Monday, November 30, 2009

Questions for the Tax Lady: November 30th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Roni, I got married last month and I was wondering if my new husband and I should still file as single with the IRS since we were wed so late in the year?

No, as long as you are legally wed before December 31st, then you are married in the eyes of the IRS. Therefore, you will either need to file as married filing together, or married filing separately. Depending on your unique financial situation, it might be more beneficial to select one option or the other.

Question #2: What is nontaxable income?

Nontaxable income is pretty much exactly what it sounds like – income that is exempt from taxation. If you have to file a return, there are some kinds of nontaxable income that do need to be included on your return, but will not be included in the total amount subject to income taxes. These types of nontaxable income include child support payment, most life insurance proceeds, certain veterans’ benefits, public assistance payments, etc.

Democrats Push $150B Stock Tax on Wall Street


A House bill still being drafted aims to raise $150 billion each year to pay for new jobs.

Under a bill being drafted by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.), the sale and purchase of financial instruments such as stocks, options, derivatives and futures would face a 0.25 percent tax.

The bill, a copy of which was obtained by The Hill, is titled the “Let Wall Street Pay for the Restoration of Main Street Act of 2009.”

Half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a “Job Creation Reserve” to support new jobs.

The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs.

The Obama administration and congressional Democrats are looking for ways to create jobs after the nation’s unemployment rate hit 10.2 percent in October and job losses are expected to rise.

Ex-UBS Banker Seeks Billions for Blowing Whistle

Last Friday Lynnley Browning of posted an article on Bradley C. Birkenfeld, and his chances of a billion dollar payout from the IRS. For those of you who might not be familiar, Birkenfeld was a private banker at the Swiss bank UBS. He divulged the tax evasion secrets of the bank and, as part of a Federal deal, admitted to helping hundreds of taxpayers.

Bradley C. Birkenfeld was sentenced to 40 months in prison for helping rich Americans dodge their taxes. Now, as thousands of wealthy Americans seek amnesty for keeping illicit, offshore bank accounts, Mr. Birkenfeld and his lawyers hope to use a new federal whistle-blower law to claim a multibillion-dollar reward from the American government. If they succeed — and legal experts say the odds are pretty good — it would be the largest reward of its kind.

Mr. Birkenfeld, who is to begin his prison term as soon as January, is being represented by the executive director of the National Whistleblowers Center, Stephen M. Kohn. Mr. Kohn successfully represented Linda Tripp, who helped expose the Monica Lewinsky scandal of the Clinton years. “We are seeking at least several billion dollars,” Mr. Kohn said.

It might seem outlandish that Mr. Birkenfeld, who pleaded guilty in June 2008 to conspiring to defraud the United States government, would seek any reward at all. But experts in whistle-blower cases — who, admittedly, have an interest in fostering such claims — say he has a persuasive case.

“I do think he has a serious claim,” said Erika A. Kelton, a partner at Phillips & Cohen, a law firm that specializes in large whistle-blower claims. “It was very credible, very useful information from inside UBS that he provided. The law is pretty clean on this.”

Schwarzenegger's Office Blames $79,000 Tax Lien on 'Paperwork'


Gov. Arnold Schwarzenegger was having a feel-good Thanksgiving week, passing out turkeys in East Los Angeles and giving thanks for "the blessings of freedom and democracy."

But then came the heartburn.

A gossip Web site Friday morning revealed that the IRS filed a federal tax lien against the governor last spring seeking $79,000 — a discovery Schwarzenegger's office blames on "a minor paperwork tracking discrepancy."

A copy of the tax lien, submitted in Los Angeles County, was first posted by A search of public records databases shows the lien was filed May 11 and that it lists the governor's home address.

The governor's office at first questioned the authenticity of the document and insisted that Schwarzenegger had paid his taxes "in full and on time." Later, after officials spoke with the IRS, they explained there had been a snafu.

"The issue is completely unrelated to the payment of taxes," Schwarzenegger spokesman Aaron McLear said in a statement. "The matter will be resolved and the lien expunged without any penalty assessed upon the governor."

McLear — who said the governor learned of the matter only Friday — wouldn't comment further on the nature of the mix-up or on what kind of taxes the lien involved.

But an IRS primer on the collection process explains that the agency sends out several warnings to anyone who's been billed for overdue

Holiday Gift Advice for Employers and Employees

Last week the Roni Deutch Tax Center – Tax Help Blog posted a season entry with holiday gift advice for employers and employees. Since there is so much confusion over presents and holiday bonuses from employers I wanted to make sure and share this informative article with my readers. You can find a snippet of the entry below, or checkout the full text at the Roni Deutch Tax Center – Tax Help Blog.

Seasonal Presents for Employees

As the holiday season swings into full force, it has become very common for employers to give out presents to their employees. For the most part, employees will not have to worry about claiming the value of these gifts on their tax returns unless it is a cash bonus. Additionally, employers can write off these expenses if they meet certain restrictions.

The Intent of Giving

In the case of Duberstein v. United States, the Supreme Court determined that the common law understanding of the term "gift," is different than the business tax related definition. The court found that some gifts given by employers were often intended to reward past performances or serve as incentives for future performance. In order to be excluded from payroll taxes a gift given by an employer must be made generously with "respect, admiration, charity or like impulses."

De Minimis Fringe Benefits

According to the Internal Revenue Code Section 132(e)(1), a de minimis fringe benefit is "any property or service the value of which is so small as to make accounting for it unreasonable or administratively impracticable after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees." In plain English, a de minimis benefit is a gift given by an employer that is not subject to payroll taxes and is a deductible business expense.

Turkey, Ham, or Gift Basket Rule

You may have heard of the turkey, ham, or gift basket rule when it comes to taxes on employer provided presents. Essentially, non-cash holiday gifts of property given to an employee will not need to be considered part of an employees wages and will therefore not be subject to payroll taxes. The Federal tax code even allow for items such as flowers, books, gift baskets, etc. to be given to employees. The IRS asserts however, that these gifts must be of a "low fair market value," but does not provide any clear rules on what that monetary limit is.

