Nearly every day, my law firm receives calls from people who are terrified of IRS collection activities, but don’t realize that their debt has expired. On the other hand, similar calls from people who thought their tax debt expired only to find that their wages are being garnished.
As you may know, the IRS has 10 years to collect on a taxpayer’s tax liability. The clock starts running from the date of assessment, which means the date the return was processed and an amount due was calculated for the tax return. Sounds easy enough, right? Well, like most things involving the IRS there are always exceptions. The IRS calls these exceptions “special circumstances.” And there are a few special circumstances that can extend the statute of limitations on a tax liability.
Bankruptcy which is either incomplete, or if the tax liability was not discharged. While your case is pending, the statute extends accordingly. If your bankruptcy agreement does not include your tax liability, those expiration dates keep getting pushed out.
Filing an Offer in Compromise. Yes, just the act of filing an OIC will extend a tax liability’s statute of limitations during the process. Of course, an accepted and completed OIC will resolve the debt.
Signing Form 900 Waiver, allowing the government additional time to collect. Why would anyone sign this document? Well, sometimes the IRS tells taxpayers they must sign it in order to enter into an installment agreement or other negotiations. Of course, they can not actually force you to sign the document, which is why asking for professional help in IRS negotiations can be beneficial.
Important to keep in mind, the statute of limitations begins running on the tax liability’s date of assessment. Which is when an IRS official actually signs off on your return. So, if you file your 2005 tax return in 2008, the liability won’t expire until 2018. This should be an enticement to file your returns on time, even if you can not pay your full liability. The earlier taxes are assessed, the sooner they will expire.
How do you find out when your debt will expire? You need to request a Record of Accounts from the IRS for each year you owe. Of course this will be a lot of paperwork, and it will be written in the classically difficult to understand IRS language. But the inconvenience can be worth if for taxpayers with particularly old debt. If you find you only have a few months left for the IRS to collect, you can simply ride it out and hope the IRS does not take any further action against you.
Sometimes an impending debt expiration can work in your favor, enticing the IRS to accept an Offer in Compromise. They would rather get some of their money than risk collecting nothing at all.
The IRS is not under any obligation to notify taxpayers that their debt is no longer collectible. So, many taxpayers live in fear of collection activity that will never come. Sounds pretty stressful. Sometimes, the IRS forgets to release a tax lien against your property, even after the debt expires, tarnishing a taxpayer’s credit. These are all reasons to get informed and be your own advocate. If you are not comfortable contacting the IRS, find a CPA or a tax attorney with experience in IRS negotiations and let them deal with all the bureaucracy.
Friday, May 29, 2009
Thursday, May 28, 2009
IRS Tax Revenue Falls Along With Taxpayers' Income
As I discussed on the FOX Business Network, the IRS recently saw it’s largest revenue drop in over 30 years. You can watch my appearance here, but USA Today also posted an interesting article on the same subject. You can find a snippet of their article below, or check out the full post here.
Federal tax revenue plunged $138 billion, or 34%, in April vs. a year ago — the biggest April drop since 1981, a study released Tuesday by the American Institute for Economic Research says.
When the economy slumps, so does tax revenue, and this recession has been no different, says Kerry Lynch, senior fellow at the AIER and author of the study. "It illustrates how severe the recession has been."
For example, 6 million people lost jobs in the 12 months ended in April — and that means far fewer dollars from income taxes. Income tax revenue dropped 44% from a year ago.
"These are staggering numbers," Lynch says.
Big revenue losses mean that the U.S. budget deficit may be larger than predicted this year and in future years
"It's one of the drivers of the ongoing expansion of the federal budget deficit," says John Lonski, chief economist for Moody's Investors Service. The Congressional Budget Office projects a $1.7 trillion budget deficit for fiscal year 2009.
The other deficit driver is government spending, which, the AIER's report says, is the main culprit for the federal budget deficit.
The White House thinks that tax revenue will increase in 2011, thanks in part to the stimulus package, says the report from AIER, an independent economic research institute. But it warns, "Even if that does happen, the administration also projects that government spending will be so much higher each year that large deficits will continue, and the national debt held by the public will double over the next 10 years."
What's Coming Up For Future 'Tea Party' Protests?
From the LA Times.com:
Last month's "tea party" protests have come and gone but are not forgotten. New protests are already brewing, some maybe this holiday weekend, others probably for July 4, with text messages and tweets flying back and forth.
The phenomenon in many ways is familiar in American political history -- a kind of eruption, an incoherent lashing out by people angry over taxes and spending and big government and bigger spending. And the uncertainty of their current lives.
Contrary to some cable news channels, we found "tea party" protesters often to be just as angry at Republicans in general and George W. Bush in particular as at the awe-inspiring size of the Obama Democratic administration's spending plans.
Historically, these protests have fizzled without some political personality to coalesce around -- a Gene McCarthy, a John Anderson, a George Wallace. A Ron Paul even.
Our Times colleague Richard Fausset spent a good deal of time recently with "tea party" participants. And we asked him to go through his notes and thoughts and share the experiences with us. Here's what he told us:
The people I talked with had a variety of targets. This doesn’t mean they went easy on Obama, however. One fake campaign sign showed a picture of the president and a certain hirsute German philosopher: It said: “Obama Marx ’08 – BFF.”
Another sign featured a picture of Obama in a Soviet officers’ uniform and the words: “JUST SAY NYET.”
“Hey, is that available as a T-shirt?” a guy asked the sign holder. “It will be soon,” came the reply.
It was somewhat surprising to hear from numerous folks that their beef wasn’t just with Obama’s economic policies. Time and again, people said they'd been just as upset with what they saw as profligate spending under Bush.
Tim Lee was typical. A councilman from suburban Atlanta's Cobb County. “The Republicans,” he said, “were doing just as bad for eight years.”
Lee’s home county, like many municipalities around the country, has been facing its own economic crisis, forced to cut millions from budgets to match anemic tax revenue. As for the national economy, he said the federal government should have “let it crash” instead of offering bailouts to troubled industries and a big stimulus package.
We would have picked ourselves up and moved on,” Lee added. “The pain would have been short-term. Now we’re taking the long- term pain of having to pay all that money back.”
John Pettit, a 48-year-old contractor, hoisted a sign that read “Chains – we can count on.” Pettit said the nation was “headed for bondage” with its reliance on government borrowing. Pettit’s concerns about government policy didn’t start with Obama or the current Congress, he said.
It went all the way back to the New Deal. Although he said the new guys were part of that long, sorry history by spending money that they simply didn’t have. “Hey," Pettit said, "good habits are learned in bad times. And bad habits are learned in good times. Right now, Congress isn’t learning.”
The rallies typically have a temporary stage, a parade of local officials speaking, radio DJs and minor celebrities rallying the crowd.
What emerges in thought later is the lack of a unifying figure around whom the "tea party" folks can rally.
It will be interesting to see if someone emerges as organizers roll out plans for the next round of protests. If it is to be effective in the long term, it seems the movement will need a decider: not just a public figurehead, but someone who can focus and modulate the multifarious blob of themes and emotions that seem to drive this fascinating middle-class revolt.
Mortgage Delinquencies, Foreclosures, Rates Increase
Last month the number of foreclosures increased in this country, despite efforts by the Federal government to help the industry. Check out the following article on the topic thanks to Bloomberg.com.
Mortgage delinquencies and foreclosures rose to records in the first quarter and home-loan rates jumped to the highest since March as the government’s effort to fix the housing slump lost momentum.
The U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent from 7.88 percent, the biggest-ever increase, and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said today. Both figures are the highest in records going back to 1972. Fixed rates rose to 4.91 percent, Freddie Mac said, and an increase in bond yields earlier this week shows rates may continue rising.
The three-year housing decline is proving resistant to efforts by the Federal Reserve and the Obama administration to keep homeowners current on mortgages by allowing them to refinance or sell to buyers enticed by affordable terms. Prime fixed-rate home loans to the most creditworthy borrowers accounted for the biggest share of new foreclosures at 29 percent, MBA said, a sign job losses are hurting homeowners.
“If people don’t have a paycheck they can’t support a mortgage,” Jay Brinkmann, the MBA’s chief economist, said in an interview. “The longer the recession lasts the more people run through their savings reserves, leading to higher delinquencies and higher foreclosures.”
Rates Rise
One in every eight Americans is now late on a payment or already in foreclosure as mounting job losses cause more homeowners to fall behind on loans, the MBA said.
The average rate for a 30-year loan jumped from 4.82 percent a week earlier, Freddie Mac, the McLean, Virginia-based mortgage buyer, said today in a statement. The rate was 5.1 percent at the beginning of the year.
New home sales fell 34 percent in April from the year earlier period, the Commerce Department said today. The unemployment rate increased to 8.1 percent in the first quarter, the highest since the end of 1983, according to the Bureau of Labor Statistics.
The inventory of new foreclosures and those already in the process of being foreclosed upon jumped to 3.85 percent, the MBA said. Half the loans now in foreclosure, adding the new and existing defaults, are held by prime borrowers, according to the trade group’s report. About 43 percent are subprime mortgages, and 7.1 percent are Federal Housing Administration loans. A year ago, subprime mortgages accounted for 54 percent of the U.S. foreclosure inventory. Prime fixed rate mortgages accounted for 19 percent of new foreclosures in the year earlier period.
Safest Mortgages
Prime adjustable-rate mortgages accounted for 24 percent of new foreclosures, up from 23 percent, Brinkmann said. The figures show that the mortgage crisis has shifted from subprime to borrowers holding the safest type of mortgages.
Subprime adjustable mortgages accounted for 27 percent of new foreclosure, falling from a share of 39 percent a year ago, Brinkmann said.
The Price of Recovery: Are You Inflation Ready?
From USAA.com:
In the first quarter of 2009, consumer prices, as measured by the Consumer Price Index, decreased by 2.4%. The Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, was down 1%. The most recent data shows there is no evidence of inflation in the U.S. economy.
The government is spending trillions of dollars using a broad swathe of initiatives to fight deflation, which is the opposite of inflation. And therein lies the rub. Should the government's efforts succeed, and there are some signs that they may, the huge new debt issuance that's supporting them could lead to a spike in inflation that we have not experienced since the 1970s.
The deftness and agility that will be required in the pivot from fighting deflation to fighting inflation is tremendous. In essence, the government has to provide enough monetary stimuli to get the economy firmly on the growth path, while standing ready to reverse course without stepping on the recovery. At USAA, our view is that the government will err on the side of letting inflation run a while, rather than risk a double-dip recession.
In response, we are acting now to build additional inflation-protection tools into our asset allocation products. In doing so, we are being driven by the following principles:
While inflation is not likely in the next few months, it is the likeliest outcome over the mid- to long-term.
U.S. Treasury-backed securities without inflation protection are probably in a bubble, and will suffer price declines amid all of the new issuance when the Treasury and the Fed take their foot off the monetary gas.
There are certain asset classes that should perform better than others in an inflationary environment, and it will be important as asset allocators to have the ability to shift assets to these vehicles across our product lines as the deflation/inflation pivot occurs.
USAA: Building an Intelligent Inflation-Fighting Toolbox
As always, we study what's happened in the past as a strong guide for how markets will behave in the future. Here's a rundown of how some important asset classes have performed.
Common stocks overall have had no correlation with inflation since 1926. We believe that our preference for active management would benefit given our sub-advisers' abilities to shift among sectors. For instance, exporters would benefit from the fall in the dollar that would accompany inflation, as would commodity-based companies in growth-driven markets.
Real estate has been positively correlated with inflation, as both rent and value tend to go up along with rising prices in other portions of the economy. The data on equity real estate investment trusts is less conclusive, and in fact these vehicles have been uncorrelated with inflation since 1972. We think recent changes in equity REIT structures should make them perform more like direct real estate in a coming inflationary period.
Gold is positively correlated with inflation, and also acts as a currency substitute that would rise in the face of a falling dollar.
Commodities have a relatively strong correlation to inflation, and are especially good for inflation caused by excessive demand, as opposed to inflation sparked just by increases in money supply. Commodities are also a powerful diversification tool, since they are negatively correlated with both stocks and bonds.
The Public Pension Bomb
States all over the country are running into problems with the retirement funds setup for their employees. CNNMoney.com recently posted an inn-depth article on how this problem is playing out now in New Jersey. You can find a segment of the story below, or read the full post here.
For years, states all across the country have been starving their retirement plans. Here's a look at how the crisis is playing out in New Jersey, where the bill is coming due, and the state doesn't have the money to pay it.
Even as the nation's economy is showing some tentative signs of bottoming out, another calamity looms: the public pension bomb.
For years, states nationwide have shortchanged the retirement programs that cover teachers, police, and other public employees; now the stock market plunge has wiped out billions of dollars from already underfunded plans. California, New York and Illinois are among the states scrambling to plug multibillion-dollar holes in their pension systems. The growing obligations raise the specter of higher taxes, diminished services, or even another round of costly federal bailouts.
"States have long needed to reduce their unfunded liabilities, and widespread investment losses have made it even more necessary to put money in," says Lance Weiss, author of a 2006 Deloitte study of state pensions. "But the market crash also means there's less money available to use for contributions. Everything is coming together to create a crisis."
To better understand this ticking time bomb it helps to focus on a single state, and New Jersey makes a compelling case study. For one thing, its situation is dire. In June 2008 the state estimated that the plan - one of the nation's largest, covering teachers, state employees, firefighters, and police - had $34 billion less than it needed to meet its obligations. Since then the market value of the plan has dropped from $82 billion to $56 billion (a new estimate of underfunding is due in July).
Also, New Jersey is in some ways ahead of the pack in trying to deal with the crisis - Gov. Jon Corzine, a Democrat, made addressing the problem a central theme of his 2005 campaign - and the obstacles it is encountering shed light on the hard choices facing other states.
"The pension obligations could spark a huge problem for New Jersey," says Thomas Kean, a former Republican governor. "They must be paid because they are absolutely an obligation of the state, but as it is, the budget is balanced with chewing gum and sealing wax."
To figure out how such a wealthy state (with a median household income of $65,933, New Jersey ranks No. 1) dug itself into this hole, set the clock back almost 20 years.
Millionaires Go Missing
From the Wall Street Journal.com:
Here's a two-minute drill in soak-the-rich economics:
Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were "willing and able to pay their fair share." The Baltimore Sun predicted the rich would "grin and bear it."
One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.
No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions. For evidence, consult California, New York and New Jersey (see here).
The Maryland state revenue office says it's "way too early" to tell how many millionaires moved out of the state when the tax rates rose. But no one disputes that some rich filers did leave. It's easier than the redistributionists think. Christopher Summers, president of the Maryland Public Policy Institute, notes: "Marylanders with high incomes typically own second homes in tax friendlier states like Florida, Delaware, South Carolina and Virginia. So it's easy for them to change their residency."
Wednesday, May 27, 2009
Tax Advice for New Car Buyers
With all of the talk about auto industry bailouts, and bankruptcies, most consumers have become quite weary of buying a new car. However, if you were holding out, now is just as good of time as ever to get that new vehicle. In fact, there are plenty of tax benefits to encourage you. To help the readers of my blog wanting to know more about these savings, I have put together the following list of tips for new car buyers.
Local Tax Deductions
One of the biggest incentives to buy a new vehicle is the federal tax law that allows you to deduct both local and state taxes paid. However, you must make the purchase between February 16 and December 31, 2009. Although the savings begin to phase out with more expensive car purchases, this deduction can easily save you thousands of dollars come April 2010. To qualify, single taxpayers need to have an adjusted gross income of less than $125,000, and for joint taxpayers, the cap is $250,000.
Plug-In Hybrids
If you are looking to get a new fuel-efficient vehicle, then you may want to consider waiting for one of the new plug-ins due to be out later this year. There are lots of advantages to buying plug-in hybrids, especially ones that can run entirely on their batter power without using any fuel. However, there are also specific tax benefits that have become law during the Obama administration. For the first 250,000 plug-ins sold, owners will receive a tax credit ranging between $2,500 and $7,500. After those first cars are sold, the credits will still be available but in reduced amounts.
Sales Tax & Registration
When buying a car for the first time, many buyers will make the mistake of assuming that the price tag on the car is the exact amount they are going to pay. This is untrue. Although the price listed on the vehicle will be your main expense, sales tax and registration can easily increase your total costs by a few thousand dollars. When you are estimating the type of car you can afford, be sure to add in your local sales tax and registration! That way you can avoid potential surprises when you go to sign the purchase documents.
Business Expenses
If you are going to be using the car you purchase for your business or primarily as a business vehicle, then you may be able to benefit from additional tax deductions for purchasing and maintaining the vehicle. However, be sure to check with an accountant or tax professional before taking any of these deductions, as the IRS can be very strict about vehicle related expenses.
Car Pooling
If you are planning to use your new vehicle to carpool to work, make sure to check with your employer to see if they offer any incentives for doing so. Even if your employer does not participate in a program, you could still consider forming a carpool with some of your coworkers. To learn more about how you can save money by sharing a ride, check out this article about carpooling on doityourself.com.
State and Local Incentives
If you have been eyeing a certain vehicle but are not sure it is in your budget, then make sure you to check your state and local tax laws. Although most federal hybrid credits began phasing-out already, there are still numerous states that are offering tax incentives to purchase a hybrid or eco-friendly vehicle.
The Myth of a Corporate Tax Exodus
From Reuters.com:
When the Obama administration unveiled its plan to crack down on corporations using tax havens to avoid paying their full share of tax, there was a corporate outcry, especially loud in the business media. Many trumpeted the view of Americans for Tax Reform, which predicted that making companies pay their taxes would cause U.S. companies to move abroad, taking their capital and jobs with them.
