Tuesday, June 30, 2009

Consumer Confidence in the US Drops in June

Surprising new reports have emerged reporting that consumer confidence has dropped drastically in June of this year, adding more tension to an already shaky economic situation. For those of you not familiar with the term, check out the following definition from Wikipedia.

“Consumer confidence is the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. How confident people feel about stability of their incomes determines their spending activity and therefore serves as one of the key indicators for the overall shape of the economy. In essence, if consumer confidence is higher, consumers are making more purchases, boosting the economic expansion. On the other hand, if confidence is lower, consumers tend to save more than they spend, prompting the contraction of the economy."

According to a Yahoo Finance article, “the consumer confidence index fell to 49.3 in June from 54.8 in May,” while economist had predicted “healthier reading of 55.0 for the month.” Not surprisingly, the announcement has had a pretty decent impact on the U.S. stock market. Check out the following article explaining the affect on stocks courtesy of Reuters.

U.S. consumer confidence took an unexpectedly steep slide in June, figures released on Tuesday showed, suggesting the 18-month-long recession had yet to loosen its grip on the economy.

A separate report on April house prices in major cities offered some encouraging signs that the worst of the housing slump may be over, but that was not enough to lift investors' spirits. Another crop of economic data showed business activity in New York City and the Midwest remained weak, while retail chains slogged through a rough June.

Billionaire investor George Soros added to the cautionary tone, saying that rising borrowing costs posed a threat to any eventual economic recovery.

"As markets revive, fear of inflation will drive up interest rates, which will choke off recovery," he said at a breakfast hosted by the Wall Street Journal.

Major stock market indexes fell after the Conference Board's consumer confidence index showed households felt gloomier about their current situation and less optimistic about what the coming months might bring.

Kevin Kruszenski, head of listed trading at Keybanc Capital Markets in Cleveland, said the confidence data "kind of took the wind out of things a little bit."

Personal Bankruptcies Surge in Southern California

It is getting harder to go anywhere in California these days with out seeing signs of economic struggle. Businesses are closing, houses are getting foreclosed upon, and the government began issuing IOU’s for debt payments. However, in addition to the financial struggles of the state government, citizens in California are also struggling. Just this week, the LATimes.com released an article discussing the surge in Southern California bankruptcies over the past year. Check out a snippet of their article below.

In a recession, bankruptcies are common, but as the numbers continue to rise, some financial experts are hoping the word is being spread as to what a bankruptcy is, and how they work. Luckily, the Sacramento Business Journal recently posted an article all about bankruptcies and how to know if one is right for you. Read more below

Hundreds of thousands of American families have declared bankruptcy in the past two years and foreclosures locally remain high. For-sale signs are staying up longer than in any period in recent memory, neighborhoods are half-empty, and we all know people who have moved out of state.

Bankruptcy lawyers are seeing a lot of people with more than $30,000 in debt, and the volume of filings has increased at all levels.

Are you in this situation? If so, how can you tell when to stay the course, or when to cut and run?

Signs that you can’t go it alone any longer include being unable to meet basic living needs, and needing to borrow to pay past-due debt.

So what are your alternatives? You could declare bankruptcy, but that’s a heavy decision. Here are some of the mechanics to help you make up your mind.

Continue reading this story, here.

FICO Scores Show Flaws as U.S. Banks Cut Consumer Credit Lines

The FICO score formula has long been the choice of most US lenders, but some reports show the decline in actual loans may be making these scores somewhat flawed, which is quickly becoming a problem. Earlier today Bloomberg.com posted a great release about a woman experiencing these flaws, and deconstructed some of the reasons why.

“When Sharii Rey, a paralegal in Portland, Oregon, had her credit limit reduced by JPMorgan Chase & Co. earlier this month, she said it would hurt her 760 credit score. That’s not the bank’s problem, she was told. It’s FICO’s.”

After Rey’s $42,500 credit line was cut to $12,000, her debt relative to available funds almost quadrupled. This so- called utilization rate is a large component of the FICO formula and a higher ratio can lower a score. Rey, 62, is concerned a new FICO score will squash her ability to borrow.

Congressman Luis Gutierrez, an Illinois Democrat, says the FICO formula, the most widely used by U.S. lenders, has flaws as banks decrease loans to consumers, regardless of individual risk profiles. At least 30 million Americans had their credit limits reduced arbitrarily during the second half of 2008, FICO estimates. In the first quarter, New York-based JPMorgan and Citigroup Inc. and Bank of America Corp. in Charlotte, North Carolina, slashed $320 billion from credit lines, according to a report by former Oppenheimer & Co. analyst Meredith Whitney.

