Check out my Appearance on the “Mind your BIZness” Radio Show

An interview I recently did for “Mind your BIZness” radio with host Danielle Hampson is being rebroadcast. Check out either Mind Your Business.com or WNB Radio Network to stream the repeat of my interview.

CA Homebuilder Lobby Wants To Extend Tax Credit

From Reuters.com:

The California association that lobbies for homebuilders is pushing for more money to extend funding for a home-buyer tax credit.

In February, the state designated $100 million for the original $10,000 tax credit, which applied to newly constructed, previously unoccupied homes. The money became available on March 1 and is already almost half gone, said Tim Coyle, the California Building Industry Association's vice-president for governmental affairs.

Coyle would not disclose the size of the tax credit the association is seeking, but said that information would be available by next Thursday. By then, the association and its supporters in the state's Assembly and Senate aim to have introduced a bill.

While the association would support a broader credit than the original, this one would also likely apply to new construction because that would net California money, generating more in state revenue than it would distribute in the form of the tax credit, Coyle added.

Tax Official Predicts More Protests Of Home Values

A Colorado tax administrator is predicting that more tax protests will take place in the coming months due to real estate values. You can find a snippet of the Associated Press story below, or read the full story at Forbes.com.

Colorado's property tax administrator expects to see more people challenging how much their homes are worth this year, as home prices tumble around the country.

By May 1, property taxpayers will have received notices of the assessed values of their homes as of June 30, 2008. They have until June 1 to protest the value to county assessors. Properties are reappraised every two years.

When the economy was stronger, Colorado housing values generally didn't soar as high as in coastal areas, so they had less room to fall, said JoAnn Groff, property tax administrator for Colorado. Yet some homeowners may question why their values didn't fall more.

"We suspect there will be more protests this year because of national news about declining value. If people don't see a decline, they're going to wonder why," Groff said.

Some homeowners might protest their assessments in a bid to lower tax bills, said Todd Davidson of PropertyTaxSlash.com, which analyzes property values.

In 2007, county assessors received 129,234 protests of different kinds of properties including homes, according to state figures.

Values can vary widely by region and neighborhood.

Oakland Council Backs a Tax on Marijuana

From the Wall Street Journal.com:

Leaders of this economically hard-hit city are proposing to tax medical marijuana as a way to help close a record budget shortfall.

Oakland's City Council last week approved a 1.8% tax on medicinal marijuana sold in the city. If voters pass the proposal in a July election, Oakland would become the nation's first city to directly tax the drug, medical-marijuana advocates say.

Such an outcome would further legitimize medical marijuana in California and represent the latest victory for advocates. Prospects for such a tax were made brighter in February, when U.S. Attorney General Eric Holder announced that the federal government would no longer raid state-approved dispensaries.

Backers of the Oakland tax on dispensaries said they hope to encourage other cities to follow suit. The tax would prove "that government-regulated dispensaries are good neighbors," said James Anthony, a lawyer who represents the Harborside Health Center, one of Oakland's medical-marijuana dispensaries.

California is one of 13 states that have legalized medical marijuana, allowing it to be sold to people with a doctor's recommendation. It is relatively easy for anyone over 18 years old to obtain such a doctor's note. Advocates estimate there are 200,000 or more approved medical-marijuana users in California. Users already pay a sales tax on the drug.

A city tax on medical marijuana could generate at least $400,000 and perhaps more than $1 million annually, said Rebecca Kaplan, the Oakland City Council member who pushed the proposal. The city of 400,000 residents is facing an $83 million shortfall in a $455 million budget.

The owners and managers of Oakland's four medical-marijuana dispensaries said they approached the city with the idea. "We wanted to further legitimize the medical-marijuana paradigm to show that we are truly willing to assist [Oakland], and to show other cities that there are social benefits to this," said Keith Stephenson, executive director of Purple Heart Patient Center.

No formal opposition has formed against the proposal, and Ms. Kaplan and medical-marijuana advocates said they are confident voters will approve it.

But Paul Chabot, a Southern California resident who recently founded the Coalition for a Drug Free California, is opposed to the idea because he thinks the "quasi-legalization" of marijuana would add more of the drug into the black market. "It's a front; it also sends the wrong message to children," he said. "What are you doing to do next, allow prostitution and tax that? Allow methamphetamine to be sold and tax that?"

Top Lawmaker Wants Mileage-Based Tax On Vehicles

From the Associated Press:

A House committee chairman said Tuesday that he wants Congress to enact a mileage-based tax on cars and trucks to pay for highway programs now rather than wait years to test the idea.

Rep. James Oberstar, D-Minn., said he believes the technology exists to implement a mileage tax. He said he sees no point in waiting years for the results of pilot programs since such a tax system is inevitable as federal gasoline tax revenues decline.

"Why do we need a pilot program? Why don't we just phase it in?" said Oberstar, the House Transportation and Infrastructure Committee chairman. Oberstar is drafting a six-year transportation bill to fund highway and transit programs that is expected to total around a half trillion dollars.

A congressionally mandated commission on transportation financing alternatives recommended switching to a vehicle-miles traveled tax, but estimated it would take a decade to put a national system in place.

"I think it can be done in far less than that, maybe two years," Oberstar said at a House hearing. He was responding to testimony by Rep. Earl Blumenauer, D-Ore., who recommended that the transportation bill include pilot programs in every state to test the viability of a mileage-based tax.

Blumenauer said public acceptance, not technology, is the main obstacle to a mileage-based tax.

Pilot programs "would be able to increase public awareness and comfort and it would hasten the day we could make the transition," Blumenauer said.

Oberstar shrugged off that concern.

"I'm at a point of impatience with more studies," Oberstar said. He suggested that Rep. Peter DeFazio, D-Ore., chairman of the highways and transit subcommittee, set up a meeting of transportation experts and members of Congress to figure out how it could be done.

The tax would entail equipping vehicles with GPS technology to determine how many miles a car has been driven and whether on interstate highways or secondary roads. The devices would also calculate the amount of tax owed.

"At this point there are a lot of things that are under consideration and there is also a strong need to find revenue," Oberstar spokesman Jim Berard said. "A vehicle miles-traveled tax is a logical complement, and perhaps a future replacement, for fuel taxes."

Gas tax revenues — the primary source of federal funding for highway programs — have dropped dramatically in the last two years, first because gas prices were high and later because of the economic downturn. They are forecast to continue going down as drivers switch to fuel-efficient and alternative fuel vehicles.

Transportation Secretary Ray LaHood has ruled out raising gas taxes to make up for the funding shortfall, and the White House has rejected a mileage-based tax. They have not offered an alternative.

Bankruptcy for Chrysler Likely Averted as Banks Cave on Debt

It seems Chrysler may be able to avoid filing bankruptcy as was suspected earlier in the week, according to BusinessWeek.com. You can find a snippet of their post below, but the full story can be found here.

Chrysler LLC and the U.S. Treasury Dept. have reached an agreement with banks and private equity firms holding $6.9 billion of the automaker’s debt. Those firms have agreed to take $2 billion and a small equity stake in the company, paving the way, it seems, for Chrysler to avoid bankruptcy and with Italian automaker Fiat.

The deal, first reported by Washingtonpost.com, was confirmed by a Treasury official who said: “The agreement from Chrysler’s principal banks is an exceptional accomplishment in line with the President’s firm commitment that all stakeholders sacrifice to make this deal succeed.”

Details of the deal may come officially from Chrysler or Treasury officials later today.

Banks, including J.P Morgan, Citi, Morgan Stanley and Goldman Sachs, had been holding up the deal for weeks, insisting on more cash and equity. But a deal struck with the United Auto Workers Sunday night, said one executive familiar with the negotiations, put additional pressure on the debt holders to strike a deal.

Those banks are holding secured debt. And one of the issues confronting them is that Chrysler’s assets—Jeep, minivans, factories, Dodge Ram pickup and real estate—all have limited value in the recession, and few potential buyers [see Chrysler’s Looming Tag Sale].

The possibility of a Chapter 11 filing is not completely off the table for Chrysler. But it is far less likely.

Chrysler was to have filed a new restructuring plan to the White House auto industry task force by April 30, so that the Obama Administration could determine if Chrysler has restructured its business extensively enough to merit an additional $6 billion in loans on top of $4.5 billion it has already received.

A deal with Fiat is now expected to go forward, with the Italian automaker owning 35% of Chrysler, while the United Auto Workers will own up to 55%, and the Federal government up to 10%.

The Obama Administration has already said that Chrysler’s only viable future was one involving a merger with a stronger company. Its commitment to the further loans has been contingent on the Fiat deal. And the Fiat deal was contingent on big concessions from the union and bondholders.

Bankruptcy Bill Watered Down, Still Fiercely Opposed By Banks

From Huffington Post.com:

After weeks of negotiations between Senate Democrats and major players in the financial industry, a compromise bankruptcy reform deal has been reached, Majority Whip Dick Durbin (D-Ill.) said on the Senate floor Monday night. Whether it will pull 60 votes, the number needed to overcome a GOP filibuster, is a question that will be answered later this week when the Senate takes up Durbin's amendment to the House-passed bankruptcy bill.

In order to garner the support of conservative Democrats and a few Republicans, the proposal has been watered down. The bankruptcy legislation will still allow homeowners to renegotiate mortgages in bankruptcy - the so-called cram down provision - but only under strict conditions. The banking industry has lobbied fiercely against cram down, but Durbin said on the Senate floor Monday night that the compromise was supported by Citigroup, which has been at the negotiating table.

"In the past, some of my colleagues understood the need for action but have been uncomfortable with the original language. Let me be clear: this amendment is different," said Durbin. "The amendment I'm going to offer will make a modest change in the bankruptcy code with a lot of conditions. It won't apply across the board. This amendment limits assistance in bankruptcy to situations where lenders are so intransigent that they are unwilling to cooperate with the foreclosure prevention efforts already underway - Obama's homeowner assistance and stability plan and the Congressionally-created HOPE For Homeowners, which this bill will greatly improve."

If banks refuse to take part in either of those programs, which allow homeowners to renegotiate mortgages under certain conditions, then a bankruptcy judge would be able to reduce a homeowner's monthly payment.

Durbin didn't release any further details. The compromise, which he said is also supported by the Center for Responsible Lending, AARP and the Leadership Council on Civil Rights, is being shared with wavering members and staff leading up to the vote.

Meanwhile, the banking lobbyists are furiously lobbying against it and Durbin acknowledges it will be difficult to "muster the votes, although I know it will be hard."

It is "hard to imagine that today the mortgage bankers would have clout in this chamber but they do," said Durbin. "They have a lot of friends still here. They're still big players on the American political scene and they have said to their friends, stay away from this legislation."

While Citigroup, Bank of America, Wells Fargo and other major banks were negotiating with Durbin and his allies, the major bank lobbies were whipping up opposition to it.

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Feds Come After Redding Couple for Alleged Tax Scam

From SacBee.com:

A Redding couple faces felony charges for running a tax-return scheme and claiming more than $159,000 in false refunds.

A federal criminal complaint accuses Shannon Elaine Ford, 32, and Michael Joseph Ford, 31, of operating a tax return preparation business and recruiting taxpayers, promising them large returns, a news release from acting U.S. Attorney Lawrence G. Brown's office states.

The couple allegedly filed more than 34 tax returns using false tax forms relating to income from nonexistent small businesses. The couple also misdirected federal and state tax return checks to their own bank and credit union accounts, the complaint alleges.

The fraudulent tax returns claimed more than $159,000 in false refunds.

The Fords allegedly ran the scam, which involved more than 20 victims, from March 2004 to March 2007.

Shannon Ford is charged with conspiracy, 34 counts of filing false tax returns, 17 counts of bank fraud and aggravated identity theft. Michael Ford is charged with conspiracy, five counts of filing false tax returns and seven counts of bank fraud, the release states.

The couple was scheduled to appear Tuesday before U.S. Magistrate Judge Dale A. Drozd.

Bank Of America May Need More Money

Just days after I posted an entry on the 10 biggest recipients of Federal bailout money, Bank of America announced they may need more help from the government, according to the Associated Press. You can find a snippet of their story below, but the full article can be found here.

Bank of America Corp. (BAC) (BAC) and Citigroup Inc. (C) (C), which have each received $45 billion in government bailout funds, have been told by regulators that "stress test" results show they may need to raise additional capital, The Wall Street Journal said Tuesday.

Charlotte, N.C.-based Bank of America is looking at a shortfall in the billions of dollars, the paper said, citing people familiar with the situation. Both banks plan to rebut the preliminary findings, according to the paper, with Bank of America expected to respond Tuesday ahead of its shareholder meeting Wednesday.

Citigroup declined to comment; Bank of America officials weren't immediately available to comment.

As executives of the nation's largest banks review their stress-test results, even the top performers are lobbying regulators to raise their scores before the numbers are finalized Friday.

Fed officials told reporters Friday that all 19 banks that took its "stress tests" will be required to keep an extra buffer of capital reserves beyond what is required now in case losses continue to mount. That would mean some banks will likely have to raise additional cash. But the Fed stressed in a statement that a bank's need for more capital reserves to meet the requirements should not be considered a measure of the "current solvency or viability of the firm."

Federal Reserve officials held top-secret meetings with bank executives last week to give them preliminary findings of how each bank would fare if the recession got much worse. The government plans to announce the results of the tests May 4, and banks will have the opportunity to appeal the findings.

By law, the banks cannot publicize the results without the government's permission.

Executives sifted through the test results over the weekend, devising arguments they hope will persuade regulators to boost their scores, according to two industry officials who requested anonymity because regulators have barred them from discussing the process.

Banks have until Tuesday to make their cases. They will receive the final test results Friday, and the information will be released next week.

The results will determine the fates of the companies, which together hold one-half of the U.S. banking system's loans. Banks found to need more capital face several possibilities: The government could convert its stake in them to common shares, force them to raise money from investors or eventually release more funds from the Treasury Department's $700 billion financial bailout.

For Treasury, the easiest way to bolster bank balance sheets is to convert the government's existing stake from preferred shares - a form of debt - into common shares that carry voting rights. This would help Treasury avoid returning to Congress for more bailout money - a request lawmakers are likely to rebuff.

The banks' options are designed to ensure banks have enough cash to withstand the mounting loan losses they would absorb in a bleaker economy.

If the test showed a bank would need more money to endure a much worse recession, regulators will force it to meet higher standards for capital reserves, to offset possible future losses.

NYC Personal Income Tax Revenues Plunge In April

From Reuters.com:

New York City's net personal income tax revenues plunged 51 percent in the first 24 days of April, compared with the same period a year ago, the city comptroller's office said on Monday.

New York City's economy has been hurt by the devastation of Wall Street, its largest hometown industry, following the collapse last September of Lehman Brothers Holdings and a series of bank mergers amid the credit crisis. In the month of March alone, for instance, Wall Street shed 3,100 employees, according to the state's Department of Labor.

U.S. states and cities, just like the federal government, usually see tax revenues surge in April because the month includes the April 15th annual tax deadline.

New York City often pays out more in refunds than it collects in taxes during April.

But "through April 24, payments were running 33.5 percent below those of April 2008, and refunds paid out were running 21.8 percent below those of April 2008," said a spokesman for Democratic City Comptroller William Thompson.

The state's economy rests on the city's shoulders because the city's financial sector pays about 20 percent of the state taxes. New York City is equally dependent on the financial sector, with economists saying that each high-paying Wall Street job creates service-sector employment ranging from one to three workers in a broad range of businesses from law firms to clothing stores and little gift shops.

Though the city's real estate market fended off much of the pain seen around the nation until late last year, the depth of its current fall was underscored by the state's mass transit agency.

"We're seeing it declining even faster and deeper than in the post-1987 deflating of the real estate bubble," said Gary Dellaverson, chief financial officer for the Metropolitan Transportation Authority, at a finance committee meeting.

On Oct. 19, 1987, the Dow Jones industrial average .DJI lost 22.6 percent in the largest one-day percentage decline in stock market history. Afterwards, thousands of Wall Street jobs were lost and some never returned.

Democratic Governor David Paterson, speaking to reporters, estimated the state's deficit next year at $2.7 billion.

The state will update its financial plan later this week, he said. New York City also should issue new estimates soon.

While there was a "significant" drop in state corporate tax revenues in March, followed by a decline in personal income tax collections in April, Paterson added that there were signs the economy might stabilize sooner than anticipated.

"However, there seems to be a projection later in the year that things may not be as bad as we first thought that they would be."

The state's current budget cut the three-year deficit to about $11 billion from $16 billion, Paterson added.

Tax Breaks Available for Taxpayers Who Purchase Qualified Plug-In Electric Vehicles

The IRS recently published a new press release discussing tax breaks available for qualified plug-in electric vehicles. Check out the text of the release below.

Plug-in electric vehicles using certain types of batteries may qualify for a new tax credit if purchased this year, the Internal Revenue Service said today.

The Emergency Economic Stabilization Act of 2008 (EESA) and the American Recovery and Reinvestment Act of 2009 (ARRA) created two new tax credits for various types of electric vehicles, which may include what are commonly referred to as neighborhood electric vehicles.

ARRA creates a tax credit for low-speed or two- or three-wheel electric vehicles, such as motor scooters, purchased after Feb. 17, 2009, and before Jan. 1, 2012. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500. To qualify, a vehicle must be either a low-speed vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 4 kilowatt hours or be a two- or three-wheeled vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 2.5 kilowatt hours.

EESA created a tax credit for vehicles that have at least four wheels and draw propulsion using a rechargeable traction battery with at least four kilowatt hours of capacity. For 2009, the minimum credit is $2,500 and the credit tops out at $7,500 to $15,000, depending on the weight of the vehicle and the capacity of the battery.

During 2009, low-speed, four-wheeled vehicles manufactured primarily for use on public streets, roads and highways (neighborhood electric vehicles) may qualify both for the EESA credit and, if purchased after February 17, 2009, for the ARRA credit for low-speed electric vehicles. A taxpayer may not claim both credits for the same vehicle. Vehicles manufactured primarily for off-road use, such as for use on a golf course, do not qualify for either credit.

The Internal Revenue Service is working on guidance regarding certification procedures for both of these credits.

JPMorgan Chase Gets Ohio Tax Break To Create 1,000 Jobs

From BizJournals.com:

JPMorgan Chase & Co. was awarded incentives by the Ohio Tax Credit Authority to help the bank create 1,000 jobs in Columbus.

JPMorgan Chase (NYSE: JPM) will save about $14 million during 15 years under the terms of a state incentive approved Monday. The financial services company also is set to gain $8.3 million in tax credits and cash from the city of Columbus.

The company received the 15-year, 75 percent tax credit against its state tax obligation in exchange for its pledge to create 1,000 jobs in Columbus and 150 jobs in Westerville during the next five years. About 900 of those jobs would be created during the next three years.

The state tax deal requires the company to keep the jobs in the region for 30 years.

Columbus has offered JPMorgan Chase two incentives that would bring in an additional $4.5 million in the city’s coffers over eight years, according to the city.

A proposed eight-year, 35 percent Job Growth Incentive from the city would return an estimated $2.5 million of individual payroll taxes withheld to the company over the term of the incentive. The city also has offered a 10-year, 65 percent Job Creation Tax Credit worth $5.8 million over the term. That credit would be applied against the company’s corporate income tax obligation to the city.

City Council will consider the incentive package in May.