That's a scary proposition, even when we're not in a recession. It's also utter nonsense. The American economic right wing often seems like a parody of the vulgar Marxist view; instead of asserting that all human behavior is based on economic decisions, the right wing asserts that all decisions are based on taxes. In reality, there are dozens of reasons why companies locate where they do: sure, taxes are one, but so are quality of infrastructure (especially communications); access to a productive and stable workforce; and the desire of employees to relocate.
And thus, not surprisingly, as multinational corporations adjust to the likelihood that their fictional headquarters in places like the Cayman Islands may have to end, the movement that we're seeing is not an exodus from the United States. Rather, as today's Wall Street Journal reports, the movement is from truly law-evading locales like the Caymans to better regulated low-tax jurisdictions like Ireland and Switzerland. Accenture (ACN) has become the latest company to approve such a move, joining Tyco (TYC), Ingersoll Rand (IR) and a host of other companies who have the option to declare their headquarters in just about any country but want to remain legitimate.
Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look
For the first time in history, the United States Congress is rumored to be considering a value added tax (VAT), a sort of National sales tax. Check out the article below on the topic courtesy of the Washington Post.
With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.
Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.
At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.
"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."
A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American -- a tangible benefit that would be highly valuable to low-income families.
Liberals dispute that notion. "You could pay for it regressively and have people at the bottom come out better off -- maybe. Or you could pay for it progressively and they'd come out a lot better off," said Bob McIntyre, director of the nonprofit Citizens for Tax Justice, which has a health financing plan that targets corporations and the rich.
IRS Offers Tips On Late Filing And Tax Scams
From The Sentinel:
You meant to do your taxes, but the next thing you knew the April 15 tax deadline passed. According to the Internal Revenue Service, you can still file your tax return, even if you didn't ask for an extension, and in some cases you won't even face a penalty. The IRS also offers tips on recordkeeping and how to protect against tax related scams.
What if you have not filed yet?
Electronic filing is available until Oct. 15 for extension and late filers. IRS e-file is the most efficient way to prepare your taxes, particularly taking into consideration the latest tax changes including the Recovery Rebate Credit, First-Time Homebuyers Tax Credit, Additional Standard Deduction for Real Estate Taxes and the Educators Expense Deduction. E-filing will ensure you do not miss out on any tax breaks. Also, taxpayers who earn $56,000 or less can file for free and online at the IRS.gov Web site using the Free File Program.
For the traditional paper filer, tax forms and instructions are available at the IRS.gov website.
"If you overpaid your tax by April 15 and will get a refund when you file, there's no late filing penalty," said New Jersey's IRS spokesperson Gregg Semanick. "The penalty is based on the amount not paid by April 15. But don't get too relaxed — you have only three years from the due date to file for that refund. Miss that deadline and you kiss the money goodbye."
If you have not yet filed your tax return and you owe, file immediately to minimize the late-filing penalty based on the unpaid balance. The late-filing penalty is 5 percent per month up to five months that a return is outstanding. File your return and pay as much as you can. The IRS will send you a notice for the balance due and will charge interest and penalties only on the unpaid balance. You can also request a payment plan prior to receiving the IRS notice.
You can ask to make monthly installment payments. You can apply for an IRS installment agreement using the IRS Web-based Online Payment Agreement application on IRS.gov. This Web-based application allows eligible taxpayers or their authorized representatives to self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement by submitting a completed Form 9465, Installment Agreement Request, either when you file the return or when you later get a notice from the IRS. "Missing the tax deadline isn't the end of the world. But doing something now will be the end of your worrying about it." Semanick said.
What records should be kept?
You must keep records so that you can prepare a complete and accurate income tax return. The law does not require any special form of records. However, you should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim.
Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA, and business or rental property — should be kept longer.
You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending filed returns or preparing future ones.
For more information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals.
How to recognize tax scams?
Even after tax season, there are numerous scams in which people receive unsolicited emails, phone calls or faxes that claim to come from the IRS, and which request personal and financial information that may be used to commit identity theft. Typically, identity thieves use someone's personal data to empty the victim's financial accounts, run up charges on the victim's existing credit cards, apply for new loans, credit cards, services or benefits in the victim's name, file fraudulent tax returns or even commit crimes.
Anyone who receives one of these bogus emails, phone calls or faxes should avoid responding, clicking on any links or opening attachments. Recipients may forward the emails or report the calls to the IRS using the email address phishing@irs.gov.
Latest Good Reads
Restaurant Owner Attempts to Bribe IRS Agent With Pizza.
Tuesday, May 26, 2009
Helio Castroneves Cleared Of Remaining Tax Charge, Wins Indy 500
Auto racing driver and former "Dancing with the Stars" champ Helio Castroneves' tax-related charges have been dropped on Friday.
The Indianapolis 500 winner was charged with conspiracy and six counts of tax evasion for allegedly failing to report to the IRS about his millions of income between 199 and 2004. His manager sister Katiucia and lawyer Alan Miller are also charged with assisting him in 2008, they were acquitted of the charges in April.
The trial for the case ended on April 10 this year, and Castroneves was acquitted of all six counts of tax evasion, but hung on one count of conspiracy.
However, on Friday, the remaining charge has been dropped.
He told eonline.com, "My life is back. The only thing I can think about is to go and be in the race car again."
That was Friday.
On Sunday, the over-achieving Brazilian racing driver won his third Indianapolis 500 checkered flag.
IRS Announces Withholding Adjustment Option for Pension Plans
The IRS recently posted a press release on a new withholding adjustment option for pension plans. The release is “part of a wider outreach effort to educate taxpayers about the benefits they will receive under the American Recovery and Reinvestment Act.”
In February, the IRS issued revised withholding tables incorporating the Making Work Pay Tax Credit, one of the key provisions of the American Recovery and Reinvestment Act. That change resulted in more take home pay for more than 120 million American households and provided an immediate economic stimulus. The new procedure for pensions will make withholding more accurate for pension recipients.
While the newly announced procedures apply only to pension payments, the IRS is gearing up for a wider outreach campaign to educate pensioners and other taxpayers about the withholding tables and Recovery payments. The IRS will work with partner groups to provide taxpayers information to make sure they have the appropriate withholding for their situation. The IRS will also work on developing a variety of information products, including brochures, video and audio material to help educate taxpayers.
The change announced today will help some pensioners avoid a smaller refund next spring or even a balance due in limited situations. A wide variety of factors, such as outside jobs and other earned income, can affect how much, if any, withholding is needed by people receiving a pension to satisfy their annual tax liability. The optional adjustment procedure which may be used by those paying pensions is available in Notice 1036-P, Additional Withholding for Pensions for 2009. The on-line version of Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables, will be updated and available next week.
U.S. Pension Insurer May Need Tax Aid
From the Journal Star.com:
The rapidly deteriorating financial health of the federal agency that guarantees 44 million Americans' pensions is raising alarms in Congress.
The Pension Benefit Guaranty Corp. deficit was $33.5 billion in the red at the end of March, triple its deficit six months earlier.
The recession threatens to add to the strain on the corporation by pushing more companies into bankruptcy and leaving the struggling agency responsible for their pensions.
For example, the agency faces a potential tidal wave of claims from Chrysler and General Motors, whose pension plans are underfunded by an estimated $29 billion, the Government Accountability Office said.
If the PBGC’s condition continues to deteriorate, the government could come under pressure to shore it up with taxpayer funds, the GAO said in testimony to the Senate’s Special Committee on Aging.
“The Committee has grave concerns about the agency’s viability,” said Sen. Herb Kohl, D-Wis., the committee’s chairman.
The agency does not insure 401(k) plans, but its fate is important not only to the workers covered by more than 29,000 employer-sponsored benefit pension plans but to all taxpayers who could be asked to foot the bill on a bailout if the agency ever becomes insolvent.
Despite the deficit, the PBGC will be able to meet its obligations to pensioners for many years, acting PBGC director Vincent Snowbarger told the panel. That’s because the payments it owes are not due all at once; they are spread over the beneficiaries’ lifetimes, Snowbarger explained.
Finances aside, the GAO is concerned that the PBGC could have trouble simply handling the added work. The agency suffers from weaknesses in its management and governance, the GAO’s Barbara Bovbjerg, who oversees workforce and income security issues, said in a statement to the committee.
A recent report by the agency’s inspector general alleged that Charles Millard, a former PBGC director, had improper contacts with big Wall Street firms while they were bidding on contracts to help manage PBGC investments. Millard allegedly asked an executive at the financial firm BlackRock how to tailor a contract requirement to winnow the field of bidders. In addition, he allegedly received help with a job search from an executive at another bidder, Goldman Sachs.
Kohl and the agency’s acting director recommended that the contracts, worth a total of $100 million, be canceled.
Millard, who served under President George W. Bush, declined to answer questions at a hearing last week, invoking his Fifth Amendment right not to give testimony that might incriminate himself.
Millard previously asserted that he complied with all legal and ethical obligations. “I acted in what I believed to be the best interests of the PBGC to implement desperately needed reforms of PBGC investment policy,” Millard said in a letter to the inspector general.
Fees, Taxes On the Rise as New York Families Struggle Thru Bad Economy
The NY Daily News posted a new story the other day on how both taxes and fees are rising as families continue to struggle during this economic crisis. You can read a snippet of their article below or check out the full text here.
Jim Feasel is a retired NYPD detective, an expert in figuring out who did it and why.
But now there’s a problem in his personal life that he can’t solve and he feels handcuffed.
“How did the city’s appraised value of my home go up $75,000 last year. . . when property values went down 10% or more?” bellowed Feasel, who owns a two-family home in Woodside, Queens.
Along with thousands of other middle-class New Yorkers, Feasel is feeling the big squeeze — what happens when taxes and fees go up while income stays flat and investments and property values fall.
Property taxes are just part of the pinch. Water and sewer charges were hiked 14.5% last July 1 and will go up another 12.9% this July 1. Fares, tolls, utilities and property assessments are all higher.
Add in 60 increased or new state fees and taxes — on everything from beer to hunting licenses — and its no wonder New Yorkers are wondering how they’ll make ends meet.
Own a deli or pizza parlor? Your “food licensing fee” is being jacked up from $100 to $250. Registering a car will cost $55, up from the old $44 fee. A monthly MetroCard will set back straphangers $89 instead of $81.
The increases are designed to close city and state budget gaps of more than $22 billion — but some say they’re misguided.
Geithner Vows to Cut U.S. Deficit on Rating Concern
From Bloomberg.com:
Treasury Secretary Timothy Geithner committed to cutting the budget deficit as concerns about deteriorating U.S. creditworthiness deepened, and ascribed a sell-off in Treasuries to prospects for an economic recovery.
“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television yesterday. He added that the target is reducing the gap to about 3 percent of gross domestic product, from a projected 12.9 percent this year.
The dollar extended declines today after Treasuries and American stocks slumped on concern the U.S. government’s debt rating may at some point be lowered. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade.
Geithner, 47, also said that the rise in yields on Treasury securities this year “is a sign that things are improving” and that “there is a little less acute concern about the depth of the recession.”
The benchmark 10-year Treasury yield jumped 17 basis points to 3.36 percent yesterday and was unchanged as of 12:18 p.m. in London. The Standard & Poor’s 500 Stock Index fell 1.7 percent to 888.33 yesterday. The dollar tumbled 0.5 percent today to $1.3957 per euro after a 0.8 percent drop yesterday.
Gross’s Warning
Gross said in an interview yesterday on Bloomberg Television that while a U.S. sovereign rating cut is “certainly nothing that’s going to happen overnight,” markets are “beginning to anticipate the possibility.” Nobel Prize-winning economist Paul Krugman, speaking in Hong Kong today, nevertheless argues it’s “hard to believe” the U.S. would ever default.
Britain’s AAA rating was endangered when Standard & Poor’s yesterday lowered its outlook on the nation’s grade to “negative” from “stable,” citing a debt level approaching 100 percent of U.K. GDP.
It’s “critically important” to bring down the American deficit, Geithner said.
In its latest budget request, the administration said it expects the deficit to drop to 8.5 percent of GDP next year, then to 6 percent in 2011. Ultimately, it forecasts deficits that fluctuate between 2.7 percent and 3.4 percent between 2012 and 2019.
Ten-year Treasury yields have climbed about 1 percentage point so far this year, in part after U.S. economic figures indicated that the worst of the deepest recession in half a century has passed. The yield on 30-year bonds has jumped to 4.31 percent, from 2.68 percent at the beginning of the year.
The Treasury chief said it’s still “possible” that the unemployment rate may reach 10 percent or higher, cautioning that the economic recovery is still in the “early stages.”
“The important thing to recognize is that growth will stabilize and start to increase first before unemployment peaks and starts to come down,” he said. While “these early signs of stability are very important” this is “still a very challenging period for businesses and families across the United States,” he said.
Initial claims for unemployment insurance fell by 12,000 in the week ended May 16 to 631,000, according to Labor Department statistics released yesterday. Still, the number of workers collecting unemployment checks rose to a record of more than 6.6 million in the week ended May 9.
California Cities Irked by Borrowing Plan
California cities are becoming increasingly fed-up with Governor Arnold Schwarzenegger’s budget plans, according the Wall Street Journal. You can find a snippet of their story below, or check out the full text and an accompanying graph here.
California Gov. Arnold Schwarzenegger, in his efforts to find funds to balance the state budget, has proposed borrowing $2 billion from municipal governments over the next fiscal year, a tactic that is rankling local officials up and down the state.
Mr. Schwarzenegger is invoking a 2004 law that lets the state demand loans of 8% of property-tax revenue from cities, counties and special districts. Under the law, the state must repay the municipalities with interest within three years.
Administrators of already cash-strapped cities and counties said the loans would force even deeper cuts in services. Fewer cops and fire engines would be on the streets, they said, and parks and libraries would be closed more often. And some local governments would be forced to lay off workers to keep their budgets out of the red, they said.
Mr. Schwarzenegger's proposal "suggests that financing state government and state-government services are more important than these basic community services," said Chris McKenzie, executive director of the League of California Cities. "I think it's something most of the public would disagree with."
The governor said California's worsening fiscal woes forced his hand. California faces a $21 billion shortfall after voters on Tuesday rejected a series of measures to help keep the state solvent. Lawmakers dictate $92 billion of the state's $131 billion budget for the fiscal year beginning July 1. "I absolutely despise taking money from local government, but as I said, this is only under the worst-case scenario," Mr. Schwarzenegger said last week.
Mr. Schwarzenegger on Thursday announced he is seeking more cuts to avoid borrowing $5.5 billion from Wall Street, as he had previously proposed. On top of the $9 billion in spending reductions he had already called for, he is considering slashing an additional $750 million from prisons and $600 million from colleges and universities, an official in his finance department said. The state is also looking at cutting hundreds of millions of dollars from various social services, as well as eliminating Cal Grants, a college financial-aid program, the official said.
The governor's proposal of borrowing from local governments must still be approved by the legislature. If it does so, municipalities are worried the state won't be able to repay the loans, given the state's fiscal plight. "They're hijacking our dollars," said Don Knabe, chairman of Los Angeles County Board of Supervisors. "They don't have money to pay us back. It's a joke."
Los Angeles County could lose the use of up to $500 million for the next fiscal year, Mr. Knabe said. That would add to the county's projected $300 million shortfall in its $23.5 billion budget, of which supervisors can control $3.5 billion. That could mean cuts to services like parks and libraries.
The state could borrow about $25.6 million from Contra Costa County, said Contra Costa administrator David Twa. He says the county is in no shape to cut back more after slashing $156 million from its budget and laying off 600 workers.
Former All-Star Pitcher Jerry Koosman Pleads Guilty to Tax Evasion
From MLB.com:
Former All-Star pitcher Jerry Koosman pleaded guilty to federal tax evasion at a Madison, Wis., hearing on Friday and could face up to a year in prison. Sentencing is set for July 21.
Koosman, who also faces $25,000 in fines, neglected to pay federal income taxes for 2002, '03 and '04, defrauding the government out of as much as $90,000, assistant U.S. attorney John Vaudreuil told The Associated Press.
According to court documents, the IRS learned in '05 that Koosman hadn't filed any returns for 2002, '03 and '04. Using his W-2 wage statements, the IRS determined Koosman earned about $754,950 over those years, including about $130,000 from his Major League Baseball pension and $25,000 in '02 alone for autographs and personal appearances. He also had a stock sale in '02 worth $551,881.
Koosman, who helped led the 1969 Mets to a World Series title, maintained that he thought federal taxes applied only to federal workers, corporate employees and District of Columbia residents, court documents said.
"I guess it's a combination of being naive and not being able to understand law as I read it or was told," Koosman told U.S. District Judge Barbara Crabb during Friday's hearing.
Koosman, 66, lives in Osceola, Wis., and retired after the 1985 season. He played in the Majors for 19 seasons, including his first 12 with the Mets, and was an All-Star in '68 and '69. He retired with a career record of 222-209 and a 3.36 ERA.
Lawmakers Consider $1.50-Per-Pack Cigarette Tax Hike
California lawmakers are considering a controversial new cigarette tax increase as a solution to bring in some much-needed state revenue. Check out the following article on the debate surrounding the issue courtesy of the LA Times.com.
For years tobacco companies have successfully fought off attempts by California lawmakers and health groups to increase the cigarette tax. But next month, as the state grapples with the worst financial crisis in recent history, that may change.
Lawmakers will consider a proposal to hike cigarette taxes by $1.50 per pack and raise $1.2 billion annually. During the last decade, cigarette makers have spent tens of millions of dollars to kill 14 straight attempts to make smokers pay more.
But with the state facing a staggering $21.3-billion deficit and due to run out of cash in July, the tobacco tax could have a better chance of passing the Legislature.
"Given the serious budget shortfall we face, this is the year to pass the tobacco tax," said Sen. Alex Padilla (D-Pacoima). "It is needed now more than ever."
