Wednesday, December 31, 2008

Happy New Years!

Health Commish Defends Paterson's "Fat Tax" on YouTube

From News

New York state's top health official appears in a 5-minute YouTube video promoting Gov. David A. Paterson's controversial "fat tax" on soda and other sugary soft drinks.

Health Commissioner Richard Daines is seen on the video standing behind a kitchen counter holding an array of props, including cans of soda, glasses of milk and a football-sized lump of fake fat.

On the video, Daines defends the tax proposal, saying it will help the state fight the spread of childhood obesity and save New York money in health care costs.

Paterson's state budget proposal for fiscal 2009-2010 includes an 18-percent tax on sugary drinks containing less than 70 percent real fruit juice. The governor says the tax would raise more than $400 million in its first year.

End of the Year Tax Tips on Money for Breakfast

I was once again a featured guest on FOX Business News’ Money for Breakfast, the day after Christmas last week. Embedded below is a video of my segment, enjoy!

New Year's Resolution for Obama

From Market Watch:

When David Axelrod, chief political adviser to President-elect Barack Obama, went on "Meet the Press" last weekend, he still wasn't ready to make a commitment about leaving the Bush tax cuts on high earners in place until they expire in 2010.

As a political guru, Axelrod probably shouldn't be too specific about economic policy, but his caution on this issue is symptomatic of a troubling slowness in the Obama transition team to adapt to the changed economic realities when it comes to taxes.

The campaign is over and the economy is in much worse shape now than it was when Obama first designed his tax platform more than a year ago.

No one should be thinking of raising any taxes now by repealing tax cuts -- an alternative Axelrod said was still open. The question is more whether these tax cuts should be extended after all as another form of fiscal stimulus to flank the planned spending measures.

Axelrod, almost in the same breath as he spoke of a fiscal stimulus likely to exceed $700 billion, said we can't afford to keep these tax cuts on the wealthy. If you're planning a massive Keynesian-style fiscal stimulus that will swell the federal deficit to well over $1 trillion, why keep harping on the incremental tax revenue from these rich people?

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Schwarzenegger's Budget Proposes Tax Hikes & Steep Cuts

From LA

Reporting from Sacramento -- The administration of Gov. Arnold Schwarzenegger presented a new plan this morning to raise several taxes and cut deep into dozens of state programs to close an 18-month budget deficit that is projected to reach $41.6 billion.

Under the proposal, presented at the Capitol by the governor's staff while he was vacationing with his family in Sun Valley, Idaho, Californians would be dealt a steep sales-tax increase, a new tax on alcoholic beverages and higher vehicle registration fees. A dependent care tax credit would be reduced, and oil companies would be charged a new severance tax.

The cuts in the proposal are deep, including a reduction of billions of dollars in K-12 education spending from current levels. State university and community college offerings would also be cut back as tuition and fees go up. Healthcare programs for the poor would be slashed, as would welfare for the elderly and disabled.

The plan also includes reductions in the state workforce, which the governor already implemented by executive order two weeks ago. The order requires state workers to take days off without pay, amounting roughly to a 10% pay cut. Labor unions are challenging that order in court.

Top 10 “Green” Tax Credits and Deductions

Although gas prices have dropped over the past few months, going “green” and helping to improve the environment is still at the top of everyone’s mind. Additionally, the federal government also offers a wide variety of energy efficiency related tax credits to help encourage taxpayers to “go green.”

1. Hybrid Vehicles

Eco-friendly automobiles are more than good for the planet. They are good for your wallet! In fact, buying any hybrid vehicle can earn you a tax break of anywhere between $200 and $3,500. Both the weight of the vehicle and how much gasoline it saves affects how much of a break you will receive, so be sure to do your research before making any large purchases!

2. New Roof

Investing in a new energy-efficient roof is a great way to save money, help the planet, and put value into your home all at the same time. Energy-efficient roofs come in a variety of materials and types, but the most common would be a metal roof. To be sure your roof is as efficient as it can be, look for the energy star, as energy star products are the most efficient. Investing in a new roof can also give you up to $500 in tax credits.

3. Solar Panels

Solar panels and photovoltaic systems are smart, clean, and inexpensive products that can make up for their own cost in very little time. You can also receive huge tax breaks for installing a working solar panel system, or photovoltaic system. For installing either, you can receive a deduction for up to 30% of the total cost.

4. Fuel Cells

There is a consumer tax credit for installing fuel cell and micro-turbine systems, as long as they meet the government’s qualifications. The credit is for 30% of the total cost, up to $1,500 for each half kilowatt.

5. Bio-Diesel

Similarly to hybrid vehicles, you can reap huge benefits from driving a vehicle powered by bio-diesel. In fact, you can actually receive more federal benefits for having a bio-diesel vehicle than a hybrid, and some states even offer state tax breaks for bio-diesel powered cars.

6. Energy Efficient Appliances

There are dozens of tax incentives for a wide array of appliances for your home or office, as long as they were manufactured in the past 3 years, and meet “efficiency” qualifications. These appliances include, but are not limited to, dishwashers, refrigerators, and clothes washers.

7. Business Credits

You can get business tax credit for providing an earth-friendly work environment. Whether it means having one or more hybrid vehicles for company cars, or simply purchasing energy-saving appliances. You can also receive tax credits for having your office or business in a building that follows certain energy efficiency guidelines.