Nearly 11,000 of the current 14,000 JPMorgan Chase jobs in the region are in Columbus and nearly 3,000 jobs in Westerville, according to bank spokesman Jeff Lyttle.

About 8,000 jobs are at the company’s operations center at Polaris Centers of Commerce and about 3,000 are at Easton, he said.

The distribution of the jobs at office buildings in Columbus and Westerville remains unclear.

“There’s still some moving parts to settle,” Lyttle said.

JPMorgan Chase also is considering sites in New York, Michigan, Louisiana and Texas.

Snoop Dogg's Tax Debts Unveiled

Famed rapper Snoop Dogg is the most recent celebrity to have his name added to California’s delinquent taxpayers list. Check out the following article on the new development from ABC15.com.

Rap superstar Snoop Dogg has been named and shamed as the latest celebrity indebted to the state of California - he's failed to pay more than $284,000 in back taxes.

The Drop It Like It's Hot hitmaker, real name Calvin Broadus, had a tax lien filed against him last month, which accused the rapper of owing $284,053.59, reports TMZ.com.

He's not the only musician not up to date with his taxes.

Soul star Dionne Warwick was recently listed in California's top 10 worst offenders, while rappers Xzibit, Method Man and Lil' Kim have also run into trouble with the Internal Revenue Service (IRS).

GOP Stripped Flu Pandemic Preparedness From Stimulus

From The Nation.com:

When House Appropriations Committee chairman David Obey, the Wisconsin Democrat who has long championed investment in pandemic preparation, included roughly $900 million for that purpose in this year's emergency stimulus bill, he was ridiculed by conservative operatives and congressional Republicans.

Obey and other advocates for the spending argued, correctly, that a pandemic hitting in the midst of an economic downturn could turn a recession into something far worse -- with workers ordered to remain in their homes, workplaces shuttered to avoid the spread of disease, transportation systems grinding to a halt and demand for emergency services and public health interventions skyrocketing. Indeed, they suggested, pandemic preparation was essential to any responsible plan for renewing the U.S. economy.

But former White House political czar Karl Rove and key congressional Republicans -- led by Maine Senator Susan Collins -- aggressively attacked the notion that there was a connection between pandemic preparation and economic recovery.

Now, as the World Health Organization says a deadly swine flu outbreak that apparently began in Mexico but has spread to the United States has the potential to develop into a pandemic, Obey's attempt to secure the money seems eerily prescient.

And partisan attacks on his efforts seem not just creepy, but dangerous.

The current swine flu outbreak is not a pandemic, and there is reason to hope that it can be contained.

But it has already believed to have killed more than 100 people in a neighboring country and sickened dozens of Americans -- causing the closing of schools and other public facilities in U.S. cities.

IRS Says Set To Pursue "Other Banks" On Tax Evasion

From Reuters.com:

The U.S. Internal Revenue Service (IRS) is poised to pursue "other offshore banks" for allegedly facilitating tax evasion by wealthy Americans following its high-profile case against Switzerland's UBS AG (UBSN.VX) (UBS.N), an IRS official said on Monday.

"We have identified other offshore banks that are engaged in similar activities," David Reeves, an agent with the IRS' Offshore Compliance division, told a conference in Miami on offshore finance centers.

Small Businesses Brace For Tax Battle

Business owners are bracing for a change in next years tax returns due to President Obama’s aggressive tax reforms. While many of the tax hikes are meant to hit bigger business, some smaller businesses fear they may get hit as well. Check out the following article from CBSNews.com discussing the concerns of small business owners.

Gail Johnson doesn't think of herself as wealthy. The former pediatric nurse has spent 20 years building a chain of preschools and after-school programs that accommodate sick children so working parents can keep their jobs.

But, like most small-business owners, Johnson reports her profit on her personal tax return. In a typical year, she and her husband make more than $500,000, according to her accountant, a figure that throws them squarely into the ranks of the richest Americans -- and makes them a prime target for the Obama administration's tax policy.

Since last year's campaign, President Obama has vowed repeatedly not to increase taxes for families making less than $250,000 a year. That pledge, while politically popular, has left him with just two primary sources of funding for his ambitious social agenda: about 3 million high-earning families and the nation's businesses.

Johnson, with her company, falls into both categories. If Obama's tax plans are enacted, her accountant estimates that her federal tax bill -- typically, around $120,000 a year -- would rise by at least $23,000, a 19 percent increase.

"You hear 'tax the rich,' and you think, 'I don't make that much money,' " said Johnson, whose Rainbow Station programs are headquartered near Richmond. "But then you realize: 'Oh, if I put my business income with my wages, then, suddenly, I'm there.' "

Across the nation, many business owners are watching anxiously as the president undertakes expensive initiatives to overhaul health care and expand educational opportunities, while also reining in runaway budget deficits. Already, Obama has proposed an extra $1.3 trillion in taxes for business and high earners over the next decade. They include new limits on the ability of corporations to automatically defer U.S. taxes on income earned overseas, repeal of a form of inventory accounting that tends to reduce business taxes, and a mandate that investment partnerships pay the regular income tax rate instead of the lower capital gains rate.

"They're desperate for revenue. And therein lies the concern of the broader business community," said R. Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce.

"We're going to be a permanent target, and we understand that," added Catherine Schultz, vice president for tax policy at the National Foreign Trade Council. "The way they see it, corporations don't vote."

Obama has proposed some business tax breaks, but those proposals have been dwarfed by the tax increases under consideration, particularly his plan to let tax cuts enacted by former president George W. Bush expire for high earners.

Administration officials say they would simply restore rates in effect during the Clinton administration for every dollar of income over $250,000 ($200,000 for individuals). The plan is intended to counter years of rising inequality in which wealth has been concentrated at the top of the income scale.

From 1979 to 2006, after-tax incomes rose by $863,000 -- more than 250 percent -- for the top 1 percent of households, compared with $9,200 -- or 21 percent -- for middle-income households, according to a recent analysis of IRS data by the nonpartisan Congressional Budget Office. By allowing the Bush tax cuts to expire next year for upper-income taxpayers -- but keeping the cuts that benefit middle-income families -- Obama has said he hopes to "restore some balance to the tax code."

Switzerland Asks US To Drop Tax Case Against UBS

From the Wall Street Journal.com:

Switzerland asked the U.S. government to drop a legal case involving UBS AG (UBS) in return for passing a new tax accord between the two countries, a Swiss official said Sunday.

Swiss President Hans-Rudolf Merz said in Washington over the weekend that U.S. Treasury Secretary Timothy Geithner seemed "understanding of the Swiss position" and that he promised to "look into it," but didn't give a definitive answer, said the Swiss official, who declined to be named.

A U.S. Treasury official said Sunday that during the meeting with Merz on Saturday, Geithner "listened to the Swiss concerns regarding the UBS case and indicated that he understood the importance of appropriately resolving the matter."

UBS, Switzerland's largest bank, recently reached a settlement with U.S. authorities in which it agreed to pay $780 million in penalties and restitution to avoid criminal prosecution in connection with helping wealthy Americans hide accounts and evade taxes. Nevertheless, the U.S. continues to pursue data on more than 50,000 U.S.-based clients of UBS through civil means.

The U.S. Tuesday will start talks with Switzerland, famous for strict bank secrecy, on a bilateral tax treaty. The tax treaty negotiations will be conducted by the Treasury Department, with input from the Justice Department and the Internal Revenue Service, the Treasury official said.

The decision on how to take the case forward would be made by the Department of Justice and the IRS, which is part of the Treasury, the official said. It was not one in which Geithner would intervene.

"It would be very difficult to bring the accord to Parliament for approval with the case still pending," the Swiss official said, reporting what Merz, who's also the Confederation's finance minister, said Saturday after the International Monetary Fund spring meeting in Washington.

Switzerland is in the process of renegotiating dual tax agreements as part of concessions it made on banking secrecy, including agreeing to standards set out by the Organization for Economic Cooperation and Development on transparency and information exchange.

UBS no longer offers offshore banking in the U.S., or financial services out of Switzerland for wealthy Americans.

U.S. prosecutors recently obtained their first guilty plea from a U.S. client of the Swiss bank, as Floridian Robert Moran pleaded guilty in federal court to filing a false tax return and admitting to concealing more than $3 million in a secret UBS account.

The 10 Biggest Recipients of Federal Bailout Money

Over the past year, the federal government has given out a lot of money to both struggling financial companies and American automobile makers. With huge executive bonuses in the news and more money being given out to huge corporations, the American taxpayers are beginning to become more skeptical of federal bailouts. To help the readers of my blog gain a better understanding of these “bailouts” I have put together the following list of the top 10 biggest recipients of federal bailout money.

#1 AIG

$170 to $240 billion

The American International Group (AIG) makes the top of my list because the insurance giant has received numerous bailouts, which many experts claim totals over $170,000,000,000. In addition, it is predicted that AIG could need as much as $75 billion more in federal funds over the next few years. This could put their total at upwards of a quarter of a billion dollars.

AIG got into trouble when their credit ratings were downgraded and the company ran out of liquid assets. The federal government first gave AIG a credit of $85 billion in exchange for a nearly 80% stake in the company. The company later received another bailout from the government, which sparked public outrage after it was learned that AIG had given out massive bonuses to a group of high paid executives. Many Americans felt that taxpayer money should not be going to companies rewarding executives

In spite of all the negative publicity, the government and President Barack Obama have stood behind AIG. They argue that the insurance giant is so deeply intertwined with the financial system that its failure could ruin the country’s already shaken economy. According to reports, AIG provides insurance to more than 30 million policyholders and 100,000 different entitles, including small businesses, government entities, pension funds, and multi national corporations.

#2 Citigroup

$55 to $351 billion

Citigroup is an American financial services company based out of New York. They are estimated to have the world's largest financial services network with over 12,000 offices across the globe. As of this date, they have received two TARP payments from the federal government totaling $50 billion. In addition, the government has also assured up to $301 billion of the company’s assets. Meaning the company could end up receiving over $300 billion dollars of taxpayer money.

So far, the government has had to issue one $5 billion payment to Citigroup because of the asset guarantee. When Citigroup reported huge losses earlier in the year they had to absorb losses totaling $29 billion, but received $5 billion from the Treasury and another $10 billion from the FDIC.

So far, Citigroup has avoided making headlines for executive bonuses. The company claims they are using their funding to expand the flow of credit in the economic crisis and to get loans out to eager borrowers. They even formed a committee to oversee the way their TARP money is being spent.

#3 Bank of America

$45 to $163 billion

According to the Charlotte Business Journal Bank of America Corporation is the world’s largest financial services company in the world. However, along with most of the country’s financial institutions they needed support from the federal government. They were given two payments for stock ($25,000 on October 28, 2008 and $20,000 in January 2009), and received a federal asset guarantee of up to $118 billion. However, it is also important to note that they were paid an estimated $6 billion by AIG during the financial crisis (AIG reportedly used TARP money to make this payment).

Bank of America did receive some lash-back for their decision to acquire Merrill Lynch with out citing their lack of immediate proper funding. However, the federal government had little choice but to offer Bank of America more assistance, as thousands of businesses and taxpayers depend on the bank.

#4 JPMorgan Chase

$25 billion

JPMorgan Chase & Co. is considered one of the oldest financial services firms in the world, but began having asset problems along with all the other banks in the country. On October 28, 2008 they were given $25 billion as part of the government’s initial TARP payments. The company has stayed relatively off the radar since receiving the funds, except for when it was learned that they had made tentative plans to purchase new corporate jets after receiving bail out money. However, they quickly put out a statement announcing that all of their federal debts would be repaid before any jets were purchased.

#5 Wells Fargo

$25 billion

Wells Fargo & Co. is widely considered the “The World's Safest US Bank” after they became the only US bank to be rated AAA by the S&P. Not surprisingly, the bank has had what many are calling one of the most successful bailout stories of the top 10. After receiving federal aid, Wells Fargo made a recent announce to its investors to expect a profit of $3 billion for the quarter. While at face value this seems like a great victory for the banks and economy, some skeptics point out they may not be out of danger. Wells Fargo bought out Wachovia, inheriting some mortgage loans and a lot of government regulation, not to mention missing information and unclear capital numbers. Only time will tell if the acquisition will hurt or help the giant financial institution.

#6 General Motors

$13.4 to $18.4 billion

General Motors Corporation (GM) and Ford have both been in the news about the money they received from the government. However, GM is the only of the automakers to make our top 10 list. So far, they have received an estimated $13.4 billion in bailout funds, and have already requested more help. It’s also important to note that the $13.4 billion does not include an estimated $5 billion that the federal government announced they would be GM and Ford for “for payments to suppliers from participating auto companies,” under a new Auto Supplier Support Program.

As I mentioned before, GM had requested additional funds from the government but President Obama’s administration rejected their proposal. They did agree to provide GM with working capital for the next 60 days, but said that during that time they would “be working closely with GM to produce a better business plan.”

#7 The Goldman Sachs Group, Inc.

$10 billion

The Goldman Sachs Group had managed to avoid controversy, until they recently began selling their stocks to help repay the $10 billion they received from the TARP program. While most onlookers would consider this a good thing, many financial experts are afraid this early repayment will overpressure other banks to repay their debt prematurely. The main concern is that if too many banks follow suit, it could “harm the recovery effort”. Of course, Goldman Sachs benefits from this early repayment by freeing themselves of government restrictions, including spending and bonus caps.

#8 Morgan Stanley

$10 billion

Morgan Stanley is a New York based financial services provider, and unlike many other TARP recipients, they have been very open about when and how their TARP money is being used. They claim to have used some of the money towards their capital account, while additional funds were lent to Verizon Wireless.

Another smart move by Morgan Stanley is their upfront admittance that their debt will not be paid back any time soon. CEO John Mack publicly stated that, “as much as we’d like to give the money back and just focus on not having government involvement, being totally a public entity, we think and I think that it’s the wrong time to do it now... The reason that money was put in the hands of these banks is to help get us through this very difficult time in financial markets and a very difficult time in the economy.”

#9 Merrill Lynch & Co.

$10 billion

Merrill Lynch was amongst the banks hit hardest by the market crash last year. The company received a TARP from the federal government in the amount of $10 billion before Bank of American bought them out at the end of 2008. The company was also received an estimated $6 billion from AIG, who claims to have used TARP money to make the payment.

In addition to the controversy around their Bank of America buy out, Merrill Lynch has also made headlines for huge bonuses paid to executives. Unlike AIG however, Merrill Lynch has not made the list of bonus recipients public, so the American taxpayers really have no idea of knowing if TARP money was used for the bonuses or not.

#10 PNC Financial Services Group

$7.5 billion

PNC is the country’s 5th largest bank, and they first made a big splash one the bailout scheme when they acquired the Cleveland bank National City (NCC) in October of 2008. PNC used some of the money given to them through the TARP program to make the acquisition, and many called this transaction the first real “test” of TARP funds since no one was quite sure how the deal would work out. As of January of 2009, PNC claims that they did see losses immediately after their purchase, but did not think they would need any more TARP money to pull through the recession.

Happy Earth Day!

Happy Earth Day everyone! In honor of the day, I decided to “recycle” an older blog entry that I originally posted a few months ago. If you are looking for ways to reduce your carbon footprint while saving money then be sure to check out 10 “Green” Ways to Use your Tax Refund.

NY Tax Worker Accused Of Stealing Ids, $200K

A former NY tax worker has been accused of stealing identities, and making $200,000 in fraudulent charges, reports Forbes.com via The Associated Press. You can find a segment of the story below, but the full text can be found here.

A former New York state tax department worker is accused of stealing the identities of taxpayers and running up more than $200,000 in fraudulent charges on their accounts.

Prosecutors say the confidential information gathered by Walter Healey included credit card and Social Security numbers. The illicit charges are dated between 2006 and 2008.

Healey faces four counts of identity theft, as well as unlawful possession of personal identification, tampering with public records and misconduct charges.

The 63-year-old Troy resident, who says he's retired and last worked in October, pleaded not guilty Wednesday. He and his lawyer, George LaMarche (La-marsh), declined further comment. A judge set bail at $5,000.

Tax Haven Questions Could Trip Up Panama Trade Pact

From the Wall Street Journal:

Questions about Panama's status as a tax haven have raised a new hurdle for U.S. approval of a free trade deal between the U.S. and the Central American nation.

The U.S.-Panama trade pact was signed in June 2007, but the deal has been stalled along with separate bilateral trade pacts with Colombia and South Korea.

The latter two trade deals are ensnared in controversial human rights and market access disputes. But the White House said earlier this year in a "trade policy agenda" document that it hoped to send the Panama deal to Congress for consideration "relatively quickly."

Democratic lawmakers and Obama administration officials now say Panama must take steps to increase transparency and information exchange with U.S. authorities on tax issues, before the free trade agreement can advance.

"I would say with respect to Panama that there are also some important issues that need to be worked through having to do with cooperation in resisting tax evasion," White House National Economic Council Director Larry Summers said at an April 18 press conference at the Summit of the Americas.

The Treasury Dept. launched talks with Panama towards a tax information exchange agreement in 2002, but the talks have made little progress.

U.S. business lobbyists who back the U.S.-Panama trade deal have been pushing for a vote prior to Congress' August recess. But the demands from the Obama administration on tax transparency seem to make that timetable unlikely.

Panama holds presidential and parliamentary elections May 3, and it is doubtful whether the Treasury Dept. would be able to conclude a tax information exchange agreement with the lame-duck administration of outgoing President Martin Torrijos.

The Organization for Economic Cooperation and Development on April 2 listed Panama as one of 30 tax haven jurisdictions that have committed to international standards on bank secrecy, but have "not yet substantially implemented" those standards. Panama is also mentioned in legislation introduced by Sen. Carl Levin, D-Mich., with sanctions for tax haven jurisdictions.

Panamanian officials did not immediately respond to inquiries for this article. In a March letter to the OECD, Panama said that while it is not a tax haven, it is taking steps to strengthen its "legal and regulatory framework, thus helping our international financial center to not by unduly utilized by citizens of other States to evade or defraud their respective tax authorities."

Treasury Weighs New Mortgage Subsidies: Sources

The U.S. Treasury Department may be about to give banks and investors millions of dollars in new incentives to modify mortgages. Check out the following article on the topic thanks to Reuters.com.

The Treasury Department is considering giving banks and investors billions of dollars in fresh incentives to modify troubled mortgages and save homeowners from foreclosure, sources familiar with official deliberations said.

Under one scenario, investors in second liens would receive a cash payment if they agree to ease the terms of troubled loans and accept a smaller return on their mortgage investment, the sources said.

During the height of the housing boom, some borrowers were able to buy a home with no downpayment by adding a second lien and many of those loans are now failing as the economy and housing market struggle.

Some on Wall Street will likely be angry if Washington doles out money to investors who hold the high-risk end of a home loan.

"Second-lien holders should get zero," said Bill Frey, president of Greenwich Financial Services in Greenwich, Connecticut. "Why should a second lien holder get anything if the first lien holder takes a loss? That's not the way the contracts work, that's not the way privatization works, that's not the way America works."

Officials also envision giving fresh subsidies to encourage 'short sales' in which the lender accepts a payment that does not cover the entire loan amount, according to the sources, who requested anonymity because they are not authorized to disclose details.

Fannie Mae and Freddie Mac, the mortgage finance companies, would administer the new program to resolve problems with second-liens under one plan being considered, they said.