Padilla wrote the current proposal with Senate leader Darrell Steinberg (D-Sacramento), but even with Steinberg's support, it faces an uphill battle. The tobacco industry sees California as a crucial market and a trendsetter for anti-tobacco ideas that can spread through the country, said Beverly May, regional director of Campaign for Tobacco Free Kids, a Washington anti-smoking group.
"The tobacco companies view California very much as a battleground state," she said. "California is a state that they look at as important to do everything they can to have influence in any way they can."
Frank Lester, a spokesman for Reynolds American Inc., said proposals to raise tobacco taxes in California have failed in part because the state's residents are compassionate and see the tax as unfair.
"When people realize who the burden falls on -- the tax tends to be one of the more regressive taxes, meaning it falls on people of lesser means and working families -- they tend to think twice about it," Lester said.
He also said California voters are "dubious" about how past tobacco taxes have been spent. He cited media reports about the use of Proposition 10 tobacco proceeds, approved by voters in 1998 for childhood development programs, to pay for political ads promoting another ballot measure.
Forty-five states have raised tobacco taxes during the last decade, but not California.
Despite California's health-conscious image and laws that ban smoking just about everywhere, including bars and beaches, the state's cigarette tax of 87 cents per pack is lower than such taxes in other states. In Rhode Island, where tobacco taxes are highest, the levy is $3.46 a pack.
Thursday, May 21, 2009
Roni Deutch Makes the Coca-Cola 600
NASCAR driver David Starr will be driving a car with the Roni Deutch Tax Center logo later today, in the Coca-Cola 600! You can watch the Sprint Cup series qualifying race on the Speed Channel at 4 pm (Pacific). Tune in and cheer David on!
IRS Audits of Large Companies Decline for 3rd Year in Row
From the Wall Street Journal.com:
Internal Revenue Service audits of large corporations fell for the third straight year, as the tax agency focused scarce resources on the growing area of partnership returns and the very largest corporations.
According to 2008 IRS enforcement data released Monday, the IRS audited 15.3% of returns of corporations with assets of $10 million or more. That is the lowest audit coverage level since 2003 and down from a 20% coverage rate in 2005.
Audits of corporations with assets of $50 million and higher increased, however. The IRS also continued to direct examination resources towards partnerships, auditing about 1,000 more partnership returns than it did in 2007, an 8% increase. The number of partnerships filing returns has grown by about two-thirds over the last 10 years.
IRS Deputy Commissioner Linda Stiff said 2008 was "a very challenging year," where the agency saw a decline in enforcement staffing levels of about 2%.
In addition, some enforcement staff were re-directed to help field calls from taxpayers related to tax rebates that Congress ordered as part of economic stimulus legislation.
The "IRS is very proud of what we were able to accomplish. It's been a solid year in the enforcement arena, and we continued to build on the success of earlier years," Ms. Stiff said in an interview.
Overall, the IRS collected $56.4 billion from enforcement efforts in 2008, which would be a record but for 2007's high-water mark $59.2 billion in collections.
Dean Zerbe, national managing director of the alliantgroup LP, said the decline in overall large corporation audit coverage is disturbing given what he says is a shift in IRS resources towards more of a focus on small and medium-sized firms.
Audits of small and mid-sized firms don't produce as much tax revenue, and about one-third of the time produce no change in taxes assessed, according to Mr. Zerbe. "They spend a lot of time doing root canals on people who are basically compliant," he said.
Alliantgroup represents small and mid-sized firms in disputes with the IRS.
Individual audits remained about the same as in 2007, with about 1.4 million returns audited, or about 1% of total individual returns.
Taxpayers with income of $200,000 or above had about a 3% chance of being audited. Those with income of $1 million and above stood a 5.6% chance of being audited, down from 6.8% coverage in 2007.
Federal Tax Revenue Drops
As I mentioned yesterday, I made a guest appearance on FOX Business Network’s Money for Breakfast to discuss the biggest tax revenue drop in 30 years. Check out the embedded video of my interview below.
Tax Havens Onshore
From the New York Times.com:
Few here in Switzerland have been other than disgusted by the behavior of UBS and many of us have moved money away from that bank in protest. However, your editorial “The Swiss and their secrets” (May 16) supports demands that are of dubious legality.
Were the Americans to practice what they preach, the I.R.S. would investigate its own tax havens of Delaware, Wyoming and Nevada, the latter having allowed some 80,000 dummy companies to be anonymously registered in 2008 alone, presumably for U.S. tax evasion reasons.
Law Offers Special Tax Breaks for Small Business
According to the IRS’ newest press release, they are urging “small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.”
The American Recovery and Reinvestment Act (ARRA), enacted in February, created, extended or expanded a variety of business tax deductions and credits. Because some of these changes—the bonus depreciation and increased section 179 deduction, for example—are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a quick rundown of some of the key provisions.
Faster Write-Offs for Certain Capital Expenditures
Many small businesses that invest in new property and equipment will be able to write off most or all of these purchases on their 2009 returns. The new law extends through 2009 the special 50 percent depreciation allowance, also known as bonus depreciation, and increased limits on the section 179 deduction, named for the relevant section of the Internal Revenue Code. Normally, businesses recover these capital investments through annual depreciation deductions spread over several years. Both of these provisions encourage these investments by enabling businesses to write them off more quickly.
The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service.
Tax Proposals Draw Critics in Talks on Financing Health Insurance
From the New York Times:
Even as Congress weighed options to finance health insurance for tens of millions of Americans, lobbyists mobilized Wednesday to head off proposed taxes on employer-provided health benefits, alcoholic beverages and soft drinks.
Labor unions began attacking a proposal by Senators Ron Wyden of Oregon and Max Baucus of Montana, both Democrats, to consider changes in the tax treatment of employer-sponsored insurance, the main source of health coverage for people under 65.
Radio advertisements, run this week in Portland and Eugene, Ore., at a cost of $60,000, say: “Senator Ron Wyden would tax the health care benefits we get at work, as if they were income. Taxing health benefits? That doesn’t make sense.”
The advertisements were bought by the National Education Association, with help from the United Food and Commercial Workers and the American Federation of State, County and Municipal Employees.
Health insurance and health benefits provided by employers to their employees are not counted as income and are not subject to income or payroll taxes. Mr. Baucus and many economists say the tax break is inequitable because its benefits go disproportionately to people with higher incomes.
“It’s too regressive,” said Mr. Baucus, the committee chairman. “It just skews the system.”
Mr. Baucus and Mr. Wyden have suggested that employer-provided health benefits above a certain value could be included in taxable income.
The proposed tax is among two dozen options considered Wednesday by members of the Senate Finance Committee as they looked for ways to pay for coverage of the uninsured. Almost every option faces opposition from some quarters.
Wednesday, May 20, 2009
Television Appearance Tomorrow Morning!
I'm going to be a guest on FOX Business News tomorrow morning at 4:30 AM PST. The topic is going to be declining federal tax revenues, so be sure to tune in!
Tax Planning for 2009 - How to Benefit from Recent Tax Law Changes
With a new president in charge, and the economy in a full recession, there are lots of changes being made to the US tax code. It can be confusing trying to deconstruct some of these changes. It is even more difficult to figure out which ones will benefit you. To help the readers of my blog plan for the 2009 tax year, I have broken down some of the recent tax law changes.
Make Work Pay
There are a lot of misconceptions going around regarding the new Making Work Pay credit. In order to benefit fully, it is important to understand how you can take advantage of the credit. The most common myth is that the credit will be delivered to qualifying taxpayers through the mail, similarly to the stimulus check last year. However, it is actually distributed through a taxpayer’s check in the form of a reduced tax rate. Because of this, it is your job to check you paychecks and make sure the amount is being added (note that you may need to adjust your withholding to reflect the change).
The First Time Homebuyer Credit
A lot of people are talking about the federal government’s credit for people to purchase a home in the 2009 tax year. However, it is important to remember that the credit is only available to first time homebuyers. To be more specific, the IRS defines a new homebuyer as a person who has not owned a principal residence during the three-year period prior to the purchase. The IRS also specifies that you need to purchase the home between January 1 to December 31, 2009. For more information, check out the IRS’ press release titled “First-Time Homebuyers Have Several Options to Maximize New Tax Credit.”
Energy Conservation Credit
For those of you hoping to upgrade some of your appliances this year, the IRS is giving you even more incentive to go “green.” If you make an energy efficient upgrade to your home—such as installing double-paned windows or buying an approved washer and dryer—you can take a deduction for up to $1,500. However, you must divide the deduction between the 2009 and 2010 tax years, so you will only be able to claim $750 this year. Please note that according to EnergyStar.gov, “geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems... are not subject to this cap.”
Automobile Breaks
Although many hybrid vehicle tax credits are beginning to expire, there are plenty of new ones being announced. The IRS just released new information on the new tax credits being made possible by the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009. The credits apply to low speed electric vehicles, as well as cars with at least four wheels that draw propulsion using a rechargeable battery. Depending on the height and weight of the vehicle the value of the credit can range from $2,500 to $15,000.
Flood Victims
The IRS unveiled some new tax law changes to assist flood victims this year. One big win for flood victims was the removal of some loss limitations. Whereas in 2008, flood victims could only claim a certain amount of losses, now they can deduct the entire amount. However, it is important to remember that this full amount can only claimed by taxpayers who itemize their deductions. Another less popular tax law change affects individuals who helped victims displaced from their homes. According to the IRS these charitable taxpayers can claim an additional exemption of $500 for each displaced individual they help, with a maximum of $2,000.
Unemployment
With more and more Americans losing their jobs, changes have also been made to the way unemployment benefits are taxed. The key to benefiting from these new changes is by knowing exactly what you are entitled to. According to the newest changes to the tax law, the first $2,400 worth of unemployment benefits is income tax free. Therefore, you could expect an increase on each check you receive by around $25. Additionally, 20 more days have been added to the duration of unemployment.
The American Opportunity Tax Credit
Thousands of students have already applied for this credit, but unfortunately many taxpayers do not fully understand it. As opposed to the old Hope Credit, the new tax credit can be claimed for up to 4 years. However, in order to qualify, a student’s parents cannot make over $80,000 ($160,000 for joint filers). The student must be also taking at least half a load of courses, and have no record of felony drug charges. For more information, check out this entry I posted breaking down the American Opportunity Tax Credit back in March.
States: It's Taxes, Taxes and More Taxes
From CNN.com:
Facing mounting budget deficits and seeing few areas left to cut spending, states increasingly are turning to the only option they have left: raising taxes.
Though public officials are loath to do this, particularly during a recession, many governors are increasing personal income taxes, raising corporate income taxes, hiking cigarette and gas taxes, or broadening sales taxes.
Already, 16 states have taken this unpopular step this fiscal year, and another 17 have proposed tax hikes for the coming year, according to the Center on Budget and Policy Priorities, a policy group. In many cases, they are making small increases in specific taxes, rather than imposing a broad rate hike.
"The question isn't whether to raise taxes, it's which taxes to raise," said Linda Bilmes, professor of public finance at Harvard's Kennedy School of Government.
Wealthier residents in Hawaii are now paying higher personal income taxes. The state increased the tax rate to 11% for single filers earning more than $200,000 and couples making more than $400,000, while also raising levies on hotel accommodations and real estate purchases.
Smokers in Rhode Island, meanwhile, now pay the highest state tobacco taxes in the nation, forking over an additional $1 for a total of $3.46 in state levies per pack.
The Tax Code on your iPhone
Earlier today, I came across this useful iPhone application and I wanted to share it with all of my readers. It was created by LawToGo and it is basically the full IRS tax code displayed in an easy to use iPhone application. Check out the following review of the app from iPhone JD.
The app's website says that this app is up to date as of December 31, 2008, and says that the American Recovery and Reinvestment Act of 2009 will be included in the next (free) update. Nevertheless, from what I can tell, the app seems quite solid. You can use the app many different ways. First, you can just browse through sections, tapping to drill down to a specific section.
Additionally, you can search for a particular section. You can search for words, including AND search, OR search, and /n (within a certain number of words) search. Search terms are clearly highlighted in yellow in the search results.
If you know the particular section that you are looking for, you can also use the Search by Section Number feature. For example, like many Americans, I've recently been thinking quite a bit about my dwindling 401K. If I want to read Section 401(k) itself while I drown my sorrows, I can jump right to Section 401 and then scroll down to (k).
The app includes lots of additional features. You can use the arrows to browse back and forth through sections. You can e-mail a section of the tax code, you can add a section that you use frequently to your Bookmarks, and you can turn your iPhone screen on its side to view everything a little bit larger in landscape mode.
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Soak the Rich, Lose the Rich
From the Wall Street Journal:
With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit.
Mr. Quinn and other tax-raising governors have been emboldened by recent studies by left-wing groups like the Center for Budget and Policy Priorities that suggest that "tax increases, particularly tax increases on higher-income families, may be the best available option." A recent letter to New York Gov. David Paterson signed by 100 economists advises the Empire State to "raise tax rates for high income families right away."
Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.
And the evidence that we discovered in our new study for the American Legislative Exchange Council, "Rich States, Poor States," published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.
Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.
Chrysler To Use Tax Money For Buyouts
From Freep.com:
Chrysler will use taxpayer money to sweeten buyout deals for UAW workers who could lose their jobs at six plants likely to be closed if no buyer can be found.
The autoworkers are now being offered up to $115,000 plus a $25,000 vehicle voucher to leave Chrysler voluntarily.
The larger lump-sum payment, which was increased from $75,000 in earlier buyouts, is available to workers under 50 years old who have 10 or more years of seniority.
Workers 50 or older who qualify for some pension benefits won't receive that type of onetime payment. But those with 30 years, or whose age and years together exceed 85, will receive $50,000 plus the $25,000 voucher for a new Chrysler vehicle.
The new offer, which eligible workers have until May 26 to accept, provides a cushion for several thousand workers who could lose their jobs anyway. It also could take some pressure off the UAW's Voluntary Employee Beneficiary Association (VEBA) retiree health care fund because younger workers who take the buyout may find health care through spouses or new jobs.
The buyouts are funded through Chrysler's taxpayer-backed "debtor-in-possession" financing.
By contrast, the company reserved funds prior to the bankruptcy filing to cover similar buyouts previously offered to UAW members. It is trying to pare its UAW workforce by 3,500 from about 26,000 when the first offer was made in January.
Plants covered by the latest offer are Sterling Heights assembly, Conner Avenue assembly, St. Louis North and South assembly, Kenosha (Wis.) engine and Twinsburg (Ohio) stamping. The offer doesn't apply to workers at plants in Newark, Del., which has closed, or Detroit Axle because some of those workers will be transferred to a new Marysville axle plant that is to open in 2010."This is simply Chrysler's way of reducing the number of employees about whom it will have to worry," said Richard Block, Michigan State University professor of industrial and labor relations.
Chrysler's creditors aren't likely to object because the plants could be more marketable with fewer workers, said Sheldon Stone, a managing director of Amherst Partners.
UBS Tax Case Could Backfire On U.S.
Some experts feel the high profile case of the US vs. UBS could hurt its global economic standing, backfiring their original plan. Check out the following article from Reuters.com discussing the issue.
U.S. banks and the U.S. economy could suffer as a result of the high-profile tax evasion case pitting the Internal Revenue Service against UBS AG, supporters of the Swiss bank said in a federal court filing in Miami.
In a joint filing on Friday, five business and banking groups urged Federal District Court Judge Alan Gold to reject IRS demands that UBS (UBSN.VX) (UBS.N) reveal the names of 52,000 Americans suspected of using the bank to hide nearly $15 billion in assets and evade U.S. taxes.
Echoing a similar filing last month by the Swiss government, the petitioners said any exchange of confidential banking information should be handled through existing legal treaties rather than the courts.
The petitioners were led by the Swiss Bankers Association and Economiesuisse -- an umbrella group representing powerful Swiss industry, trade and economic associations.
They also argued that the IRS was seeking to embark on a "fishing expedition" and had no international legal standing to use a tool known as a John Doe summons to investigate suspected tax fraud by individuals whose identities and possible legal transgressions were unknown.
The IRS action violates both Swiss sovereignty and the framework of international law, the court filing says.
"Disregarding established treaty protocols and imposing conflicting obligations upon multinational enterprises, as the IRS urges, also would encourage courts in other jurisdictions to ignore established treaty protocol in taking similar measures against U.S. banks, enforcing subpoenas and similar broad-based information demands served on their overseas offices," it warned.
"Such a result not only would erode the primacy of U.S. law and treaty protocol, but could encourage non-resident aliens and foreign entities to withdraw significant deposits from U.S. based institutions to the detriment of the U.S. economy," it added.
"Further, imposing obligations on foreign businesses to violate their home country laws would discourage such businesses from entering the U.S. market."
US Appeals Court Sides With IRS In 'Son Of Boss' Tax Case
From the Wall Street Journal.com:
A U.S. appeals court upheld the IRS in denying more than $50 million in tax losses claimed by two Texas lawyers in an oft-litigated tax shelter strategy known as "son of Boss."
In a Friday ruling, the Fifth Circuit Court of Appeals found that investment partnerships set up by Cary Patterson and Harold Nix lacked economic substance and should be disregarded for tax purposes.
Patterson and Nix earned about $30 million each between 1998 and 2000 representing the state of Texas in litigation against tobacco firms, according to the Fifth Circuit opinion.
"Son of Boss" refers to a category of complex tax maneuvers designed to generate huge losses with little risk to the investor, in order to shelter large capital gains.
Hundreds of taxpayers involved in "son of Boss"-type transactions have settled with the IRS since the tax collector issued a global settlement offer in May 2004.
In a statement Monday, John A. DiCicco, acting assistant attorney general, hailed the appellate court ruling and said the court had "recognized that determinations of this sort must be made on the objective evidence irrespective of the claimed motives of the individual investors."