8. Wind Energy

You can receive a 30% tax credit for the cost of a wind energy system once you have installed it. You can also get up to $4,000 of additional credits depending on how many kilowatts of electricity you produce, at $500 for each half kilowatt.

9. New Windows

Purchasing double paned or energy efficient windows for your home will keep the cold air out and the warm air in. Likewise with the summer, your home will stay cool and comfortable with this impressive addition. Although you hardly need more incentive, installing energy efficient windows can also provide you with a tax credit of up to $200.

10. Plug-in Hybrids

Effective January 1, 2009, there will be a huge new tax incentive for the first 250,000 plug-in hybrid vehicle buyers. The buyers will receive a credit from $2,500 to $7,500 for both cars and trucks following the plug-in hybrid standards, depending on the capacity of the vehicle’s battery.

Ex-NYC police commissioner Kerik pleads not guilty

From the Associated Press:

Former New York City police commissioner Bernard Kerik has pleaded not guilty to a rewritten indictment in the criminal case against him.

Kerik entered the plea Monday in U.S. District Court. The new plea was necessary because federal prosecutors recently added charges against him.

The new charges stem from allegations that he lied to his accountant about his taxes and made false statements about a loan application.

Kerik is awaiting trial on charges he accepted free apartment renovations, lied to the White House and filed false income tax returns. He also pleaded not guilty to those charges.

A hearing on pretrial motions has been set for Feb. 3.

Tax Court Says IRS's Unclear Instructions Are No Excuse For Taxpayer's Mistake

According to Tax Prof, in the case of Jellen v. Commissioner, the U.S. tax court ruled that unclear instructions from the IRS is not a valid excuse for a taxpayers mistake. Check out a quote from the ruling below.

Petitioner's only argument is that respondent's instructions and guidance to taxpayers as to the taxability of Social Security benefits are confusing and unclear and therefore that the Social Security disability benefits he received in 2004 and 2005 should not be subject to taxation under section 86(a).

We are sympathetic with petitioner's complaint about unclear guidance to taxpayers that occasionally appears in respondent's instructional publications, but petitioner is not thereby excused from paying required Federal income taxes on the Social Security benefits he received. We sustain respondent's adjustments to petitioner's Federal income taxes for 2004 and 2005.

Obama Tax Cuts Likely Soon

From the Washington

President-elect Barack Obama's economic stimulus plan will include an immediate tax cut for middle-class families, and the incoming administration hopes to enact permanent tax cuts soon thereafter, a senior adviser to Obama said Sunday.

David Axelrod said the stimulus package will be implemented soon, given the worsening economy, and could cost $675 billion to $775 billion. The massive recovery plan will seek to create or save 3 million jobs, he said in appearances Sunday on NBC's "Meet the Press" and CBS's "Face the Nation."

"Look, we feel it's important that middle-class people get some relief now," Axelrod said on "Meet the Press." Obama has "promised a middle-class tax cut," he added. "This package will include a portion of that tax cut that will become part of the permanent tax cut he'll have in his upcoming budget."

Giving people more spending money will "help get our economy going again," Axelrod said. He also said he is hopeful that the recovery plan will be ready for Obama to sign soon after his Jan. 20 inauguration.

Last-Minute Year-End Tax Tips

The other day I was mentioned in an article on about end of the year tax tips. The article goes over different ways you can try to reduce your total federal tax liability before the beginning of 2009. Below is a quote that includes my advice, but for the full article click here.

The No. 1 recommendations made by many tax experts is to make capital investments now rather than put them off. A change to the 2008 Federal Tax Code has resulted in a historically high write-off maximum of $250,000 for tangible property. So now could be the time to do that much-needed upgrade of your equipment, such as computers, telephone systems, even furniture. All of your business-related gear is deductible, there are tons of sales going on, and if you charge the purchases to a credit card, you can claim the deductible for this year yet not have to pay off the charge until next year -- and, as tax attorney Roni Deutch points out, you might even qualify for credit card rewards.

Monday, December 29, 2008

Some Breathing Room for IRAs

From the Wall Street

Retirees who ignore the annual distributions they are required to take from their individual retirement accounts usually run a big risk -- in the form of a 50% excise tax on the amount they should have withdrawn. But not next year.

On Tuesday, President Bush signed legislation that suspends the rule requiring older Americans to take withdrawals from tax-deferred retirement accounts, such as traditional IRAs and 401(k)s.

But there are hitches. The suspension lasts for just one year, 2009. And while intended to give beaten-down retirement accounts time to rebound, the new law may also present confusion, particularly for those just starting to take required withdrawals.

"The [existing] rules are confusing enough," says Ed Slott, an IRA consultant in Rockville Centre, N.Y. "Now, more people than ever are going to get tripped up."

Here are answers to questions about how the new law will affect taxpayers in 2009 and beyond.

Q: How do the existing rules governing IRA withdrawals work?

A: Those who contribute to tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, don't pay income tax on the money they put into these plans. But eventually, Uncle Sam requires them to take the money out, and pay income taxes in the process. "The government gives you a tax break when you make your contributions. When you retire and are presumably in a lower tax bracket, it wants the tax revenue it deferred," Mr. Slott says.