A senior administration official declined to comment on Tuesday, but said the Treasury expected to unveil further details of its homeowner-aid program "soon."

The official said the Treasury Department is also considering ways it could resolve problems in the mortgage insurance industry battered by mounting foreclosure losses.

"We are aware of the difficulties in the industry and we are analyzing different options to deal with" those difficulties, the official said.

In February, President Barack Obama outlined a housing rescue plan that he said could move as many as 9 million homeowners into more-affordable loans by both refinancing and modifying their current mortgage.

Homeowners normally must settle all of a home's debts when they refinance a mortgage but a modified loan may hold the second lien in place.

A bulk of the Obama housing rescue plan involves modifying loans but officials have decided that they will try to ease those second lien payments in order to ease the costs of homeownership, the official said.

"Their debt overhang will be brought down," the official said. "We will have that program shortly."

Michigan May Owe GM $116M In Tax Refunds

From the Associated Press:

General Motors Corp. may get tax refunds totaling $116 million after a judge ruled for the automaker in its dispute with the state.

Ingham County Circuit Judge Rosemarie Aquilina on Friday declared unconstitutional a 2007 Michigan law that retroactively made GM pay use taxes on vehicles driven by employees for testing and marketing.

The automaker claimed it unnecessarily paid taxes on demonstration vehicles for more than a decade.

The Department of Treasury denied GM's request for refunds, pointing to the 2007 law.

The judge ruled GM is exempt from paying use taxes on vehicles used for demonstration purposes. She next will determine what GM is owed.

Aquilina faulted lawmakers for passing the bill without committee hearings to avoid public scrutiny.

Pay Rule Led Chrysler to Spurn Loan, Agency Says

According to a Federal watchdog agency, Chrysler supposedly turned down government loans in order to avoid executive pay restrictions that would have been enforced by the government. Check out the following article on the topic courtesy of the Washington Post.

Top officials at Chrysler Financial turned away a government loan because executives didn't want to abide by new federal limits on pay, according to new findings by a federal watchdog agency.

The government had offered a $750 million loan earlier this month as part of its efforts to prop up the ailing auto industry, including Chrysler, which is racing to avoid bankruptcy. Chrysler Financial is a major lender to Chrysler dealerships and customers.

In forgoing the loan, Chrysler Financial opted to use more expensive financing from private banks, adding to the burden on the already fragile automaker and its financing company.

Chrysler Financial officials denied in a statement that the company's executives had refused to accept new limits on their pay, adding that the firm turned down the loan because it no longer needed it. But their account conflicts with a report set to be released today by the Treasury's special inspector general for the federal bailout, saying the executives' refusal led Treasury to withdraw the loan offer.

"It was certainly a deal-breaker from Treasury's perspective," said Neil M. Barofsky, the special inspector general, who spoke to the bailout program's chief compliance officer about the situation last week.

The incident is the latest controversy to illustrate the hazards confronting the Obama administration as it sets out to assist private firms.

The uproar over the federal financial rescue, much of it focused on executive pay at bailed-out firms, has made companies skittish about taking government aid. Several big banks, such as J.P. Morgan Chase and Goldman Sachs, have said the bailout money now carries a stigma and have taken steps to pay it back. A program to aid small-business lenders has been stymied by the firms' reluctance to accept pay limits and other requirements of bailout loans.

Government officials have said that unless financial firms have enough resources to lend liberally to consumers, the economy cannot be revived.

The Treasury Department previously lent Chrysler Financial $1.5 billion, when less stringent requirements on executive compensation were in place for recipients of federal bailout money. But since that first loan was announced on Jan. 16, the Obama administration and Congress have toughened the rules.

During March, when it seemed that the first loan would run out, the Obama administration began working on a deal to lend the company an additional $750 million.

It did not take long for most of the agreement to fall in place. But on April 7, the Treasury asked Chrysler Financial to have its top 25 executives sign waivers regarding their compensation, according to the special inspector general's report.

Those waivers would have barred the executives from suing the Treasury or Chrysler Financial over new pay restrictions. As part of the economic stimulus package, Congress approved compensation limits, and the Treasury is working on clarifying what the firms must do to comply with the rules.

Tax Move Saves Family $1.5 Million

From the Wall Street Journal.com:

The elderly couple weren't even Eileen O'Connor's clients, but she knew they needed assistance.

The husband, a longtime executive at a technology firm near Washington, D.C., had accumulated $6 million in company stock through his retirement plan and an employee stock purchase plan. He was in his mid-eighties and ready to retire. The problem: If he rolled the funds into an IRA, he would be required to take large distributions and pay the subsequent income tax on those withdrawals - which the couple actually didn't need in the first place.

O'Connor, a certified financial planner and vice president at McLean Asset Management Corp., heard about the situation from the couple's adult daughter, who was a client. O'Connor saw an opportunity to take advantage of tax benefits related to closely held stock in a retirement account. Certain employees who own such stock can gain tax benefits by rolling the shares into a taxable account instead of an IRA: The rollover earns a step-up in basis, the taxable account doesn't require minimum withdrawals, and any withdrawals are taxable at the capital-gains rate instead of the significantly higher ordinary-income rate.

To take advantage of those provisions, Internal Revenue Service rules require the employee elect this option before he or she retires. So timing was of the essence for this family - as was compliance with the complex set of IRS requirements related to such transactions.

There was another big issue as well: "Her father was used to managing everything himself, so he started making some of the arrangements on his own," says O'Connor. "Then he dropped dead in the middle of the whole thing."

That's when O'Connor stepped in. Last September, two months after the man's death, she investigated whether the transaction was still possible. Satisfied that it was, she began working nearly full-time on the project, which had to be completed by year end, in partnership with a CPA firm.

Ultimately, O'Connor's solution was to establish two trusts for the family. The first held assets for the wife, who is in her mid-eighties and in poor health. The second was funded with the rolled-over company stock in order to exclude it from the wife's taxable estate and to achieve the step-up in basis. Once the rollover was complete, O'Connor sold all the shares and distributed the proceeds to individual accounts for each of the couple's three adult children.

"It was a tremendous amount of work," O'Connor says." And it made me realize that there's a real opportunity in helping people who have complex estates to settle. There are new assets to be managed, and new planning issues for the beneficiary."

O'Connor's help certainly paid off: By taking advantage of the relatively obscure provisions in IRS code, she helped the family save $1.5 million.

Today, her firm manages assets for each member of the family. "It was a very stressful time for them. They were going through their own adjustments, and then there were all these details to deal with," she says. "It felt really good at the end to have taken care of that for them, and they recognized the value, too. I think they'll be clients for a long time because of it."

Stimulus Benefits Could End Up Costing Retirees At Tax Time

Sandra Block of USAToday.com wrote an interesting article on how stimulus benefits could complicate the taxes of retirees. You can find a snippet of her post below, but the full text can be found here.

When lawmakers enacted the economic stimulus package this year, they included benefits for seniors. Smart move: Many retirees also have been hit hard by the economic downturn, and they vote in large numbers. Unfortunately, some of the tax headaches we discussed in an earlier column could also affect retirees.

Some examples of potential problems:

Taxpayers who receive a pension and have taxes withheld from their payments could end up owing money to the IRS next year.

In March, the IRS adjusted withholding tables to reflect the Making Work Pay credit, which is worth up to $400 for single workers, and up to $800 for married taxpayers who file jointly. The adjustments will apply to wages, but they'll also affect the amount withheld from pension payments. And that's a problem, because pension payments are ineligible for the credit, says Mark Luscombe, federal tax analyst for tax publisher CCH.

This won't be an issue for retirees who pay taxes on their pension payments each quarter instead of having their taxes withheld, Luscombe says. Likewise, individuals who receive a pension but also have a job may still qualify for the credit because they have earned income, he says. But retirees who have taxes withheld from their pensions and don't have any earned income may need to adjust their withholding to avoid owing money next year.

For information on how to avoid unpleasant surprises at tax time, go to www.irs.gov and search for Publication 919, "How Do I Adjust My Tax Withholding." The section titled "Retirees Returning to the Workforce" includes information for pensioners, and is relevant even if you're not going back to work.

Social Security beneficiaries who have earned income could end up receiving a larger credit than they're entitled to.

Next month, the Social Security Administration will deliver a one-time payment of $250 to more than 55 million Americans who receive Social Security benefits or Supplemental Social Security Income. For most beneficiaries, this won't create any problems. But seniors who receive Social Security benefits and also have a job could also end up owing the IRS money next year.

Here's why: If you're employed and have taxes withheld from your paycheck, you'll also receive the Making Work Pay tax credit. But the maximum amount you can receive from both programs is $400, says Michael O'Toole, director of publications and government relations for the American Payroll Association.

"If a single person is getting $400 in reduced withholding from a job, and getting the $250 economic recovery payment because they're collecting Social Security, they're going to be underwithheld by $250," he says.

As a result, Social Security beneficiaries who have jobs may also need to adjust their withholding.

Lawmakers Debate Tax on Health Benefits

From the Wall Street Journal.com:

As lawmakers wrestle with how to pay for a proposed health-care system overhaul, an emerging flashpoint of debate is whether higher-income employees should face steeper taxes on health benefits than those with more-modest income.

Senate Finance Committee staff this month began talks in earnest aimed at reaching bipartisan agreement on a broad health-care rewrite. The greatest chance for bipartisan accord, for now, is in the hands of two Senate players -- Finance Chairman Max Baucus (D-Mont.) and his Republican counterpart, Sen. Charles Grassley of Iowa.

Sen. Baucus favors taxing some employer-provided health benefits. In an informal "white paper" released earlier this year, Sen. Baucus said this could be done without disrupting the employer-based health-benefits system, where nearly three-fifths of Americans get health insurance.

But congressional Democrats and Republicans may have difficulty finding common ground on how to limit the tax benefits that currently favor employer-based health plans. One way to do that is to impose a dollar cap on the cost of health benefits that may be excluded from taxable income.

An alternative, suggested by Sen. Baucus, is to deny the exclusion to individuals above a certain income threshold. Republicans are resisting that approach, according to aides with knowledge of staff discussions.

A third possibility would be to combine the two approaches, by allowing tax-free health benefits to the lowest earners but taxing health benefits above a certain income threshold on a sliding scale that increases as income rises.

For instance, single workers with income under $62,500 could have all their employer-based health benefits excluded from income tax, while benefits eligible for exclusion could be capped for those with income between $62,500 and $125,000. Above $125,000 all benefits may be taxed.

Also under consideration is a plan that would allow for adjustments in the tax treatment of benefits depending on where the employee lived. There is significant variation in health-care costs among states.

Labor unions are warning lawmakers against capping the exclusion for lower- and middle-income workers. They argue that to do so would single out workers at firms with large numbers of older workers and retirees, and small firms that may pay more for health-care because they have less ability to spread risk.

"If you had to choose, an income threshold would be better," said JoAnn Volk, a health-care lobbyist at the AFL-CIO. "But anything that might undermine the place where most workers get coverage is a concern."

PRO and CON: Should I Buy a House in 2009?

The real estate industry in this country is in shambles. It has created a great opportunity for any one that can afford to purchase a home. Not only have prices plummeted over the past five years, but both Federal and State agencies are also providing incentives to help taxpayers make the big leap. Although there are plenty of good reasons to buy now, getting into a mortgage during a nation-wide recession might not be in the best interest of every single American. To help those of you trying to decide if you should buy a home this year, I have put together the following list of reasons TO and NOT TO buy a house in 2009.

PRO: Tax Credits

To encourage home buying, the Federal government is offering all taxpayers a one-time tax credit for first-time buyers who purchase a home before the end of 2009. The credit is for $8,000 (or 10% of the sale price), and—unlike last year’s incentive—it is a direct credit and does NOT need to be repaid.

In addition to the Federal tax credit, numerous state and local government agencies are also offering incentives. For example, here in California there is a $10,000 credit for the purchase of a new construction home. The specific rules and amounts will vary by your location, so be sure to ask your agent and/or lender for more information on the incentives you might qualify for.

CON: Prices still dropping

Although some experts predict the economy will begin rebounding at the end of 2009, many are saying that the real estate market will not follow as quickly. Real estate prices are actually still dropping. Financial analysts insist they may continue to drop for another year, which could lower the value of any home you might buy. However, if you are looking to buy a house in the near future, then make sure you do not wait too long. Also, remember that can take months to complete the purchase of a home.

PRO: Population Demographics

Some economists are looking past the economy towards population demographics to predict the housing market. Many believe the "Baby Boomer" generation’s children are beginning to become of-age to purchase homes, which could contribute to the increased activity in real estate industry. Called "Generation Y," they are typically between the ages of 20 and 30, with well paying jobs in the technology field. As the real estate industry begins to bottom out, experts are predicting that Generation Y will begin purchasing homes at a rapid rate.

CON: You may get stuck

If you are the type of person who only wants to occupy their home for a few years or do not like to feel tied down, then now may not be the best time to invest in a new home. The value of any home purchase in the immediate future is likely to depreciate over the next year. Then add in closing costs and agent fees, and you might be stuck unable to sell your home. Remember, that purchasing a house is a big investment, and you may have to hold onto it for five years or so to turn a profit.

PRO: Recession’s End

As I mentioned before, many analysts are predicting that the economy will begin to rebound at the end of this year. Although the real estate market is not expected to bounce back quite as fast, this does mean your chances of getting a loan may increase. When the economy begins to improve more and more banks will feel more comfortable lending, and home loans will become more accessible to Americans again.

CON: Loan Qualification

Getting a loan for a new home is not as easy as it used to be. Banks are lending more than they were six months ago, but they now include harsher credit checks, more paperwork, and un-estimated deadlines. Paired up with ever-dropping prices, this can be a huge incentive to wait another year or so, when loan qualification is supposed to become somewhat easier.

How to Avoid Owing Back Taxes on Unemployment Benefits

At the end of last week I posted an entry on the RoniDeutch.com Tax Relief Blog with advice on how to avoid owing back taxes on unemployment. Check out the text of the entry below.

Taxable Income

Believe it or not, the money you receive from unemployment benefits IS taxable income. Which means you are going to owe both federal and state income taxes on it (if your state has an income tax). At the end of the year you should expect to receive IRS Form 1099-G, which will show the total amount you received in benefits.

Withheld Taxes

When collecting unemployment benefits you are not required to have any taxes withheld, but it is an available an option, and a good one at that! By having income taxes automatically withheld from your checks, you can avoid having to write a big check come next April. When you apply for unemployment, you can select to have a 10% federal income tax withheld, as well as a state income tax (the exact percent will vary per state). It is also highly recommended that you take a thorough look at your first unemployment check stub to make sure that the correct taxes have been withheld.

First $2,400 is Tax Free

Although you do have to pay income taxes on unemployment benefits, in 2009 you will not have to pay taxes on the first $2,400 in unemployment benefits you receive. Confused yet? Well, it only gets more complicated. The change is part of the new 2009 American Recovery and Reinvestment Act and only affects the 2009 tax year. All benefits from the year 2008 and before are fully taxable. For more information, check out this IRS news release on the topic.

Severance Pay

Do not forget that any severance payment you might receive is also considered taxable income. This includes any one-time payments, as well as payouts for accumulated vacation or sick leave benefits. It is considered regular income, and should be taxed at your appropriate tax rate.

Estimated Payments

If for any reason you do not choose to have taxes withheld on your unemployment, you should still consider making an estimated quarterly payment. It can be somewhat confusing to calculate and file these payments, but it beats getting hit with an underpayment penalty at tax time.

Check State Laws

Do not forget that your state is also going to tax your unemployment benefits! If your state has an income tax, then you will likely have to pay income taxes on your unemployment benefits. However, every state is different so before making any decisions, check out your state’s website, or ask a professional for help.

Continuous Job Hunt

One of best ways to avoid tax problems is to build up allowable deductions and credits. Luckily for the unemployed, the tax code provides a cornucopia of tax savings for job hunters. From education deductions and credits, to the job-hunting expenses deduction, to the moving deduction, the code is set up to help you avoid owing taxes while unemployed so long as you are actively seeking employment. In addition, most states provide similar deductions and credits. So, please do some research—you can start by checking out my blog entry on the topic here —or meet with a tax professional to find out how Uncle Sam is willing to help you on your job hunt.

Get Professional Help

Just because you are unemployed does not mean the IRS is going to let you get away without filing a return. In addition, your return is certainly going to look a little different now that you are receiving unemployment income. Having professional guidance through this financial change may prevent you from making some major mistakes on your tax return.

Taxes: Have You Paid Your Fair Share?

From CBS News.com:

I guess we've all paid - or avoided paying - our taxes by now and it feels good to have it over with. It didn't hurt much, did it? I made more money last year than I made the year before, but of course my taxes were higher too - the most I ever paid.

To tell you the truth, I have a feeling I paid more than my share of taxes. I guess everyone feels that way.

I have an idea how the IRS could get more money out of the tax cheaters and it wouldn't cost the government a nickel: they would make tax records open to all of us. The figures would be available to anyone who wanted to look them up. This would be a good way to get everyone to pay what they owe. I'd be willing to do it if everyone else did it.

Some people wouldn't dream of cheating anywhere else but they don't worry about cheating on their tax returns if they think they could get away with it.

I've always thought that Uncle Sam goes about trying to get us to pay our taxes the wrong way.

The IRS never appeals to us as patriotic Americans. I think what everyone pays should be public information. Americans would be happier to pay their income tax if they thought that everyone was paying what they were supposed to pay.

Maybe people would be proud of what they pay instead of hiding their income.

I don't know why our tax returns are secret, anyway. What we earn isn't usually much of a secret to anyone who knows us or to anyone who wants to find out what we make.

About 45 percent of what the federal government gets comes from individual income taxes.

Forbes magazine did a piece that said that rich people hide more of their income than poor people hide. Well, of course they have more to hide but generally speaking I think Americans are willing to pay their income taxes. They just want to be damn sure they paid their share - not their share and part of someone else's.

Helio Castroneves Found Not Guilty In Tax-Evasion Trial

The ongoing case of Indy 500 champion Helio Castroneves has finally ended. The jurors found Mr. Castroneves not guilty of the tax evasion charges he was facing. Check out the following snippet from the MiamiHerald.com on the recent decision.

Indy 500 champ Helio Castroneves survived a potentially devastating crash Friday, acquitted of tax-evasion charges by jurors who struggled for six days to unravel complex evidence on racing-car contracts, tax law and offshore companies.

In the end, jurors found Castroneves and sister Katiucia not guilty on six counts of evading taxes on $5.5 million from race car earnings. The pair sobbed and hugged each other after hearing the decision.

The 12-member Miami federal jury deadlocked on the lead conspiracy charge against the siblings, which prompted U.S. District Judge Donald Graham to declare a mistrial on that count.

The jury also acquitted the Brazilian race car star's sports attorney, Alan R. Miller, on the main conspiracy charge and three other tax evasion counts. Miller was not charged in three other counts of the indictment.

With his legal victory, Castroneves was scheduled to fly immediately from South Florida to California to compete in the Toyota Grand Prix of Long Beach for Penske Racing, the team that hired him in late 1999. His contract with the legendary racing organization -- the big break in a career that began as a teenager go-cart racing in Brazil -- was at the core of the government's tax-evasion case.

Flanked by attorneys and an entourage of friends, Castroneves emerged from the downtown federal courthouse, his eyes swollen and red.