Continued at

Thursday, November 26, 2009

Happy Thanksgiving!

Top 10 Tips to Getting the Best Bargains on Black Friday

Tomorrow is one of the most popular shopping days of the year, with stores all across the country offering discounts on all types of products. However, before you head out tomorrow morning be sure to check out the following 10 tips for getting the best bargains from

1. Check Out the Ads

Your local Thanksgiving Day newspaper will be stuffed like your Thanksgiving turkey with ads, coupons, and circulars. This will be your number one source to local Black Friday savings. It will also help you organize your day to maximize savings, since many stores offer special discounts that are time specific. Example: Receive an extra 10 percent off if you shop before 11 a.m.

2. Do Your Research Before Friday:

If you are hoping to scoop up a deal on Friday on a big-ticket item, go ahead and get your research out of the way as soon as possible. A bad product is a bad deal no matter how cheap it costs. Being knowledgeable about the products you want to buy will help you avoid being sucker-punched with loud advertising for poor products. is chocked full of buying advice on a wide variety of products from professionals who have the knowledge to help you make good decisions.

3. Compare Prices:

Utilize price-comparison Internet shopping sites such as to assist you in comparing product prices. Compare the "options" included with the product. Some retailers will low-ball the advertised price on a stripped down product, and then you will be charged extra for the necessary parts that will make the product perform as expected. A good example of this is often seen with super low-priced computer printers that come without the cable (cord) or printer ink.

4. Look for Early Bird Shopper Discounts:

The Early Bird Shopper will be the real winner on Black Friday. Stores offering early-day shopper specials usually run the deals from 5 a.m. until 11 a.m. and with no "rain checks," which means once they run out of the products, you are out of luck. Scanning the ads and routing your trip based on your buying priorities will be important with the time-sensitive deals that will be offered.

Continued at

Wednesday, November 25, 2009

Beyond Skills and Smarts: Thriving in the New Economy

Last week one of my favorite blogs, The Glass Hammer posted a very interesting article by Liz Cornish on how to thrive in today’s tough economy. You can check out a section of the entry below, or click here for the full text.

It’s been a tough and frustrating year for financial professionals. Watching other smart, motivated people lose their jobs is sobering. Increased regulation is forcing many institutions that were playing by the rules to endure shrinking margins and panicked customers. It’s like being grounded because your sibling broke curfew. As the economy shifts and uncertainty prevails, what should women in finance do to ensure their own future?

First, congratulate yourself. You’re a motivated woman in the right industry. Sure, there will be changes and disruption, but finance is here to stay. As Patty Vantuhl of Bank of America noted, “There will always be a financial world. Names and players will change. But people will always need a way to store, access, invest, leverage and keep track of their money.” If you were in the newspaper publishing business, this would be a very different article.

So you’re in the right place, right career. Now what? What will it take to thrive in the new economy?

Many Parents Inaccurately Claim College Tax Credit

From USAToday:

More than 314,000 taxpayers made inaccurate claims for a popular tax credit that helps pay college expenses, getting $532 million they weren't entitled to receive, a government report said Thursday.

The Hope Credit provides up to $1,650 a year to help pay expenses for the first two years of college. The taxpayers claimed the credit for the same student three consecutive years, instead of the two years available, said a report by the Treasury inspector general for tax administration. Auditors reviewed two three-year periods, ending in 2006 and 2007. About 58,000 claimed the credit a fourth consecutive year in 2007. The inspector general's report do not list names of taxpayers.

The report said the Internal Revenue Service needs better tools to detect and fix inaccurate claims, and the IRS agreed. The problem should ease since Congress has expanded the credit to four years of college, for those claiming the credit in 2009 and 2010.

"The Hope Credit is intended to help taxpayers pay for the ever increasing cost of higher education," said J. Russell George, the Treasury inspector general for tax administration. "It is imperative that the IRS works with the Treasury Department and Congress to obtain the tools it needs to effectively administer this important credit."

The report recommended that Congress authorize the IRS to fix tax returns that incorrectly claim the credit, much in the same way the agency fixes routine math errors. It also recommended new reporting requirements to help the IRS match expenses claimed by students with those reported by schools.

Comparison of Democratic Health Care Bills

The United States Senate voted last week to debate their health care bill, the Patient Protection and Affordable Care Act. However, their legislation is significantly different than the bill passed by the House of Representatives a few weeks ago. To help anyone curious about the differences between the two Democratic bills, ABC News has put together this informative article. I’ve included a few sections about each bill, but be sure to checkout the full text here.

The Senate Democratic bill (Patient Protection and Affordable Care Act):

        WHO'S COVERED: About 94 percent of legal residents under age 65 — compared with 83 percent now. Government subsidies to help buy coverage start in 2014. Illegal immigrants would not receive assistance.

COST: Coverage provisions cost $848 billion over 10 years.

        HOW IT'S PAID FOR: Fees on insurance companies, drugmakers, medical device manufacturers. Medicare payroll tax increased to 1.95 percent on income over $200,000 a year for individuals; $250,000 for couples. New 5 percent tax on elective cosmetic surgery. Cuts to Medicare and Medicaid. Excise tax on insurance companies, keyed to premiums paid on health care plans costing more than $8,500 annually for individuals and $23,000 for families. Fees on employers whose workers receive government subsidies to help them pay premiums. Fines on people who fail to purchase coverage.

The House bill (Affordable Health Care for America Act):

        WHO'S COVERED: About 96 percent of legal residents under age 65 — compared with 83 percent now. Government subsidies to help buy coverage start in 2013. About one-third of the remaining 18 million people under age 65 left uninsured would be illegal immigrants.