Hawaii Gov Vetoes Tax Hikes on High Income Earners
According to the Associated Press, Hawaii’s Governor Linda Lingle has vetoed the legislature’s plan to increase taxes on high-income earners, and tourists. Over 400 business leaders and tax protestors reportedly gathered at the Capitol to support Lingle’s decision.
"They can't tax their way to prosperity. They can't tax their way out of this economic crisis," Lingle told the applauding crowd. "The only thing that gets us out of this crisis is more visitors coming, more homes being built, more jobs being created."
Minutes later, Lingle used a stamp imprinting the word "veto" on each of the bills and held them up for the audience to see.
But Democrats, who hold nearly 90 percent majorities in both houses, have already extended this year's legislative session until Friday specifically so they can attempt the overrides, which would take two-thirds majorities in the House and Senate.
They argued that tax increase are needed to balance the state budget, and they complained that Lingle hadn't suggested realistic alternatives.
"If it's not her way, it's the highway," said Speaker of the House Calvin Say, D-St. Louis Heights-Wilhelmina Rise. "I'm just a little disappointed in having this type of promotional public relations get-together at this point in time."
Monday, May 18, 2009
Signs the Recession Might be Nearing an End
If you are not yet sick of the word “recession,” then you have probably been living under a rock. It seems like talk of the seemingly never-ending “great recession” has been everywhere. You see it in TV commercials, you hear about it at work, and you probably at least know someone who has been directly affected by it. However, recent studies by several experts and news outlets are beginning to suggest that the worst of the recession might already be over.
There are several factors that contribute to these recent reports, but do not get too excited just yet. It is still far too early to tell if the economy is improving. Additionally, even if the U.S. economy is on the rebound, it may very likely not be back to what we consider "normal" until as late as the end of 2010, or even later.
Rising Home Sales
One of the first signs that our economy was suffering was the burst of the real estate bubble a few years ago. Since then, home values have been on a consistent decline. However, things are finally beginning to look good for the real estate industry. Between huge federal credits and record low prices, home sales are finally beginning to pickup. In the month of April, 17 different states across the country reported increase in purchases. Although sales did pick up, the nationwide average house price dropped further to only $169,000.
Many experts are predicting that we are finally seeing the bottom of the real estate burst. In fact, nearly 1 out of every 10 cities in the country actually reported an increase in home value. It may seem low, but it’s definitely a start.
Consumer Confidence
U.S. consumer confidence was at an all time low in November of 2008 due to job losses and the country’s poor economy. However, it has been slowly increasing since. In April 2009, the consumer sentiment index rose to 61.9 according to Reuters. This was up from 57.3 just one-month prior. Do not get too excited though, some experts are claiming the reports have been inflated by consumers receiving their tax refunds and families preparing for the summer.
Unemployment Rates
Earlier this month a great new report came out showing that the number of job losses last month was the lowest it had been in over 6 months. This was partially due to the huge number of government jobs that were created, as well as new tax breaks for businesses. Although the forecast for the rest of the year is not clear, any decline in job losses is definitely a step in the right direction.
Stock Market
The stock market is always considered a great economic indicator, and although there have been a lot of drops over the past 6 months, things are finally beginning to settle down. In April, the stock market actually saw the biggest growth it has had in over 9 years. Additionally, stocks rose again by around 2% in the first weeks of May.
Oil Rebounds
With more and more people looking for ways to save money, oil prices had been consistently dropping over the past year. However, in recent weeks oil prices have begun to rise again. A recent CNN study claims that the national average price of gas has increased by over 12% during the last month. Although no one wants to pay more at the pump, this is actually a good thing. Since gas is traded on a global market, the price increase shows that the world economy is also beginning to recover.
Less Pending Construction
Construction projects all over the country have been put on hold as local governments struggle to generate enough revenue. However, reports show that many cities are getting back on their feet thanks to recent tax changes and stimulus money. This creates jobs, which in turn creates more revenue, and helps the economy in general.
Lending and Loans
One of the reasons the economy has been improving lately is because of the change in lending policies. For a while it was nearly impossible for first-time homebuyers to purchase a home, between long approval processes, and difficult-to-negotiate bank properties. However, more banks are easing up on their lending policies and families are finally beginning to purchase houses again.
What Makes A Tax Credit "Refundable"?
From Boston.com:
Every tax credit that is introduced is either refundable, partially refundable or non-refundable. What does "refundable" mean?
A refundable credit is a tax credit that can reduce the amount of tax you owe to less than zero. In other words, it can result in a refund where there was not one to begin with. As an example, the newly created $8000 first-time homebuyers tax credit is refundable. If your federal income tax bill without this credit is $6,000, and you qualify for the credit, $8,000 would be deducted from the amount you owe. You would end up with a $2,000 refund.
A non-refundable credit cannot reduce your tax bill to less than zero. The Hope and Lifetime Learning credits are good examples of this. For instance if your tax bill is $1,000 and you qualify for a $1,800 Hope Credit, your tax bill would be reduced to $0 and you would not owe any taxes, but you would not get a refund.
Internet Tax Avoidance Hurts Jobs, Public
San Francisco Gate author Lenny Goldberg recently published a great article on how the legislatures avoidance of taxing Internet sales is hurting all Californians. Check out a portion of the article below, or you can find the full post here.
The demise of Cody's Books in Berkeley and Stacey's in San Francisco is a symptom of one of the key changes of our new era: the shift to the massive use of Internet sales instead of community businesses.
We are in a difficult period of transition for retailing in general and booksellers in particular. But it's particularly frustrating when the state's tax policies conspire with out-of-state sellers to inflict major damage on local businesses.
State-sanctioned tax avoidance is in fact what has been happening as a result of the failure of the state Legislature and of the state's sales tax agency, the Board of Equalization, to collect taxes on sales into California by companies with substantial presence in the state. Not only is Amazon.com abusing the law with regard to its massive sales into California, but a whole Web-based cottage industry has grown up based heavily on a business model of avoiding sales tax.
The issue has come to a head over a bill by Assemblywoman Nancy Skinner, D-Berkeley, whose legislation, AB178, is really about enforcing the sales tax law, which the Board of Equalization has failed to enforce. It says, simply, that Internet sellers with agents or representatives in the state have presence sufficient for them to be obligated to collect tax on sales to California and send it to the state.
The business model used by Amazon for years, and now by other businesses, is their "affiliate" program, by which thousands of California organizations and individuals solicit sales under a contractual relationship and receive a commission on the sales. Amazon's long-standing approach has been to gain a competitive advantage over other businesses by avoiding the collection of tax.
Founder Jeff Bezos has said he originally wanted to locate in Alameda rather than Seattle but wanted to sell tax-free into the huge California market. And somehow the company has managed to avoid the law that says that if it has representatives in the state - its affiliates - it must collect the tax.
California is not on the cutting edge of this issue. New York passed legislation that serves as the basis for Skinner's bill. Amazon did two things in response: It started collecting the tax from New York purchasers immediately, because it did not want to be liable for the money; and it filed suit. A New York court dismissed the suit, holding that Amazon had a presence in New York, and upheld the state. As a result, a number of states, California included, are attempting to follow the New York law.
Municipal Bonds Are Worth A Look If You Can Handle The Risk
From USA Today.com:
Q: How do I go about adding municipal bonds to my portfolio?
A: Lending money to cities, states and local government agencies used to be a good move for investors in high tax brackets. That's made municipal bonds attractive investments for years.
By buying municipal bonds, investors looking for income not only received regular payments, they got excellent tax savings. The income paid by municipal bonds is typically exempt from federal taxes and often exempt from state taxes, if the investor lives in the state issuing the debt.
The whole muni bond market suffered a body slam during the credit crunch. Now, investors have become increasingly concerned about the ability of states and local governments to pay their debts.
This wasn't much of a concern before, since most local governments offered investors insurance to cover the possibility of default. But many bond insurers have been crippled by mortgages losses, so the value of the insurance has diminished.
The result? Yields on municipal bonds are attractive, but only if you can handle the higher risk. Gone are the days when you could blindly buy a municipal bond and assume even if things went badly you could get your money back.
To show you just how turned around the muni bond market has become, consider the Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX). The fund, which owns a basket of muni bonds maturing in seven years on average, is yielding about 3.4%, exempt from federal taxes.
That's an astounding yield if you consider the after-tax yield for a person in the 25% tax bracket is closer to 4.5%. It's even more impressive if you consider that the yield on 10-year Treasuries is just 3.0%.
Does this mean you should consider muni bonds? Clearly, if you understand the risks it's hard to argue with the yields. Just remember, though, that you can't just blindly buy single muni bonds anymore. If you're buying individual bonds you must take the time to understand the municipalities' demographics, tax trends and fiscal position.
New Tax Proposals Target Life Insurers
According to the Wall Street Journal, President Obama is hoping to generate over $12 billion in federal revenue from new taxes on life insurers. “The provisions in the Treasury Department tax plan released last week would restrict several products that have drawn attention from regulators in recent years because of the way they use life-insurance policies as vehicles for minimizing taxes on investments.”
The proposals would restrict several tax breaks received by purchasers of insurance or insurance companies themselves, and also require more information reporting in some cases. Industry representatives say the changes would hit sales in at least one significant area of the business, corporate-owned life insurance.
Several industry trade groups, including the American Council of Life Insurers and the Association for Advanced Life Underwriting, wrote last week to leading lawmakers, expressing opposition to the proposals. "Especially during a financial and economic downturn, increasing taxes on products and on an industry that encourages American consumers and businesses to plan for the future and effectively manage risk is unwise public policy," they said.
Insurance industry representatives also argue that now is a bad time to seek more taxes from the industry, given companies' recent losses on investments. The Treasury has given several big life insurers, such as Hartford Financial Services Group Inc. and Lincoln National Corp., preliminary approval to receive billions in federal aid.
A Treasury official said the tax proposals are unrelated to the federal capital infusions, adding that the insurers applied for that money months ago. The proposed tax changes generally would take effect in 2010 or 2011.
The official said the proposals are aimed at restoring fairness to the tax code. "Our proposals are designed to make sure when it comes to paying taxes, everyone pays their fair share," she said. She noted that some of the proposals are aimed at purchasers of insurance, not the companies themselves.
Thursday, May 14, 2009
Lien? Levy? What’s the Difference?
The tax world is full of jargon and enough acronyms to make your eyes cross. Its no wonder so many people are confused about the difference between a tax lien and a levy. I thought it might be helpful to explain.
The term “levy” is used to describe a number of collection methods the IRS employs. Levies actually redirect funds to the IRS as a repayment of a debt. Following are a few different types of levies:
A lien, on the other hand, is a passive form of collections. Tax liens essentially “lock” your property (whether a car, or a home, even artwork and jewelry) so that should you sell it, the IRS gets first crack at the proceeds. I often hear from clients asking, “when can you get my lien released?” And the honest answer is, when the debt is paid or expired. You cannot argue to have a lien removed; tax liens stay in place until the debt is repaid in full or expires. Even if you enter into a tax debt resolution with the IRS, such as an Installment Agreement, the lien stays put. This is a security measure protecting the IRS’s interest. However, a tax lien should not impact your life or finances, provided you don’t sell your property.
The term “levy” is used to describe a number of collection methods the IRS employs. Levies actually redirect funds to the IRS as a repayment of a debt. Following are a few different types of levies:
- Wage garnishments actually fall under the levy heading. Wage garnishments redirect a portion of your income directly to the IRS. A garnishment continues until either the debt is repaid, expires, or you successfully negotiate a release. Wages can be a paycheck from your employer, federal payments like Social Security, or if you are an independent contractor, accounts receivable.
- Bank levies are one-time events. The IRS freezes assets in an account up to the amount owed plus interest for 21 days then takes those funds to repay your debt. The 21-day period is supposed to allow for resolving account ownership.
- Property seizures constitute the most extreme use of a levy, allowing the IRS to actually take and sell your property. This could be a car, or a boat, even a house. Again, this is not terribly common and usually only used in extreme cases.
A lien, on the other hand, is a passive form of collections. Tax liens essentially “lock” your property (whether a car, or a home, even artwork and jewelry) so that should you sell it, the IRS gets first crack at the proceeds. I often hear from clients asking, “when can you get my lien released?” And the honest answer is, when the debt is paid or expired. You cannot argue to have a lien removed; tax liens stay in place until the debt is repaid in full or expires. Even if you enter into a tax debt resolution with the IRS, such as an Installment Agreement, the lien stays put. This is a security measure protecting the IRS’s interest. However, a tax lien should not impact your life or finances, provided you don’t sell your property.
Making Work Pay Tax Credit May Cause Tax Debt
Everybody loves getting a little extra money, and the new Making Work Pay stimulus package is designed to give everybody a refundable tax credit spread out over every paycheck. The amount for 2009 and 2010 is up to $400 a year for individual taxpayers and up to $800 for married couples filing a joint return. Sounds great right? Well for some it is, but for seniors whose only income is a pension it may actually create a tax bill for them at the end of the year.
Seniors whose sole income is a private pension or annuity are not eligible for the credit. However, since the new tax tables change the amount being withheld for everyone regardless of their individual situations, many seniors may end up having to pay the credit back! This could mean a reduced tax refund come April 2010 or even a tax debt. Yikes!
So how do you know if you are at risk? All taxpayers should review and adjust their W4 each year to ensure that they have the correct amount withheld and adjusted for the credit. If you have not already done so, take ten minutes and check your withholdings. Additional at-risk taxpayers who are no eligible for the credit include: younger wage earners who are claimed as dependents by their parents, workers with multiple jobs, and Social Security recipients who also have other sources of income.
In addition, the IRS website, www.IRS.gov, provides a withholding calculator you can access on-line to ensure that enough tax is being withheld. You can also request Publication 919 for guidance on tax withholding. Doing so now will ensure that you nip this problem in the bud before it becomes a tax headache next April.
Seniors whose sole income is a private pension or annuity are not eligible for the credit. However, since the new tax tables change the amount being withheld for everyone regardless of their individual situations, many seniors may end up having to pay the credit back! This could mean a reduced tax refund come April 2010 or even a tax debt. Yikes!
So how do you know if you are at risk? All taxpayers should review and adjust their W4 each year to ensure that they have the correct amount withheld and adjusted for the credit. If you have not already done so, take ten minutes and check your withholdings. Additional at-risk taxpayers who are no eligible for the credit include: younger wage earners who are claimed as dependents by their parents, workers with multiple jobs, and Social Security recipients who also have other sources of income.
In addition, the IRS website, www.IRS.gov, provides a withholding calculator you can access on-line to ensure that enough tax is being withheld. You can also request Publication 919 for guidance on tax withholding. Doing so now will ensure that you nip this problem in the bud before it becomes a tax headache next April.
Roni Deutch Hires Director of Franchise Sales for the Roni Deutch Tax Center
The other day Franchise.com published a press release on the recent addition of Barry Auchenbach to the Roni Deutch Tax Center team. You can read a part of the release below, or check out the full post here.
Roni Deutch Tax Center has hired Barry Auchenbach, a top franchise industry professional, as Director of Franchise Sales to lead the charge for franchise development for the Roni Deutch Tax Center.
"With his extensive background in franchising, bringing Barry on board ultimately strengthens the most important elements to our success," said Roni Deutch, CEO and Founder of Roni Deutch Tax Center. "Barry's experience in franchise sales and development proved to be instrumental for his past employers' growth and expansion, and we expect that he will achieve even better results for Roni Deutch Tax Center."
As Director of Franchise Sales, Auchenbach will be responsible for implementing strategic franchise development plans to sell tax center locations and territories to interested franchisees to increase the number of locations within the Roni Deutch Tax Center franchise system.
"My decision to join Roni Deutch Tax Center was primarily based on my experience in helping people achieve their dream of business ownership," said Auchenbach. "After meeting with Roni and the rest of the team, I realized that my experience in all aspects of the franchise spectrum, having been an owner, consultant, and broker, would be a great addition to the tax center franchise."
Report: Tax Collections Down In Nearly Every State
From BusinessWeek.com:
Tax collections continued to drop in almost every state during the first quarter of 2009, off an average 13 percent from a year earlier as the recession and wary consumers cut into income and sales tax revenue.
The Rockefeller Institute of Government's latest report shows a nearly 16 percent average decline in personal income taxes. That's the steepest drop since 2002.
An institute analyst says tax revenue is expected to decline further in the quarter ending in June, which will include April income tax returns hit hard by financial market declines in 2008.
U.S. Eyes Bank Pay Overhaul
Barack Obama and his administration have been considering a major bank overhaul as a potential solution to stabilize the way financial services companies are paying their employees and executives. Check out the following segment of a WallStreetJournal.com article discussing the topic.
The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.
The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.
Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.
Among ideas being discussed are Fed rules that would curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank -- such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing "best practices" to guide firms in structuring pay.
At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy.
Senate Considers Federal Tax On Soda
From CBSNews.com:
The Senate Finance Committee today is hearing proposals on how to pay for President Obama's proposed universal health care plan, which is expected to cost more than $1 trillion. Among the proposals, as Consumer Affairs reports: A three-cent tax on sodas as well as other sugary drinks, including energy and sports drinks like Gatorade. Diet sodas would be exempt.
"While many factors promote weight gain, soft drinks are the only food or beverage that has been shown to increase the risk of overweight and obesity, which, in turn, increase the risk of diabetes, stroke, and many other health problems," Michael Jacobson of the Center for Science in the Public Interest, which is pushing the idea, said in his testimony. "Soft drinks are nutritionally worthless…[and] are directly related to weight gain, partly because beverages are more conducive to weight gain than solid foods."
According to Jacobson, "Beverage companies market more than 14 billion gallons of calorie-laden soft drinks annually. That is equivalent to about 506 12-oz. servings per year, or 1.4 servings per day, for every man, woman, and child."