He showed off a rosary, proclaimed his faith and interviewed with both U.S. and Brazilian press.

''It's been a nightmare, and finally we wake up,'' said Castroneves, 33, who was sidelined from IndyCar racing during his legal ordeal. ``Instead of going to Disneyland, I want to go to Long Beach and race.''

And then he was off, jumping into a black Porsche Cayenne SUV to take him to Miami International Airport.

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Top 10 Tax Tips for Retirees.

David Walker's Tax Predictions--Scare Tactics.

The American Recovery And Reinvestment Act Of 2009 – What’s New For 2009 – Part I.

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A Sort-of Flat Tax on Wages? Another Bad Tax Reform Idea to be SET Aside.

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Congratulations! Tax Season is OVER!

Whew! You made it past April 15. Time to relax and ignore your taxes until next year, right? WRONG!

Tax planning is a year round endeavor, at least it should be. Here are just a few things you should be doing now to help you keep more money in your pocket, and less in the IRS coffers.

Get Organized!

While all your tax files are still handy, take the time to organize them. Create files for: Income, Medical, Donations, Real Estate, Child Care, Tax Correspondence, Student Loans, Miscellaneous Receipts, Tax Payments, and Archived Tax Documents. And keep the files handy. If it is easier to put receipts and documents in files as throwing them in a pile on the kitchen counter, you might actually still have that receipt next year. Another helpful tip: write down what the expenditure was for, the dates and who was involved, and attach it to the actual receipt. You probably won’t remember every single deductible expense a year from now, so make a note and ensure you get every deduction you’ve got coming to you.
Change Withholdings

Did you get a fat refund this year? Then you may want to adjust your withholdings. I know getting a big check from the government feels good, but wouldn’t that money be more useful to you all year long? With the average refund running around $2,500 that’s $200 a month you could keep in your pocket! Stop giving the government an interest free loan while you struggle to make ends meet. On the other hand, if you found yourself with a big tax bill, consider increasing the amount withheld from your paychecks. Remember that we’re aiming for the “Goldilocks” principal: not too much, not too little, but just right.
Get Educated!

Most people are missing out on deductions and credits they are entitled to, all because they don’t know any better. Americans are so terrified of taxes because they don’t actually know that much about them. Pick up a book, peruse the IRS website, or take a class. By taking some initiative, and learning more you are becoming a better steward of your family’s finances. If that’s not enough to convince you remember, increasing your tax knowledge can save you money!

I promise next tax season will be much easier if you do just these few simple things.

Are You Required to Make Estimated Tax Payments?

Few things are more confounding to taxpayers than estimated tax payments. Moreover, few things get taxpayers into more trouble.

Estimated tax payments are supposed to be made quarterly by any taxpayer whose taxes aren’t withheld from their income. If you work for a company and they withhold taxes for you, including Medicare and Social Security, then you probably don’t have to make quarterly payments. But, if you also do some other work on the side, like selling Avon or doing freelance work, you are required to pay taxes on that income.

If you are an independently contracted worker, or self-employed, then you need to pay income and Social Security taxes on your income. How much you will pay depends on how much you make and your general tax situation. A good estimation is to take a look at your most recent tax return. Take your total tax liability and add 15% to account for Social Security and Medicare taxes. If you predict having similar income and deductions this year, then you can take the total tax liability, divide it by four, and that’s your estimated quarterly payment.

Making these payments may seem like a hassle, but as I mentioned, not making these payments gets so many taxpayers in trouble with the IRS. If you don’t make them, the IRS may penalize you at tax time, or you might be saddled with more tax liability than you have the ability to pay. Just think about it, if your total tax liability for a year is $5,000, paying it all at once is probably going to hurt. But planning ahead and paying $1,250 every quarter is probably more manageable. Alternatively, you can make monthly payments, if that is easier for you. Simply divide your total tax liability by 12.

Small business owners have historically failed to make accurate and timely tax payments. The IRS figured this out and now heavily scrutinizes any self-employed people and small-business owner tax returns. This can lead to audits, penalties and enormous tax debts. From my experience, this is one of the top reasons people get in debt to the IRS. And in this case, an ounce of prevention is worth a pound of cure.

How to Avoid an Extension in 2010

Wednesday was the tax deadline and thousands were scrambling to request an automatic extension from the IRS. Although you will not be penalized for filing a tax extension – as long as you pay all required tax liabilities – it is a good idea to get in the habit of getting your return prepared and filed before April 15^th. By planning ahead, there are plenty of easy things you can do now to prevent the need for a tax extension in 2010.

1. Organize your documents

By keeping your tax documents in one place throughout the year you will always be one step ahead of the game. As you get closer to next tax season, begin to review your financial documents and make sure you have everything you will need to do the actual filing. You could even make yourself self a tax checklist, to make sure you do not forget anything.

2. Start early

Start the compilation, organization, and calculation process as soon as you can. All tax forms are available on the IRS’ website year-round, so it’s never too early to begin. In addition, you should start receiving all income and expense statements from third-party reporters (e.g. employer, bank, investments, etc.) by mid January. The sooner you start, the more you can spread out the task, making it easier to do. Depending on how complicated your return is, you could do a little bit every week leading up to the deadline.

3. Make estimated payments

If you are self-employed, or a small business owner, then you need to make quarterly or monthly estimated tax payments. Never evade these necessary taxes, as the penalties will be far worse come tax season—especially if you did not pay enough during the year. If you make enough through your self-employment, then you might want to consider having a professional help calculate your quarterly payments to make sure you are always ahead of the game.

4. Have Internet available

Having a computer with Internet capability will also help immensely during tax season, because you can use it to easily research tax information. You may be surprised how much information about taxes there actually is online these days. Instead of calling up your accountant or tax preparer every time you have a question, try doing a Google search to see if you can find the answer online. Or visit my company’s blogs at www.ronideutch.com/blog and www.rdtc.com/blog.

5. Determine if you will need help

Never be too shy to enlist a little professional help if you are not fully about preparing your tax returns by yourself, or simple do not have the time to do so. Determining early on whether or not you plan to hire help will allow you to take your time choosing the right tax prep specialist or accountant for you. You may also be able to get a better deal, as many tax preparation offices run specials early during tax season.

6. Change your withholdings

If your payroll withholdings are off, then it can make things more difficult when you go to prepare your returns. Moreover, there is nothing worse then being surprised to learn you owe the IRS a huge tax payment come April 15. If you have been over or underwithholding throughout the year, by adjusting your withholdings now, you can make things easier for yourself come next tax season.

7. Find more deductions, make adjustments

Many people put off filing their taxes because they are scared of paying up any money they might owe the IRS. To offset what may be a big payment, take the time now to carefully research the current tax laws to see what deductions you qualify for. If you have already claimed all available credits and deductions, then see if there are any small adjustments you can make in your life to claim some that you may not have qualified for this year.

8. E-file

A lot of people simply do not want to drive to a tax preparation office to file their returns. If you prefer to do things from home, you could try e-filing this year, or look into over-the-phone services. If you have all your info together, both options are quick, easy, and can prevent you from needing to file an extension.

Obama Tax Returns For 2008: See The Complete Filings

A few days ago, both Barack and Michelle Obama released their 2008 tax returns. The Huffington Post published an article examining their returns, and the amount of money they donated to charities. I’ve included a portion of the article below, but you can find the full text here.

When Barack Obama released his 2000-2006 tax filings during the height of the presidential campaign, he was criticized for slightly-less-than-biblically-required charitable giving.

In those years, Obama (serving as Illinois state senator, then U.S. Senator) never offered more than six percent of his income to charity. Twice he gave less than one percent of his earnings.

Fast forward a few years, and the Obamas' returns tell a different story -- both of a higher income bracket and a far higher rate of charitable giving.

The White House released the filings for both the President and the First Lady on Wednesday. Combined, the family brought in an adjusted gross income of $2,656,902, mostly from the sale of the President's books. The Obamas paid $855,323 in federal income tax. And they donated $172,050 - or about 6.5% of their adjusted gross income - to 37 different charities.

Here are the notable donations made

$25,000 to the Catholic Relief Services

$25,000 to the United Negro College Fund.

$5,000 to the American Red Cross

$5,000 to the Boys and Girls Club

$5,000 to the Juvenile Diabetes Research Foundation

$1,000 to Columbia University

$5,000 to the New Orleans Area Habitat for Humanity

$5,000 to St. Leo's Residence for Veterans

$2,000 to the Haiti Foundation of Hope

$5,000 to the Illinois Coalition Against Sexual Assault

Noticeably absent from the charitable giving is the place where Obama sent $22,500 in 2006: his old church Trinity United.

D.C. Tax Protest Is No Tea Party

From the WashingtonPost.com:

First, a truck was to dump a million bags of tea onto tarps in Lafayette Square. But it ran into permit trouble and was turned away.

Then rally organizers showed up outside the Treasury Department. But authorities told them they lacked proper permission and could not set up a stage there.

Then it started to rain.

Next, somebody threw a box of tea over the White House fence, and the police evacuated the park.

Finally, the truck's driver, who had been wandering around town for hours after an overnight drive from Georgia, found a place to unload the cargo: 12 floors up in a downtown advocacy group. Without much of an audience.

The tea party protest of 2009 was a comedy of aggravation, but no matter. Hundreds of demonstrators ignored the missing truck, the dreary weather and the red tape and gathered in Lafayette Square yesterday for a rain-soaked but boisterous rally to protest high taxes, congressional earmarks and government bailouts.

They carried flags and signs bearing such sentiments as "Blackbeard Obama, King of the Tax Pirates" and "Obama Lied, Capitalism Died." In ponchos and under umbrellas, they cheered speakers and gave voice to a sense that the administration has the country on a path to ruin at the expense of the average taxpayer.

"I want my grandson to have as good a life as I've had and have the same opportunities," said JoAnn Abbott of Dale City, one of the rally organizers. "I don't want him stuck with a $12 trillion debt."

"The runaway spending has got to stop," she said. "The people on [Capitol Hill] are our employees. We don't work for them. It's about time our employees [started] working for us. The so-called stimulus bill? . . . The thing oinked, it had so much pork in it."

After Busy Season, Accountants Get a Well-Deserved Tax Break

The Dallas news wrote up a great article on how those of us working in the tax industry get to finally take a sigh of relief, now that tax season is over. You can find a snippet of the post below, but the full story can be read here.

As we breathe a sigh of relief now that we finally filed our taxes, another group is also breathing easier:

The accountants and tax preparers who have worked all-nighters and weekends and skipped family functions to process the endless piles of tax returns.

For them, tax time is taxing.

Today, many are sleeping in, hung over or jetting off on vacation.

Before April 16, never ask accountants how they're doing, James A. Smith advises.

But today is a different story, a fresh start for tax preparers across the land who've scanned hundreds, if not thousands, of returns.

"You suddenly feel a little bit lighter," said Smith, a certified public accountant in Dallas. "Even though you're exhausted, you can breathe this big, deep breath and let it out there and let go of the stress and tension.

"You don't feel you weigh as much as you did five minutes ago."

Across the country, firms organize celebratory buffets, picnics and cocktail parties for their employees for a job well done and to mark the end of the so-called busy season.

Tax preparers polled by the National Association of Tax Professionals said they often take it easy for a couple of days after April 15.

One firm closes down at noon and employees rent a limo and go out for lunch. Many go on vacation, although one tax preparer said she takes a break before tax season so she can remember the beach when she's working late at night.

Last night, employees at Sibley & Co. in Dallas were planning to head out for hamburgers.

The firm will be closed today and Friday to help employees recover. They are "just flat tired," said Ken Sibley, the firm's founder. He's taking his wife to Florida for a week – and he plans to sleep on the plane.

"We have been working an average of 12 to 15 hours a day for six days a week and a lot more than I would want to on Sundays," Sibley said. "It's just been very, very intense."

During Tom Ochsenschlager's first tax season, a manager described the process as running an "intellectual marathon."

Hundreds protest tax increases at Calif. Capitol

From the MercuryNews.com:

Thousands of sign-waving protesters turned out Wednesday for a tax day rally that included attacks on Gov. Arnold Schwarzenegger and California lawmakers by a congressman and a son of former President Ronald Reagan.

"I knew Ronald Reagan. Ronald Reagan was not only a friend, but he was my father. And Arnold, you are no Ronald Reagan," talk show host Michael Reagan said to cheers from a crowd that spilled out from the front of the Capitol.

Reagan and other speakers urged the crowd to reject Proposition 1A. The measure on the May 19 special election ballot would create a state spending cap and strengthen a rainy day fund while extending sales and income tax increases the Legislature passed earlier this year to help close a $42 billion budget deficit.

The budget package also included $15 billion in cuts to state programs and hundreds of millions of dollars in corporate tax breaks.

"My father would say to you, 'On May 19, go out and please win one again for the Gipper,'" Reagan said.

Reagan's speech relied on a selective reading of history. Before he became president, Ronald Reagan served two terms as California governor in the 1960s and 1970s. One of his first acts upon taking office was to increase taxes.

Two Republican state lawmakers who voted for this year's tax increases even invoked the image of Ronald Reagan to defend their decision, saying he campaigned against higher taxes but then raised them when confronted with political reality.

On the Senate floor in February, Republican state Sen. Abel Maldonado of Santa Maria displayed a 1972 photograph showing Reagan signing a bill to increase California taxes.

A spokesman for Schwarzenegger, Aaron McLear, defended Proposition 1A, saying it was part of the Republican governor's attempt to fix "broken government."

Rep. Tom McClintock, a Republican congressman whose district runs from Sacramento's northeastern suburbs to the Nevada and Oregon borders, also criticized Proposition 1A and urged the crowd to support an attempt to recall Assemblyman Anthony Adams, R-Hesperia.

Adams was among the handful of Republican legislators who supported the February tax increases.

"We are going to actively and methodically go after those politicians" who backed the $14 billion in tax hikes, McClintock said.

A spokeswoman for Adams did not immediately respond to a request for comment from The Associated Press.

McClintock, 52, has held taxpayer-funded jobs for most of his adult life. He was an aide to a state senator from 1980 to 1982, when he won his first race for the state Assembly. He lost campaigns for Congress in 1992 and state controller in 1994 but was re-elected to the Assembly in 1996. He moved to the state Senate in 2000 and was elected to Congress in 2008.

Happy Tax Day!

via fishbowl LA.

Tax Day Roundup: Filing Tips and Free Food

Yesterday I came across this great article from LifeHacker.com with some last-minute preparation tips for filers who are late or planning to file an extension today. They also included some information on a few tax day freebies and discounts. You can find a segment of the story below, thanks to LifeHacker.com.

Last Minute Prep Tips:

Need an extension?: If you know roughly how much you'll owe but just can't get through all the paperwork, fill out Form 4868 and send it in with 90 percent of your estimated amount due to avoid penalties and fees. Pretty sure you're getting a refund? Just send in that form, and you've got until around Oct. 15 to file your final claim.

Drop-dead, last-minute tax reducers: If you can't stand to look at how much you owe, today's probably the last day to do something about it. Grab that extension form above, unless you've got the day to yourself (or love late-night post office crowds). Then check out Consumer Reports' Last, best money-saving tax options, which includes things like Roth IRA contributions, child credits, and stimulus payments that never came.

Clean, signed, and keep a copy: That's how tax returns should be filed, as tax whiz Roni Deutch tells the Get Rich Slowly blog. Just having a proper-looking return can keep you away from an audit, but if the numbers themselves make you worry, check out GRS' list of common IRS red flags.

Tax Day Freebies and Deals:

Cinnabon Bites at mall-based Cinnabon locations from 5-8 PM.

Single-scoop ice cream from MaggieMoo's all day.

Free Taco Del Mar Taco all day with a printed coupon.

Tax Day Tea Party Celebrations

Here is a good round-up of Tax Day Tea Parties happening nationwide, via Instapundit. Also, check out:

• Pajamas TV Live Stream
• Via Twitter
• Via Google Maps
• Teabagging the Establishment
• Tax Day Tea Party Open Thread

Finally, here is a good entry by Michelle Malkin describing how the Tea Party phenomenon got started.

Roni Deutch Celebrating Tax Day on the Today Show

After my appearance on the FOX Business Network this morning, I stopped by the Today Show for a segment on tax trivia. Since today is tax day, Kathy Lee Gifford was out on the streets quizzing people on their tax knowledge. After they either correctly or incorrectly answered Kathy’s questions, I provided a little bit more background information on each topic. Check out the embedded video below.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Hopefully, those that got their questions wrong will pick up a copy of my book, “The Tax Lady’s Guide to Beating the IRS and Saving Big Bucks on Your Taxes.”

Roni Deutch on Fox Business, Money For Breakfast

Early this morning I made an appearance on Fox Business News’ “Money For Breakfast”, talking about tax scams, and how you can avoid them. Check out the embedded video below!

4,000 Protest Taxes & Spending at Michigan Capitol

From The Associated Press:

About 4,000 people protested government bailouts and tax increases outside the Michigan Capitol.

The featured speaker at Wednesday afternoon's protest was Samuel "Joe the Plumber" Wurzelbacher, who made news during the presidential campaign when he asked Barack Obama about taxes.

Wurzelbacher urged activists to push for "commonsense" tax and spending policies.

The "tea party" was one of many being held around the country on the last day to file federal income tax returns.

Activists say government is borrowing too much money to bail out corporations. More people showed up than expected by anti-tax groups organizing the event.

The Capitol's director of facility operations made his crowd estimate by measuring how far the crowd extended out from the Capitol steps.

Still No Verdict in Castroneves Tax Case

From USA Today.com:

Miami jurors got new instructions today as they deliberate the tax evasion case of Brazilian race car driver Helio Castroneves and two co-defendants.

U.S. District Judge Donald Graham on Wednesday provided new definitions for some complex areas of tax law. Jurors have issued three notes asking questions over four days of deliberations.

The two-time Indianapolis 500 winner, his sister-business manager Katiucia Castroneves and attorney Alan Miller face more than six years in prison if convicted of tax evasion and conspiracy charges. Prosecutors say they set up a Panamanian shell company to hide Castroneves' income. Defense attorneys say they are innocent.

The 33-year-old Castroneves also won TV's "Dancing With The Stars" competition in 2007.

Obama Highlights Tax Breaks

From The WashingtonPost.com:

President Obama marked Tax Day 2009 with a White House event aimed at highlighting the tax breaks included in the stimulus bill and countering conservatives who launched nationwide tea parties to complain about taxes and rising government spending.

While a few hundred protestors dumped tea bags in Lafayette Square outside the White House, Obama presented nine taxpayers he said were better off financially because of his efforts.

"We have passed a broad and sweeping tax cut for 95 percent of American workers," Obama told reporters in the Old Executive Office building. "This tax cut was a core focus of my campaign, it was a core component of the American Recovery and Reinvestment Act, and it is the most progressive tax cut in American history. And starting April 1st,
Americans saw this tax cut in the extra money that they took home with each paycheck."

In documents released to reporters, Obama touted 10 tax cuts that Americans are receiving as part of the government's overall effort to spur growth and consumer spending. Chief among those, he said, is a tax credit appearing now in people's pay checks and a first-time homebuyers tax credit.

He called the pay check tax cut "the most progressive tax cut in American history" and said it would help create a half-million jobs.

"For too long, we've seen taxes used as a wedge to scare people into supporting policies that increased the burden on working people instead of helping them live their dreams," he said. "That has to change."