        COST: The Congressional Budget Office says the bill's cost of expanding insurance coverage over 10 years is $1.055 trillion. The net cost is $894 billion, factoring in penalties on individuals and employers who don't comply with new requirements. That's under President Barack Obama's $900 billion goal. However, those figures leave out a variety of new costs in the bill, including increased prescription drug coverage for seniors under Medicare, so the measure may be around $1.2 trillion.

        HOW IT'S PAID FOR: $460 billion over the next decade from new income taxes on single people making more than $500,000 a year and couples making more than $1 million. The original House bill taxed individuals making $280,000 a year and couples making more than $350,000, but the threshold was increased in response to lawmakers' concerns that the taxes would hit too many people and small businesses.

Homebuyer Tax Credits Threaten the FHA

From the

A few weeks ago, President Barack Obama signed legislation extending an $8,000 tax credit for first-time home buyers. The refundable tax credit, available even if a family has no taxable income, will enable many more buyers to close on a home. But it also could bankrupt the Federal Housing Administration (FHA) and, by doing so, damage an already weak housing market.

The tax credit was put in place as part of the stimulus package signed into law earlier this year. Initially, it was available only to first-time buyers with a combined income of $150,000 or less ($75,000 for individuals). Approximately 40% of all first-time buyers used the credit in 2009, so extending it was strongly supported by real estate brokers, home builders and their congressional allies.

The extension the president signed makes the credit available to first-time buyers, but also to people who have owned a home for at least five years. In addition, it raises the maximum income for a qualified buyer to $225,000 a year for couples and makes the credit available until mid-2010. (It had been set to expire at the end of this month.)

The problem is that the FHA insures mortgages of homes below certain price levels with such a low down payment that it can be funded solely by the refundable tax credit. And, as we've seen in the recent housing crisis, buyers with no skin in the game are more likely than others to default on their mortgages when the value of their home falls below their mortgage balance.

Here's how the credit allows buyers to avoid putting their own money at risk. Suppose a couple making $60,000 annually buys a home worth $200,000. They can get an FHA-insured loan if they put down 3.5% of the purchase price, about $7,000. The couple will also need to come up with another $1,000 in closing costs, for a total of $8,000. The couple can either dip into savings or borrow that money from relatives or somewhere else on a temporary basis.

Tuesday, November 24, 2009

California Was Among States With Record Unemployment

According to an article on, the jobless rate rose in 29 of states across the country last month. California, Delaware, South Carolina and Florida were all among the list of states with record unemployment rates, while Michigan, Nevada, and Rhode Island had the highest jobless rates with 15.1%, 13%, and 12.9% respectively.

The national rate last month reached a 26-year high of 10.2 percent, weighing on consumer spending that accounts for about 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke said Nov. 17 that joblessness “likely will decline only slowly,” a reason policy makers will keep interest rates near zero to ensure growth is sustained.

“We’ve had a surprisingly sharp jump in the jobless rate,” said Richard DeKaser, president of Woodley Park Research in Washington. “Businesses have truly been doing an extraordinary job of wringing out productivity from the labor force.”

Stocks fell for a third day, with the Standard & Poor’s 500 Index declining 0.3 percent to 1,091.38 at 4:03 p.m. in New York. Dell Inc., the third-largest maker of personal computers, dropped 10 percent after reporting a 54 percent drop in profit.

The unemployment rate fell in 13 states, including Massachusetts, where it declined to 8.9 percent from 9.3 percent; New Hampshire, with a drop to 6.8 percent from 7.2 percent; and West Virginia, which fell to 8.5 percent from 8.9 percent.

Health Reform: Is Tax on 'Cadillac' Plans Fair?

From the Associated Press:

Schoolteacher Kinzi Blair makes only $46,000 a year, but she has what many would consider a "Cadillac" health plan, now targeted for a big tax increase by health reformers.

She has $10 co-pays and no deductible. She gets generic prescription drugs for $10. Her plan covers mental health counseling, organ transplants, acupuncture. It covers speech therapy for preschoolers and in vitro fertilization.

Sound pretty good?

It surely must to millions of Americans who pay high deductibles, hundreds of dollars for prescription drugs or who have no insurance at all. Blair's circumstance illustrates the debate over taxes and fairness when it comes to health reform.

"For me, it's security," Blair says. "I'm thankful I'm in a job where there is health insurance."

Taxing plans like hers is unfair, says Blair, a kindergarten teacher in San Jose, Calif. Like 57 percent of Americans surveyed in a recent Associated Press poll, she favors a new income tax on wealthy Americans, which the House would impose in its bill to pay for expanding insurance coverage to millions.

But the Senate takes a different approach, including an unprecedented tax on the health insurance of people like Blair. The Senate plan would also increase the Medicare payroll tax for high-income Americans and tax elective cosmetic surgery.

Continue Reading…

Can the Postal Service be Saved?

Over the weekend, the United States Postal Service announced that it had lost $3.8 billion over the past fiscal year, which ended on September 30th. Their report claimed that they also delivered about 26 billion less pieces through the mail then they had the prior year, which translates to a nearly 13% drop.

The Postal Service, as it is quick to point out, is legally prohibited from taking tax dollars. But in order to stay afloat, the agency has been actively borrowing from the U.S. Treasury: At last count, according to Postal Service spokeswoman Yvonne Yoerger, it owes the government $10.2 billion.

Federal law dictates that the Postal Service can borrow up to $3 billion per year - but the debt cannot grow beyond $15 billion. That means that while the agency, which had revenues of $68.1 billion last year, could potentially borrow another $3 billion in 2010, it will soon no longer be able to legally borrow billions from the government.

Meanwhile, the Postal Service is estimating that without significant changes, it will lose another $7.8 billion in the coming year - and deliver another 11 billion fewer pieces of mail.

Which raises the question: Could the Postal Service be doomed?

"I don't think the Postal Service is in danger of going away totally," said Yoerger, the Postal Service spokeswoman. "But our current business model needs to be reviewed and revised to come up with a sustainable model so that we can get back to profitability while still continuing to meet our mission of serving all of the country with affordable, universal Postal Service."