Normally, IRA owners must begin withdrawing money from these accounts by April 1 of the year after they turn 70½. That means that someone who turned 70½ in 2008, for example, has until April 1, 2009, to take his or her first required distribution. To calculate how much to withdraw, look at your account balance as of the previous Dec. 31, and then divide that figure by your remaining life expectancy. (Life-expectancy data can be found in actuarial tables in IRS Publication 590.)

You can always withdraw more. But if you take less, you will be subject to the 50% penalty. These requirements also apply to 401(k)s and some other employer-sponsored plans, but not to defined-benefit pension plans or Roth IRAs. (If you are still working, you aren't required to take distributions from your current employer's retirement plan.)

Q: What impact will the new law have?

A: The new law suspends required distributions in 2009. This gives those who can afford to leave their nest eggs alone a better chance of recovering some of the losses they sustained this year. Why? "They'll have more dollars working for them in the event of a stock market rebound," says Elizabeth Drigotas, a principal at Deloitte Tax.

Unless Congress decides to extend the moratorium on mandatory distributions, those over age 70½ -- along with those who have inherited IRAs or 401(k)s -- will be forced to resume taking withdrawals in 2010.

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Man Convicted of Plotting to Kill IRS Agent


A Florida man has been convicted of hiring a hit man to murder an Internal Revenue Service employee who was auditing his taxes.

The hit man was actually an undercover FBI agent, who called himself "Reaper," and was posing as a member of a motorcycle gang. The 6-foot, 4-inch agent wore a goatee and claimed to be a member of the Outlaws gang. Construction company owner Randy Nowak, 49, of Mulberry, Fla., paid the undercover agent $10,000 and planned to pay another $10,000 after the IRS agent, Christine Brandt, was eliminated. Nowak was reportedly concerned that Brandt would uncover money he had in foreign bank accounts. He was arrested last summer.

Nowak's attorney argued that his client was actually afraid of the biker and that a friend had gotten him unwittingly involved in the plot. His lawyer pointed to a number of phone calls between Nowak and his friend, who secretly alerted the authorities to the plot. The attorney claimed that Nowak had been trying to persuade his friend to call off the hit, but the friend warned him against angering the gang.

A jury found Nowak guilty after less than three hours of deliberation. He faces up to 30 years in prison.

8 Ways to Prevent an Audit

The RDTC Tax Help Blog recently posted an entry with advice on how to prevent an IRS audit. Below are the first three items, but you can read the full list by clicking here.

1. Keep Neat

One of the easiest ways to get audited is by simply not providing all the correct documentation. When doing your taxes, it can be easy to miss a step or forget to include a few things. Unfortunately, this looks like evasion to the IRS, so do everything you can to keep all your tax documents together before tax season. That way you can make sure that all of your returns are accurate before you file them.

2. Keep Business Separate

It's easy to get carried away when buying stuff for "the office". However, make sure that when you are buying anything for your business that it is a business expense allowed by the IRS. Additionally, too many write-offs for your business that seem suspicious are a big red flag for the IRS, so only write-off items that clearly serve a business function.

3. Check Your Income

Make sure the income you put on your return matches the income number on your income forms exactly. While this does not always make for an audit, it only takes a few things to raise suspicion. Listing an incorrect income is of the easiest ways to get audited, but can easily be avoided by double-checking your return before you file it.

Continued at…

Tuesday, December 23, 2008

Tax Break May Have Helped Cause Housing Bubble


“Tonight, I propose a new tax cut for homeownership that says to every middle-income working family in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.”

— President Bill Clinton, at the 1996 Democratic National Convention

Ryan J. Wampler had never made much money selling his own homes.

Starting in 1999, however, he began to do very well. Three times in eight years, Mr. Wampler — himself a home builder and developer — sold his home in the Phoenix area, always for a nice profit. With prices in Phoenix soaring, he made almost $700,000 on the three sales.

And thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. The benefits also did not apply to other investments, be they stocks, bonds or stakes in a small business. Those gains were all taxed at rates of up to 20 percent.

The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so. “When you give that big an incentive for people to buy and sell homes,” said Mr. Wampler, 44, a mild-mannered native of Phoenix who has two children, “they are going to buy and sell homes.”

By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall — probably played larger roles.

But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.

Happy Holidays

The holiday season is upon us, and as we spend time celebrating the season with our families it is still important to remember that tax season is only a few weeks away! So if you have any extra time over the holiday break then you might want to consider getting a head start on organizing your financial documents!

Thanks to Tax Credit Casualties for the picture!

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CA Tax Hike Passes Through Loophole

From the Washington Times:

California Republicans and taxpayer groups are vowing to go to court and initiate a referendum to halt nearly $10 billion in tax increases Democrats passed in a special session Thursday night.

In an extraordinary parliamentary maneuver, California Democrats circumvented a constitutional provision requiring a two-thirds vote in the state legislature to raise taxes by using their simple majority.

In 1978, California voters passed Proposition 13, which requires a two-thirds vote in the Assembly and the Senate to raise taxes. Until Thursday, the state legislature never raised taxes without reaching that threshold.

Even though Democrats enjoy large majorities in both bodies, a united Democratic front would still need the votes of three Republicans in each chamber to reach a two-thirds majority. Republicans in the legislature, who offered a budget plan that would have reduced state spending by $22 billion, were united in their opposition to any tax increases.