The message from conservatives was very different, attacking Obama and Democrats in Congress for spending too much and failing to cut the tax burdens enough for most people.

A 2009 Tax-Time Interview with Roni Deutch

I recently did an interview with The Agony Column’s Rick Kleffel, and provided tax tips for people who used to work in corporate jobs, and are now working as part-time artists and/or entrepreneurs. You can listen to the full MP3 here, or find the author’s summary below:

As an interviewer, I try to avoid agendas when getting ready to speak with an interviewee. If someone wants to know in advance what questions I'm going to ask, I'll inform them that they'll hear them when I speak them in the interview. I research the work, write up the questions and present them on the spot. But for Roni Deutch, I took a different approach.

It's tax time and I didn't want to have an interview that was as long as the tax law books and just as boring and unfocused. I told Roni that when we spoke, I'd be asking her about a very specific situation — I wanted tax information for those of us who had heretofore worked in pretty much simple, corporate jobs but had ended up working as part-time artists and entrepreneurs. It's pretty much a shock to go from handing over a couple of W-2s — or entering them into some horrific tax program — to keeping track of expenses, knowing what you can deduct and even just preparing to collect all the crap you need to present to person qualified to complete the paperwork for you. Deutch nails every bit of advice you need in about 20 hard-driving minutes, which you can hear via this linked MP3 file.

The Income Tax System is Broken

From CBSNews.com:

On April 15, don't be surprised if the line at your local post office is a bit shorter than usual. That's because your neighbors may not be paying any income taxes this year.

An astonishing 43.4 percent of Americans now pay zero or negative federal income taxes. The number of single or jointly filing "taxpayers" - the word must be applied sparingly - who pay no taxes or receive government handouts has reached 65.6 million, out of a total of 151 million.

Those numbers come from an analysis published yesterday by the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution. Neither is a low-tax or conservative advocacy group; the Urban Institute was created under the Johnson administration during the Great Society era, and it receives most of its funding from the federal government.

"You've got a larger and larger share of people paying less and less for the services provided by the federal government," says Roberton Williams, a senior fellow at the Tax Policy Center. "The concern is that the majority can say, 'Let's have more benefits, spend more,' if they're not paying for it. It's 'free.' That's not a good thing to have."

By historic standards, today's situation is an aberration. Between 1950 and 1990, the number of owe-no-money federal tax returns averaged 21 percent, dipping to 18 percent in 1986, according to Tax Foundation data. In the 1990s, the owe-no-money percentage hovered around 25 percent of taxpayers.

But then politicians began another round of tinkering with the tax code, adding reams of new pages to an already incomprehensible set of rules that even the guy overseeing the IRS can't seem to figure out.

Democrats wanted to lower taxes on the least affluent, while Republicans wanted to lower taxes on everyone. The result was bipartisan enthusiasm for tax credits aimed at everything from children (1997) and college students (1997) to hybrid cars (2005) and homebuyers (2009). Many of these credits dole out cash to people even if they report no income, making them mere government handouts.

Roni Deutch’s Law Firm Identifies Overlooked Forms of Taxable Income

My law firm’s blog, the Tax Relief Blog, the Official Blog of Roni Lynn Deutch, A Professional Tax Corporation, recently put together a list of commonly overlooked forms of taxable income. These are sources of income that we find taxpayers repeatedly fail to claim when filing their tax returns. This results in audits and back tax liabilities. Below, please find a sample from the entry, otherwise click the link above to read the entire entry:

1. Social Security Income

Social Security benefits may be non-taxable, or partially taxable. It depends on your total income from other sources. If your sole source of income during the tax year was Social Security, your benefits are probably not taxable. But, if you have other forms of income, including tax-exempt income, it could make your Social Security benefits taxable. If you add half the amount of your Social Security Benefits to all other forms of income, and the total exceeds a “base” amount, then a portion of your benefits will be taxable. In 2008, the base amount is $25,000 if single, married filing single, or head of household, and $32,000 if married filing jointly.

2. Unemployment Compensation

People are always surprised that unemployment compensation is taxable income. This includes any amounts you received under federal or state unemployment compensation laws, state unemployment insurance paid by a state (or District of Columbia) from the Federal Unemployment Trust Fund. If you received unemployment compensation during the year, you should receive IRS Form 1099-G, showing the amount you were paid, and if any taxes were already withheld. If your unemployment benefit payments were made from a private, non-union fund to which you voluntarily contribute are only taxable if you received more money than you put into the fund.

Please note that as a result of passing the American Recovery and Reinvestment Act (ARRA), starting in 2009, the first $2,400 earned in unemployment compensation is excludable as taxable income.

3. Gambling Winnings

Gambling winnings are fully taxable and must be reported on your tax return. Gambling winnings include any winnings from lotteries, raffles, horse races, or casinos. Both cash winnings and the fair market value of prizes such as cars and trips are counted as taxable income. If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must also include it in your income. A payer (such as the casino or track, etc.) is required to issue you an IRS Form W-2G if you receive certain gambling winnings or if your gambling winnings are subject to Federal income tax withholding. All gambling winnings must be reported no matter if any portion is subject to withholding or not.

Please note that you may deduct gambling losses only if you itemize deductions. You may claim your gambling losses as a miscellaneous deduction, however, the amount of losses you deduct may not be more than the amount of gambling income you have reported on your return.

Navigating a Tax Return Minefield

Earlier today NYTimes.com posted a helpful article for anyone trying to beat the tax deadline and get his or her returns in on time. The reporter spoke with Taxpayer Advocate Nina E. Olson on how to avoid making a costly mistake in the mad rush. I’ve included a portion of the article below but you can read the full text at The Urge to Fudge on Form 1040.

With just a few more days to file your tax returns, you may be tempted — especially in this down economy — to shave a little income, maybe, or add a little more to your deductions.

After all, what are the odds of being audited? (For the record: Only about 1.4 million of the 135 million returns filed each year are audited and of those, only about 310,000 taxpayers are forced to look an I.R.S. agent in the eye and explain their numbers.)

You couldn’t help thinking of this when one after another of President Obama’s nominees was caught underpaying taxes after the nominee’s returns underwent a heavy-duty scrubbing. Most people don’t have to worry about paying taxes on free limousines and chauffeurs — as in the case of Tom Daschle, the former South Dakota senator who was Mr. Obama’s first choice as health and human services secretary. But many of us could easily be unable to come up with a receipt for a charitable donation, which is what tripped up Mr. Daschle’s replacement, Kathleen Sebelius. And how many people think it’s easier to simply pay the baby sitter in cash and, by coincidence, avoid the nanny tax?

All this raises the question: If most Americans’ tax returns were subject to the same scrutiny as those inside the Beltway, would we find that many of us pay less than we really owe? Or would we find that a lot of returns are, at the very least, riddled with errors?

As it turns out, the most recent Internal Revenue Service statistics estimate that about 86 percent of taxes owed are collected. And of the approximately $290 billion that goes uncollected by the I.R.S., a big piece can be attributed to inadvertent mistakes, given the complexity of the tax code. But when presented with the opportunity, a large swath of people still seem to forget to report a chunk of their undocumented income.

Not surprisingly, the I.R.S. has studied the issue. And what it found was that the biggest portion of uncollected tax revenue was from people who run cash-intensive businesses and don’t have receipts for all their earnings. Wage earners, whose employers report every last penny, don’t have much wiggle room. As a result, only 1 percent of income from wages, salaries and tips is estimated to be underreported, compared with 57 percent of income from businesses like plumbers or other sole proprietors, according to a 2006 report conducted by the IRS’s National Research Program.

Another report on the subject found that those who earn $500,000 to $1 million have the highest rate of misreported income. These people often have income from investments and other sources that are hard to track.

“They make a risk calculation,” said Nina E. Olson, the national taxpayer advocate, whose office helps taxpayers resolve their problems with the I.R.S. “If the risk of me being discovered is low, the penalty is modest and the benefit is great, then I am willing to accept that risk.”

But, she added, that logic cannot alone explain the fact that an overwhelming majority pay their fair share given the IRS’s limited resources. When asked, of course, the vast majority of Americans claim to be a righteous bunch: 89 percent said it was unacceptable to cheat on their income taxes, according to the I.R.S. Oversight Board’s 2008 Taxpayer Attitude Survey. And 81 percent of those polled said their personal integrity had a “great deal of influence” on whether they’re truthful about their taxes.

But, as Ms. Olson explained, there’s only so much more reporting that can be reasonably done. Busy families can’t be expected to file a 1099 every time they pay the landscaper, for instance, or the party caterer.

What might work, Ms. Olson said, is appealing to people’s consciences, or really examining why we pay taxes and what society receives in return.

The government tried this tack during World War II, when it co-opted Donald Duck for the job. In an animated short produced by Walt Disney, a radio announcer reminds a tax-averse Donald that it’s his patriotic duty to pay taxes. Donald, who in 1941 earned $2,501 (the equivalent of $36,101 in today’s dollars), is persuaded after being told he needs to pay “taxes to beat the Axis!”

But civic duty may be a harder sell today, especially when average taxpayers are constantly bombarded with news of new bailouts, corporate tax breaks, loopholes and offshore hiding spots exploited by wealthier Americans.

Would A Payroll Tax Holiday Boost The Economy?

From MSNBC.com:

As the April 15 tax deadline approaches, two freshmen House members are offering a new version of a hardy tax code perennial: a six-month “holiday” from payroll taxes that they say would benefit both small businesses and the working poor.

Under the bill offered by Rep. Aaron Schock, R-Ill., and Rep. Walt Minnick, D-Idaho, employers and employees of businesses with 50 or fewer workers would pay no Social Security and Medicare taxes for six months. Currently, both employers and employees are required to pay the 6.2 percent Social Security tax and the 1.45 percent Medicare tax throughout the year.

According to the congressional Joint Committee on Taxation, payroll taxes are a bigger burden than income taxes for more than four out of five tax filers.

Lower-income workers would especially stand to benefit from a suspension of the taxes: according to the Joint Committee on Taxation, more than 60 million tax filers with incomes under $40,000 had tax returns in which their payroll taxes were greater than their income taxes.

A way to help low-income workers?

And according to the Tax Foundation, a nonpartisan think tank, more than 45 million tax filers had no income tax liability at all. A payroll tax cut is one of the few ways to reduce such workers’ federal taxes.

The tax holiday proposal would affect about 5 million firms and 34 million workers, according to Bill Rys, the tax counsel for the National Federation of Independent Business, which is backing the idea.

(The federation also backed Schock in his House race last year with a contribution of $2,000 of the total of $2.6 million which Schock raised.)

The payroll tax hiatus has been proposed in past recessions. Joel Slemrod, the director of the Office of Tax Policy Research at the University of Michigan Business School, says in his book "Taxing Ourselves" that “some Democrats responded to Republican income tax proposals in 2001 and 2003 by advocating temporary cuts in the Social Security payroll tax instead” as a way to help low-income people.

Among those supporting the idea of temporarily suspending the payroll tax in 2003: then-presidential hopeful Sen. John Kerry, D-Mass., and Sen. Mary Landrieu, D-La.

The Schock-Minnick bill would require small-business owners to invest the savings from the payroll tax holiday in hiring new workers or buying machinery or other investments to make their firms more productive.

Report: Ohio Tax Climate In Top 10 For Small Biz

Ohio has become one of the top 10 best places to run a small business in the US, claims the Dayton Business Journal. You can find a snippet of their post below, but the full article can be read here.

Ohio has climbed into the top 10 of an annual ranking of states with tax climates a business advocacy group considers friendly to small companies and entrepreneurs.

The Small Business and Entrepreneurship Council in its Business Tax Index 2009 ranked the state 10th based on 16 various tax measures combined into a single score. Those measures include a state’s top personal income tax rate and capital gains tax rate along with its sales, unemployment, gasoline and property taxes.

Ohio was ranked 14th on the council’s list a year ago.

Topping the list this year was South Dakota, followed by Nevada, Wyoming, Washington and Texas. The study considered the District of Columbia’s tax climate the unfriendliest to small business. It was followed by New Jersey, Minnesota, Maine, California and New York state.

Ohio fared best in the report’s look at states’ top corporate capital gains tax rates and corporate income tax rates, ranking sixth in both measures. A breakdown of states’ gasoline taxes was the state’s worst showing, Ohio ranking in the bottom 20 for its levy of 28 cents a gallon.

More Americans Wary Of Tax Man This Year

From Reuters.com:

As a deep recession strips Americans of their jobs, homes and investments, the 2009 U.S. tax season promises to see a large uptick in first-time delinquent income taxpayers.

"Our calls are up 280 percent," said Richard Boggs, founder and chief executive of Los Angeles-based Nationwide Tax Relief, a firm that helps delinquent taxpayers resolve tax issues.

"We've seen a huge rise in what we call the rookie delinquent taxpayer," he said. "They are incredibly scared, and they have no idea what's going to happen to them because, God bless them, they've never owed before."

As the weak economy puts job security and a steady flow of income on a slippery slope, many are wary of the U.S. tax man, tax consultants say.

With household balance sheets under pressure, more U.S. households are having trouble keeping up with their day-to-day bills and struggling to pay their taxes.

"Folks are not paying their taxes because they are spending it on necessary living expenses," said Kristin Lavieri, an accountant with Weinstein & Anastasio, PC in Hamden, Connecticut.

She added that more of the self-employed, who are required to pay taxes each quarter, are likely to end up with back taxes. "When there is not enough money for general operating expenses, there most definitely isn't going to be enough for quarterly estimates," Lavieri said.

Among those not self-employed, many also have to make tough decisions that could carry long-term financial consequences.

Many withdrew funds from 401k and IRA retirement savings accounts before the permitted time, unaware of the punitive taxes and penalties this would generate, said Larry Walker Jr., president of the financial and tax services firm 4-Serenity Inc in Snellville, Georgia.

Withdrawals from a retirement account before reaching the age of 59.5 are considered taxable income and generally incur an additional tax of 10 percent of the amount.

Other taxpayers did not have enough tax withheld from paychecks. As a result, they now owe taxes or will not receive the amount of refund they usually do, Walker said.

Making the Most of Your Taxes for the Growing Legions of Unemployed – Part 2

As a follow up to the entry I posted yesterday, here are some ways to make the most of your taxes if you are one of the millions currently struggling with unemployment.

First of all, you can probably expect a larger refund. Taxes are withheld from wage earners based on the assumption of continued employment and continued income throughout the year. Abruptly losing your source of income means you probably had taxes overwithheld from your previous pay, expecting you would end up in a higher tax bracket. When you file, you will correct that assumption and enjoy a little extra money coming your way in the form of a refund.

If you received public assistance, like food stamps or WIC, or if someone gave you money to help you out, those forms of income are not taxable. You can receive up to $13,000 a year in gifts from a single source, tax-free. Unfortunately, gifts to an individual cannot be deducted by the giver as a charitable contribution.

Many unemployed people do some freelance work to gain some income. While this means you have to pay self-employment taxes on that income (including Medicare and Social Security taxes), it also means you might be able to deduct expenses for the business. So, be sure you keep good records (and receipts!) and deduct everything to which you are entitled. You can also take advantage of the home office deduction, which is available for both owners and renters, so long as there is a dedicated space used regularly and exclusively for business, and it is the principal place of your business. This could include deducting mortgage interest, insurance, utilities, repairs and depreciation.

Since your income was cut-off, your are probably going to have a lower adjusted gross income (AGI) than in years past. Thus, you may be able to deduct medical expenses, student loan interest, and other miscellaneous deductions that you may have been ineligible to claim in the past. For example, you can usually only deduct medical expenses that exceed 7.5% of your AGI, making many employed people and those with employer provided health care ineligible. However, with a lower AGI, more of these expenses will become deductible. Also, remember that if you are paying COBRA fees to keep your medical insurance, you can deduct those fees as part of the medical deduction.

You may be able to undo your IRA contributions from earlier in the year. This means you can withdraw the amount you put in, including interest and dividends without tax hits. The only trick here is that you can not then also claim a deduction for those contributions, and you must still include any income you earned from the contribution.

This could be the perfect opportunity to dump some loser stocks and use capital losses to your advantage. Generally capital losses locked in by selling stocks are used to negate capital gains. However, if you have no capital gains, or have more losses than gains, you can use up to $3,000 of that loss to negate ordinary income. You can also carry the remainder of the loss forward into future years until you deplete the entire loss. And of course, one of the best parts is that by selling the stocks, you get an instant cash infusion.

Many tax professionals are offering free or low cost tax preparation for people who are having hardships or unemployed. Check around and find out if there are any reputable tax-preparers doing so in your local area. And the IRS is also offering free electronic tax filing and preparation for taxpayers with an adjusted gross income under $56,000 through the Free File program. Prefer in person help? The IRS offers Low Income Taxpayer Clinics. These clinics are run through independent organizations providing low-income taxpayers with representation in federal tax controversies with th4e IRS for free, or for a nominal charge. The clinics also offer tax education and outreach for taxpayers when English is their second language. If those options don’t work for you, the IRS offers free tax preparation help nationwide form IRS trained volunteers. The Volunteer Income Tax Assistance program is designed to help low income taxpayers, and the Tax Counseling for the Elderly program is designed to assist taxpayers over 60 years old with their returns.

While it doesn’t help you this year, there will be a number of tax breaks and unemployment help available for 2009. From $2,400 tax free in unemployment compensation, increased unemployment benefits, and prolonged eligibility periods, the American Recovery and Reinvestment Act (AKA the Stimulus Package) may help ease the burdens of families struggling with unemployment. Small comfort for those who needed help last year, but hopefully some of the tips in this post can help you make the most of a bad situation.

Use Tax Time to Improve Your Financial Life

Earlier this morning I ran across this great article from TheChron.com discussing the ways you can use the time you spend on your taxes to improve your overall finances. You can find a snippet of the post below.

The day after Tax Day is one of relief for many last-minute filers. So I’m going to let you have your day of rest.

But the day after that is one all of us — early birds, deadline beaters and extension filers — need to designate as a new beginning.

April 17, Friday this year, is a good day to start re-energizing our financial lives.

“Tax time is a planning opportunity, not just a reporting opportunity,” said Brent Neiser, a certified financial planner and top executive with the National Endowment for Financial Education in Colorado.

Yes, the tax forms you’re filling out now — or trying to fill out or filed already — report your income, but they also give you much of the information you need to manage your money better.

Neiser’s organization is conducting a survey of tax-filers who use free tax help centers sponsored by the Internal Revenue Service to gauge taxpayers’ understanding of their own financial circumstances.

It’s a literal example of using tax time to improve personal finances that you can follow. Ask yourself:

• What is your family’s income?
• Where, what and how much do you owe?
• When are monthly bills due?
• What are your occasional big expenses?
• What are your fixed expenses?
• What are your controllable expenses?

Plug those answers into the money management worksheets at NEFE’s SmartAboutMoney.org under the resource library link to shape your spending plan and set financial goals.

Next, start researching new tax changes for 2009. The stimulus package has several new laws that will create certain tax benefits for many people. More are likely to follow these.

One in particular to note is the first-time home buyer tax credit.

Taxpayers who buy their first home between Jan.1 and Dec. 1, 2009, can claim a credit of $8,000 or 10 percent of the purchase price, whichever is smaller.