Continued at CBS News

1 in 4 Mortgages 'Underwater'


In a sign that more foreclosures could be on the horizon, 23% of people with mortgages owe more than their home is worth, according to a report released Tuesday.

Almost 10.7 million U.S. mortgages were "underwater" as of September, said research firm First American CoreLogic.

Another 2.3 million homeowners are within 5% of negative territory, the report said. The two figures combined comprise almost 28% of all residential properties with mortgages.

Negative equity, also called an "underwater" or "upside down" mortgage, has become more common as home values plummet. The report is closely watched because borrowers who are underwater are more likely to be foreclosed.

Would you walk away from your house?

Foreclosures have been rampant for some time, but lately the tide of decay had seemed to be slowing -- so Tuesday's report could dent optimism for the housing market over the next few months.

Monday, November 23, 2009

Patient Protection and Affordable Care Act

Last Wednesday, the Senate Majority Leader Harry Reid and key Democratic leaders announced their highly anticipated health care reform bill, which has already been voted to the debate floor. For those of you who do not remember, the House of Representatives unveiled their plan a few weeks ago. The Senate's bill is supposedly the result of a handful of different bills, and has been named the “Patient Protection and Affordable Care Act” (PPACA). Similarly to the House’s bill the Senate’s act seeks to increase taxes to provide coverage to millions of Americans that are currently without health insurance.

The Basics of the Bill

According to estimates the PPACA is expected to cost $848 billion, and will include a public option that has an opt-out clause for individual states. There will be a federal mandate to purchase insurance, as well as fines for businesses that do not offer insurance. It is expected to provide coverage to over 30 million Americans, but will include a ban preventing illegal immigrants from taking advantage of the program.

Housing Credits for Veterans?

Technically, the PPACA has been presented as an amendment to a House of Representatives bill about housing credits for Veterans. This is a pretty controversial move, and a very strategic way to handle the issue. When debating and voting on a massive health care overhaul, Senators will also be forced to decide the fate of housing benefits for veterans – which is a very sensitive issue for many.

Fixing the Budget

It has been suggested that over the next 10 years, the PPACA will actually reduce the federal budget deficit by an estimated $130 billion. This is because the cost of the bill would be more than offset by tax increases, fees, and a reduction in the growth of Medicare. Additionally, the tax increases will take effect immediately, while the benefits will not begin until 2014.

The "Cadillac" Penalty

One of the ways the reform will be funded is through a new excise tax on high valued, “Cadillac” health insurance plans. If passed into law, a 40% tax would be levied on health coverage in excess of $8,500 for individuals $23,000 for families.

Half Percent Tax for High Earners

Unlike the House’s 1% tax increase, the PPACA will only increase taxes on high earning Americans by 1/2%. According to the bill, Medicare payroll taxes would be increased from 1.45% to 1.95% for individual taxpayers making over $200,000 or families making $250,000 per year.

Fines on Businesses

Any business employing more than 50 employees will be subject to serious fines if they do not provide insurance coverage. They will be forced to pay the Federal government $750 per year per employee that is not insured. However, since the taxes and fines are intended to take effect immediately many experts are worried that these fees will make the country’s unemployment problem even worse.

Cosmetic Surgery Tax

Lookout Hollywood, the health care reform bill also includes a 5% tax on elective cosmetic surgeries. This may not seem like that big of a deal to most of us, however it opens a dangerous door by allowing the government to tax a procedure directly.

Questions for the Tax Lady: November 23rd, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: What is the head of household filing status?

In addition to filing as a single taxpayer, you can also file your tax return as “head of household.” Typically, if you qualify then your tax rate will be lower and you will be able to receive a higher standard deduction. However, in order to qualify you must meet the following IRS requirements:

1. You are unmarried or “considered unmarried” on the last day of the year.

2. You paid more than half the cost of keeping up a home for the year.

3. A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the “qualifying person” is your dependent parent, he or she does not have to live with you. See Special rule for parent, later, under Qualifying Person.

For more information including rules on qualifying persons, check out IRS Publication 501.

Question #2: Will an accepted Offer in Compromise remove a bank levy?

Unfortunately, having your offer accepted will not automatically remove a wage garnishment or bank levy. However, it will resolve your tax debts with the IRS so that you can request to have the levy released. For more information regarding how to get tax levies released, check out this blog entry on the Tax Relief Blog.

US Clashes With UK Over New Tax Proposal

The United States and United Kingdom usually agree on economic policies, according to Tax Girl leaders from each countries have publicly taken different views on a proposal to tax financial transactions to fund banking rescues.

UK Prime Minister (for now) Gordon Brown is in favor of such a tax, referred to as a so-called “Tobin Tax”, as a way to take the burden off taxpayers in the midst of financial crisis. The idea would be to implement a tax or levy, also characterized as an insurance fee, to be implemented across the board on financial institutions in all economic centers including the US, Europe, Asia, and the Middle East. Brown described it as a “just distribution of risks and rewards.”

But US Treasury Secretary Timothy Geithner has said he would not support such a tax, adding that it should not be the position of those today to pay for future risks. He did not, however, rule out the idea of any responsibility by banks to pay for the economic crisis – he just apparently feels that it’s too soon to consider a tax in the face of other alternatives.

Interestingly, Russia appeared to be in agreement with the US with Russian finance minister, Alexei Kudrin, also voicing skepticism over the tax. Canadian Finance Minister Jim Flaherty also expressed concern over the tax.

However, Max Lawson, the senior policy adviser for Oxfam was enthusiastic about the UK proposal, saying:

Gordon Brown today signaled that payback time for banks could be just around the corner. A tax on banks would be a major step towards clearing up the mess caused by their greed.