The Democratic plan attempts to exploit an arcane loophole that permits the legislature to pass a tax bill with a simple majority vote if the measure does not raise more tax revenue.

The gambit involved several steps.

First, the Democratic bill would eliminate some current fees, such as those applying to gasoline. Then it would impose several tax increases, including a 0.75-percentage-point increase in the state sales tax, a 9.9 percent tax on oil production and a 2.5 percent surcharge that taxpayers would owe on next year's state income taxes. Republicans have called the surtax "a tax on taxes."

The proposal would then re-impose gas fees at a much higher level and earmark the gas revenue for transportation projects.

State law permits the legislature to raise fees by a simple majority vote. However, the net effect would be an increase of $9.3 billion in state revenues.

Gov. Arnold Schwarzenegger, a Republican who advocated raising the state sales tax by 1.5 percent, has promised to veto the $18 billion budget package, which also included $7 billion in spending cuts that would affect schools, health care, grants to local governments and other programs.

IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell

According to their newest press release, the IRS has “announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.

“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”

Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.

In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.”

Be Aware of Key Tax Law Changes


Last week, we promised that we would mention a few of the more significant changes to the tax law that could affect your 2008 income taxes. Here are some that you might want to be aware of:

The capital gains rate for taxpayers in the 10 percent and 15 percent tax brackets is ZERO (zero percent) for this year and next. That means that folks in those lower two brackets will pay no tax at all on capital gains! Unfortunately, given the stock market and the economy, not many of us have had capital gains this year.

Here’s a caveat for readers with children who have investment income: This rate does not apply to anyone who is claimed as a dependent on another return, so your kids in high school and college won’t be able to enjoy the distinction of being in the zero tax bracket.

The limit on contributions to a traditional IRA has been raised to $5,000. This limit is $6,000 for those 50 and older. Remember, you can deposit money into an IRA until April 15, 2009, and still have it count as a 2008 contribution.

The mileage rate for automobiles used for business increased on July 1 from 50.5 cents per mile to 58.5 cents per mile. The bad news is that taxpayers will have to compute their mileage deduction making two separate computations for the year.

The ironically good news is that the IRS raised the rates when the cost of gas was over $4.00 per gallon and going up daily. But even though gas now costs less than $2.00 per gallon, the higher rate will apply until at least Jan. 1, 2009. The IRS has already announced lower rates for 2009.

The infamous “kiddie tax,” that special tax on investment income of children, also known as Uncle Sam’s version of Truth or Consequences, now includes all dependent children under the age of 24. What this means (and this is the short version) is that for dependent children under 24, investment income over $1,700 will be taxed at the parent’s rate.

If this is beginning to sound familiar, it should. The “kiddie tax” has been in effect since 1986, but this is the first year it has expanded to include college age dependent children. Congress decided that the government has to get some tax revenue somewhere!

In 2008, taxpayers who do not itemize their deductions will be entitled to a special deduction for property taxes paid, up to a maximum of $1,000 for married couples.

This is especially important for St. Joseph County residents who, because of the late mailing of the property tax bills, still haven’t paid their property taxes for 2008. The upshot: Be sure to pay your property taxes before Dec. 31!

There is a credit this year for first-time homebuyers equal to 10 percent of the cost of a personal residence up to a maximum credit of $7,500. The credit applies to homes purchased after April 8, 2008. Unlike most credits, however, this one has to be paid back to the government! (Barney Frank, call your office!)

Searching the Tax Code for Upsides to a Downturn


It’s the time of year when personal finance writers offer suggestions on end-of-the-year tax planning. The problem this year is that there are so many unknowns. Are tax increases in the works? Will you keep your job next year? Will your income drop? And what about all those terrible investment losses?

Even some tax experts are scratching their heads.

The biggest question is whether Barack Obama will go ahead with his plans to increase income and capital gains taxes on affluent families — those making $250,000 a year or more — soon after he becomes president. With the economy in such trouble, he may decide it’s better to delay any action.

“It is unlike any other year,” said Rich Kohan, a partner at PricewaterhouseCoopers. “Everything is a struggle this year because of the uncertainty of the economy and the uncertainty of tax rates.”

One thing is certain: It was a dreadful year for investors. And while this will probably come as cold comfort for most people, your investment losses will serve up certain tax benefits. It’s worth spending some time now, before the end of the year, to be sure you are maximizing any opportunities to trim your tax bill.

Thursday, December 18, 2008

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For Tax Cheats, Meltdown Prompts Amnesty Offers

From the Associated Press:

Turns out it's a pretty good time to be a tax cheat.

Desperate to bring in revenue in the middle of a recession, states across the country are adopting tax amnesty programs, offering to let people pay their past-due tax bills with little or no penalties or interest.

"Something is better than nothing," said Dino DiCianno, executive director of the Nevada Taxation Department. DiCianno said Nevada gave up more than $14 million in penalties and interest to collect nearly $41 million between July and October.

Oklahoma, like Nevada, generated about twice as much as it expected from its offer of amnesty, raising $82 million through its 90-day Clean Slate program for businesses and individuals. New York has a program under way, and Connecticut and Massachusetts are drawing up theirs. California debated one before rejecting it in favor of stiffer penalties. Delaware's incoming governor campaigned on the idea. A similar program is being considered for Louisiana when its lawmakers return in April.