And unlike the version of this credit in place for 2008 home purchases, the credit does not have to be paid back as long as you live in the house for 36 months after the purchase date.

Another thing you should know is for purposes of the tax credit, a first-time home buyer is person or couple who has not owned all or a portion of a principal residence in the United States during the 36 months before purchasing the home for which the credit is claimed.

Lay 'Death Tax' Debate To Rest

From the LATimes.com:

Everybody's familiar with Ben Franklin’s old saw about nothing being certain but death and taxes. But how about the "death tax"?

That's the loaded term employed by opponents of the estate tax, which has been part of the federal tax code for more than 90 years and the subject of furious repeal campaigns for almost that long.

Thanks to lobbyists and legislators looking out for the welfare of the richest Americans, the tax currently hits fewer than 3 of every 1,000 estates every year and bristles with exemptions and deferments for the rest. Its contribution to the federal treasury is about 1% of all revenue.

Yet it consumes enormous mind share in Washington. This month, a new tax-cut proposal from Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) won Senate approval. The resolution would raise the exemption on taxable estates to $10 million from the current $7 million (after the death of both spouses). It also would cut the rate charged on the nonexempt portion to 35% from the current 45%.

The tax is currently set to fall to zero for 2010 and return with a $1-million exemption and a 55% rate in 2011; President Obama proposes merely making today's exemption and rates permanent.

Arguments against the estate tax rank as the most special of special pleading, considering that more than 99.7% of all estates already are exempt. Perhaps 3,000 Americans who died in 2007 left estates valued from $7 million to $10 million; Lincoln and Kyl would have extended the exemption to them. As for those left to carry the burden, the number of taxpayers who died in 2007 leaving estates worth more than $10 million was 1,700. Their average estate was $31.6 million. Lincoln, Kyl and their colleagues actually wasted time on the Senate floor to give people like this a new tax break.

But then Kyl represents a state with a lot of wealthy retired sinus patients and Lincoln a state brimming with billionaires coincidentally bearing the same last name as the founder of Wal-Mart.

Even financial planners for the affluent acknowledge that many taxpayers are excessively concerned about the estate tax.

"A lot of people afraid they are going to be hit by it are completely out of the system" because of the exemption, says Mary Ann Mancini, head of the private client group at law firm Bryan Cave in Washington. "It resonates with people more on an emotional basis than a logical one."

No kidding. On the website of the Policy and Taxation Group, an anti-estate tax outfit founded by an Orange County wealth manager, you can find comments from taxpayers like this: "If I died today, I'd pay about $200,000 in death tax."

Beware of IRS’ 2009 “Dirty Dozen” Tax Scams

In a recent press release, the IRS warns taxpayers of the 12 worst tax scams to avoid. You can a portion of the text below, but the full release can be read here.

The Internal Revenue Service today issued its 2009 “dirty dozen” list of tax scams, including schemes involving phishing, hiding income offshore and false claims for refunds.

“Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times,” IRS Commissioner Doug Shulman said. “There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:

Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to phishing@irs.gov. Further instructions are available at IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at IRS.gov.

Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. The IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a “strawman” bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their “strawman” account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Tax the Super-Rich More Than the Rich?

From the WallStreetJournal.com:

One of the most contentious elements of President Obama’s tax plan is his definition of “wealthy.”

His plan calls for raising the marginal tax rate to 39.6% from 36% on those earning $200,000 or more. The proposal has elicited howls from conservatives who argued that $200,000 doesn’t count as wealthy — especially in major cities like New York and Los Angeles. And they’ve got a point.

But the definitional issue became a crutch, used by a plethora of pundits and politicians to say we shouldn’t raise taxes on the wealthy at all, since defining wealthy is impossible. The fact is, the government needs money, and it has to come from somewhere.

And there may be a more elegant solution: creating new tax brackets to separate the super-rich from the merely affluent.

In an insightful column in the New York Times Magazine, David Leonhardt explains that while the top tax rate used to be much higher than today’s top rate, it only applied to the super-rich. In 1960, the top rate was 91%, but it applied to the those making $400,000 a year — equivalent to $3 million in today’s dollars when adjusted for inflation. A couple making $20,000 (or $140,000 in today’s dollars) would pay 38%.

Franklin D. Roosevelt’s brackets had been even more extreme. His top rate of 79% applied to those making $5 million a year, or about $75 million today. “As the economist Bruce Bartlett has noted, that 79 percent rate apparently applied to only one person in the entire country, John D. Rockefeller (above),” Mr. Leonhardt writes.

Today, by contrast, the very well off and the superwealthy are lumped together. The top bracket last year started at $357,700. Any income above that — whether it was the 400,000th dollar earned by a surgeon or the 40 millionth earned by a Wall Street titan — was taxed the same, at 35 percent. This change is especially striking, because there is so much more income at the top of the distribution now than there was in the past. Today a tax rate for the very top earners would apply to a far larger portion of the nation’s income than it would have years ago.

In other words, there should be a tax rate for Upper Richistan and one for Lower Richistan.

Of course, conservatives and some moderates argue that if we created a new bracket for the super-rich, they would simply move their money out of income and into lower-tax assets, like stocks or private businesses. So the net result would be less money for the government and less job creation and investment by the rich. (An op-ed by Mark Altieri in the Cleveland Plain Dealer over the weekend suggests that whenever Washington raises tax rates on the rich, revenues go down.)

Still, making a distinction between the haves and have-mores seems worth considering — if only for the entertainment of watching the pundits try to mount a populist defense against a tax on those making $3 million a year.

Making the Most of Your Taxes for the Growing Legions of Unemployed – Part 1

Millions of people are facing unemployment as a very real possibility. Sacramento’s unemployment rate recently grew to over 10%, with no signs of slowing. With so many people out of work and desperately trying to make ends meet, this is the perfect the time to figure out the impact unemployment has on your taxes.

State and federal unemployment compensation is taxable income. This comes as a surprise to many, but taxes are not always automatically withheld from funds received under state or federal unemployment compensations laws. If you received unemployment pay during the year, you should receive a 1099-G showing the amount you were paid, and if any taxes were withheld. (NOTE: if you receive unemployment compensation during 2009, the first $2,400 is tax free. Not much help when filing your 2008 taxes, of course but good news for next year.)

If you lost your job in 2008 and received a severance package, those funds are also subject to income tax. Any severance pay, including cashing out your accumulated vacation or sick pay, is considered ordinary income. Some larger severance packages can even bump you into a higher tax bracket!

Many people use their time unemployed to do some freelance work. This can be a great way to bring in some funds, however, anything earned is considered self-employment income. Which means you are responsible for not just income tax, but also self-employment tax (15.3% of your net profit, representing the Social Security and Medicare taxes owed from your business profit).

• If your freelance work earned you more than $400, you are required to file a tax return, including a Schedule C detailing income and expenses for the year.
• If you earned more than $600 on one project, expect to receive tax form 1099, and you must include that as taxable income. (If you did not earn over $600 on a project, you will not receive a 1099, but you still have to include any income on your tax return.)

If you withdrew funds from a qualified retirement plan or IRA to help make ends meet during your unemployment, then you must report it as taxable income, and large amounts might put you in a higher tax bracket. Withdrawing funds before you are eligible for retirement can really throw a wrench in you taxes, as it can be heavily penalized sometimes with an additional 10% tax on top of normal income tax rates.

However, if you withdrew funds to roll over into another qualified retirement account or IRA within 60 days, those funds are not taxable income.

As with every life changing event, there are tax implications to unemployment. The best way to ensure you are getting the most out of the situation—and not tripped up—is to get educated! By increasing your tax knowledge and remaining vigilant with your tax planning, you can save yourself a world of hassle and a lot of money.

Part 2 of this topic will be coming soon, discussing the ways you can make the most of your taxes when you are unemployed.

How Much Americans Actually Pay in Taxes

From the New York Times:

Much has been written about President Obama’s plans to change Americans’ tax rates (changes that include raising rates for the wealthiest Americans, and cutting rates for everyone else). But there is often confusion about the fact that the rates being discussed are the marginal tax rates — that is, the rates for income above a certain level.

Fortunately, the Congressional Budget Office recently released updated data on effective average federal tax rates — that is, the percentage of their entire incomes that Americans hand over to the federal government in the form of personal income, social insurance, corporate income and excise taxes. As this is effective tax data, it also takes into account the fact that many Americans use deductions that make their taxes lower than statutory rates would imply.

The main findings: The overall effective federal tax rate (the ratio of federal taxes to household income) was 20.7 percent in 2006, with the highest quintile of American households paying 25.8 percent of their income in federal taxes.

Because higher-income groups earn a disproportionate share of pretax income and because tax rates rise with income, higher-income groups also pay a disproportionate share of federal taxes. In 2006, the top quintile of households earned 55.7 percent of pretax income and paid 69.3 percent of federal taxes, while the top 1 percent of households earned 18.8 percent of income and paid 28.3 percent of taxes.

Effective tax rates haven’t changed much in the last few years, but they have bounced around some over the last three decades. The top 1 percent of American households have seen the most range.

The top 1 percent of American households have experienced the greatest growth in after-tax incomes, too.

If you’re interested in how these figures compare to what residents of other nations are experiencing, you can find some relevant (and updated!) data from the Organization for Economic Cooperation and Development here. The O.E.C.D. data on tax rates are measured slightly differently, though.

Several Tax Breaks Are Available For Tough Times

Freep.com recently posted an article discussing some tax breaks that are especially helpful during the economic downturn. You can find a snippet of the article below, but the full story can be read here.

If you lost a job or earned less money during the recession, you could be shocked to discover something that could generate a bigger income tax refund than you'd imagine.

Advertisement

States with high unemployment, including Michigan, are seeing more families with children who qualify for the Earned Income Tax Credit -- a refundable credit worth up to $4,824 in 2008 for some strapped families with two or more qualifying children.

"The earned income credit kicks in more readily than before for some of our clients because they're making less money," said Lew Elbert, a retired salaried employee from General Motors Corp. and an Accounting Aid Society volunteer.

Taxpayers could take advantage of several tax breaks to save money in rough economic times. The key thing, of course, is to file by Wednesday -- even if you do not have enough money to pay a bill.

Here's some tax help for cash-challenged taxpayers:

• Who gets the Earned Income Credit?

You may be able to take the Earned Income Tax Credit if you have more than one qualifying child and your earned income was less than $38,646 or less than $41,646 if married filing jointly.

The income limits drop if you have one qualifying child or no children. The maximum credit for workers with no kids is $438.

The credit can be complicated. You must have a valid Social Security number, among other rules, and earned income must come from employment or self-employment.

Low- to moderate-income Michigan residents now can get a new state Earned Income Tax Credit by filing a state return. The Michigan credit is 10% of the federal credit on the 2008 return.

• Who gets the Michigan Homestead Property Tax Credit?

If you've got a modest income and rent or own a home, you might qualify if all of this is true: The place where you have your permanent home is in Michigan. Vacation homes don't count. You were a resident of Michigan for at least 6 months during the year. You own or rent and resided in a Michigan homestead on which property taxes were levied. Your household income is less than or equal to $82,650.

Everyone won't get money; it will depend on how much you pay for your property taxes or rent in relation to your household income.

More States Look to Raise Taxes

From The Wall Street Journal:

A free fall in tax revenue is driving more state lawmakers to turn to broad-based tax increases in a bid to close widening budget gaps.

At least 10 states are considering some kind of major increase in sales or income taxes: Arizona, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Washington and Wisconsin. California and New York lawmakers already have agreed on multibillion-dollar tax increases that went into effect earlier this year.

Fiscal experts say more states are likely to try to raise tax revenue in coming months, especially once they tally the latest shortfalls from April 15 income-tax filings, often the biggest single source of funds for the 43 states that levy them.

The squeeze is especially severe in states hit hardest by the recession, such as Arizona, where sales-tax revenue has fallen by 10.5%, income-tax collections are down 15.7% this fiscal year, and the government faces a $3.4 billion budget gap next year. But such shortfalls are likely to be widespread; federal income-tax receipts from individuals have dropped more than 15% in the past six months, according to Congressional Budget Office estimates.

While most states so far have managed to cope with dwindling cash by cutting spending and raising fees on things such as fishing licenses and car registrations, that is unlikely to be enough in the new fiscal years that generally begin July 1, many analysts said.

"Income taxes and sales taxes are the go-to taxes when you really need to raise a lot of money," said Donald J. Boyd, who monitors states' fiscal health for the Rockefeller Institute of Government in Albany, N.Y.

Sales-tax revenue has fallen more sharply than at any time in the past 50 years, Mr. Boyd said, and he expects income-tax collections to drop below levels state officials projected -- though the extent of the damage probably won't become clear until May.

Raising taxes is a perilous proposition for lawmakers, who must balance their states' budgets every year. Not only do they face political heat for increasing financial burdens during the recession, but added taxes risk worsening their states' economic problems by, for example, further hobbling consumer spending.

Pentagon Preps For Economic Warfare

As the US economy continues to suffer, the Pentagon is beginning to give more attention to the possibility of economic warfare. Just the other day some of America’s smartest financial scholars and executives got together to discuss the idea, and potential warriors. Check out the following article about the meeting, courtesy of Politico.

The Pentagon sponsors a war game that examines how hostile nations might seek to cripple the U.S. economy.

The Pentagon sponsored a first-of-its-kind war game last month focused not on bullets and bombs — but on how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis.

The two-day event near Ft. Meade, Maryland, had all the earmarks of a regular war game. Participants sat along a V-shaped set of desks beneath an enormous wall of video monitors displaying economic data, according to the accounts of three participants.

“It felt a little bit like Dr. Strangelove,” one person who was at the previously undisclosed exercise told POLITICO.

But instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS – all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world’s leading economies.

Their efforts were carefully observed and recorded by uniformed military officers and members of the U.S. intelligence community.

In the end, there was sobering news for the United States – the savviest economic warrior proved to be China, a growing economic power that strengthened its position the most over the course of the war-game.

The United States remained the world’s largest economy but significantly degraded its standing in a series of financial skirmishes with Russia, participants said.

The war game demonstrated that in post-Sept. 11 world, the Pentagon is thinking about a wide range of threats to America’s position in the world, including some that could come far from the battlefield.

And it’s hardly science fiction. China recently shook the value of the dollar in global currency markets merely by questioning whether the recession put China’s $1 trillion in U.S. government bond holdings at risk – forcing President Barack Obama to issue a hasty defense of the dollar.

“This was an example of the changing nature of conflict,” said Paul Bracken, a professor and expert in private equity at the Yale School of Management who attended the sessions. “The purpose of the game is not really to predict the future, but to discover the issues you need to be thinking about.”

Wells Fargo Projects Record $3 Billion 1Q Profit

From Yahoo Finance:

Wells Fargo & Co. said Thursday it expects record first-quarter earnings of $3 billion, easily surpassing analysts' estimates and providing an encouraging sign for the banking industry.

Wells Fargo is the first major bank to give an indication of how the first-quarter looked. Several pessimistic forecasts about potential loan losses have jolted the market in recent days, and investors have been anxious as Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. all report next week.

Wells Fargo's stock surged $2.71, or 18.2 percent, to $17.60 in midday trading. Broader markets also rose on the Wells Fargo report, with the Dow Jones industrial average gaining more than 159 points to 7,996.

San Francisco-based Wells Fargo, which has received $25 billion in funds as part of the government's bank bailout plan, anticipates earnings after preferred dividends of about 55 cents per share. Revenue for the period ended March 31 is expected to climb 16 percent to $20 billion.

Analysts polled by Thomson Reuters forecast profit of 23 cents per share on revenue of $19 billion. Analysts' estimates typically exclude one-time items.

Wells Fargo earned $2 billion during the first quarter last year.

The bank's chief financial officer, however, did caution that the economy hasn't necessarily recovered yet.

"It's premature to conclude the economy has turned," said Howard Atkins, Wells Fargo's CFO. "All I can tell you is we're seeing a lot of business."

Revenue at Wells Fargo, which has been one of the strongest banks during the ongoing credit crisis and recession, was bolstered by strong mortgage banking and capital markets business, Atkins told The Associated Press. During the first quarter, Wells Fargo received about $190 billion in mortgage applications, a 64 percent jump from the previous quarter. More than 40 percent of that volume came in March.

Most of that business was refinance applications, but about 25 percent came from customers looking to purchase homes, Atkins said, noting the recent quarter's mortgage activity has been among the strongest quarters since the housing market began to collapse in 2007.

The government has been implementing many new programs in an effort to cut interest rates, hoping to bolster the beleaguered housing market, and those programs have definitely helped, Atkins said.

"For sure the reduction in interest rates is having an impact on the wave of activity in the mortgage market," Atkins said.

The company also credited its Wachovia acquisition, which was completed Jan. 1, for helping boost revenue. Atkins said Wachovia accounted for about 40 percent of revenue during the first quarter, and that business at Wachovia has steadily improved since Wells Fargo announced it would acquire the Charlotte, N.C.-based bank last fall.

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Want to leave the office earlier? Stop multitasking your e-mail.

Bailout companies and IRS audits.

Brokerage Roth IRA's are where it's at baby!

IRS Urges Taxpayers To e-file Extension Requests by April 15 Filing Deadline

The IRS recently posted a new press release, urging taxpayers to file extensions before the filing deadline.

Taxpayers who need more time to complete their returns should submit their requests for an automatic extension electronically by April 15, the Internal Revenue Service urged today.

This year, anyone, regardless of income, can e-file their extensions at no cost from a home computer using IRS traditional FreeFile or FreeFile Fillable Forms. E-filing a request for an extension using either form of FreeFile is convenient, safe and secure, and taxpayers receive confirmation to keep with their records.

The IRS expects to receive 1.9 million extension requests electronically this year. A total of almost 10 million extension requests are expected during 2009 compared with 9.5 million extensions received during 2008.

The extension gives taxpayers until Oct. 15 to file the tax return. An extension does not give the taxpayer an extension of time to pay. Those who owe taxes can make a payment when they file the extension either by mailing a check or by several electronic payment methods, such as electronic funds withdrawals from bank accounts and credit card payments.

Taxpayers can get an automatic six-month extension of time to file their tax returns by filing Form 4868, Automatic Extension of Time to File.

Taxpayers can e-file the extension from a home computer or through a tax professional who uses e-file.

California's Anti-Tax Crusaders Talk Revolt

From Reuters.com:

Taking inspiration from a landmark 1970s tax revolt, a determined group of activists say the moment is right for another voter uprising in California, where recession-battered residents have been hit with the highest income and sales tax rates in the nation.

And like Proposition 13, the 1978 ballot measure that transformed the state's political landscape and ignited tax-reform movements nationwide, they see the next backlash coming not from either major political party, but from the people.

If the anti-tax crusaders can galvanize voter discontent, they hope to roll back the latest tax hikes, impose permanent, iron-clad spending caps on Sacramento lawmakers and make the issue central in the 2010 gubernatorial election.

"There's a lot of latent anger boiling to the surface out there," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, a group named after the California anti-tax crusader who spearheaded Prop 13.

An angry mob of thousands converged on an Orange County parking lot in southern California on a recent Saturday morning for an anti-tax protest, stunning even the organizers with the size of the turnout. It was just one in a series of public demonstrations that have cropped up around the state.

Talk of a brewing tax revolt has been largely ignored by the mainstream media, and many political analysts are skeptical, though they concede that the taxpayer mutiny that led to the landmark Prop 13 was similarly dismissed by political professionals.