While the two day G20 Summit has ended, the matter is far from over. The International Monetary Fund is already looking into this very issue with an eye towards what it’s calling a financial sector tax. One way or the other, we’ll see further discussion on this…

Tax Girl

Reform Tax Would Hit H1N1 Vaccine Manufacturers


In an attempt to illustrate the real world consequences of reform's taxes, Senate Republicans are pointing out a provision that would tax the makers of swine flu vaccines and drugs. The provision raises $2.3 billion annually from drug makers who sell their products through government programs.

“When everybody is coming together to fight a possible pandemic the last thing the government should be doing is taxing the people who manufacture the vaccines and the drugs to treat H1N1 flu,” said a Senate Republican leadership aide.

House Prepares To Renew Expiring Tax Cuts For One Year

After voting to extend the homebuyers credit just a few weeks ago, Congress is already making plans to extend $37 billion in tax cuts for individuals and businesses in 2010. Leaders of the House of Representatives have been working on legislation and assert that they plan to pass the legislation by the end of the year as part of an effort to create jobs.

According to a summary obtained by Dow Jones Newswires, the package will be offset by tax-raising provisions, but those provisions are not identified in the summary.

The draft bill omits a provision to temporarily shield middle-class taxpayers from the alternative minimum tax in 2010. Congress earlier this year passed an AMT "patch" for 2009.

Since the lack of an AMT patch for 2010 won't affect most taxpayers until they file tax returns in 2011, House lawmakers said they will likely wait until next year to pass it.

High-tech firms and manufacturers would gain a one-year extension of the research tax credit, while banks would get an extension of a tax break on their overseas business income.

NASCAR racetracks would win another year of more favorable depreciation rules under the House bill, as would retail stores and restaurants.

Continue reading at

Thursday, November 19, 2009

Pathology of a Financial Crisis

Eric Dash, of the New York Times, posted a fascinating article on the pathology of a financial crisis. It includes information discovered by government investigators who are performing financial autopsies on over 100 banks that have collapsed in the United States. They have already looked at over 40 financial intuitions with 75 more to go.

The coroner’s report left no doubt as to the cause of death: toxic loans.

That was the conclusion of a financial autopsy that federal officials performed on Haven Trust Bank, a small bank in Duluth, Ga., that collapsed last December, Eric Dash writes in The New York Times.

In what sounds like an episode of “CSI: Wall Street,” dozens of government investigators — the coroners of the financial crisis — are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses.

At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. At Haven Trust, for instance, regulators raised alarms about lax lending standards, poor risk controls and a buildup of potentially dangerous loans to the boom-and-bust building industry. Despite the warnings — made as far back as 2002 — neither the bank’s management nor the regulators took action. Similar stories played out at small and midsize lenders from Maryland to California.

What went wrong? In many instances, the financial overseers failed to act quickly and forcefully to rein in runaway banks, according to reports compiled by the inspectors general of the four major federal banking regulators.

Check Out Line: Consumers spending again?


Check Out home-related retailers Sears Holdings and Williams-Sonoma reporting better-than-expected quarterly results. Does this mean consumers are feathering their nests again?

Somewhat, according to Barclays analyst Michael Lasser, who said Williams-Sonoma’s results were “an indication that upper-income consumers are spending a bit more, which is not surprising given the rally in the stock market and the stabilization in the housing market.”

Williams-Sonoma, which also operates Pottery Barn and West Elm, has updated its styles and slashed prices on some items to woo shoppers, despite worries that the move might tarnish its image as a high-end retailer.

But it’s not only high-end chains showing signs of life. Kmart, the value-priced retailer that sells everything from appliances to clothing, posted its first increase in same-store sales since 2005, and only its second since 2001. The chain, which is owned by Sears, took back its shoe operations this year from Footstar, which had operated within Kmart stores.

Even Sears, which depends more heavily on the housing market due to its Craftsman tools and Kenmore appliances, posted its best performance since the fourth quarter of 2007, and outperformed competing home improvement chains like Home Depot and Lowe’s.

Geithner: 'The Credit Crunch is Not Over'

At a small business finance forum in Washington, Timothy Geithner reminded small businesses that the credit crunch is not over yet and warned listeners not to get too far ahead of themselves. He went on to explain that while many big businesses are already seeing profits, small business owners still have more recovering to do. Checkout the following article on the event below.

One day after Goldman Sachs' CEO apologized for his bank's role in the financial meltdown, Treasury Secretary Geithner called on the nation's financiers to step up and do more to fix the damage they helped cause.

"This credit crunch is not over," Geithner at a small business financing forum in Washington hosted by the Treasury. "It may feel dramatically better for large companies, but it is not over for small businesses across the country."

The nation's banking system was stabilized with taxpayer dollars, and Geithner said he holds the biggest banks accountable for passing the torch from Wall Street to Main Street.

"Banks bear some responsibility for the extent of the damage caused by the crisis," he said. "And they carry a substantial obligation to help our communities get back on their feet."

Geithner and an assortment of top Washington officials, including Small Business Administrator Karen Mills, met Wednesday with a gathering of bankers and small business owners to address the credit crunch that has plagued small business owners for more than a year. Frozen out by banks unwilling to make risky lending bets on startups and small companies, the nation's 6 million small employers are struggling.

Continue reading at CNN…

IRS Seeks to Return $123.5 Million in Undeliverable Refunds to Taxpayers

In a recent press release, the IRS announced their efforts to deliver $123.5 million in tax refunds to taxpayers who have not received them because of mailing errors. They also reminded taxpayers that the best way to avoid this problem is to e-file your return and have your refund directly deposited into your bank account.

“We are eager to get this money into the hands of taxpayers, so don’t delay if you think you are missing a refund,” said IRS Commissioner Doug Shulman. “The sooner you update your address information, the quicker you can get your refund.”

All a taxpayer has to do is update his or her address once. The IRS will then send out all checks due. Undeliverable refund checks average $1,148 this year, compared to $990 last year. Some taxpayers are due more than one check.