He argued that each penny of tax on a 12-ounce drink would raise $1.5 billion annually and lower consumption roughly one percent, improving overall health. The Congressional Budget Office estimates that a three-cent tax would generate $24 billion over the next four years.
Such a tax might well be considered a "sin tax" similar to the taxes levied on cigarettes, which are extremely high compared to most other consumer products. Jacobson also wants the taxes on alcohol raised -- he argues that doing so will "compensate society for the costs of alcohol abuse and alcoholism and to marginally reduce problem drinking." The argument echoes the idea of cigarette taxes helping pay for health care costs associated with smoking.
In his testimony, Jacobson also called for a ban on artificial trans fat and a reduction in sodium levels in food.
Any soda tax a proposal is unlikely to pass easily, as New York Governor David Paterson well knows. Paterson's proposed 18-percent tax on soft drinks died amid pressure from the industry and resistance among New Yorkers who didn't want to pay more for soda.
It would also, it should be noted, only pay for a tiny portion of the health care overhaul.
Susan Neely of the American Beverage Association, which represents Coca-Cola Co., PepsiCo Inc. and others, told the Wall Street Journal that the tax would hit poor Americans hardest and would not lower consumption.
"Taxes are not going to teach our children how to have a healthy lifestyle," she said. Neely said the industry backs programs to lower consumption of sugary drinks in schools.
GOP Govs Plan Tea Party Sequel
From Politico.com:
Hoping to recapture the grassroots energy of last month’s “tea parties,” Republican Govs. Mark Sanford of South Carolina and Rick Perry of Texas will host a tele-town hall Thursday that’s being dubbed “Tea Party 2.0.”
The Republican Governors
Association said it is expecting 30,000 people to participate in the town hall, which will take place roughly one month after the much-publicized anti-tax tea party rallies held in hundreds of locations across the country on April 15, the tax filing deadline.
Sanford and Perry will each speak for several minutes before opening up the town hall to up to an hour-long question and answer session.
RGA Executive Director Nick Ayers said that while the effort Thursday will be on a smaller scale than the April tea party rallies, it still represents “a great opportunity to mobilize that support.”
Both Perry and Sanford are favorites among the tax-averse tea party attendees.
Sanford, who attended a tea party in Charleston, gained national notice for his high-profile battle with the White House over his resistance to federal stimulus funds designated for his state. The fate of those funds remains undecided as Sanford continues to battle with state lawmakers over how much of the $350 million in funds allocated for South Carolina his state will accept.
Perry spoke at three tea parties across Texas and helped promote the rallies during numerous radio and television interviews prior to the events.
The Texas governor generated widespread publicity after endorsing a state House resolution reaffirming the state’s sovereignty, a veiled shot at the president’s stimulus package.
“I believe that our federal government has become oppressive in its size, its intrusion into the lives of our citizens, and its interference with the affairs of our state,” Perry said at the time.
Perry drew praise from the conservative media for the move, but was widely derided by the left for suggesting that Texas may consider seceding from the union in protest of the stimulus.
Ayers said both governors “heard the frustration” of the tea party attendees and “understand that our Republican governors are the best positioned to lead on these issues."
The RGA, Ayers said, is hoping to use the town hall as a springboard for organizing support and fundraising for key gubernatorial races this year in Virginia and New Jersey.
Short Sales: How Everybody Loses From Banks' Opposition
HuffingtonPost.com contributor Arthur Delaney recently wrote an interesting piece on how all Americans are suffering because of how hesitant banks are to approve short sales. You can read a snippet the piece below, or check out full post here.
An empty house near Art David's home is stinking up the neighborhood.
The Naples, Fla. house has sat on the market since August 2007, and it's in lousy shape. The water and electricity have been cut off, leading to dead shrubs and thriving mold, and the pool, as David puts it, would be a worthy set-piece for the remake of "The Creature From The Black Lagoon."
"It smells like a rotting pond in the summer time," said David, a real estate agent, in an interview with the Huffington Post.
The home is one of thousands that are languishing on the market and heading toward foreclosure. In many cases, the properties remain unsold because the homeowners were prevented by the banks from completing a short sale -- where the homeowner sells the property for less than the value of its mortgage. Unable to find a buyer to pay the full price, the homes remain vacant until the bank forecloses on the property.
It isn't just the homeowner who gets hurt when a house sits vacant, but rather, the entire surrounding neighborhood is impacted. In fact, a damaged bank-owned property brings down the value of its next-door neighbors by 21 percent, on average, according to a survey of real estate agents by Campbell Communications.
The effects of property damage would be mitigated if banks were more accommodating to short sales, housing experts say.
"One of the best ways to reduce the number of damaged foreclosed properties is for these properties to be sold earlier as short sales," said the survey's author, Tom Popik, in an interview with the Huffington Post. "In many cases that's less of a loss for the mortgage investor and a better situation for the homeowner."
A majority of short sales -- 77 percent -- fail, mostly due to sluggishness on the part of lenders, the survey found. This is despite the fact that losses resulting from short sales average just 19 percent, compared with average losses of 40 percent in foreclosures, according to one study.
Popik's survey respondents reported average wait times of eight weeks before mortgage servicers provided "yes" or "no" answers on short sale offers. Agents said 37 percent of sales failed because the would-be buyer walked away rather than wait around -- a higher percentage than for any other reason. By contrast, asset managers waited on average just 11 days to respond to offers on foreclosed properties, according to the survey.
The Mortgage Bankers Association told the Huffington Post that mortgage servicers just aren't set up to handle the current volume of short sales. The National Association of Realtors said Tuesday that nearly half of all home sales in the first quarter were short sales or foreclosures. Popik found in his November 2008 survey that such sales accounted for 41 percent, with short sales clocking in at 12 percent of all sales.
Wash. Gov Oks Tax Cut For Newspapers
From the Seattle Times.com:
Gov. Chris Gregoire has approved a tax break for the state's troubled newspaper industry.
The new law gives newspaper printers and publishers a 40 percent cut in the state's main business tax. The discounted rate mirrors breaks given in years past to the Boeing Co. and the timber industry.
Newspapers across the country have resorted to layoffs and other cost-cutting moves to deal with a wounded business model and a recession-fueled drop in advertising.
IRS Reminds Small Tax-Exempt Organizations to File e-Postcards
The IRS recently put out a new press release reminding tax-exempt organizations to file “their annual electronic informational return with the IRS by the May 15 deadline.”
This is the second year of the new requirement for tax-exempt organizations whose gross annual receipts are normally $25,000 or less to file Form 990-N also known as e-Postcards. The process is fast and easy.
The May 15 deadline applies to all small organizations whose tax year ends on Dec. 31. Organizations whose tax year is different from the calendar year must file the e-Postcard by the 15th day of the 5th month after the close of their tax year.
“The leadership of these small organizations tends to change rather frequently, so it is important to remind everyone of this filing requirement,” said Lois Lerner, director of the IRS’s Exempt Organizations division. “It’s important for an organization to file. If it fails to do so for three consecutive years, it will automatically lose its tax-exempt status.”
Recession Hurts Medicare and Social Security
From Reuters.com:
The U.S. Social Security and Medicare retirement and health programs for the elderly will run short of funds sooner than previously thought because the recession has taken a toll on tax revenues, a government report released on Tuesday showed.
The Social Security trust fund will be exhausted by 2037, four years earlier than previously estimated, and the Medicare hospital trust fund will become insolvent by 2017, two years earlier than estimated, said a report by the trustees of the two popular programs.
Labor Secretary Hilda Solis said that "the dual effect of the economy and unemployment has produced a downward pressure on the financial security" of the Social Security program.
The latest report said Medicare's financial problems are more severe than those facing Social Security because of rapidly rising health-care costs.
Treasury Secretary Timothy Geithner said the report shows the urgency for the government to overhaul the two programs to help contain rising costs as the baby boom generation begins to retire and draw on benefits.
"The sooner we come together to make the difficult but achievable changes needed to strengthen the solvency of Medicare and Social Security, the more time we'll give the American people to plan and to adjust, and the sooner we'll be able to ensure that these vital programs will be as important for generations to come as they are today," Geithner, one of trustees of the two programs, said at a news conference.
For years, lawmakers have been concerned about the long term financing of the two programs as the 77 million strong baby boom generation retires.
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Wednesday, May 13, 2009
Missed the Tax Deadline? File Anyway
So, April 15 came and went and you didn’t file your taxes? Didn’t even get your extension filed in time? Well, I hate to be the bearer of bad news, but odds are you will be penalized when you finally do file.
If you didn’t file your taxes, it’s probably because you owe and can’t afford to pay, yet. If you were expecting a refund, you probably got your taxes filed on time, right? But I would caution you to file now, even if you can’t fully pay. Why?
Because you are shooting yourself in the foot! The IRS assesses interest on any unpaid taxes, and when you don’t file, they add on a failure-to-file penalty. The failure-to-file penalty adds 5% of your total tax bill per month! Every month you put off filing means more money you’ll end up owing. Even if you don’t have the money to fully pay your taxes, by filing now you can avoid any further failure to-file-penalties.
Thinking you’ll just file an extension? Think again. The IRS automatically denies any extension requests filed after midnight on April 15. Don’t even waste your time and postage.
So, file your taxes and pay the bill. Need help preparing your taxes—look up a Roni Deutch Tax Center. If you cannot pay the bill, you might want to look into establishing an Installment Agreement or Currently Not Collectible status. If you need help, give my firm a call.
Next year, make getting your taxes filed on time a priority.
If you didn’t file your taxes, it’s probably because you owe and can’t afford to pay, yet. If you were expecting a refund, you probably got your taxes filed on time, right? But I would caution you to file now, even if you can’t fully pay. Why?
Because you are shooting yourself in the foot! The IRS assesses interest on any unpaid taxes, and when you don’t file, they add on a failure-to-file penalty. The failure-to-file penalty adds 5% of your total tax bill per month! Every month you put off filing means more money you’ll end up owing. Even if you don’t have the money to fully pay your taxes, by filing now you can avoid any further failure to-file-penalties.
Thinking you’ll just file an extension? Think again. The IRS automatically denies any extension requests filed after midnight on April 15. Don’t even waste your time and postage.
So, file your taxes and pay the bill. Need help preparing your taxes—look up a Roni Deutch Tax Center. If you cannot pay the bill, you might want to look into establishing an Installment Agreement or Currently Not Collectible status. If you need help, give my firm a call.
Next year, make getting your taxes filed on time a priority.
Saving Money on Property Taxes in the Off Season
Now that tax season has passed, and you’ve got your tax plan for 2009 together (right?), what can you do to save money on taxes? Take a look at your property tax bill. Some experts estimate that 60% of homes are over assessed, meaning higher property tax bills. Property owners are able to apply for reduction in assessment from July 2 – September 15. And the reassessment process can be lengthy, so this is the time to start the process.
First things first, go over your own property tax assessment with a fine tooth-comb. Those records are available at your county assessor’s office. Make sure the square footage, number of bedrooms, bathrooms, etc., is correct. If everything lines up, then review your neighbors’ assessments. Don’t worry—it is all a matter of public record, so you are not invading anyone’s privacy. Review at least 5 neighbors’ records. Your assessment should be within 10% of the average.
If your assessment record is correct, and your assessment is comparable to your neighbors’, then you can argue that the property values have fallen, so you should be taxed at lower rates. Of course, this route involves an administrative review and possibly judicial hearings. Either way lengthens the timeline and can incur additional costs. However, reducing your property taxes can save you money for years to come.
First things first, go over your own property tax assessment with a fine tooth-comb. Those records are available at your county assessor’s office. Make sure the square footage, number of bedrooms, bathrooms, etc., is correct. If everything lines up, then review your neighbors’ assessments. Don’t worry—it is all a matter of public record, so you are not invading anyone’s privacy. Review at least 5 neighbors’ records. Your assessment should be within 10% of the average.
If your assessment record is correct, and your assessment is comparable to your neighbors’, then you can argue that the property values have fallen, so you should be taxed at lower rates. Of course, this route involves an administrative review and possibly judicial hearings. Either way lengthens the timeline and can incur additional costs. However, reducing your property taxes can save you money for years to come.
Tuesday, May 12, 2009
Change in Estate Tax Suggested to Pay for Health Care
From the New York Times.com:
Struggling to find ways to pay for the president’s signature health care overhaul, the administration on Monday proposed to raise nearly $60 billion more over 10 years mostly from tightening rules for inheritance taxes affecting the wealthiest estates.
The Treasury Department’s proposals, and several others affecting taxation of life insurance and some other financial products, are intended to fill a gap that has opened up in President Obama’s health care plans.
Revised estimates show that his main idea for financing the initiative — a 28 percent limit on deductions for Americans in the top two tax brackets — would raise $266.7 billion over a decade, not $318 billion as he had projected in his overall budget blueprint last February.
Filling that gap actually understates Mr. Obama’s problems in paying for reforming health care. The deductions limit has hit a wall of opposition in Congress, with the Democratic chairmen of the House and Senate tax-writing committees among others objecting that it could depress tax-deductible charitable contributions. The proposal accounts for half of Mr. Obama’s proposed $635 billion, 10-year reserve fund to introduce cost-saving changes into health care and to expand coverage to the uninsured; the other half would come from Medicare savings under the Obama budget.
The latest proposals to raise revenues are included in documents from the Treasury and the Office of Management and Budget that provide new details on the preliminary budget released in February, when the administration had been in office just a month.
More than $24 billion of the nearly $60 billion to be raised over 10 years would come from estate and gift taxes that would hit less than three-tenths of 1 percent of estates in any year, according to a senior Treasury official, who spoke to reporters on condition of anonymity.
State Tax Credits Attract Homebuyers
The State of California is beginning to see the light at the end of the tunnel as more people are purchasing new homes. According to the Sacramento Business Journal much of the improvement is because of a $10,000 statewide tax. Check out the text of their article below.
The California Building Industry Association said Monday that the availability of new-home tax credits may have helped boost sales in the Sacramento region and statewide in March.
The association reported figures compiled by Hanley Wood Market Intelligence showed new-home sales in Sacramento during the month were up almost 50 percent compared to February, when 201 homes were sold region-wide. But the total homes of all types sold in the region, 297, was still well below sales of 538 in March 2008.
Since the state credit went into effect March 1, more than 5,600 buyers have taken advantage of the program statewide, which provides up to $10,000 in state tax credits to anyone who buys a newly constructed home or condominium.
Gambler Gets Nearly 4 Years In Tax Scandal
From the Washington Post.com:
Connie Alexander was a compulsive gambler who must have thought she hit the jackpot when she met Harriette Walters, who showered her with lavish gifts and even helped pay for Alexander's 2006 wedding at a Las Vegas hotel.
Yesterday, the marker came due in what turned out to be a high-stakes crime.
Alexander, one of 10 people prosecuted for helping Walters embezzle millions of dollars from the D.C. tax office, was sentenced yesterday to almost four years in prison for her role in the massive fraud, which cost the District government almost $50 million.
Appearing before U.S. District Judge Alexander Williams Jr. in Greenbelt, Alexander, 53, of Bowie, apologized to her family, to the court, to the government and to the "people of D.C."
"I know sorry doesn't make it all go away, but I am truly sorry," she told Williams.
All 11 defendants in the case have pleaded guilty, and all have been sentenced except Walters, who is scheduled to learn her punishment next month in federal court in the District.
Alexander was the first defendant in the case to come forward to cooperate with government investigators, and her attorney, Aitan D. Goelman, asked the judge to impose only probation.
Williams, who has sentenced seven other defendants in the D.C. case, rejected that request, saying Alexander's actions, which netted her more than $3 million, called for "punishment."
"This is not a probation case, under no stretch of the imagination," Williams said. "No one has gotten probation, and no one should have gotten probation."
But the judge appeared to be moved by the defense presentation, which included the testimony of a gambling addiction expert from New York, letters from Alexander's friends, colleagues and relatives, and a tearful statement from Alexander.
"I'm not going to throw the book at her," the judge said, noting that Alexander appeared to be truly remorseful.
Alexander was working in a casino in 1992 when she met Walters, who was a regular patron of the gambling hall. The two became friends, and Walters would give her gifts of money that averaged $5,000. It was not until some time between 1998 and 2000 that Walters enlisted Alexander in the scheme, which involved issuing fraudulent property tax refund checks and by then was several years old.
At the direction of Walters, Alexander endorsed and deposited eight such checks totaling more than $1.5 million. Between 2000 and 2007, Alexander received 92 payments totaling almost $3.2 million.
Alexander had pleaded guilty to receiving stolen property and conspiracy to commit money laundering, and with credit for her cooperation, the sentencing guidelines called for a sentence of 46 to 57 months.
Goelman had argued that the extent of Alexander's cooperation merited more credit than other defendants in the case had received. But Assistant U.S. Attorney Jonathan C. Su, while acknowledging that the assistance was truthful and complete, declined to ask for additional credit, and Williams said he did not see cause to give Alexander a further break.
Climate Change Legislation To Generate $624 Billion In Tax Revenue
Earlier today I came across this interesting article on Examiner.com discussing the revenue Barack Obama’s climate change legislation could bring to the US in the next 10 years. I’ve included a snippet of their post below, but the full text can be found here.
The climate change legislation proposed by the Obama administration would generate $624 billion in revenue for the federal government over the next 10 years according to the administration's 2010 budget proposal. The cap-and-trade plan – or cap-and-tax plan as some call it – would place additional tax burdens on industry in the form of carbon emission fees.
Proponents see the measure as a way to help reduce carbon dioxide and greenhouse gasses which they view as the primary cause of global warming. Opponents on the other hand argue that those increased taxes will simply be passed on to consumers and result in a loss of jobs at a critical time in our weak economy.
According to the White House the bulk of the revenue would be returned to consumers by making permanent the tax credit Congress enacted earlier this year as part of the stimulus package. That credit resulted in a savings of $8 per week for the average American taxpayer. Other parts of the revenue would fund research and development of clean energy and climate science.