That referendum passed in a landslide despite furious opposition from the political establishment -- and highlighted the possibilities for grassroots campaigners to enact measures with ballot initiatives and bypass the legislature.

Spring Time Marketing Tips for Small Business Owners

WatchMeFranchise.com, a blog sponsored by the Roni Deutch Tax Center®, recently posted an article with 8 spring time marketing tips for small business owners. I have included a portion of the entry below but you can read the full text here.

1. New services or products

In spirit of the new season, you should consider offering new services or products. Springtime brings the message of new opportunities and fresh starts, especially in a time of economic trouble. Customers tend to be much more willing to try out new things, and as a business owner you want to make sure to keep your services fresh and new.

2. Lighten your ads

Putting together advertisements relevant to the season and time can generate a lot of new customers. Write springtime related phrases, using keywords like “fresh start” and “spring cleaning” to get the attention of readers.

3. Springtime colors

Adding some colorful and inviting springtime decorations will help make your store feel like it fits in with the season. You could also consider putting some flowers and decorations outside of your store to attract more attention from by passers.

4. Easter Bunny photos

Just like with Santa’s during the winter season, you could consider having one of your staff members dress up like an Easter Bunny to take pictures with children. You could even schedule a special day to have the event and include it in your marketing materials.

IRS: Credit, Debit Fees On Tax Payments Are Deductible

From the WallStreetJournal:

Taxpayers who used a credit or debit card to pay taxes last year may be eligible for an additional deduction on their 2008 return, the IRS announced Tuesday.

In a reversal of a previous position, the IRS said fees that credit or debit card processors charge on electronic income tax payments would be deductible as a miscellaneous expense, for those who itemize deductions.

The fees vary, but average 2.5% of the tax payment, the IRS said in a news release. Those fees are charged directly by the card payment processor to the taxpayer, because federal law bars the IRS from paying fees associated with the transactions.

Not everyone who pays taxes using a credit card or debit card will benefit.

First, only those who itemize may benefit from the deduction. Second, the value of miscellaneous deductions, including the credit card fees and other items such as unreimbursed employee expenses and tax preparation fees, are deductible only to the extent they exceed 2% of adjusted gross income.

Other examples of miscellaneous deductions that count toward the 2% AGI threshold include union dues, safe deposit box fees and legal fees.

"By itself, the credit-and-debit fees deduction alone won't be enough to get anyone past the 2% threshold," said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants. "But for someone who has other miscellaneous deductions, it could be a nice benefit."

Taxpayers who use a credit or debit card this year to pay taxes must wait to deduct the fees on their 2009 income tax return, due April 15, 2010. Those who used a payment card to pay taxes last year have until next Wednesday, April 15, to determine whether they are eligible for an additional deduction.

Most individuals pay their taxes by check. More than 4 million taxpayers paid taxes electronically, the IRS said. That figure includes not only those who paid by credit or debit card, but also those who paid by direct debit from their bank account, which is not generally subject to a fee.

IRS Circling, UBS Bans Travel for Some Advisors

UBS employees with clients under fire overseas will have to stay put for a while, because they have been ordered not to travel until the investigation is done. Check out the following story on the new development courtesy of RegisteredRep.com.

The United States’ ongoing hunt for tax cheats will be putting a crimp in some clients’ quarterly portfolio reviews. UBS financial advisors who have clients outside of the country where they do business have been instructed to stay put by the firm.

According to a firm spokesman, the travel ban took effect April 1st for all “client-facing staff” and will remain in effect until “a comprehensive review of the policy and compliance framework for its international wealth management offering” is complete. The firm is “conducting the review given the international scope and complex regulatory environment of UBS’ international wealth management business,” according to the statement.

No doubt, the IRS’ ongoing civil complaint against the firm inspired the ban. The IRS filed a civil action against the firm on February 19th, one day after UBS settled with the SEC and the Department of Justice resolving criminal and regulatory investigations of the firm’s cross-border business. As part of that settlement, UBS paid a $780 million fine and agreed to hand over the names of nearly 300 clients. But the IRS wants more. It is seeking the names of 52,000 American UBS clients—names that the firm contends are protected by Swiss privacy laws.

According to the WSJ, Steven M. Rubinstein, an accountant in Boca Raton, Fla., is the first among the names handed over to the IRA to be formally charged. He was charged last week with filing a false income-tax return and detained pending a bond hearing.

Adjust Withholding On W-4 To Keep Tax Credit On Track

From USAToday.com:

Your next paycheck will probably be a little fatter than usual, but it's not because your boss thinks you're swell. Instead, the increase reflects the Making Work Pay credit, part of the economic stimulus package enacted this year.

Most taxpayers will receive a credit of about $400, or $800 for married couples. Unlike last year, you won't receive a check in the mail. Instead, the credit will be spread out over the year. Most taxpayers will receive an extra $10 a week.

That's not exactly a windfall, but a little something extra in your paycheck sure can't hurt, right? Well, actually, it could. Some taxpayers could end up with a smaller-than-average tax refund next year or — horrors — discover they owe the IRS money. You can avoid problems down the road by adjusting the withholding allowances on your W-4. Consider reviewing the number of allowances you claim if:

•You're a dual-income couple. The IRS withholding tables are designed to provide a maximum tax credit of about $400 for single taxpayers, and about $600 if you are married and file jointly, says Bob Trinz, senior tax analyst for Thomson Reuters. That could cause some working couples to receive a larger combined credit than allowed by law.

For example, suppose you earn $75,000 a year, as does your spouse. Both of you claim two withholding allowances. You'll each get a $614 credit, for a combined credit of $1,228, according to Thomson Reuters. However, the maximum credit a married couple is eligible to claim is $800. Unless one or both of you increase the amount of taxes withheld from your paychecks, you could end up owing the IRS money when you file your taxes next year, Trinz says.

Conversely, Trinz says, if only one spouse works, the couple could end up with a smaller credit than they're entitled to. Here's an example, from Thomson Reuters: A married man earns $100,000 a year and claims four withholding allowances. His wife is a homemaker. He'll receive a credit of $614, even though the couple are entitled to an $800 credit. This couple can claim the balance of the credit when they file their taxes, or they can get the money sooner by reducing their withholding.

•You have more than one job. If you're working two jobs, both of your employers will adjust your take-home pay to reflect the new credit. The combined credit from both jobs could exceed the maximum $400 credit for individual taxpayers, says Michael O'Toole, director of government relations for the American Payroll Association.

San Francisco Residents Top List Of Tax Procrastinators

A new study has found that San Francisco residents top the newest tax procrastination list, according to the Wall Street Journal. You can find a snippet of the article below, but the full story can be found here.

The City by the Bay is No. 1 on TurboTax's eighth annual list of Top 10 procrastinating cities, based on how many people used TurboTax's online service to file on the last two days of the filing season in April 2008.

Houston, which has been the No. 1 city three times - more than any other locale - came in at second place, while New York, which has been on the Top 10 list all eight years, came in at third.

Chicago, No. 1 last year, was in fourth place this year, followed by San Diego. Phoenix, Seattle, Los Angeles, Dallas and Las Vegas rounded out the list.

You're not alone

Still not done with your taxes? You're not alone. While almost 78 million U.S. taxpayers filed returns to the IRS through March 20, that still leaves at least another 46 million taxpayers to file in the four weeks from March 20 through April 17 - about 11.5 million taxpayers per week - based on 2007 IRS filing statistics.

The 2008 filing season was an anomaly because people who don't usually file did so to claim that year's stimulus payment. Last year, 137 million returns were filed by April 19, 2008, up from 124 million the year before.

Don't rush

At this point, people are likelier to rush. If that describes you, slow down -- and don't assume your return this year will be similar to last year's.

"With more people having reduced income, they may find that the deductions and credits with income phase outs that made them ineligible in the past, are available to them this year," said Bob Scharin, senior tax analyst with Thomson Reuters' tax and accounting business.

Tax breaks with income phase outs include the child tax credit, education credits and tuition deduction, and deductible IRA contributions. If your income has decreased over the year, check whether you're now eligible for those and other breaks.

"People who had a large drop in income should also look to see if they're entitled to a medical expense deduction this year," Scharin said. To take the deduction, your medical expenses must exceed 7.5% of adjusted gross income. A combination of lower income plus potentially higher health costs - such as paying for Cobra or individual health insurance - could mean you're now eligible.

US, Switzerland To Begin Tax Treaty Negotiations

From The Associated Press:

The Treasury Department this month will begin revising a tax treaty with Switzerland, which has pledged to increase transparency and help crack down on tax evaders with money in Swiss banks.

The Swiss government opened the door for the talks last month after agreeing to cooperate with international tax investigations of wealthy foreigners accused of hiding billions of dollars in banks there. The move broke with a long-standing tradition of strict Swiss protections for individuals who use its banking system.

"We welcome moves by Switzerland to implement international standards by agreeing to revise the U.S.-Switzerland tax treaty," Treasury Secretary Timothy Geithner said Monday. "I look forward to swift conclusion of an agreement ... and I will continue to demand transparency from countries on behalf of American taxpayers."

The Treasury Department said negotiations between the two nations will begin April 28 in Berne, Switzerland.

The talks come as the Obama administration wants Swiss bank UBS AG to turn over information on thousands of U.S. customers who concealed their accounts from the government in violation of tax laws. UBS has formally accepted responsibility for helping Americans hide assets and agreed to pay $780 million in fines and restitution.

U.S. authorities in January charged Raoul Weil — a senior executive with UBS — with conspiring to hide $20 billion in assets from the IRS using secret overseas accounts. And a former UBS banker, Bradley Birkenfeld, pleaded guilty last year to fraud conspiracy charges in Fort Lauderdale, Fla. He has been cooperating extensively with U.S. investigators and has not yet been sentenced.

Swiss banks hold an estimated $2 trillion of foreign money, and financial services account for about 12 percent of the nation's economy. According to the Boston Consulting Group, those holdings amount to one-fourth of the world's foreign-owned assets.

The recent policy shift by the Swiss government allows it to demand bank account holders' identities in cases of suspected wrongdoing and share that information with foreign authorities.

World leaders meeting in London last week pledged to crack down on tax haven countries by imposing sanctions on the worst offenders, such as withholding financing from the International Monetary Fund or World Bank.

Tax Tips for Job Hunters

More and more people are losing their jobs in this country every day. As such there are thousands of normally employed Americans out looking for a new job. Luckily, there are numerous tax breaks and deductions available to help those in this particular position. To assist the readers of my blog that are actively looking for new employment, I have compiled the following list of tax tips for job hunters.

Keep Organized

While being out of a job and collecting unemployment can be disorienting, it is a good idea to remain vigilant with your organization and recordkeeping. You do not want to lose track of your financial documents and tax records. The costs of job hunting can be used to your advantage come tax season, so keep all receipts and documents related to your search for a new job.

Travel Costs

Travel expenses spent while traveling to an interview for a prospective employer can be written off. Although only 50% of your meal expense can be written off, airfare, hotels, and other, related travel expenses can be deducted in full.

Advertising Expenses

If you decide to post an ad for yourself on a job board, make sure you keep the receipt!

The IRS will allow you to deduct any costs of advertising your services if made while unemployed. This includes online ads, periodical and newspaper fees, and other ads.

Career Counseling

If you seek the advice of a career counselor while unemployed, those costs can also be deducted. Just be sure to keep all receipts, as well as a business card of the counselor you spoke with.

Legal Fees

If offered a position that requires an employment contract, then you might consider having a legal professional look it over. Not only are the legal fees tax deductible, the review may save you from getting into a contact that you do not understand.

Résumé Prep

Getting a job without even a minimal résumé these days can be tough. Fortunately, the costs to create, prepare, and send out your résumé are all eligible unemployment deductions. This includes stamps, envelopes, résumé programs, and mailing costs.

Employment Agency

Many unemployed taxpayers are choosing to get some help from an employment agent. If you do enlist the help of an employment agency to land the right job, you can probably write off any related fees.

Moving Costs Paid

If you need to re-locate for a new position, those costs may also be deductible. However, there are strict distance minimums and dozens of other qualifications. If you are going to deduct moving expenses then I highly recommend you check with a tax specialist before making any decisions.

Still See a Pro

Even though you are currently unemployed, and possibly a little strapped for cash, it is still advised you seek professional help on your taxes. In many cases, a tax preparer can point out helpful credit and deductions you may have missed. They can also make sure that you qualify for all the deductions you do claim. Finally, professional tax preparation services are also tax deductible.

UOP Forecast: Sacramento Unemployment To Hit 12%

My hometown of Sacramento is facing huge unemployment rates mostly due to a record drop in construction jobs. The Sacramento Business Journal has put together an in-depth article examining the city’s unemployment problem. I have included a clip of their article below, but the full text can be found here.

Sacramento will lose 30,000 construction jobs by 2010, a 40 percent drop and the most of any Northern California metropolitan area, according to a forecast released Thursday by the Business Forecasting Center at the University of the Pacific.

The Sacramento area, currently burdened by a 10.8 percent unemployment rate, is projected to crest above 12 percent in early 2010, far beyond any previously recorded rates.

“Sacramento has disproven the notion that state capitols are recession resistant,” said the center’s director, Jeff Michael.

Unemployment is forecast to peak at 11.5 percent in San Jose, 11.3 percent in the East Bay, and 9 percent in San Francisco.

“Population shifted to the Bay, and the recession followed,” Michael said.

Unemployment in the San Joaquin Valley is forecast to peak around 18 percent, levels last seen in the early 1990s.

Housed in the Eberhardt School of Business, the center produces quarterly economic forecasts of the United States, California and 11 metropolitan areas from Sacramento to Fresno and the San Francisco Bay Area.

Tax Tips: Married to Your Business Partner?

From The Wall Street Journal.com:

Some husband/wife teams commit to more than just loving each other forever. They also choose to become business partners — taking the whole "for richer or poorer" thing to a whole new level. Luckily, a little tax savvy could definitely help tip that scale toward "richer."

But before I titillate you with the gritty details, let me say upfront that this tip only applies to couples living in the nine community property states (Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington or Wisconsin), who run their small business as a husband-wife partnership. If that's the case, then you've probably been filing Form 1065 (U.S. Return of Partnership Income) with the IRS each year to report your business income and expenses. These business tax items are then split between you and your spouse and shown on separate Schedules K-1 from the partnership (one for you and one for your spouse). Eventually, all the numbers from both of your Schedules K-1s are recombined and included on your joint Form 1040. (Anyone who's done this previously will tell you it's about as much fun as a root canal.)

But here's the good news: The IRS says you can treat your husband-wife business as a sole proprietorship for federal-tax-filing purposes. This is thanks to little-known IRS Revenue Procedure 2002-69. The upshot is you can choose to report all your business income and expenses on simple-and-easy sole proprietorship Schedule C (Profit or Loss From Business) which you then include with your Form 1040. Then you can (mercifully) forget about that ultracomplicated Form 1065 and those nightmarish Schedules K-1.

And wait — there's more! Treating your husband-wife business as a sole proprietorship instead of a partnership could potentially save you thousands in self-employment (SE) taxes every year. Here's why.

With a husband-wife partnership, both you and your spouse must each file separate Schedules SE for your respective shares of partnership income. Then you must each pay 15.3% SE tax on the first $102,000 of your share of 2008 partnership SE income. If your share of SE income exceeds $102,000, the SE tax rate drops to 2.9%. So if you have a profitable husband-wife partnership, both you and your spouse can each get hit with the maximum 15.3% SE tax rate on up to $102,000 of SE income (total of $204,000). Remember: This is on top of your federal and state income taxes. Ouch.

In contrast, if you treat your husband-wife business as a sole proprietorship, you only have to file one Schedule SE — for the spouse considered to be the proprietor — with your joint return. That means no more than $102,000 of SE income gets hit with the maximum 15.3% rate (any remaining SE income gets taxed at the much-easier-to-swallow rate of only 2.9%).

So which would you prefer: up to $204,000 taxed at 15.3% or no more than $102,000 taxed at 15.3%? Assuming you prefer the latter, simply treat your husband-wife business as a sole proprietorship instead of a partnership — starting with your 2008 return. Do this by filing Schedule C with your 2008 Form 1040 and by ceasing to file a separate partnership tax return on Form 1065. This simple drill could save you thousands in SE tax for 2008 and similar amounts each year in the future.

One In 10 Americans Gets Help To Buy Food

A tough realization of our Country’s financial stability has set in, as new studies that find one in 10 Americans gets help to purchase food. Below is a snippet from a Reuters.com article on the shocking new discovery.

A record 32.2 million people -- one in every 10 Americans -- received food stamps at the latest count, the government said on Thursday, a reflection of the recession now in its 16th month.

Food stamps, the major U.S. anti-hunger program, help poor people buy groceries. The average benefit was $112.82 per person in January.

The January figure marks the third time in five months that enrollment set a record.

"A weakened economy means that many more individuals are turning to SNAP/Food Stamps," said the Food Research and Action Center, an anti-hunger group, using the acronym for the renamed food stamp program, the Supplemental Nutrition Assistance Program.

The U.S. unemployment rate was 8.1 percent in February, the highest in 25 years. New claims for jobless benefits totaled 669,000 last week, the highest in 26 years, the government said on Thursday.

Food stamp enrollment rose in 46 of the 50 states during January as the national total rose by 580,000 people, or 1.3 percent, from December, when the previous record was set, said Agriculture Department figures.

Vermont, Alaska and South Dakota had increases of more than 5 percent. Texas had the largest enrollment, 2.984 million, down 65,000, followed by California at 2.545 million, up 43,000, and New York with 2.211 million, up 37,000.

"It is a very difficult time for low-income families and individuals and also a difficult time for the groups that serve them," said Valentine Breitbarth of Bread for the City, a group that works with poor families in Washington.

Fundline: Tax-Free Bonds Out-Yield Taxable Bonds

From USAToday.com:

In the normal course of events, tax-free municipal bonds usually yield less than taxable bonds. But the financial world is turned upside down, and non-taxable bonds now offer tastier yields.

All bonds are interest-paying IOUs, and the amount of interest they pay depends, in large part, on their creditworthiness. An issuer teetering on the edge of bankruptcy will pay far more interest than the U.S. Treasury, which can raise taxes or even print money in a pinch.

Cities, states, towns and other municipal entities issue bonds to pay for schools, roads and other projects. The interest these bonds pay is exempt from federal tax — and state tax, too, for bondholders who live in the issuing state.

Because munis have a big tax advantage, they almost always yield less than taxable bonds, such as Treasury securities. Someone in the 33% tax bracket, for example, would have to earn 3.8% in a taxable bond to get the same after-tax return as a 2.6% tax-free bond. (If you want to calculate a muni bond's taxable-equivalent yield, www.investinginbonds.com has a calculator.)

But the global financial crisis has sent investors scrambling into ultrasafe Treasury securities, pushing yields down. A 10-year T-note, for example, yielded just 2.90% Friday. A 10-year, highly rated municipal bond yielded 3.44%.

Why? Big investors haven't scrambled to munis, in part because most institutional investors don't give a hoot about taxes. Munis aren't backed by the full faith and credit of the U.S. Treasury, meaning there's a chance a muni bond could default.

But states and towns can raise taxes to meet debts, and muni bond defaults are extremely rare. If you're looking for high yields and low taxes, munis look like one of the best deals out there.

