Imputed Income

I picked up Ric Edelman's book The New Rules of Money at a thrift store over the weekend. Edelman has some ideas that are contrary to conventional wisdom, including never buy a "starter" home, always carry the maximum mortgage and never pay it off, and don't invest in index funds. The most interesting item to me, however, was this: Never participate in college tuition prepayment plans. Why? The answer demonstrates the immorality of our tax code:

Here's how it works: Say you prepay tuition by making a lump sum payment of $10,000. This means your child can attend college in the future without paying tuition when he or she enrolls. But say the true cost of tuition at that time is $50,000. According to the law, you have a $40,000 profit, and it's now considered taxable income.Edelman doesn't say why this is income and not a capital gain - Ed)

This is a form of "imputed income," and it is the left's next big ticket into your wallet (once they're done with the Alternative Minimum Tax - but that's another post).

More on the magic of imputed income as it pertains to child support here, as it pertains to home ownership here (scroll down), and as it relates to company cars and other perks here.