State after state is facing a disastrous drop-off in tax revenue because of the stock market collapse and the recession. Many states have already cut their budgets and started laying off employees.

"Anything you can do to speed up cash flow is cheaper than your alternatives, like borrowing," said Verenda Smith, spokeswoman for the Federation of Tax Administrators.

Many states are reluctant to offer amnesty, arguing that its rewards cheaters, discourages honest taxpayers and poaches revenue the states will collect in the future — especially as they improve the databases they use to catch delinquents. They worry, too, that people will hold back on their taxes and simply wait for the next amnesty.

"If the attitude is we're going to hand out get-out-of-jail-free cards, people's attitudes can change," said Paul Warren of the California Legislative Analyst's Office. "You can have a breakdown in compliance."

Progressive Says to Pay No '08 Dividend


Progressive Corp, the No. 3 U.S. auto insurer, said on Monday it will not pay investors an annual dividend in 2008 because it is barred from doing so unless it meets financial targets.

Progressive said because it expects to have a 2008 after-tax comprehensive loss it will be precluded from paying a dividend. Under a variable dividend policy, the company cannot pay a dividend if after-tax comprehensive income is lower than after-tax underwriting income.

As of Nov. 30, Progressive's after-tax comprehensive loss totaled $860.8 million over the first 11 months of the year, the Mayfield Village, Ohio-based insurer said.

Tax Related Holiday Presents

One of my favorite blogs, TaxProf Blog, has a holiday tradition of posting suggestions for gifts to give that “special tax person in your life.” This week’s suggestion is an exact reproduction of the original 1913 Form 1040. You can purchase it by clicking here, but here is the item’s description.

“Four pages long, including one page of instructions. Impressively framed in classic mahogany with beaded edge and segmented mat of ivory. Brass plate mounted on the mat states: "1913 Inaugural Form 1040." Framed dimensions are 30" by 24". Comes with Plexiglas and all accessories for hanging.”

Tuesday, December 16, 2008

Top 10 End of the Year Tax Tips

As the holidays approach and this long, but historical, year comes to a close, there is no better time to prepare early for next tax season. Our country’s economic outlook may seem dreary, but there are still plenty of ways to save money on your taxes. To help the readers of my blog better manage their bucks in both the present and the future, I have compiled the following list of the top 10 end of the year tax tips.

1. Charge It

Paying deductible expenses with a credit card before December 31st will allow you to claim the deduction this year. You can also wait until next year to pay off the charges. You also may qualify for credit card rewards.

2. DE-fer! DE-fer!

To keep your taxable income and liability down, try deferring some of your income until next year. This tip is easiest to for those of you who are self-employed, but many others can benefit from it as well.

3. Mortgage Payments

By making your next mortgage payment before the end of the year, you can take a higher interest deduction this year. However, remember that you will have one less mortgage payment to claim next year.

4. Get your Finances in Order

Conduct a thorough review of your income, expenses, deductions, and financial portfolio. You cannot reduce your income tax liability at all until you are crystal clear on just what your financial situation is. It can be helpful to get this done before the end of the year, that way you are not running around at the last minute looking for important financial documents.

5. Get Married, Already!

A lot of couples are planning on getting married in early 2009. However, if you decide to have the wedding in late 2008, you get to claim Married, Filing Jointly status on your 2008 return. This could lead to more favorable tax consequences (e.g. additional exemption, etc.)

6. Remember Retirement

Make “catch-up” 401(k) and IRA contributions if your contribution level is less than the maximum allowed (and if your plan will let you do it). This will not only benefit you in the long run with an ample retirement fund, but it will also lower your taxable income for this year.

7. The Season of Giving

Not only is it good for the heart to make charitable contributions, but it can also be good for your wallet! Make sure to collect all receipts for any charity contributions you have made this year, and if you have not made any yet then – well, ‘tis the season!

8. Prepay State and City Taxes

Remember, you can deduct all state and city taxes that you pay. So prepaying any state or local taxes you might owe before the end of the year means that you can deduct it from this year’s federal tax return.

9. Stock Up

If you own a business, or are self-employed, then now is the perfect time to stock up new supplies. You can deduct all of these expenses, plus at the time of the year many stores offer large holiday discounts. So by purchasing these items now you might be able to save a little money!

10. Check, Re-Check your Withholding

At the end of the year it’s a good idea to check, and double-check, your withholdings to assure that you are paying the exact amount you should be. It might not make an affect on your upcoming tax return, but it can get you on the right track for the next tax season.

Lightly Taxed Insurers Aim to Tap TARP

From the Wall Street Journal:

Several of the biggest U.S. life insurance companies are seeking a piece of the taxpayer-funded $700 billion federal bailout program, but pay little in income taxes themselves, securities filings show.

Consider Prudential Financial Inc., which last week announced that it is seeking an unspecified amount of aid through the federal Troubled Asset Relief Program, or TARP. Despite reporting pretax profits to shareholders of nearly $25 billion over the past decade, Prudential has paid just $1.3 billion in taxes to federal, state and foreign governments in that period, filings show, for an effective tax rate of 5.1%.

9 Hot Franchise Trends in 2009, a blog sponsored by Roni Deutch Tax Center™, recently posted an entry on 9 hot franchise trends to watch in the new year. Below is a quote from the entry, but you can read the full text by clicking here.