How The Tax Burden Has Changed Since 1960

From MSNBC.com:

We have a new president, with a restless and far-reaching agenda — but how will the nation pay for that agenda?

For John F. Kennedy, elected in 1960, it was taxes and borrowing. For President Barack Obama, to whom JFK is often compared, the answer’s the same: taxes and borrowing.

But with the April 15 filing deadline looming, it’s worth noting that the tax system over which Obama presides isn’t the one workers knew two generations ago when Kennedy was entering the White House.

If you’re 70 today, you may have just retired, but do you recall that when you started working in 1960, making a beginner's wage, you paid only about $70 in payroll taxes? And that was for whole year, not for one week or one month.

The biggest tax change since 1960 is the growth in Social Security and Medicare taxes, also known as payroll taxes.

You may not think about them as you prepare your income tax returns, but for most taxpayers, payroll taxes are a bigger burden than income taxes. According a report issued last week by the congressional Joint Committee on Taxation, for more than four out of five tax filers, employment taxes are a bigger burden than income taxes.

Growing importance of payroll taxes

And payroll taxes have become a larger source of revenue for the federal government than they were in 1960. Back then, they accounted for 16 cents of every dollar of federal tax revenues. Last year they accounted for about 35 cents of every revenue dollar.

Why? The Social Security tax rate today is more than twice as high as it was in 1960 and the amount of income subject to the tax is far bigger.

In 1960, only the first $4,800 of income was taxed — and at a rate of just three percent. This year the Social Security tax rate is more than twice as high, 6.2 percent, and the first $106,800 of earned income is taxed. (The amount subject to taxation goes up every year, using a formula based on increases in average wages.)

Can You Believe...? Tax Information for Business

A new article from Reuters.com broke down some of the most interesting tax facts for business owners. You can find a portion of the text below, but the full article can be read here.

The IRS may recognize your business as one entity for tax purposes but your home state or a state that you are doing business in may not. As a result the protections that you think you have (e.g., personal liability protection) may not be in place in the event you are sued.

Some states require partnership registration fees that may go as high as $120,000.

Owners, members, officers, and partners who are protected against "personal liability" for the entity obligations may still be held personally liable for obligations that result from their failure to conform to tax rules and regulations.

Failure to comply with the tax laws in the states where you do business may subject your business to paying full taxes in your home state and additional taxes in the states where you do business.

There is a way for a business in economic trouble to avoid paying IRS penalties for delinquent taxes if the business can prove that it made the IRS its top priority by expending only absolutely necessary funds to complete work that would generate the income to make federal tax payments.

You may have to pay the entire tax debt or obligation of your business even though you have partners, fellow members, or other associates who were incompetent or dishonest and created the situation that caused the obligation.

2 Ex-KPMG Managers Sentenced Over Tax Shelters

From The New York Times:

Two former managers at KPMG were sentenced on Wednesday after being convicted by a federal jury last December on several counts of tax evasion using illegal tax shelters.

John Larson, a former senior tax manager, was sentenced to more than 10 years and ordered to pay a fine of $6 million by Judge Lewis A. Kaplan in United States District Court in Manhattan.

Robert Pfaff, a former tax partner at KPMG, was sentenced to more than eight years and fined $3 million.

A third person convicted in the case, Raymond J. Ruble, a former partner at the law firm Sidley Austin, was sentenced to six years and six months.

Upon handing down the sentence, Judge Kaplan called the men’s behavior “extremely offensive” and said their fraudulent tax shelter scheme, which focused on clients who earned more than $20 million a year, was “a brazen act.”

“These defendants knew they were on the wrong side of the line,” he said, adding later they had cooked up “this mass-produced scheme to cheat the government out of taxes for the purposes of enriching themselves.” The losses through the scheme were estimated at more than $100 million.

Mr. Larson, 57, and Mr. Pfaff, 58, were immediately remanded into custody but might later be granted bail pending an appeal of their convictions. Mr. Ruble was granted bail pending his appeal.

After a two-month trial, Mr. Larson and Mr. Pfaff were convicted on 12 counts of tax evasion and Mr. Ruble on 10 counts of tax evasion. The jury acquitted David Greenberg, a former KPMG tax partner.

The case was called the largest criminal tax prosecution when the charges were filed in 2005, but it became much smaller after Judge Kaplan dismissed charges against 13 former KPMG executives, ruling that the government had interfered with their right to counsel.

Mr. Larson’s lawyer, Steven Bauer, said his client had been singled out by overzealous prosecutors looking for a scapegoat. “He was not trying to pull the wool over anyone’s eyes,” he said.

None of the men admitted responsibility.

At the trial, the government argued that from 1996 to 2005 the defendants put together tax shelters known as FLIP, OPIS, BLIPS and SOS that were intended to generate phony tax losses. But defense lawyers argued that their clients acted with good faith in their dealings.

KPMG was not a defendant. It agreed in 2005 to pay $456 million to settle a federal investigation.

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Tax Advantages to Having Kids?

Apparently, the IRS wants you to have kids, and they have several ways to offset the cost of raising them.

The Child Tax Credit applies to qualifying children age 17 and under. This credit can be applied so long as your total tax due is more than the credit, and you meet certain income requirements (Modified Adjusted Gross Income under $110,000 for married filing jointly, $75,000 for single, and $55,000 for married filing separately). This credit can be up to $1,000 per qualifying child.

Taxpayers who do not meet those two criteria can still claim part of the credit and may be able to claim the Additional Child Tax Credit. See IRS Publication 972 to determine your total Child Tax Credit.

Additionally, if you have children under the age of 13 and you pay for childcare so you and your spouse can work, you may qualify for the Child and Dependent Care Tax Credit. This allows you to credit up to 35% of qualifying expenses.

Even better, these are not exclusive credits. If you have children who meet all qualifications, you can claim each of these credits, though certain other credits may reduce the amount you claim (such as the First Time Home Buyer Credit). As with all tax-related information, you should take the time to do the math for yourself, or ask a tax specialist.

Not that these tax credits should spur you to have a child. But, since the projected cost of raising a child to the age of 18 (not including college tuition!) is just shy of $200,000, parents need all the help they can get.

IRS Testing Fast Track Mediation

Remember the idea of a “kinder, gentler Internal Revenue Service?” You are probably rolling your eyes at the thought, right?

But it seems the IRS is trying to find ways of working with taxpayers, rather than fighting them. The IRS has been testing Fast Track Mediation in eight areas in the country. These mediations are designed to help resolve tax disputes quickly and with less paper flying.

Tax issues for which you may request mediation include:

• Examinations/audits
• Offers in Compromise
• Trust fund recovery penalties
• Collection actions

Taxpayers do not have to file written protests to request fast track mediation. If you disagree with the IRS’s findings or determinations on your tax account, ask for a mediation session. In order to expedite, make sure your tax filings are current, and you have provided necessary documentation to the IRS Compliance office.

On the appointed day and time, the IRS representative and you will meet with the mediator. Who is this mediator? Well, usually an IRS Appeals Officer who has been trained in mediation. This does beg the question, how impartial can mediators be when their paychecks come from one of the parties they are mediating?

The mediator’s job is to facilitate communication, guiding everyone to a mutually beneficial resolution. Like any dealings with the IRS a tax attorney or CPA with a Form 2848 Power of Attorney and Declarations of Representative on file is allowed to represent your interests. And since the mediator and the IRS representative know the laws, it would be a good idea to have someone familiar with taxation law on your side as well.

While mediation can not solve all tax problems, this is an interesting program the IRS is testing, and I’ll be interested to see how useful it is.

10 Professional Athletes that had IRS Tax Problems

As we all have heard, President Obama’s recent nominations have had to answer for some past tax transgressions while under consideration by the U.S. Senate. However, politicians are not the only ones with tax problems. Dozens of athletes and celebrities often feel they are above the law, and do not pay proper taxes on their fortunes. In honor of angry, taxpaying sports fans everywhere, I have put together the following list of 10 professional athletes that had IRS tax problems.

1. Darryl Strawberry

Dodgers star, Darryl Strawberry first got in to trouble with the IRS in 1994 when he was put under investigation for tax fraud. The IRS tacked him with tax evasion, and he had to pay back $350,000 in back taxes, serve 3 years of probation, six years of home confinement, and complete 100 hours of community service.

2. Lawrence Taylor

Former Giants linebacker, Lawrence Taylor filed an incorrect federal income tax return back in 1990. Taylor pleaded guilty to the tax charges in 1997, and was punished with three months house arrest, five years probation and 500 hours of community service for income tax evasion.

3. Pete Rose

Baseball favorite, Pete Rose, also got in to some trouble with the government in 1990, when he filed a false income tax return. Despite his celebrity status, Rose was sentenced to five months in a correctional facility, three months in a community treatment center, 1,000 hours of community service and a $50,000 fine.

4. Helio Castroneves

The recent controversy around Indy 500 racer Helio Castroneves and his supposed $5 million tax debt has shed light on the tax problems sports stars can get in to. He is currently being tried for evading taxes on a licensing deal that he claims to never have received a dime from. Only time will tell whether the Indy 500 and dancing with the stars celebrity actually committed the tax crime.

5. Willie McCovey

Hall of Famer Willie McCovey, like many other athletes who ran in to tax trouble, did so by forgetting to claim cash made during autograph signing. While McCovey pleaded guilty to the crime, he also claimed to have committed it unknowingly, since he had a professional handle his accounting. He was sentenced to two years of probation and fined $5,000.

6. O.J. Simpson

Although infamous for more than his athletic abilities, O.J. Simpson upset the IRS enough to be put on the California tax shame list. His tax debt was over $1.5 million, and he stayed on the list for more than a year.

7. Jesse Owens

The late 1930’s Olympic winner Jesse Owens got himself into trouble with the IRS. After the Olympics, Owens tried multiple business ventures in the United States to profit off his newly found fame. However, one of his ventures lost Owens a fortune and rendered him unable to pay his full tax liability. As a result, Owens was forced to declare bankruptcy.

8. Boris Becker

Famed tennis player and bad boy, Boris Becker, ran right in to tax trouble when it was discovered his apartment was not his priority residence, as previously claimed. As a result, he was given two years probation, fined $500,000, and ordered to pay expensive court fees.

9. Joe Louis

The infamous boxer Joe Louis was not much of a troublemaker before the taxman got to him. In fact, he donated money to the government after the attacks on Pearl Harbor, and even provided entertainment and uniforms to thousands of army troops. However, as tax rates increased Louis began to unknowingly accumulate back tax liabilities. Although he came out of retirement to help pay off his tax debts by fighting again, he died before he was able to fully repay the IRS.

10. Barry Bonds

AAmongst allegations of steroid use, Barry Bonds was also said to have evaded $80,000 in taxes. As of 2009, Bonds is still fighting both cases.

New Tax Breaks to Be Aware Of

From The Wall Street Journal:

The millions of procrastinators now scrambling to finish their tax returns may want to watch out for a few new twists -- and several old ones.

Unless they're careful, they could wind up paying Uncle Sam more than they really owe. Even when Congress tries to offer Americans tax relief, the result is often so complex that it requires the assistance of high-priced experts trained in the translation of tax-law gibberish.

Among the major changes: The Internal Revenue Service recently issued guidance that is likely to provide relief for many Ponzi-scheme victims, including those hurt by Bernard Madoff, who pled guilty last month to criminal charges in connection with a decades-long scheme. The IRS's conclusions are "very taxpayer-friendly," for those who qualify, says David F. Earley, senior tax manager at Deloitte Tax LLP in Boston. But victims may have to consult tax experts to reap the benefits.

Separately, investors who sold the stock of insurance companies that once were owned by policyholders may be able to save on taxes, thanks to a court decision last year.

Taxpayers this year should also be aware of older laws that may have new relevance. For example, many people looking for work can deduct job-search expenses, whether or not they find a job.

Here are a few recent changes and other last-minute advice from accountants and other tax advisers:

Ponzi schemes. IRS Commissioner Doug Shulman said the Madoff scandal has affected "a very large and diverse pool" of investors. "Beyond the toll in human suffering -- as entire life savings and retirements appear to have been wiped out -- the Madoff case raises numerous tax and pension implications for the victims," he told senators recently.

The IRS defines a Ponzi scheme as one in which a fraudster gets cash or property from investors, purports to earn income for them and then reports income amounts that are "wholly or partly fictitious." Payments, if any, of the purported income or principal to investors come from cash or property from other investors. And the perpetrator of the fraud "criminally appropriates some or all of the investors' cash or property."

Much to the relief of many victims, the IRS concluded that investors typically are entitled to a "theft" loss -- and that "investment" theft losses aren't subject to the stiff limits that apply to personal casualty or theft losses. (With personal theft losses, your deduction for 2008 typically would be limited to the extent the losses exceeded 10% of adjusted gross income, after reducing each loss by $100.)

The IRS also said the theft loss is deductible in the year the fraud is discovered, except to the extent there is a claim with a "reasonable prospect of recovery." The amount of the theft loss "includes the investor's unrecovered investment, including income as reported in past years."

Obama's Poor Tax

A journalist from The Wall Street Journal posted his opinion on Obama’s recent decision to raise the tobacco tax levy, and how it will negatively affect the country. You can find a snippet of the story below, but the full text can be found here.

"I can make a firm pledge . . . no family making less than $250,000 a year will see any form of tax increase." Remember that? It was Barack Obama, campaigning to become president last Sept. 12 in Dover, N.H.

Indeed, he promised repeatedly that 95% of American families would get a tax cut. So it's especially fitting that he chose April Fools Day to implement his first tax increase -- which will fall mostly on individuals and families who do not make anywhere near $250,000 per year.

Early in February, the president signed a law to triple the federal excise tax on cigarettes -- which will jump from 39 cents per pack to $1.01 today. His administration projects this tax hike will bring in at least $38 billion over the next five years.

If you don't smoke, maybe you don't care. Maybe you even think a higher "sin tax" is a good thing. But health issues aren't the only concern here. There are also questions of fairness, federalism, macroeconomic impact, and crime.

The fairness issue is particularly troubling. According to the Centers for Disease Control and Prevention, only one in five Americans smokes, so the excise targets a minority -- and over half of all smokers are low income, and one of four are officially classified as poor.

Mr. Obama prefers to tout his tax cuts for low-income households. But his "stimulative" Make Work Pay tax cut gets dribbled out at $8-$10 a week. A pack-a-day smoker will pay half of that back in higher cigarette taxes. Smokers getting welfare, unemployment or disability checks instead of paychecks won't get as much in tax cuts, but they will still pay the whole cigarette tax increase. Anyone concerned about widening income inequality should have second thoughts about this distribution of the tax burden.

We should also note how this tax increase affects state finances. State governments rely on their own cigarette excise taxes for hefty revenue streams. In 2008, according to the National Tax Foundation, state governments took in $15.4 billion in cigarette taxes. Hard-hit Michigan, Pennsylvania, and California each took in over $1 billion; New York and Texas took in $1.5 billion each.

California Needs To Refigure Its Taxes

From TheLATimes.com:

Perhaps you heard the dealership's radio spots over the weekend and into Monday: "Don't tell Arnold!" The point being that it was the last few days to buy a car (or anything else) in California before the state sales tax increase. Arnold Schwarzenegger, the no-new-taxes governor, is now maligned in popular culture as the tax collector in chief after he presided over the February deal that finally got California a budget and warded off default, for now, but raised taxes for the next two years at least.

Today, April 1 -- no fooling, unfortunately -- Californians will see a full-cent increase in the nation's highest sales tax rate, to 8.25%. But no one in Los Angeles County will pay that little. County add-ons already in effect mean that most buyers of clothes, books, electronics, automobiles and other hard goods, plus food served in restaurants, will now pay 9.25%. Add another half-cent in Avalon, Inglewood and El Monte, where voters tacked on local levies, and even more in Pico Rivera and South Gate for a stunning 10.25%. And that's just until July 1, when sales taxes rise yet another half-cent countywide to follow the voter dictate of November's Measure R tax for transportation.

Catch your breath and add it up. In July, Los Angeles County sales taxes will come in at 9.75%, and 10.25% and 10.75% in a handful of the county's smaller cities.

Vehicle license fees -- the "car tax" that swept Schwarzenegger into office in the anti-tax recall of Gov. Gray Davis -- will rise from 0.65% of the vehicle's purchase price (the value is adjusted downward annually when registration is renewed) to 1.15% beginning May 19. State personal income taxes rise this year as well.

If Schwarzenegger and state lawmakers had more breathing room, they most certainly would not have picked April Fool's Day to raise sales taxes and a special election day to raise the vehicle license fee. They would not have chosen income tax month to launch their campaign for the ballot measure to extend the sunset date for these new taxes by two years, and the other measures to move funds around and hold the state's finances together.

But that's just the point. They were out of breathing room. Faced with two choices -- damaging and disastrous -- they chose the merely damaging.

And there should be no misunderstanding: The higher taxes Californians begin paying today will be damaging. One in 10 Californians is out of work, thousands each week face foreclosure, and many of the rest are trying to cope with a faltering economy. As the federal government cuts taxes and doles out money to states, the benefit for most Californians is countered by the increasing difficulty of making daily purchases. The economic stimulus of federal dollars must combat the deadening grip of higher state taxes.

The state is in dire need of tax reform, but taxpayers should not be misled into thinking that the higher taxes they are now paying constitute reform. They are, instead, a response to an emergency. They don't answer the basic questions: Which Californians are paying too much? Which are paying too little? Which taxes raise the most revenue with the least effect on the economy?

These are among the questions to be answered by the Commission on the 21st Century Economy in its report due in two weeks, on tax day. California has had numerous blue-ribbon panels on tax reform in the past, but their unimplemented reports gather dust in archives. If the state is to avoid new rounds of self-defeating emergency taxes, leaders, policymakers and voters must take the issues addressed in the report seriously.

First $2,400 of Unemployment Benefits Tax Free for 2009

According to a recent IRS press release, “all or part of unemployment benefits received in 2009 will be tax free for many unemployed workers.”

“This morning we learned that a record 5.6 million people were receiving unemployment benefits in the middle of March. This underscores the need for the relief provided by the American Recovery and Reinvestment Act, which includes making the first $2,400 of unemployment insurance exempt from tax,” said IRS Commissioner Doug Shulman. “I urge all unemployed workers to take this special tax break into account as they plan their tax withholding and quarterly estimated tax payments for the year. This change offers a helping hand to millions of Americans who are out of work and struggling to make ends meet.”

Under the American Recovery and Reinvestment Act, enacted last month, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their tax return next year. For a married couple, the exclusion applies to each spouse, separately. Thus, if both spouses receive unemployment benefits during 2009, each may exclude from income the first $2,400 of benefits they receive.

The new law doesn’t affect the return taxpayers are filling out now. Unemployment benefits received in 2008 and prior years remain fully taxable.

Unemployed workers can choose to have income tax withheld from their unemployment benefit payments. Withholding on these payments is voluntary. However, choosing this option may help avoid a surprise year-end tax bill or a possible penalty for having paid too little tax during the year. Those who choose this option will have a flat 10 percent tax withheld from their benefits.

Unemployed workers who expect to receive more than $2,400 in benefits this year should consider having tax withheld from their benefit payments in excess of that amount. Those unemployed workers who have already chosen to have tax taken out of their benefits, should consider the $2,400 exclusion in determining whether to continue to have tax withheld.