Average undeliverable refunds rose by 16 percent this year, which is in line with the 16 percent rise in average refunds for all tax returns in the latest filing season. Several changes in tax law likely played a role in boosting refunds, including the First-Time Homebuyer’s Credit and the Recovery Rebate Credit, among others.

The vast majority of checks mailed out by the IRS each year reach their rightful owner. Only a very small percent are returned by the U.S. Postal Service as undeliverable.

Latest Good Reads:


A Distributional Analysis of the 50 State Tax Systems

Get Paid by the IRS to be Audited?

Want to keep more money? Obey the law!

The Math of Tax and Spend

Pelosi: Wall Street Tax must be International

From Reuters:

Any tax imposed on financial transactions would have to take effect internationally to prevent Wall Street jobs and related business moving overseas, U.S. House Speaker Nancy Pelosi said on Thursday.

"It would have to be an international rule, not just a U.S. rule," Pelosi said at a news conference. "We couldn't do it alone, we'd have to do it as an international initiative."

The top Democrat's comments seemed to spell longer odds for the Wall Street tax, which some Democrats in the House of Representatives are proposing as a way to pay for job-creating legislation.

The tax, which could raise $150 billion per year, would tap into widespread public outrage at Wall Street in the wake of the financial crisis, but support is lackluster among key legislators.

"This is just something that is on the table, it hasn't been developed to a high priority. but it has substantial currency in our caucus," Pelosi said.

Treasury Secretary Timothy Geithner said on Thursday that he has "not seen a version of that tax that I think would be appropriate for our country."

Wednesday, November 18, 2009

Obama: Too Much Debt Could Fuel Double-Dip Recession

According to Reuters, President Obama warned the country about the need to stop rising federal deficits yesterday. He asserted that if government debts continue to pile up, that it could result in a “double-dip” recession.

With the U.S. unemployment rate at 10.2 percent, Obama told FOX News his administration faces a delicate balance of trying to boost the economy and spur job creation while putting the economy on a path toward long-term deficit reduction.

His administration was considering ways to accelerate economic growth, with tax measures among the options to give companies incentives to hire, Obama said in the interview with FOX conducted in Beijing during his nine-day trip to Asia.

"It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession," he said.

Preventing State Budget Crises: Redefining 'Tax Cuts' and 'Tax Hikes'

Earlier in the week, David Gamage of UC-Berkeley published a new paper on how state governments can address their recession related budget problems. You can find a section of the abstract below, courtesy of Tax Prof, or download the full PDF at Preventing State Budget Crises: Redefining 'Tax Cuts' and 'Tax Hikes'.

Forty-nine of the U.S. states have balanced budget requirements, and every state acts as though bound by such constraints. These constraints create fiscal volatility - the states must either cut spending or raise taxes during economic downturns, while doing the opposite during upturns. This paper discusses how states should cope with fiscal volatility on both the levels of ordinary politics and of institutional-design policy. On the level of ordinary politics, the paper applies principles of risk allocation theory to conclude that states should primarily adjust the rates of broad-based taxes as their economies cycle, rather than fluctuating public spending. States should raise their tax rates during economic downturns and lower them during periods of growth. On the level of institutional-design policy, the key question is how we define terms like “tax cuts” and “tax hikes.” By adopting a new baseline for defining these terms, states can increase the likelihood of using tax rate adjustments to cope with fiscal volatility rather than (more harmful) spending fluctuations.

Improper US Government Payments Hit $98 Billion

As the nation continues to debate the House of Representatives health care reform bill, new statistics have emerged showing that improper payments made by the federal government to people, firms, and contractors rose to $98 billion this year. Over half of the errors were reportedly made in the Medicare and Medicaid programs, which according to Budget Director Peter Orszag, shows the need for some type of health care reform.

Improper payments in the Medicare and Medicaid programs totaled $55 billion in fiscal 2009, according to documents provided by OMB.

Medicare covers healthcare for the elderly and some disabled, while Medicaid does the same for the poor.

Orszag said the error rate for payments under Medicare Advantage, where private insurers offer coverage to Medicare beneficiaries, jumped to 15 percent, or to $12 billion, in fiscal 2009. The error rate was 10 percent in fiscal 2008.

"This was not the result of methodological changes. This is one of the reasons why, as part of health reform, we believe there are crucial changes necessary to the Medicare Advantage program," he said on a telephone conference call.

Continued at…

Homebuilding Drops as End of Tax Credit Loomed


Residential construction in the U.S. unexpectedly dropped in October amid concern a homebuyer tax credit would expire, illustrating the market’s dependence on government help to sustain a recovery as job losses mount.

Builders broke ground on 529,000 houses at an annual pace, down 11 percent from the prior month and the fewest since April’s record low, Commerce Department figures showed today in Washington. Data from the Labor Department signaled inflation will be of little concern for the Federal Reserve.

Homebuilding seized up as builders waited for President Barack Obama to extend a first-time buyer incentive, which has since been passed and expanded. The highest unemployment rate in 26 years and consumer prices that remain below Fed long-term goals indicate policy makers will need to nurture the economy by keeping interest rates near zero.

“The recovery isn’t well established enough yet to take away that support,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who previously worked at the Fed. “An early withdrawal of fiscal and monetary stimulus would probably be quite disruptive.”

Tuesday, November 17, 2009

IRS: 15 Million Americans May Have to Return Tax Credits

According to the IRS, about 15 million Americans may have underpaid the government by around $400 because of confusion with Obama’s "Making Work Pay" tax credit. In a worst case scenario, all 15 million of those taxpayers will have to pay back that $400 on their next tax bill, in one lump sum payment.

One of the groups most affected by the bureaucratic slip-up: married couples.

If you and your spouse both work and earn more than $13,000, each has been credited $200 too much. That means you'll owe Uncle Sam $400 when you file jointly.

The amount owed goes down for couples making more than $150,000 a year because they weren't eligible for as much of the tax credit.

SMU Cox Business School professor Mike Davis explains the plan was intended to add about $33 a month to everyone's paycheck.