1. Woman-Focused Franchises

Franchises that focus on women and are run by women have grown a lot in popularity over the last year and are expended to continue to do so in 2009. These businesses can include anything from women’s health centers to women-targeted clothing stores.

2. Fun Food

Crazy food franchises have grown a lot trendier over the past year as well. By offering something different then the normal fast food like menu, these businesses can reach out to crowds that are tired of unhealthy, processed foods. Additionally, by letting consumers create their dishes, such as yogurt shops that let you create your own custom dessert, they can connect with customers of a more creative level.

3. Green Business

It is no surprise that green-thinking businesses made our list. Nowadays any business can be labeled “green” just by stating their cups are made of recycled materials or their food is organic. However, it is more than trendy, as green businesses often build very loyal customer bases that do not mind paying a “green” surcharge.

Continued at…

Tax Consequences of e-Commerce

Trevor J. Mohr, an Associate at Wilbraham, Lawler & Buba in Philadelphia, has published this interesting paper titled “Note, From the Garage to the Internet Superhighway: Tax Consequences For Individual eBay Users and IRS Policy Towards the Online Marketplace.” Below is the conclusion thanks to the TaxProf blog.

Congress and the IRS need more insight into the use of e-commerce, and current tactics employed by the IRS should be updated to reflect the change in social norms and technological advancement. Failure to do so will only lead to an increased tax gap and a heavier burden on the majority of the tax base who honestly report income and pay the requisite taxes. E-commerce has emerged as an integral function of modern business practice, yet the Code has not been modified to reflect this change. Therefore, online businesses, as well as individual vendors and purchasers, are able to avoid most applicable regulations and federal income taxation requirements with little risk of getting caught.

There are several simple solutions to the current problem, but it appears that our elected officials and appointed members of the Treasury Department are not thinking ahead of the curve to combat the loopholes technology created for online transactions. IRS Forms W-9 and 1099 should be a standard requirement for those conducting activities for profit on sites like eBay. In addition, both eBay and its users should be held responsible for the current problem they created. Although the IRS should offer more assistance to users and eBay in carrying out their responsibilities, the agency can only be stretched so far. Online traders should be more aware of their legal responsibility to pay taxes on income derived from such sales, and eBay Inc. should uphold its corporate and social responsibilities by combating the problem. eBay claims it has no responsibility because it is merely the trading platform, but that does not negate the fact that it derives income from each and every transaction. For this reason, it should be regulated and forced to assist the IRS in combating the current tax gap arising from such unreported activity. Hopefully, the law will soon catch up with technology, but until such change occurs, eBay users will continue to sidestep federal income tax reporting requirements and benefit from the burden the rest of us share.

Court: No Tax Deductions for Religious School Fees


A federal appeals court says a Jewish couple can't claim tuition paid to their children's religious schools as a tax deduction.

Michael and Marla Sklar of Los Angeles had attempted to claim the tuition payments for their five children as a charitable contribution to a religious organization.

But the 9th U.S. Circuit Court of Appeals upheld a lower court decision in rejecting that claim Friday. It ruled that the couple paid only for their children's education and had not shown that any of the tuition was used by the schools as a gift.

The Justice Department, which represented the IRS, says the ruling shows that religious schooling is not tax deductible.

Thursday, December 11, 2008

Let's Cut Cap-Gains Taxes on Auto Investments

From the Wall Street Journal:

The din of clattering metal echoes through the halls of our capital: panhandlers! Erstwhile captains of the automobile industry, having foregone their Learjets, now don the tattered rags of beggars as they seek congressional approval for a $34 billion bailout of the Big Three automobile companies.

Our United States Congress of lawyers, doctors, diplomats, retired military officers and career politicians -- along with their staffs of intelligent young political science majors and MBAs -- now finds itself poring over "business plans" submitted this week by Ford, GM and Chrysler. People who have never before in their lives seen -- no less implemented -- a business plan are now trying to decide if these companies will succeed by means of a "capital infusion" with various imposed preconditions and negotiate what we taxpayers (investors) should be getting for our money. Something is wrong with this picture.

If we as a society place a public premium on "saving" the automobile industry from its default reorganization under Chapter 7 or Chapter 11 bankruptcy -- which has been good enough for the steel and airline industries, among others -- then a better manner in which to express that premium might be to establish special tax consideration for those who are willing to take on the risk. One way of doing that is to provide an exemption from capital-gains taxation on all debt or equity instruments used in the next six months to invest in the troubled auto makers.

By waiving the future capital-gains tax on all investments in the automobile industry, we enhance the projected return models and therefore the likely occurrence of a privately funded "bailout." There are turnaround firms and funds, and they are experts at what needs to be done. Tax exemption for gains would certainly get their attention. It also wouldn't cost taxpayers anything because it only forgoes future government revenues that wouldn't exist absent this incentive.

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Senate Tax Panel Proposal Targets Offshore Insurers

From CNN

Senate Finance Committee staff Wednesday sought comment on draft legislation that would tax related-party transactions by Bermuda-based insurance companies.

U.S. insurers including W.R. Berkeley Corp. (WRB), the Chubb Corp. (CB), and the Travelers Companies (TRV) have long charged that the Bermuda firms avoid taxes on their U.S. business by reinsuring the risk to the Bermuda parent.

