understand the approved process to get your property revalued. It is typically outlined on your property tax statement. Make sure you understand the deadlines and adhere to them.|
|Do some homework BEFORE you call your assessor. Talk to neighbors and honestly assess the amount of disrepair your property may be in versus other comparable properties in your neighborhood.|
|Call a few real estate professionals. Tell them you would like a market review of your property. Try to choose a professional that will not overstate the value of your home hoping to get a listing, but will show you comparable sales for your area.|
|Look at your property classification in the detailed description of your home. Often times errors in this code can overstate the value of your home. For instance, if you live in a condo that was converted from an apartment, the property appraised value could still be based on a non-owner occupied rental basis.|
|Armed with this information, approach the assessor seeking first to understand the basis of the appraisal. Then position your request for a review based on these facts. Do not fall into the assessor trap of defending your review request without first having all the information on your property.|
|Meet the assessor with a valuation in mind. Assessors are so used to irrational arguments, that a reasonable approach is readily accepted.|
While going through this process remember to be aware of the pressure these taxing units are under. This understanding can help temper your position and hopefully put you in a better position to have your case heard.
Watch out for Trolls
Running a small business in America used to be as simple as delivering a great product, with great service, at a fair price. Today you must also learn how to navigate the maze of tax forms, payroll law, disclosures, and a variety of other minute details.
But now, you can do all these things right and still find yourself in trouble. How? You could be blindsided by the threat of a lawsuit. Even a lawsuit that is frivolous. This is due to the economic fact that it is more cost effective to settle a potential lawsuit than to litigate one. Unfortunately, this form of legal blackmail is quickly becoming a business strategy.
Here Come the Trolls
A number of companies are in business primarily to extract a fee from unsuspecting businesses that happen to unwittingly come across their path. Just like trolls. So what kinds of things are extracting the “pay me or else” toll through threat of lawsuit?
- Patent Trolls. A number of companies are in the business of obtaining volumes of patents, with little to no intention of using them. They often simply catch others using their patent and then offer to settle for less than the average cost of a lawsuit. For example, it is being reported that 23 companies are being sued regarding a claimed patent around the idea of sending text messages with web links to mobile phones. Want to avoid the $1 million to $5 million average cost to defend a patent lawsuit? Simply pay a one-time fee of $750,000 and the company will drop their lawsuit threat.
- E-mail; Fax Trolls. Many federal and state laws have cropped up to stop the massive spamming problem of unwanted emails and faxes. On the surface it is hard to argue that these laws are not a good thing. Unfortunately, tracking all the laws can be complicated for a small business. This complexity provides an opportunity for the trolls. A troll firm will contract with local law firms, who then create a profit share with their clients (other businesses) to collect and send them copies of all their faxes and emails. The local law firm then sends these to the “troll” who sends demand for payment to each sender that could potentially be violating some email or fax law. The demand for $500 one-time payment for each “violation” to the troll organization is often seen as a reasonable toll to make the problem go away.
What can you do?
|Defend yourself. While the threat of litigation is a very effective weapon to collect settlement fees it often makes more sense to call the troll’s threat. While it may be more expensive, if everyone stands up to this legal blackmail, there will be less of it in the future. In addition, if you decide to pay for one instance of use, you may actually be opening yourself up to the troll looking for other instances to extract additional payment from you.|
|Get good insurance. A good small business insurance policy can help defend you if someone threatens you or your firm. Often, when the litigator realizes you will not be out-of-pocket to defend yourself, they will back off on their claim.|
|Use experts. It is always wise to use a firm that can help ensure you are not vulnerable to this business practice. Review your business practices with a respected law firm, use respected vendors that understand the laws, and read the fine print provided by any suppliers.|
|Tell others. If you are subjected to a vendor that changes the rules mid-stream and then threatens you, change vendors AND tell everyone you know about the experience.|
|File Complaints. When a troll comes calling complain loudly. If the threat of lawsuit is frivolous there are state and federal authorities and other governing bodies that should be made aware of the company’s threatening practices.|
Federal Spending Reduction Update
The one-year anniversary of the Congressional Agreement with President Obama to expand the National Debt ceiling is now upon us. As part of that agreement, Congress agreed to come up with $1.2 trillion in savings through legislation OR face automatic reductions in spending called a “sequester”.
As the United States approached its lending limit in 2011, a deal was struck to extend the country’s borrowing authority by as much as $2.4 trillion. As part of this deal a Joint Select Committee was formed from both political parties to reduce spending of at least $1.5 trillion from fiscal 2012 to 2021. If the Joint Select Committee legislation failed to pass, $1.2 trillion in automatic deficit reductions would go into place automatically.
What you should know
Because the Joint Select Committee failed in its mission to generate approved legislation, the automatic deficit reductions will now go into place. Here is what you need to know:
- While automatic cuts are required to be made in January 2013, the fiscal year begins in October 2012.
- Congress has directed departments to keep spending at current levels through the election. This could mean deeper cuts after the election because there will be only 7 – 8 months left in the fiscal year.
- Cuts will be made equally from security and non-security budgets.
- Security budgets include the Department of Defense, Homeland Security, Veterans Affairs, Nuclear Security Administration, International Affairs and the intelligence community.
- Social Security, Medicaid, welfare, veterans’ benefits and civil/military retirement benefits are exempt from cuts.
- Medicare cuts are limited to 2%.
- Planned expiration of “Bush tax cuts” cannot be used to reduce the amount of the reductions.
- While the cuts will represent between 5 – 10% for impacted departments, the talk in the press is centered around closing facilities, limiting services, and laying off federal employees.
Rest assured, if sequestering takes place, there will be tremendous pressure on the newly elected Congress to address the automatic cuts and the ongoing federal deficit problem.