Continue reading at…

Over 14,700 Americans Admit Foreign Bank Accounts to IRS


Under an IRS voluntary disclosure program that allows U.S. taxpayers to come clean about secret foreign bank accounts and avoid possible prosecution, over 14,700 Americans have now admitted to hiding assets overseas, the IRS and the Justice Department announced today.

The number nearly doubles the more than 7,500 Americans who reported such accounts to the IRS before the Oct. 15 deadline, following a settlement with Swiss banking giant UBS.

"The message to American taxpayers is clear: the era of bank secrecy and hidden assets is over," U.S. Deputy Attorney General David W. Ogden said in a statement.

The once-secretive Swiss bank sent letters to thousands of its American customers in early October, informing them "your account with UBS appears to be within the scope of the IRS Treaty Request" and that under a new agreement between the U.S. and Switzerland, UBS would provide names and account information to U.S. authorities.

In August, the two countries signed a historic agreement to obtain information from UBS to identify information on up to 4,450 accounts. U.S. officials believe the accounts could hold up to $18 billion, and they applauded the move as a major step in lifting the shroud of Swiss banking secrecy and uncovering potentially billions of dollars stored in accounts there by wealthy U.S. account holders who could be dodging U.S. taxes.

"We'll be receiving an unprecedented amount of information on taxpayers who have evaded their tax obligation by hiding money offshore at UBS," IRS Commissioner Dan Shulman said after the agreement was signed.

While significant, the list of 4,450 names was considerably less than the IRS and Justice Department initially sought.

Black Friday: Best Day to Buy a Car

The day after Thanksgiving – known as “Black Friday” to enthusiastic bargain hunters – is one biggest shopping day of the year for retail stores across the county. However, you may not know that it is also one of the best days of the year to buy a new car. According to CNN, studies show that on Black Fridays car dealerships historically offer large discounts on both new and used cars.

Analysts looked at day-by-day car pricing for the last several years. That data revealed that discounts on Black Friday are, on average, the biggest of the year.

"The discounts from dealerships, as well as manufacturers' incentives, generate the highest discounts of the year on Black Friday," said Jesse Toprak, an analyst for

Unlike typical Black Friday sales where customers know exactly what they'll pay for an item, car prices are individually negotiated the day of the sale, so it's difficult for customers to know ahead of time they'll be getting a deal. But there's been a clear trend, Toprak said.

Continue reading at CNN…

Expose Tax Cheats' Web of Deceit

Possibly taking cues from California, the New York state tax department is thinking about publishing a list of the top 200 business and individual taxpayers who owe the state delinquent taxes. According to NY Daily News, the tax department is hoping to publish this “Most Wanted List” online to shame them into paying off their debts to the government.

"It's a good idea as a tax enforcement device and we are exploring that," tax department spokeswoman Susan Burns said.

As of April, there were about 1 million outstanding tax warrants totaling $14.4 billion, officials said.

Many are deemed "uncollectible," but tax officials estimate $4.2 billion in judgments are active.

The idea for the list comes from legislation being pushed by Assemblyman William Colton (D-Brooklyn) and Senate Deputy Majority Leader Jeffrey Klein (D-Bronx).

Tax officials say they oppose the law, preferring to enact the measure administratively.

Given the fiscal crunch, the state tax department has already increased its efforts to go after tax scofflaws.

The department can't commit to creating a list until it explores the "resources we need," particularly in a time of fiscal crisis, Burns said.

10 Easy Ways to Save Money this Thanksgiving

With the holiday season just around the corner, millions of taxpayers are looking for ways to save money this Thanksgiving. Between travel expenses, food and supplies for a huge dinner, and other expenses, the total costs for “Turkey Day” can add up quickly. To help my readers have a fun-filled Thanksgiving without breaking the budget, I have put together the following list of ways to save money this year.

1. Be the Early Bird

If you are hosting Thanksgiving dinner for your family and friends then you can benefit greatly from planning your meal and purchasing supplies as early as possible. This way you can be on the look out for discounts on non-perishable products. You can also avoid the huge crowds of last minute shoppers.

2. Request RSVP's

While having some extra turkey and stuffing leftover to make sandwiches can be fun, having TOO many leftovers because of no-shows is basically like throwing money in the trash. By asking your guests to RSVP ahead of time you can get a better estimate of how much food you should buy.

3. Coupon Clip

Food companies know that people buy extra food around Thanksgiving and often print especially good coupons. Even if you are not the “coupon type,” you might be surprised to learn how much you can save this Thanksgiving just by using a handful of coupons. You should also be on the look out for groceries that offer discounts on holiday related products.

4. The Thanksgiving Turkey

The Thanksgiving turkey can easily become one of your biggest expenses, depending on the size of the bird you select. Frozen turkeys are usually a little cheaper, but can take longer to prepare due to the necessary defrost time. Also, be on the look out for stores that offer specials on turkeys. Many will even give you a turkey for spending a certain amount of money. If you can plan it so that you purchase all of your supplies in one trip then you may be able to get a free turkey.

5. Do NOT go Overboard

Although it can be easy to get carried away and create a lavish meal with dozens of sides and desserts, do you really need to? Odds are that most of this extra food will go uneaten and find it’s way to the trashcan. Instead, limit the number of dishes you create and focus your attention on the Turkey.

6. Discount Decor

Another easy way to drain your bank account is by going overboard with decorations. However, there are several ways that you can decorate your Thanksgiving table for little or nothing. Try using dried leaves and pinecones to create a season centerpiece. If you do not have any trees with pretty enough leaves, then you could make them out of orange and brown colored paper.

7. Drink Decisions

There are so many yummy fall beverages that it can be hard to choose between them, and you can very quickly spent too much. Save money by making your own eggnog and cider at home. Search for easy recopies online, and be sure to read the reviews to make sure that they come with good recommendations.