The U.S. subsidiaries of firms including the ACE Group (ACE) and XL Capital Ltd. (XL) can then deduct the reinsurance premiums, lowering their U.S. tax liability. The Bermuda affiliate doesn't pay U.S. tax on the premium, while earning investment income subject to little or no tax.

"Thus, it is an efficient way of significantly reducing U.S. tax without transferring risk," according to a Finance Committee statement accompanying the draft legislation.

The Senate proposal would affect only related-party reinsurance transactions. It would deny a deduction for premiums in excess of an industry average of reinsured policies.

Interest Rates Drop for the First Quarter of 2009

According to their newest press release, the IRS is announced earlier today that interest rates for the first quarter of 2009 (beginning January 1, 2009) will drop by one percentage.

The new rates will be:

  • Five (5) percent for overpayments [four (4) percent in the case of a corporation];
  • Five (5) percent for underpayments;
  • Seven (7) percent for large corporate underpayments; and
  • Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.
“Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.”

Tuesday, December 09, 2008

Transit Agencies May Get Help on Bad Tax Deals in Bailout

From the Wall Street Journal:

Public transit agencies may get relief from the federal government from soured tax shelter leasing deals, as part of the auto-industry bailout bill Congress is weighing this week.

A provision under discussion as part of the draft bill would spare transit agencies in major cities like Houston, Chicago and Los Angeles from having to pay millions in penalties to banks with whom they entered into the deals.

Under the tax shelter arrangements, transit agencies agreed to sell assets like train cars to financial institutions, and lease them back from the firms. The transit agencies received cash upfront, while the banks reaped tax depreciation benefits from owning the equipment.

However, many of the deals were insured by American International Group Inc. When AIG collapsed and its credit rating was downgraded, the transit agencies were in technical default of the leaseback agreements, triggering millions in penalties.

Washington's transit agency settled with Belgium's KBC Bank last month, in a case where the bank sought $43 million in penalties.

The final details of the auto bill were still under negotiation late Tuesday between congressional leaders and the White House. Senate Majority Leader Harry Reid (D., Nev.), said he hopes the Senate can vote on the package Wednesday.

A provision in a draft version of the bill obtained by Dow Jones Newswires would have the federal government guarantee the obligations of the transit authorities. Transit agencies had lobbied Congress for that guarantee, because it would remove them from default in their leaseback arrangements.

The Treasury Department had already rebuffed a request from the transit community that it step in and guarantee the deals, according to people familiar with the discussions.

Avvo’s Top Viewed Lawyers of 2008

I was very excited to learn that I was named as one of Avvo’s top viewed lawyers of 2008. Below is the list of the top 5 most viewed lawyers, with the links to their respective profiles on As you can see I made number four, which is good, but I’m shooting for #1 next year!

1. William C. Head

2. Jon Michael Zimmerman

3. Okorie Okorocha

4. Roni Lynn Deutch

5. Thuong-Tri Nguyen

Ethics Panel Expands Rangel Investigation

From the Associated Press:

The House ethics committee is expanding an investigation of Rep. Charles Rangel, chairman of the tax-writing Ways and Means Committee. The ethics panel issued a statement Tuesday saying it had voted to expand an already far-ranging probe into the New York Democrat to examine whether he protected an oil drilling company from a big tax bill when the head of that company pledged a $1 million donation to a college center named after the congressman.

The move means the Rangel inquiry will likely stretch well past early January, when House Speaker Nancy Pelosi, D-Calif., had previously said she expected the matter to be resolved.

Republicans have called for Rangel to step down from his chairmanship of the powerful Ways and Means panel during the investigation. The expanding investigation means the ethics cloud hanging over Rangel is likely to follow him and Democratic leaders into the next Congress as they seek to pass major stimulus legislation and buoy the sinking economy.

The committee will now investigate contributions or pledges of money made to the Charles B. Rangel Center for Public Service at the City College of New York, particularly one made by Eugene M. Isenberg, CEO of Nabors Industries, Ltd.

Rangel, 78, reportedly helped preserve a tax loophole that saved the company tens of millions of dollars a year.

The congressman, who has been in office for 40 years, maintains he has done nothing improper, and he says he has always opposed the kind of change to tax law that would have cost Nabors dearly.

The ethics committee said it was expanding the probe after Rangel asked them to do so.

The committee has already been probing Rangel's failure to pay taxes on about $75,000 in rental income from a beach house he owns in the Dominican Republic. They are also eyeing his use of three rent-stabilized apartments in Harlem, including one for a campaign office. Also under scrutiny are letters Rangel wrote on congressional stationery looking to drum up donors for the college center.

College officials have refused to say who donated to the Rangel center, citing the ongoing investigation.

Rangel has insisted that whatever he did wrong, they were honest mistakes, not intentional deceptions.

Chicago Franchisee Featured in Ind US Business Journal

Molly Kumar, a Roni Deutch Tax Center® franchisee in Chicago, IL, was recently featured in this article in the Ind US Business Journal. Below is a quote from the article, but you can read the full version by clicking here.