President Obama is hoping to have a deal in place on the climate change legislation before the Intergovernmental Panel on Climate Change’s (IPCC) meeting in Copenhagen in December. However, the measure is receiving no backing from Republican lawmakers and many Democrats are no longer in support of the legislation. John Dingell, a Democratic Michigan Congressman said, “Nobody in this country realizes that cap-and-trade is a tax – and it’s a great big one.”
Those opposed are concerned about the cost to consumers as industry will almost certainly pass on the cost of meeting the requirements of the cap-and-tax. The U.S. Chamber of Commerce recently studied the measure and determined it would cost each household $1,400 per year and result in 1.9 million in job losses. Other estimates have ranged to as high as $3,000 per household and all far exceed the $8 per week tax credit the legislation would give consumers.
Monday, May 11, 2009
The 5 Biggest Tax Protests in U.S. History
There have been many instances throughout United States history where citizens and taxpayers have stood up to revolt against taxes they felt were being unfairly imposed. Recently, we saw the libertarian and conservative inspired “Tea Party” rallies on tax day, but this was neither the first nor the last time we will hear about tax protests. As long as governments are levying taxes, there are always going to be people who do not want to pay them. To help my readers gain a better understanding of the history of tax protests, I have put together the following list of the 5 biggest tax protests in US history.
The Stamp Act of 1765
After the British victory in the Seven Years War, the British government felt the American colonies should pay off some of the war’s debt with a new tax. They chose to tax a wide selection of printed materials, such as stamps, to repay the debt. Since the English bill of rights – the Magna Carta – granted citizens the right to only be taxed with proper consent, the colonists felt the new tax was unfair and revolted. By 1766, the tax was repealed, but not before the British Parliament was given the power to legislate over the colonists in the future, which would lead to the American Revolution.
The Boston Tea Party
One of the most famous protests in history, the Boston Tea Party, has become a symbol of American independence. The historic event took place when hundreds of Boston residents dressed as Native Americans and threw hundreds of pounds of East India Trading Company tea bags in to the sea. There were several different reasons they did this, but the most common of which was the lack of colonial representation in the British government.
The Whiskey Rebellion
In 1791, during Washington’s presidency, taxes were raised in the U.S. on whiskey to pay off a national debt. The Secretary of Treasury at the time (Alexander Hamilton) said it was both a way to raise revenue and to enforce social policy. However, it upset the American public enough to start a tax rebellion that led to a series of violent protests.
Proposition 13
The people of California approved Proposition 13 in 1978, which resulted in a cap on property tax rates in the state, reducing them by an average of 57%. In addition to lowering property taxes, the initiative also contained language requiring a two-thirds majority in both legislative houses for future increases in all state tax rates or amounts of revenue collected, including income tax rates. It also requires two-thirds vote majority in local elections for local governments wishing to raise special taxes. The act of passing the legislation is claimed to be one of the most successful acts of tax protest in American history, and pre-saged the election of Ronald Reagan to the U.S. presidency in 1980. It was upheld as constitutional by the United States Supreme Court in the case of Nordlinger v. Hahn in 1992.
The Tea Party Protests of 2009
The recent “Tea Party” protests have been called the biggest protest in the country’s history. However, there has yet to be any official confirmation on the exact number of participants. Estimates say that roughly 650,000 decided to protest federal taxation on April 15, 2009. The people involved stated many reasons for their protests, including but not limited to out-of-control federal government spending and federal bailouts. The protesters also objected to alleged future tax increases, including those on capital gains and dividends, energy, death tax, and those earning more than $250,000 a year. As of late, there have been calls by party organizers to host another round of protests on July 4, 2009.
U.S. Threatens To Rescind Stimulus Money Over Wage Cuts
From the LATimes.com:
Reporting from Sacramento -- The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the budget.
Schwarzenegger's office was advised this week by federal health officials that the wage reduction, which will save California $74 million, violates provisions of the American Recovery and Reinvestment Act. Failure to revoke the scheduled wage cut before it takes effect July 1 could cost California $6.8 billion in stimulus money, according to state officials.
The news comes as state lawmakers are already facing a severe cash crisis, with the state at risk of running out of money in July.
The wages at issue involve workers who care for some 440,000 low-income disabled and elderly Californians. The workers, who collectively contribute millions of dollars in dues each month to the influential Service Employees International Union and the United Domestic Workers, will see the state's contribution to their wages cut from a maximum of $12.10 per hour to a maximum of $10.10.
The SEIU said in a statement that it had asked the Obama administration for the ruling.
The cut was highly contentious during last winter's budget talks. Republican lawmakers insisted that the rapidly growing, multibillion-dollar state program, In Home Supportive Services, be scaled back significantly.
Democrats fought major reductions in the program, which they say is a cost-effective alternative to nursing-home care, but ultimately compromised.
Reversing the wage cut would require a two-thirds vote of the Legislature, meaning Republican support would be needed.
Schwarzenegger on Wednesday sent U.S. Secretary of Health and Human Services Kathleen Sebelius a letter urging the federal government to reconsider.
Evidence Piling Up That Worst Of Recession Is Over
More and more experts are beginning to weigh in on their opinion that the recession has already hit its peak. You can find a segment of an Associated Press article discussing the topic below, or find the full story here.
Evidence is piling up that the worst part of the recession has ended. But that doesn't mean the pain is over.
A better-than-expected unemployment report Friday -- job losses declined to the lowest level in six months -- capped a week of encouraging news, including firmer home sales, a revival in consumer spending and fresh optimism about the biggest U.S. banks.
The economy remains vulnerable to further shocks, and 13.7 million people are unemployed. The jobless rate rose to 8.9 percent in the new report and still seems headed for a stinging 10 percent.
Yet confidence is building that the recession, the longest since the Great Depression, will end this summer or fall, setting the stage for a slow recovery.
Pointing to recent improvements, President Barack Obama said Friday "the gears of our economic engine do seem to be slowly turning once again."
By some measures, the darkest months have passed. The plunges in economic activity and rising waves of layoffs, seen from the end of 2008 through the start of this year, seem to have subsided.
"The winds are still howling, but I think we can see the sunlight on the distant horizon," said Mark Zandi, chief economist at Moody's Economy.com. "Clearly, the job losses are moderating."
Wall Street investors could see the sunlight, too. The Dow Jones industrials gained nearly 165 points and finished 4.4 percent higher for the week. It was the eighth gain for the index in nine weeks.
The economy probably is still shrinking in the current quarter but only at about half the pace -- around 3 percent -- that it had in the prior six months, the worst in 50 years. Businesses are expected to be cutting back far less on things like home building, commercial construction, equipment and software. And factories could then boost production to replenish razor-thin stockpiles of goods.
Many believe the economy could start growing again by summer or, more likely, by the final quarter of this year, as the impact of tax cuts and increased government spending on big public works projects contained in Obama's $787 billion stimulus package takes hold.
Job losses are expected to continue through the rest of the year, but are likely to be smaller in number.
Losses averaged 700,000 a month in the first quarter but dropped to 539,000 in April, according to Friday's Labor Department report. They should average around 500,000 in the current quarter and taper off to 250,000 a month in the final quarter of the year, according to some projections.
That's probably cold comfort to Tara Barrone, 28, of McLean, Va., who was checking out job prospects at the Secret Service at a career fair Friday.
"Government jobs are popular because of the sense of stability," she said. "I know I'm looking for a sense of security and permanency after being laid off twice in the last year." The lines at the Secret Service booth were much longer than at other recruiters.
Timing May Never Be Better On Roth IRA Conversions
From the ChicagoTribune.com:
Joe Cunningham is convinced that income taxes are going up, even for middle-class people like him.
Attempts to fix the economy can't work without an enormous tax increase, the Pasadena, Md., retiree said: "It will be on everybody who pays taxes, which ultimately always is the working class or retired working class."
For that reason, the 68-year-old wants to convert his traditional individual retirement account to a Roth IRA. By doing so, he'll have to pay regular income tax now on the funds he transfers to the Roth. But from then on, money coming out of the Roth will be tax-free. So no matter how high taxes go, Cunningham won't have to worry.
If he's right about taxes, his timing to convert couldn't be better.
Tax rates are historically low now. IRA account values also have fallen with the markets, so there are fewer gains to tax during a conversion. And the outlook for higher federal income taxes is good--at least for those in the top two brackets. President Barack Obama favors raising the rates on families making more than $250,000. Even if Uncle Sam doesn't raise income taxes on those making less than that, cash-strapped states might do so, said Ed Slott, an accountant and IRA expert. That's another factor favoring the Roth.
IRAs give you the choice of receiving a tax break upfront or on the back end.
A traditional IRA rewards you on the front end, where contributions often are deductible. Once you take money out in retirement, you pay regular income tax on the earnings and any deductible contributions.
Money goes into a Roth after taxes have been paid on it, but comes out tax-free in retirement. Basically, you're better off with a Roth IRA if you expect to be in a higher tax bracket in retirement than while working.
So should you, like Cunningham, make the switch?
There are several factors, besides the tax outlook, you need to consider.
Right now, only singles and married joint filers with adjusted gross incomes up to $100,000 can convert a traditional IRA into a Roth. Next year, that cap disappears. And if you convert to a Roth IRA next year only, you will be able to spread the tax bite over 2011 and 2012.
You shouldn't convert if you will need to take the money out of the Roth within five years. If you do so, you will trigger taxes on the earnings withdrawn, Slott said. Plus, you can be hit with a stiff penalty if you're under age 591/2.
"There is really no benefit today, or next year or two years" for converting, said Jim Sloan, a financial adviser in Friendswood, Texas. "The benefits are five, 10 or 15 years from now" when your Roth has had time to grow, he said.
Don't convert if you don't have money outside the IRA to pay your tax bill. Using IRA cash to pay taxes means fewer dollars going into the Roth. Plus, that cash will be subject to an early withdrawal penalty if you're under age 591/2.
As an alternative, you could convert only part of your IRA to reduce the tax bite to an amount you can afford to pay out-of-pocket, Slott suggested. For retirees who don't need the money, the Roth has another attractive feature: No required distributions after age 70 1/2.
To see whether a conversion makes sense for you, check out the Morningstar IRA calculator on T. Rowe Price Associates' Web site (troweprice.com). Click on "individual investors," then "tools and calculators."
Of course, there is no guarantee taxes will go up.
That's why Joel Dickson, a tax expert with the Vanguard Group, recommends a mix of traditional and Roth IRAs as a hedge against whatever happens to tax rates.
If you regret converting, you have a certain amount of time to switch the Roth back to a traditional IRA and have the money you paid in taxes returned, Slott said. You will need to contact the custodian of your IRA and file Form 8606 with your federal tax return to convert, Sloan said.
Fed Sees Up to $599 Billion in Bank Losses
The Federal government has reported that they believe that 19 of the largest US banks could suffer major losses over the next year if the economy does get worse. Check out the article below courtesy of the WallStreetJournal.com.
The federal government projected that 19 of the nation's biggest banks could suffer losses of up to $599 billion through the end of next year if the economy performs worse than expected and ordered 10 of them to raise a combined $74.6 billion in capital to cushion themselves.
The much-anticipated stress-test results unleashed a scramble by the weakest banks to find money and a push by the strongest ones to escape the government shadow of taxpayer-funded rescues.
The Federal Reserve's worst-case estimates of banks' total losses and capital shortfalls were smaller than some had feared. Optimists interpreted the Fed's findings as evidence that the worst is over for the industry. But questions remain about the stress tests' rigor, in part since the Fed scaled back some projected losses in the face of pressure from banks.
The government's tests measured potential losses on mortgages, commercial loans, securities and other assets held by the stress-tested banks, ranging from giants Bank of America Corp. and Citigroup Inc. to regional institutions such as SunTrust Banks Inc. and Fifth Third Bancorp. The government's "more adverse" scenario includes two-year cumulative losses of 9.1% on total loans, worse than the peak losses of the 1930s.
Treasury Secretary Timothy Geithner said Thursday that he is "reasonably confident" that banks will be able to plug the capital holes through private infusions, alleviating the need for Washington to further enmesh itself in the banking system.
Banks also said they will consider selling businesses or issuing new stock to meet the toughened capital standards.
The information provided by the stress tests will "make it easier for banks to raise new equity from private sources," Mr. Geithner said. Still, he added, "We have a lot of work to do...in repairing the financial system."
Some of the banks told to add capital raced to accomplish that by tapping public markets. On Thursday, Wells Fargo & Co., which the Fed said needed to raise $13.7 billion, laid plans for a $6 billion common-stock offering. Morgan Stanley, facing a $1.8 billion deficit, said it will sell $2 billion of stock and $3 billion of debt that isn't guaranteed by the U.S. government.
If successful, the offerings "should be a meaningful step in restoring a modicum of confidence to the banks," said David A. Havens, a managing director at Hexagon Securities. "It indicates that even the big messy banks are able to attract private capital."
Shares of more than a dozen stress-tested banks rose in after-hours trading as the government's announcement soothed jitters about the industry's immediate capital needs. Bank of America shares climbed 3.6% to $13.99, while Citigroup was up 6.3% to $4.05. Fifth Third jumped 19% to $6.35. SunTrust fell 2.5% to $18.05, and Wells Fargo slipped 0.9% to $24.54.
Nine of the stress-tested banks -- including titans like J.P. Morgan Chase & Co. and Wall Street's Goldman Sachs Group Inc. as well as several regional institutions -- have adequate capital. That finding essentially represents a seal of approval from the Fed.
The others need to raise anywhere from about $600 million for PNC Financial Services Group Inc. to $33.9 billion for Bank of America. In between are several other regional lenders: Fifth Third, which needs to raise $1.1 billion; KeyCorp, $1.8 billion; Regions Financial Corp., $2.5 billion; and SunTrust, $2.2 billion.
Tax Dodge Myths- Are Multinationals Not Paying Their Fair Share?
From NewsWeek.com:
The U.S. tax code is "full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share." —President Obama, May 4
Like it or not, ours is a world of multinational companies. Almost all of America's brand-name firms (Coca-Cola, IBM, Microsoft, Caterpillar) are multinationals, and the process works both ways. In 2006, the U.S. operations of foreign firms employed 5.3 million workers. Fiat's looming takeover of Chrysler reminds us again that much business is transnational.
For most people, the multinational company is a troubling concept. Loyalty matters. We like to think that "our companies" serve the broad national interest rather than just scouring the world for the cheapest labor, the laxest regulations and the lowest taxes. And the tax issue is especially vexing: How should multinationals be taxed on the profits they make outside their home countries?
Listen to President Obama, and the status quo seems a cesspool. Pervasive "loopholes" engineered by "well-connected lobbyists" allow U.S. multinationals to skirt American taxes and outsource jobs to low-tax countries. So the president proposes plugging loopholes. Some jobs will return to the United States, he said, and U.S. tax coffers will grow by $210 billion over the next decade.
Sounds great—and that's how the story played. "Obama Targets Overseas Tax Dodge," headlined The Post. But the reality is murkier; the president's accusatory rhetoric perpetuates many myths.
Myth: Aided by those overpaid lobbyists, American multinationals are taxed lightly -- less so than their foreign counterparts.
Reality: Just the opposite. Most countries don't tax the foreign profits of their multinational firms at all. Take a Swiss multinational with operations in South Korea. It pays a 27.5 percent Korean corporate tax on its profits and can bring home the rest tax-free. By contrast, a U.S. firm in Korea pays the Korean tax and, if it returns the profits to the United States, faces the 35 percent U.S. corporate tax rate. American companies can defer the U.S. tax by keeping the profits abroad (naturally, many do), and when repatriated, companies get a credit for foreign taxes paid. In this case, they'd pay the difference between the Korean rate (27.5 percent) and the U.S. rate (35 percent).
Myth: When U.S. multinationals invest abroad, they destroy American jobs.
Reality: Not so. Sure, many U.S. firms have shut American factories and opened plants elsewhere. But most overseas investments by U.S. multinationals serve local markets. Only 10 percent of their foreign output is exported back to the United States, says Harvard economist Fritz Foley. When Wal-Mart opens a store in China, it doesn't close one in California. On balance, all the extra foreign sales create U.S. jobs for management, research and development (almost 90 percent of American multinationals' R&D occurs in the United States), and the export of components. A study by Foley and economists Mihir Desai of Harvard and James Hines of the University of Michigan estimates that for every 10 percent increase in U.S. multinationals' overseas payrolls, their American payrolls increase almost 4 percent.
Myth: Plugging overseas corporate tax loopholes will dramatically improve the budget outlook as multinationals pay their "fair" share.
Reality: Dream on. The estimated $210 billion revenue gain over 10 years—money already included in Obama's budget—represents only six-tenths of 1 percent of the decade's tax revenue of $32 trillion, as projected by the Congressional Budget Office. Worse, the CBO reckons that Obama's endless deficits over the decade will total a gut-wrenching $9.3 trillion.
Whether Obama's proposals would create any jobs in the United States is an open question. In highly technical ways, Obama would increase the taxes on the foreign profits of U.S. multinationals by limiting the use of today's deferral and foreign tax credit. Taxing overseas investment more heavily, the theory goes, would favor investment in the United States.
But many experts believe his proposals would actually destroy U.S. jobs. Being more heavily taxed, American multinational firms would have more trouble competing with European and Asian rivals. Some U.S. foreign operations might be sold to tax-advantaged foreign firms. Either way, supporting operations in the United States would suffer. "You lose some of those good management and professional jobs in places like Chicago and New York," says Gary Hufbauer of the Peterson Institute.
Thursday, May 07, 2009
U.S. Stocks Rise to Four-Month High as Banks Jump on Tests
From Bloomberg.com:
U.S. stocks advanced to a four-month high as investors speculated banks don’t need as much capital as had been projected and a report showed employers cut fewer jobs than economists estimated.