8. Perhaps a Potluck?

If hosting a big Thanksgiving dinner seems like too much, then you can always suggest a potluck to your friends and family. Everyone loves a potluck, and it can save you a decent amount of money if you are supposed to host the dinner. It will also allow you to focus your attention on other tasks, like creating festive decorations.

9. Traveling Tips

If you are traveling for the holiday, then the sooner you book your flight the better. The day before Thanksgiving is the busiest traveling day of the year, which usually results in huge crowds and delayed flights. In addition to buying your tickets early, you could also try arriving a day or two early to avoid the day before Thanksgiving ticket mark ups. If you have enough time, you could even try driving to your destination.

10. Have a Heart

One of the easiest ways to save on Thanksgiving dinner is not to have one. By replacing your family’s meal with something cheap and donating the turkey and fixings to a local charity you can get into the holiday spirit and get a valuable tax deduction. Just be sure to keep your grocery receipt, and make sure you are donating to a qualified charity.

Monday, November 16, 2009

Questions for the Tax Lady: November 16th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Are Veterans exempt from paying property taxes?

Answer: It depends. There are a handful of different property tax exemptions available to Veterans – including the Veterans' Real Property Tax Exemption, the Cold War Veterans Exemption, and Alternative Veterans Exemption – which can exempt a Veteran from paying property taxes. However, some cities and county government agencies have opted out of the programs. To find out if you, or a Veteran you know, qualify for a property exemption then you should check with your local tax department. For more information on the topic, checkout this blog entry on the Tax Help Blog: Top 10 Tax Tips for Veterans.

Question #2: If I lose money on the sale of my property can I deduct it amount on my tax return?

No, losses from the sale of a personal residence cannot be used to reduce your taxable income. However, if the property was an investment and you did not live in it, then you may be able to claim a capital loss. Be sure to speak with a qualified tax professional before taking a capital loss deduction.

Senate Centrists Ponder Gradual Estate Tax Reduction


A bipartisan group of senators who favor lowering estatetaxes are studying a proposal to gradually reduce the tax until it reaches 35% in 2019.

The senators, led by Sens. Jon Kyl (R., Ariz.), and Blanche Lincoln (D., Ark.) , have long sought to cut the tax from its current level of 45%, and exempt more small businesses and estates from the tax.

But congressional pay-as-you-go budgeting rules and a crowded Senate schedule have led them to consider staking their hopes on a gradual reduction of the tax, Senate aides said.

A House bill introduced last month by Reps. Shelley Berkley (D., Nev.) and Kevin Brady (R., Texas), last month provides the template for what a phase-down of the tax might look like. The current rate of 45% would be reduced by one percentage point per year, and the exemption of $3.5 million would increase by $ 150,000 per year. In 2019, the rate would be fixed at 35% and the exemption amount at $5 million.

House Ways and Means Chairman Charles Rangel (D., N.Y.) favors extending the 2009 estate tax policy permanently. The House is likely to pass within the next few weeks legislation that either permanently extends 2009 law, or does so for one year only.

Business groups including the National Federation of Independent Business and the National Association of Manufacturers are slated to meet Tuesday to discuss end-of-year strategy on estate tax legislation.

Kyl and Lincoln won 51 Senate votes in April, including 10 Democrats, for an amendment to the Senate budget blueprint that embraced a 35% estate tax rate and a $5 million exemption level. But ultimately the budget stipulated that any estate tax policy that is more generous than the 45% and $3.5 million exemption in current policy must be offset by other tax increases or spending cuts.

Discussing the Tax Implications of Obama’s Policies on the Charles Payne Show

Last week, I made an appearance on KFI-AM's the Charles Payne Show. During my segment, I discussed the Obama’s administration and how the President’s policies will affect the American taxpayers. The video embedded below features the audio from my interview, you can watch it below or checkout my YouTube channel.

Realtors’ Agenda Shifts from Homebuyer Tax Credits to Lending Issues

After successfully lobbying for an extension and expansion of the first-time homebuyers credit, the National Association of Realtors is reportedly set to focus it efforts on relieving the commercial real estate credit crunch. According to Market Watch, there are hundreds of billions of dollars in commercial loans that will require refinancing over the next two years.

"The commercial area is something that is going to be in the news more and more, as loans are rolled over and need to be refinanced," NAR senior vice president and chief lobbyist Jerry Giovaniello said Sunday at the industry group's annual conference in San Diego.

Commercial transactions are down due to a "virtual lack of available credit," according to Lawrence Yun, chief economist of the NAR. About $800 billion to $850 billion in commercial loans will mature in the next two years and will require refinancing, he added.

"The credit has to be available ... or potentially lenders will end up owning half of Manhattan," Giovaniello said.

For residential properties, meanwhile, lending requirements remain tough, he said.

"The problem has been to convince lenders, federal agencies and Congress to push the money from Wall Street to Main Street," Giovaniello said. "We think that the lenders could be more flexible. Their capital standards have increased, their stock prices have increased and they need to get out of that overreaction mode."

NAR's policy agenda also includes making sure the Federal Housing Administration remains strong.

Continued tight underwriting standards for conforming mortgages have led prospective buyers to seek out home loans insured by the FHA, which have seen an uptick.

Continued at Market…

Thursday, November 12, 2009

Fed to Curb Banks Overdraft Fees

The Federal Reserve made a surprising announcement today regarding bank overdraft fees, which have become a major source of profits for banking institutions. By October 2010, they will be required to have customers sign up for an overdraft program in order to charge them fees. According to some banks have already begun changing their accounts, and the rest have less then a year to follow suit.

The Federal Reserve today announced new rules that will ban banks from charging overdraft fees on debit card and ATM transactions unless a consumer opts in to an overdraft program.

"The final overdraft rules represent an important step forward in consumer protection," Fed Chairman Ben Bernanke said in a statement. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Overdraft fees can result in consumers being charged up to $35 for withdrawing more money than they have in their accounts. Under the Fed's rules, all consumers -- including existing account-holders -- would have the choice to sign up for overdraft services.

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