Molly Kumar is a franchisee with Roni Deutch Tax Center in Chicago. In January, along with her husband, Bruce, and business partner, Sohan Joshi, Kumar opened one of the first Roni Deutch locations. As such, they are members of the chain’s Founders Club, which features the first 50 franchisees and has a special lead generation program. Chain founder Roni Deutch made her name running a California-based tax resolution law firm for close to two decades before opening the first Roni Deutch Tax Center herself in Fair Oaks, Calif., in June 2006.

The concept was launched as a tax preparation chain in 2007 with the first franchise location. According to the company, licenses for close to 300 locations have been sold. Deutch says her chain has a “double-pronged mission” – to eliminate the need for tax resolution by providing Americans with professional tax return preparation, and to provide a recession-proof business opportunity for entrepreneurs seeking a piece of the booming tax preparation industry.

“This young lady, Roni Deutch, she is absolutely phenomenal,” said Kumar. “She wants to be the best of the best. … She gives so much of herself and the loyalty is automatically given back to her.

“She makes you feel part of a family. She is someone who will not only be there for my successes, but also if I fail,” she added. “Because of this we want not only our success we want RDTC success.”

In their first tax season this year Kumar and her husband have already found this success, handling more than 700 clients and ranking as the third best franchise in the chain.

In the cluttered landscape of the tax preparation industry – the Kumars estimate there are approximately 25 such businesses in their region – they believe Roni Deutch sets itself apart.

Roni Deutch Tax Centers, in addition to tax preparation services also offers debt resolution, payroll, bookkeeping and identity theft protection.

The Kumars aim to firmly establish their Roni Deutch Tax Center business through their first location, but preliminary plans are to open three or four more locations by 2010.

Molly Kumar is a native of Mumbai and has spent the last three decades working in the retail industry with companies such as Nike, The Limited and The Container Store. She currently works for Macy’s furniture division.

Monday, December 08, 2008

10 Tips to Save Money this Holiday Season

Holiday spending can snowball into quite an expense if you do not keep good track of your funds. However, there are plenty of ways to save extra cash and stay out of the red this season. To help the readers of my blog learn some seasonal frugality and still have a great holiday, I have compiled this list of 10 tips to save money this holiday season.

1. Re-Use Decor

It is okay to buy a few new decorations, but why re-buy everything when you can simply re-use last year’s decor? The great thing about decorating is you can always make something old look new by presenting it in a new way. You could use some of last year’s ornaments as a table centerpiece with some new holiday ribbon around it. Or, you could use garland and decorations to create a festive wreath. There are thousands of ideas on recycling holiday decor online, easily accessible by a quick Google search.

2. Know What to Buy

By now it is probably a good idea to have a gift list made so that you know exactly who to buy for. Try listing multiple gifts possibilities for each person, so you more to choose from and more flex on your budget. This will give you extra time to sniff out the best deals, and you will have the hardest part done: choosing what to get everyone!

3. Shop Online

Shopping online has it is ups and downs, but if done right it can save you lots of money. If you buy multiple items on one site, you can receive discounts or free shipping. Also, shopping online has the benefit of being able to compare prices with other stores ( almost instantly, guaranteeing you the best price.

4. Clip Coupons

Do not be afraid to take advantage of every discount you can get. Taking the time to get a few newspapers and coupon magazines will pay off big time in the end. Some new businesses even put out coupons for 25% off your purchase and other amazing deals that are perfect for holiday shopping. You can even find coupons online to print, and discount codes for online purchases at many stores, on sites like

5. Make Gifts

Buying something special for close friends and family is fine, but for coworkers and friends you hardly see, try making gifts. There are thousands of ideas online for gift "projects" you can do that are very affordable and easy to complete. Additionally, if you make the same gift for everyone you can buy the supplies at once for bulk savings.

6. Plan Travel

One of the biggest expenses for the holidays can end up being travel costs for flying out to see family or friends. If you are going to be flying or riding a train this holiday season, look into tickets ASAP, as they are not likely to get any cheaper from here on. Compare prices at multiple sites to make sure you're getting the best price, and if you are planning to stay at a hotel then you might want to consider a travel package, which is often much cheaper then purchasing everything separate.

7. Make Gift Wrap

Although it’s pretty, wrapping paper has gotten so expensive these days. To save some cash on this front, try making your own gift-wrap! One way is to buy a large roll of regular brown package paper and use holiday stencils or stamps to decorate it. Top it off with a ribbon and a hand-made gift tag, and you have a beautifully wrapped present for a fraction of the cost.

8. Frugal Food Shopping

Throwing a dinner party? Plan ahead and think about what you will be serving and how much. When throwing a holiday party for friends it is easy to get carried away with food and d├ęcor, so by making a concise list and budgeting well you can stay on track. Another great way to save on holiday parties is to make them a potluck, so that you do not have to purchase all the food yourself!

9. Save on Crafts

It is a great idea to make holiday crafts with your family, but there is no need to run to a craft store and buy expensive products. There are plenty of crafts you can do with things you already have, or sheets you can print offline. Kids will love making snowmen out of marshmallows, creating their own gingerbread house out of graham crackers, or just coloring in some free printable holiday coloring sheets.

10. Keep Track!

Create a holiday budget, citing expenses for your Christmas tree, gifts, food, decor, and any travel or other expenses. Then, while you are doing the actual shopping, write every expense down, including online purchases. This way you know you will not go overboard and can start the New Year without any post-holiday spending blues.

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