Citigroup Inc. surged 17 percent as people familiar with the matter said the lender needs only about $5 billion. Zions Bancorporation, the Salt Lake City-based bank, jumped 26 percent on expectations it will be able to raise capital, while Lincoln National Corp. rallied 33 percent on earnings that topped estimates. The gains also came after ADP Employer Services said companies eliminated 491,000 jobs in April, 154,000 fewer than the average economist estimate in a Bloomberg survey.
“I’m truly impressed that the market has held up, led by financials,” said Keith Wirtz, who helps oversee $20 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. “There was so much noise surrounding the stress tests. Maybe people are starting to feel enough confidence that we’ll put this behind us and the world will continue.”
The Standard & Poor’s 500 Index added 1.7 percent to 919.53 at 4:08 p.m. in New York, its highest close since Jan. 6. The Dow Jones Industrial Average rose 101.63 points, or 1.2 percent, to 8,512.28. Europe’s Dow Jones Stoxx 600 Index climbed 1.4 percent, while the MSCI Asia Pacific Index rose 0.5 percent. Almost two stocks gained for each that fell on the New York Stock Exchange.
IRS Reminds Small Tax-Exempt Organizations to File e-Postcards
In a new press release the IRS is reminding “many small tax-exempt organizations to file their annual electronic informational return with the IRS by the May 15 deadline.”
This is the second year of the new requirement for tax-exempt organizations whose gross annual receipts are normally $25,000 or less to file Form 990-N also known as e-Postcards. The process is fast and easy.
The May 15 deadline applies to all small organizations whose tax year ends on Dec. 31. Organizations whose tax year is different from the calendar year must file the e-Postcard by the 15th day of the 5th month after the close of their tax year.
“The leadership of these small organizations tends to change rather frequently, so it is important to remind everyone of this filing requirement,” said Lois Lerner, director of the IRS’s Exempt Organizations division. “It’s important for an organization to file. If it fails to do so for three consecutive years, it will automatically lose its tax-exempt status.”
Obama Seeks to Double Tax Law Enforcement Budget
From Reuters.com:
President Barack Obama proposed on Thursday nearly doubling funds to enforce U.S. tax laws next year, with an aim of more than quadrupling funding for tax compliance to $2.1 billion within five years.
The budget plan seeks $12.1 billion for the Internal Revenue Service, responsible for collecting and enforcing individual and corporate tax laws, for fiscal 2010, which begins October 1. That amounts to a roughly 5.2 percent increase over the IRS budget for 2009, which was $11.5 billion.
The budget proposal, which must be approved by Congress, includes a $890 million request to boost tax enforcement, including in the international arena, an increase of $400 million from 2009.
Underreporting of income by individuals and businesses led to a "tax gap" of $345 billion in 2001, the most recent year available, according to the government. Of that, corporate income tax and employment tax underreporting made up about $84 billion, according to a report by the Government Accountability Office.
The Obama administration said it would use the funds to further expand its efforts to boost compliance outside the U.S., "placing greater scrutiny on cross-border transactions and tax issues."
Earlier this week, Obama unveiled a series of proposals to overhaul mainly corporate tax rules and close loopholes in an effort he said would raise $210 billion over 10 years.
Included was a proposal to tighten rules on financial institutions that hold money abroad for U.S. citizens.
Latest Good Reads
E-file Hits Record 90 Million; 30 Million Filed From Home Computers.
The Tax that Dare not Speak its Name.
Taxes, Prices, and Consumer Protection.
A Noxious Environment: Bullying in the Workplace.
Will Multinational Corporations Survive the Coming Tax Changes?
Obama’s Plan on Corporate Taxes Unnerves the Indian Outsourcing Industry.
Wednesday, May 06, 2009
Chrysler Owes U.S. Tax Payers 350,000 Cars---That You'll Never Drive
In filing for bankruptcy, Chrysler will be able to avoid paying back a $7 billion bailout debt owed to US taxpayers. You can read a segment of an Examiner.com article examining the topic below, or read the full post here.
You know when the sentence begins with the words, "This revelation was buried within Chrysler's bankruptcy filings," it can't be good news.
And it certainly is not good news for the Obama administration or for Chrysler.
CNN is reporting that, "Chrysler LLC will not repay U.S. taxpayers more than $7 billion in bailout money it received earlier this year and as part of its bankruptcy filing."
The story goes on to detail how Chrysler recent bankruptcy was structured, and I fear you can probably guess the rest.
The rest being that a deal that was struck in some back rooms in Washington leaving the U.S. tax payer with pretty much nothing to show for the $7 billion bailout given to Chrysler so far.
"The reality now is that the face value [of the $4 billion bridge loan] will be written off in the bankruptcy process," said the official, who added that the 8% equity stake that Treasury will be receiving as part of the company's reorganization is meant to compensate taxpayers for the lost money," CNN goes on to report.
If you do the math, and as a journalist I must confess that I'm really bad at math, you'll eventually arrive at the number 350,000.
That's the number of Chrysler cars the Federal government could have purchased with $7 billion dollars---if you consider that each car costs $20,000.
It is hard not to wonder what 350,000 more car sales would have meant to Chrysler's business had the Fed decided to use the money to buy cars instead of underwrite questionable---no make that---bad loans.
It might have meant that Chrysler would not be in bankruptcy as 350,000 car sales would have represented a serious boost to its bottom line.
AIG Reveals $454 Million In 2008 Performance Bonuses
From Reuters.com:
Embattled insurer American International Group (AIG.N) paid some $454 million in previously undisclosed performance bonuses to employees for 2008, the company said in answers to questions from a U.S. lawmaker that released on Tuesday.
AIG was widely criticized for paying out some $165 million in retention bonuses after it received some $180 billion in government bailout aid. Some of the retention bonuses were returned by employees after the firestorm of criticism.
The company told Representative Elijah Cummings, a Maryland Democrat, the performance bonuses were paid out by operating units, across the company's operations in some 120 countries.
Payments ranged from an average of $5,403 to employees of its property-casualty group, to $51,026 on average for those in its asset management group.
The payments are in addition to an about $120 million corporate bonus pool designated for holding company employees and executives at subsidiary companies.
The performance bonus plans for the various AIG units were set before the company teetered on the brink of bankruptcy, forcing them to take government aid last September.
The payments are separate from $1 billion in retention payments to entice employees to stay with the company.
Roni Deutch Franchisee Reinvents Himself
One of our Roni Deutch Tax Center franchisees, Paul Nuti of New Jersey, was featured in a NJ.com story on former financial executives reinventing themselves. You can find the clip about Paul below, and the full story can be read here.
Paul Nuti was laid off from Morgan Stanley at the end of 2007, after working there 26 years.
The Wyckoff resident was chief financial officer for Morgan Stanley's global private wealth management business, which focused on high net worth investors.
Nuti, 49, is now opening five Roni Deutch Tax Centers in Bergen County.
"I initially began looking for a similar job with a Wall Street firm," he said. "I had many interviews and was close on a few occasions to finding another position, but in the end it didn't work out for one reason or another."
A franchise consultant steered him to Roni Deutch Tax Centers in 2008. "At Morgan Stanley, the business unit that I ran used to lend to franchises, and I thought this might be a good investment for the future."
Roni Deutch, named for a television personality, provides tax preparation, legal and debt resolution services for individuals and small businesses. It cost about $45,000 to buy a franchise, and another $40,000 to $60,000 to get up and running.
He figures it will take two years for his stores to generate consistent cash flow so he can approach his previous Wall Street salary of between $400,000 to $600,000 a year.
New Standards Could Cut Tax Breaks For Corn-Based Ethanol
From the LA Times.com:
The Obama administration on Tuesday proposed renewable-fuel standards that could reduce the $3 billion a year in federal tax breaks given to producers of corn-based ethanol. The move sets the stage for a major battle between Midwest grain producers and environmentalists who say the gasoline additive actually worsens global warming.
For much of the last decade, federal officials have touted the potential of corn ethanol as a substitute for gasoline and a tool for reducing global warming and foreign oil dependence.
However, environmentalists and others have questioned the wisdom of that support.
A recent Congressional Budget Office study found that increased ethanol production was responsible for 10% to 15% of last year's increased U.S. food costs. And the rush to produce more corn for fuel has had a global environmental impact as forests and other vegetation have been cleared to make way for cropland.
The Environmental Protection Agency's climate-change rules are subject to public comment and revision before they become final. And exactly how big their impact will be on corn producers' tax breaks depends how corn ethanol is determined to affect the environment.
The wide range of possibilities was evident in the EPA's analysis of various fuels' contributions to global warming. Corn ethanol could be substantially worse for the climate than traditional gasoline, or it could be substantially better -- depending on how it is produced and on the accounting methods the EPA settles on for tallying its greenhouse gas emissions.
"The rules are kind of in the category of wait-to-see-what-happens," said Rodney Weinzierl, executive director of the Illinois Corn Growers Assn.
However, industry officials were cheered Tuesday by the announcement that nearly $1 billion in stimulus funds would go toward advanced biofuel research and that the government would take new steps to promote ethanol-powered cars and fueling stations.
Although biofuels as a whole -- including those made from grasses and even algae -- are considered promising alternatives to petroleum, some researchers have begun challenging the use of corn for this purpose.
In particular, they point to the "indirect land-use" effects of pulling corn out of the world food supply, which could force farmers in developing nations to clear rain forests -- and release massive amounts of carbon dioxide in the process -- in order to plant corn.
Congress in 2007 mandated an increase in biofuel production, peaking at 36 billion gallons a year by 2022. It also called for corn ethanol to emit 20% fewer greenhouse gases than gasoline, and ethanol made from crops such as switchgrass or wood chips to release 60% less.
The EPA rules proposed Tuesday include indirect land-use calculations in tallying emission. Many crops grown specifically for biofuels, such as switchgrass, pass the test easily. In many cases, corn and soy-based biodiesel do not.
The move comes on the heels of a California Air Resources Board decision last month to factor indirect land use into the state's renewable fuels standard.
Nathanael Greene, director of renewable energy policy for the Natural Resources Defense Council, said that the administration "looked at the science and decided they were going to do the best analysis they could on land-use impacts. . . . They stuck by it through a lot of political pressure."
Industry groups seized on the EPA's pledge to conduct "peer reviews" of the science underlying indirect land-use analysis, which ethanol interests and many independent scientists say has too high an error margin to be used when calculating a fuel's emissions.
Tuesday, May 05, 2009
Obama's Tax Plans Raises High-Tech Hackles
From the Associated Press:
President Barack Obama's plan to impose U.S. taxes on corporate America's overseas profits threatens to open a big crater in the financial statements of technology companies.
While additional taxes are rarely popular, Obama's decision to go after corporate earnings outside the United States is a particularly prickly subject for technology executives because the industry has been steadily boosting its overseas sales amid rising demand for its gadgetry and services.
If Obama's proposal becomes law, the hard-hit companies would include tech bellwethers like Hewlett-Packard Co., IBM Corp., Cisco Systems Inc., Microsoft Corp. and Google Inc. Each of those companies realized a benefit of more than $1 billion from lower foreign tax rates in their most recent fiscal years — an advantage that could lost if Obama is able to change the rules.
"It would be like an earthquake for high tech," said Carl Guardino, chief executive of Silicon Valley Leadership Group, an industry trade association. "On a Richter scale of 1 to 10, this would be a 12."
Collectively, HP, IBM, Cisco, Microsoft and Google lowered their tax bills by a combined $7.4 billion in their last fiscal years by taking advantage of lower tax rates outside the United States, according to an analysis by The Associated Press.
Through the years, these five tax companies have avoided U.S. income taxes and foreign withholding taxes on a combined $72 billion in undistributed earnings from their foreign operations.
While Obama's proposal might not tax all the money U.S. companies keep overseas, it apparently would target a big chunk. Obama estimated his plan would raise a total of $210 billion, or an average of about $21 billion annually, over a 10-year period.
By reinvesting their earnings overseas, U.S. companies insulate themselves from much higher tax rates had the money been made in their home country.
Google, for instance, would have been hit with an effective tax rate of 45.2 percent instead of 27.8 percent last year if it hadn't been able to capitalize on lower rates overseas, according to the Mountain View-based company's annual report. Without the lower foreign rates, Google's 2008 tax bill would have been $1.02 billion higher. Google's income before taxes totaled $5.85 billion last year.
Obama has been strongly supported so far by Google CEO Eric Schmidt, who campaigned for the president last year and has subsequently served as a technology adviser.
Google spokesman Adam Kovacevich said Monday it was too early to evaluate how Obama's tax proposal might affect the Internet search leader's operations because the idea is likely to be revised as it wends its way through Congress.
HP reaped a $1.77 billion benefit in its fiscal 2008 from lower foreign tax rates while Cisco and Microsoft each saw benefits of more than $1.6 billion, according to the companies' annual reports. IBM's foreign tax advantage last year totaled about $1.3 billion.
The high-tech industry isn't the only beneficiary from the current tax rules. General Electric Co., for instance, lowered its effective tax rate by nearly 27 percent last year by keeping profits outside the United States. That saved the company more than $5 billion in potential U.S. taxes.
And offshore earnings enabled drug maker Johnson & Johnson to lower its effective tax rate by 12.4 percentage points last year, saving about $2 billion.
Obama reasons that U.S. companies will create more jobs in the United States if there is less of an advantage to setting up operations overseas.
But Guardino disagrees, maintaining that high-tech firms and other U.S. companies are establishing more foreign offices to take advantage of their biggest growth opportunities. And as they bring in more revenue overseas, companies are also able to hire more workers in the United States as well as in other countries, Guardino said.
As it is, Google already generates more than half its revenue outside the United States and that percentage is expected to increase as more people around the world go online and gravitate to the company's services.
If they face higher taxes on their foreign earnings, high-tech companies will be at a competitive disadvantage that will discourage them from expanding their payrolls, Guardino said.
The Tax Consequences of Common Business Entities
Last week the RDTC Tax Help Blog posted an informative entry on the tax consequences of the 5 most common business entities in the US. Check out the text of the article below.
1. Sole Proprietors
With a sole proprietorship, there is no distinction between the person who owns the business and the business itself. Because of this, the sole proprietor is liable for any legal disputes against the business, as well as all tax liabilities. Specifically, the business owner is liable for income and self-employment taxes on all business profits. There are numerous disadvantages of sole proprietorships but one advantage is that an owner can hire their children and not have to pay payroll taxes. Sole proprietors also have the advantage of not being charged a penalty should they dissolve the business.
2. General Partnership
A general partnership is pretty similar to a sole proprietorship, however the liability is spread between multiple taxpayers, instead of just one person. While both sole proprietorships and general partnership give you more tax flexibility, it comes at the expense of also being more liable both legally and financially.
3. Limited Liability Companies (LLCs)
A great advantage of an LLC is the benefit of no double taxation. You also receive more flexible tax options. An LLC owner can choose between having the business taxed separately as its own entity, or decide to have the taxes pass down like with a partnership or sole proprietorship. This flexibility and added insurance has made LLCs a good option for many business owners in this country.
4. Corporation
If you choose to incorporate your business, the corporation will be taxed at it's own corporate tax rate. While sole proprietors see flow-through income, C-corporations, encounter “double taxation.” Meaning the corporation is taxed for the income it earns, then, the individual shareholder is also taxed on their income. However, C-corporations do get to enjoy a wide range of tax deductions for business losses and fringe benefits.
5. S-Corporation
In addition to C-corporations, the IRS also recognizes what is known as an S-Corporation. You can make the change simply by filing Form 2553 with the IRS. As opposed to C-corporations, an S-corporation is not taxed separately, but more like a partnership or sole proprietorship would be. Therefore the biggest benefit is that S-corporation owners can avoid being double taxed on their income.
Other Considerations: State Taxes
Buffett: Better To Buy Equities Over Time
From the Wall Street Journal.com:
Warren Buffett, one of the world's richest men, reiterated his support for the controversial estate tax, which levies a tax of up to 55% on the estates of the wealthy.
He called the tax a "good way to collect money" in a time when the government needs to collect more in taxes.
Buffett of Berkshire Hathaway Inc. made the comments Monday in an interview with Liz Claman that was aired on Fox Business Network.
Buffett estimated the estate tax raises about $25 billion a year, which amounts to about 1% of the revenue of the country.
"If you don't get it from estate tax," it would need to be replaced he said, and he said he has seen no proposal for making up the money.
Buffett is donating most of his own holdings to a charitable foundation run by Bill Gates, chairman of Microsoft Corp., who also spoke during the interview in support of the tax. Buffett also advised investors to invest in equities regularly over time rather than try to time the market.
"This is a poor time to buy government bonds," he said.
Buffett also said that commercial real estate will continue to fall in value. Values "will hit the skids big time," he said.
He responded to criticism of credit rating agencies by saying investors should not rely on ratings to make investing decisions. Berkshire owns about 20% of the company that owns Moody's Investors Service. The agencies have been criticized in the past year for giving good ratings to securities that ended up posting big losses.
During Berkshire Hathaway's annual meeting over the weekend, Buffett said the company had earned $1.7 billion in operating earnings for the first quarter, down 10% from $1.9 billion a year earlier. The company will report full earnings on Friday.
Buffett also said some of the derivatives contracts the company has written in recent years will probably lose money.
Buffett has criticized derivatives contracts over the years but revealed that he more than doubled the number of derivatives contracts he held in 2008 to 251 because the contracts were "mispriced."
Coca-Cola, Oracle, Intel Use Cayman Islands to Avoid U.S. Taxes
Coca-Cola, Tyco International, and Seagate Technology (the worlds largest producer of hard drives) are among the companies accused of avoiding taxes by having offshore locations. If passed into law, President Obama’s recent tax plans would likely force all of these corporations to pay higher taxes. Check out a snippet of the article below or read the full story at Bloomberg.com explaining why so many US companies would be affected.
Seagate Technology, the world’s largest maker of hard disk drives, is headquartered in Scotts Valley, California. Yet the documents it files with the Securities and Exchange Commission list its address on South Church Street in George Town, the capital of the Cayman Islands.
Seagate is just one of the companies that may be affected by President Barack Obama’s proposal yesterday to raise about $190 billion over the next decade by outlawing techniques used by U.S. companies in offshore locations to avoid paying taxes. While the U.S. corporate tax rate is 35 percent, Seagate paid an effective tax rate of 5 percent in the year ended June 2008, according to data compiled by Bloomberg.
The Caymans have no corporate income tax for companies incorporated there. The Caribbean island has helped scores of U.S. companies, including Coca-Cola Co. and Oracle Corp., to legally avoid billions in tax payments to the U.S. government, says U.S. Senator Byron Dorgan.
“Our Main Street businesses are working hard during this economic downturn to pay their fair share of taxes,” says Dorgan, 66, a North Dakota Democrat. “Some of the country’s largest corporations are using these loopholes to avoid paying their fair share of taxes. It is my hope that the Congress will quickly take action to pull the plug on tax breaks that subsidize runaway plants that move U.S. jobs overseas.”
One quarter of the 100 largest contractors with the U.S. federal government, including Altria Group Inc. and Tyco International Ltd have had subsidiaries in the Caymans, according to a study by the Government Accountability Office. At least 10 of the 30 companies listed in the Dow Jones Industrial Average have had units with addresses in the Caymans.
As of November 2007, 378 U.S. publicly traded companies had at least one significant subsidiary in the Cayman Islands, a GAO study found. Altria, Tyco, Coke and Oracle still have subsidiaries in the Caymans, according to their most recent SEC filings. Seagate lists its headquarters in Grand Cayman.
One of the Dow 30 companies using offshore sites to reduce its U.S. taxes is Santa Clara, California-based Intel Corp., the world’s largest chipmaker.
Intel’s then vice president of tax, licensing and customs, Robert Perlman told the U.S. Senate Finance Committee in March 1999 that Intel would have been better off incorporating in the Cayman Islands when it was founded in 1968.
“Our tax code competitively disadvantages multinationals simply because the parent is a U.S. corporation,” Perlman testified.
Monday, May 04, 2009
President Obama Takes Aim At Offshore Tax Dodges
From the LA Times.com:
President Obama said this morning that he plans to crack down on American companies that legally avoid U.S. tax obligations by investing money in countries with lower tax rates.
He also plans to eliminate tax deductions for companies that achieve similar breaks by sending jobs overseas, while extending the deduction for those who create domestic jobs.
The practice of "offshoring" cheats other taxpayers, the president said, and those who circumvent the system are "aided and abetted by a broken tax system" that he pledged to fix.
Speaking to reporters in the Grand Foyer of the White House, Obama said he doesn't think companies should be rewarded more for creating a job in Bangalore, India, than for creating one in Buffalo, N.Y.
"I want to see our companies remain the most competitive," the president said, while not rewarding them for moving jobs overseas.
The president's plans could yield an additional $210 billion in tax revenue over the next decade, according to the administration.
Obama's plans would:
Eliminate some tax deductions for companies that earn profits in countries with low tax rates.
Make permanent a research and experimentation tax credit, which is offered for creating domestic jobs.
End a loophole that allows corporations to avoid taxes by reporting to the U.S. government that they're paying taxes in foreign countries and then telling the foreign countries that they're paying here.
He also is asking for money to hire 800 Internal Revenue Service agents charged with improving enforcement.
The president today called on Congress to pass "common sense" measures, including one that would require overseas banks to provide information about how much U.S. corporations invest. If they won't cooperate, Obama said, the law should assume that those banks are sheltering money for investors.
IRS Tax Chat With Peggy Riley
Have some tax or IRS related questions that need answering? IRS Media relations specialist Peggy Riley will be taking your tax questions during a live online chat tomorrow, May 5th, at 1 pm EDT. You can find the link to the live chat on Boston.com.
About Peggy Riley
Peggy Riley been with the IRS for 25 years, starting as an Editorial Clerk where she edited the internal newsletter for employees. For a few years, she ran the IRS e-file program for the New England area when it was first rolled out.
For the past nine years, she has been the Media Relations Specialist for New England - handling all media inquiries and interviews, issuing releases and training other employees to participate in media interviews.
Senate Expects Tax Haul To Fall By $1 Billion More
From the Associated Press.com:
An already bad Massachusetts budget forecast is getting even worse.
Senate Ways and Means Chairman Steven Panagiotakos (pan-ah-gee-oh-TAH'-kos) says he expects tax collections to be $18.5 billion next year - $1 billion less than previous estimates.
The Lowell Democrat says that will require massive program cuts and employee layoffs. He's called a hearing with economists Tuesday to discuss the situation. The Senate unveils its 2010 budget plan later this month.
Meanwhile, the Retailers Association of Massachusetts is airing radio ads complaining about the 25-percent sales tax increase approved by the House to offset sagging tax collections.
Geithner: Changes Will 'Restore Balance' To Tax Code
The White House unveiled some new tax cut benefits for corporations, that Treasury Secretary Timothy Geithner says will restore balance to the US tax code. I have included a snippet from a Wall Street Journal story on the new changes, but the full text can be read here.
The White House on Monday unveiled proposals to cut tax benefits for U.S. corporations that invest overseas and to use some of the expected revenue to make permanent a tax credit for investment in research and development.
U.S. President Barack Obama hailed the proposal and another intended to crack down on individuals who use overseas accounts to dodge U.S. taxes. Collectively, the administration said two proposals and other international tax changes to be released with the administration's budget later this month would raise $210 billion over 10 years.
The proposals target the foreign profits of U.S. firms like Intel Corp. (INTC), Eastman Kodak Co. (EK), Agilent Technologies (A), Johnson & Johnson (JNJ), Motorola Inc. (MOT) and Pfizer Inc. (PFE).
U.S. Treasury Secretary Timothy Geithner, who appeared with Internal Revenue Service Commissioner Douglas Shulman alongside the president on Monday, said the administration's proposals are intended to "restore balance" and fairness to the U.S. tax code and end "indefensible tax breaks."
Obama called the proposed changes a "down payment" on reforms to ensure that U.S. companies "pay what they should."
Currently, U.S. businesses may take immediate deductions on their U.S. tax returns for expenses on overseas investments, but defer paying U.S. taxes on profits from those investments. Obama characterized the practice as part of a "broken" tax code that favors companies for investing overseas as opposed to those that invest and create jobs at home.
Under the administration's proposal, companies would be barred from taking deductions on their U.S. taxes for offshore investments until they pay taxes on their offshore profits. It calls for the change to take effect in 2011, estimating it would raise $60.1 billion from 2011 to 2019.
That is similar to a measure proposed by House Ways and Means Chairman Charles Rangel, D-N.Y. But in one difference from the Rangel proposal, the White House plan would preserve the tax benefit for U.S.-based research that is related to overseas business.
Additionally, the administration called for new limits on tax provisions that allow U.S. businesses to claim a credit against their U.S. taxes for the foreign taxes paid, saying some U.S. firms take advantage of it by inflating or accelerating foreign-tax credits. Closing such loopholes would raise $43.0 billion from 2011 to 2019, the administration said.
The Tax Lady Talks Tea Parties
Over the last few weeks there has been a lot of discussion of the tax day protests, termed “Tea Parties.” Regardless of where you fall on the political spectrum, I think we can all be proud that our fellow citizens are taking an interest in government, and how their taxes are spent. The fastest route to government corruption is a disinterested constituency. By taking an interest and making our needs known, we are demanding accountability from our elected officials.
While the overall goal of these tea parties, and whether there will be any long reaching effects, is up for debate, we can all use this as a message to keep a close eye on government. These tea parties were held by libertarians and conservatives, yet most admitted that the problems did not start with President Obama, and that our fiscal policy has been on the wrong track for quite some time. This kind of rallying, with some hint of historical perspective, is a good sign.
And while the Boston Tea Party protested taxation without representation (American colonists having to pay British taxes, yet not having say in British government), this year’s protests focused on our democratically elected officials’ policies. What that says about our bicameral government is interesting to say the least. Under the eight years of Bush’s presidency, Democrats and liberals commented “not my president”. While we can argue all day that both Bush and Obama were elected, it illustrates that whoever is in charge, the other party feels disenfranchised.
Another interesting note was the tea parties’ distinction from the Republican Party. Leader of the GOP, Michael Steele, asked to speak at one of the protests and was told he could attend, but would not be allowed to speak. This political snub speaks to the fact that there is a marked division within the party. Again, how this affects future GOP candidates and platforms remains to be seen.
And one more note, there was a separate tea party protest on tax day. Join the Impact MA threw IRS form 1040s into Boston Harbor, protesting unequal treatment by the IRS of legally married same-sex couples. Several states, including Massachusetts and Iowa, have legalized same-sex marriage, which entitles those couples to file joint tax returns (which can be financially beneficial) in their state. However, the federal government has not recognized those marriages and the IRS does not allow those married couples to file jointly.
I think these protests signal a higher consciousness of government spending and taxation policy. And as you all know, I am a big proponent of people getting involved and informed on their taxes.
While the overall goal of these tea parties, and whether there will be any long reaching effects, is up for debate, we can all use this as a message to keep a close eye on government. These tea parties were held by libertarians and conservatives, yet most admitted that the problems did not start with President Obama, and that our fiscal policy has been on the wrong track for quite some time. This kind of rallying, with some hint of historical perspective, is a good sign.
And while the Boston Tea Party protested taxation without representation (American colonists having to pay British taxes, yet not having say in British government), this year’s protests focused on our democratically elected officials’ policies. What that says about our bicameral government is interesting to say the least. Under the eight years of Bush’s presidency, Democrats and liberals commented “not my president”. While we can argue all day that both Bush and Obama were elected, it illustrates that whoever is in charge, the other party feels disenfranchised.
Another interesting note was the tea parties’ distinction from the Republican Party. Leader of the GOP, Michael Steele, asked to speak at one of the protests and was told he could attend, but would not be allowed to speak. This political snub speaks to the fact that there is a marked division within the party. Again, how this affects future GOP candidates and platforms remains to be seen.
And one more note, there was a separate tea party protest on tax day. Join the Impact MA threw IRS form 1040s into Boston Harbor, protesting unequal treatment by the IRS of legally married same-sex couples. Several states, including Massachusetts and Iowa, have legalized same-sex marriage, which entitles those couples to file joint tax returns (which can be financially beneficial) in their state. However, the federal government has not recognized those marriages and the IRS does not allow those married couples to file jointly.
I think these protests signal a higher consciousness of government spending and taxation policy. And as you all know, I am a big proponent of people getting involved and informed on their taxes.
Advice for the Next Generation of “Tax Ladies”
Mother’s Day is around the corner, and I would like to dedicate this column to mothers and daughters everywhere.
The tax industry can be a major boy’s club (don’t I know it?). Financial fields are generally male-dominated, but that doesn’t mean that opportunities for women are scarce. It simply means you have to be competitive. For women thinking about a career as a CPA, tax attorney or a tax preparer, I’ve got some hard won advice.
Get practical experience. Spend some time working in the tax field before you officially start your career. There are myriad part time jobs available in tax preparation, planning or resolution industries. Or you can volunteer at a tax clinic. The IRS runs Low Income Taxpayer Clinics nationwide, and can be a great chance to serve your community while getting relevant experience. Nothing better prepares you for a successful career than experience.
Further your education. Never stop growing your tax knowledge base. Earning an advanced degree, such as a LLM or MBA, or being certified as a specialist in your state can give you a leg up on your competition. Even if you have already earned postgraduate degrees, you are never finished learning. Tax laws constantly change, and keeping up with those changes is critical.
Pick up complementary skills. You can separate yourself from the pack by offering your services in Spanish, for example. Or you can get practice in Negotiations, Counseling, Advanced Writing, Contracts and Public Speaking. Having “bonus” skills may open you up to an entirely new client base, and increase the value of your services.
Join professional associations. Professional associations are great ways to network with your peers, or receive client referrals. Many professional groups offer mentoring programs, which can be beneficial for women new to the industry. However, to actually reap the benefits of membership, you have to be an active participant.
Practice what you preach. Now that you are out of school and making money, be sure you are following the same advice you are giving your clients. Think how damaging a tax problem would be to your burgeoning career.
Being a woman in a male-dominated industry is difficult, but also unbelievably rewarding. Finding yourself the underdog can motivate you to work harder, smarter and create a more successful practice. Of course as a final word of advice, for all the “tax ladies” out there, from the brand new to those with decades of experience, stick together. When you are outnumbered, a little teamwork can go a long way.
The tax industry can be a major boy’s club (don’t I know it?). Financial fields are generally male-dominated, but that doesn’t mean that opportunities for women are scarce. It simply means you have to be competitive. For women thinking about a career as a CPA, tax attorney or a tax preparer, I’ve got some hard won advice.
Get practical experience. Spend some time working in the tax field before you officially start your career. There are myriad part time jobs available in tax preparation, planning or resolution industries. Or you can volunteer at a tax clinic. The IRS runs Low Income Taxpayer Clinics nationwide, and can be a great chance to serve your community while getting relevant experience. Nothing better prepares you for a successful career than experience.
Further your education. Never stop growing your tax knowledge base. Earning an advanced degree, such as a LLM or MBA, or being certified as a specialist in your state can give you a leg up on your competition. Even if you have already earned postgraduate degrees, you are never finished learning. Tax laws constantly change, and keeping up with those changes is critical.
Pick up complementary skills. You can separate yourself from the pack by offering your services in Spanish, for example. Or you can get practice in Negotiations, Counseling, Advanced Writing, Contracts and Public Speaking. Having “bonus” skills may open you up to an entirely new client base, and increase the value of your services.
Join professional associations. Professional associations are great ways to network with your peers, or receive client referrals. Many professional groups offer mentoring programs, which can be beneficial for women new to the industry. However, to actually reap the benefits of membership, you have to be an active participant.
Practice what you preach. Now that you are out of school and making money, be sure you are following the same advice you are giving your clients. Think how damaging a tax problem would be to your burgeoning career.
Being a woman in a male-dominated industry is difficult, but also unbelievably rewarding. Finding yourself the underdog can motivate you to work harder, smarter and create a more successful practice. Of course as a final word of advice, for all the “tax ladies” out there, from the brand new to those with decades of experience, stick together. When you are outnumbered, a little teamwork can go a long way.
10 Ways to Help Your Local Economy with Your Tax Refund
Now that tax season is over, American taxpayers across the country are wondering what to do with their refund checks. In a struggling economy, the best place to start is at home. By making purchases locally you can support your neighbors, friends, and community. It is a common misconception that you have to spend major bucks in order to support your local economy. However, by just making a few small adjustments, you may be able to make a large impact by doing very little. To help my readers discover new ways to support their communities, I have put together the following 10 ways to help your local economy with your tax refund.
1. Buy Local Produce
When you purchase locally grown fruits and vegetables, you are not only supporting local farmers, but you are also helping reduce the amount of carbon emissions caused by food delivery trucks. Local produce will usually cost you about as much as food bought from a major grocery store. Sometimes, depending upon the season and region, it can get pricier. As such, you could set aside a portion of your tax refund to make up the difference in future shopping trips.
2. Bank Locally
If you decide to save your tax refund instead of spending it then you can still help your local economy by depositing the funds into a locally owned bank. Doing so not only supports your local economy, but small banks or credit unions often have great interest rates and more personal service.
3. Hire a Local Contractor
Making improvements to your home or property is a great way to spend your tax refund. By hiring a local contractor or landscaper to do the work, it will help your local economy. Plus, many contractors are struggling to get work due to the housing crisis so you might be able to get a great deal on supplies and/or labor.
4. Stock Up on Cash
If may be more convenient for you to use a credit or ATM debt card. However, when you use them to pay for products at a local business, you are forcing the owner to pay a fee for having the transaction processed. If you can cash your tax refund check and use the money to make your local purchases, then you can help local business owners save money.
5. Take a Class at a Local Community College
By spending your tax refund on tuition and supplies to take a class at a local community college you can support your local education system while bettering yourself at the same time. Plus, the IRS also offers credits and deductions to qualified students. For more information, check out Top 10 Tax Tips for College Students on the RDTC.com Tax Help Blog.
6. Buy a Reusable Cup
If you stop and get coffee every morning before work, you would waste approximately 260 paper cups per year. Not only are you killing trees, you are killing your local coffee brewer who has to pay for those cups in the first place. By purchasing a high quality reusable coffee cup you can save the business owner from having to buy an extra box of cups each year.
7. Visit a Local Amusement Park
If you are looking to spend a fun day with the family, then you should consider visiting a local theme park. Companies like Six Flags, and other amusement parks, are on the verge of closing due to the poor economy. This could leave thousands of teenagers and younger workers unemployed. If you do have a theme park nearby, then taking your family to it for the day could make for a fun way to support the local economy.
8. Support Local Non Profits
There are plenty of non-profit organizations in every town that you could support with your tax refund check. This could be done either by donating cash or supplies. If there are not any local charities that you support, then you could always donate supplies to a local sports team or school.
9. Drink Local Beer
If you enjoy a cold beer every now and then, and are not afraid to try new things, then you might want to try beer from a local brewery. You may find you like it even more than the mass-produced stuff you normally get. Moreover, there is the added bonus of supporting your community with the purchase.
10. Network Nearby
If you own or run a business or charity in your area, consider joining your local chamber of commerce. One huge benefit of joining a chamber of commerce is it allows you to network and socialize with other business owners in your town, and possibly even exchange clients or services with them. Membership fees are usually very reasonable, and depending on the amount of your tax refund you might even have some extra cash left over.
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