“Reductions to a consumer’s line of credit based upon the lending institutions’ overall appetite for risk has little or no bearing on a consumer’s own risk of default,” said Gutierrez, chairman of the House Subcommittee on Financial Institutions and Consumer Credit.

An individual’s FICO score is based on factors that aren’t directly related to JPMorgan’s decision to lower a credit limit, said Paul Hartwick, a spokesman for the biggest U.S. bank by market value.

Continue reading this story, here.

Stimulus Benefits Ready To Roll

Although many feel that the recession relief supplied in President Obama’s American Recovery and Reinvestment Act is not coming quickly enough, other financial experts are saying that relief for small business owners is already here. Sacramento Business Journal writer Michael Shaw wrote a great piece on which benefits are ready to roll, and how taxpayers know if they should take advantage of them. Check out part of his article below, or you can read the full text here.

Those are the benefits promised to small-business owners in the 2009 American Recovery and Reinvestment Act, better known as the $787 billion stimulus package passed by Congress and signed by President Obama in February.

“The government is trying to provide a comprehensive approach to helping small businesses by focusing on these three separate areas,” said Barry Goggin, president of the Better Business Bureau’s Northeast California office. Although not a government agency, the Better Business Bureau is actively publicizing the advantages for small businesses under the stimulus plan.

Goggin said the job opportunities have been slow to arrive as funds flow gradually to hundreds of agencies, departments and governments. But the tax benefits and loan programs have been made immediately available.

Jim Leet, a certified specialist in taxation in California for the past 20 years who practices at law firm McDonough Holland & Allen, explains that there are several write-offs, deductions and credits designed to allow businesses to keep more of their profits.

For several years, small businesses have been able to immediately write off the purchase of some fixed assets, such as vehicles used for work, deducting the full amount of a $25,000 truck, for example, as opposed to a smaller amount over many years for the vehicle’s depreciation. But the overall limit has been greatly increased under the stimulus plan, Leet said, from $125,000 to $250,0000.

Monday, June 29, 2009

How Offshore Tax Evasion Affects You

There has been a lot of talk about offshore tax evasion in the news lately. Especially in regards to UBS and new offshore tax evasion enforcement efforts between the U.S. and Switzerland.

Unfortunately, many taxpayers do not pay much attention to these issues, as they do not think that offshore tax issues have anything to do with them personally. However, that is not the case. Offshore tax evasion actually affects nearly every American. And here is how:

National Tax Compliance

The IRS is having a hard time collecting tax debts during the economic crisis. According to recent studies, Federal tax revenue plunged $138 billion—or 34% from last year—which is the biggest drop in almost three decades. A large amount of the lost revenue can be attributed to offshore tax evasion. This leaves the rest of us law-abiding citizens to foot the bill.

While government officials are hoping to generate additional revenue from increased tax compliance, they know that it alone will not cover our expenses. Thus, they anticipate raising taxes on the wealthiest Americans. Plans to raise taxes has left thousands of Americans—rich and poor—disgruntled and willing to protest. In addition to the Tea Parties that were carried out in April, tax protestors are hoping to carry out additional events this July.

Economic Recovery Prevention

Despite lots of effort, the country’s economic recovery is taking some time. As the economy continues to stall, more and more taxpayers are looking for any way possible to reduce their tax liability. A whopping $250 billion of missing revenue from the past decade is said to be missing due to offshore bank accounts. This missing money is essentially preventing the country from making a faster recovery as it prevents the federal government from investing the money into other programs.

President Barack Obama has already taken great strides to recover some of this lost revenue by evoking legal action with popular offshore bank UBS. "Nobody likes to pay taxes, particularly in times of economic stress," Obama said. However a crackdown on "illegal overseas tax evasion" was necessary in order to provide "meaningful relief for hardworking families." He continued to explain that "the way to make American businesses competitive is not to let some individuals and businesses dodge their responsibilities and let ordinary Americans pick up the slack."

State Economies

Not only does offshore banking affect Federal tax revenue, in many instances it drastically affects local and State governments. According to a recent study observed in Montana's Clark Fork Chronicle, "non-residents who have Montana earned income fail to pay income taxes at an astonishing rate of 78%". This statistic seems staggering, but is actually not as uncommon as you would think. Some states do not have very strong tax enforcement agencies, which can quickly lead to millions of dollars in lost revenue. Montana and other States in similar situations cite offshore banking as a large contributor to the problem, claiming that they simply cannot keep track of all of their out-of-state taxpayers so easily, let alone investigate their offshore bank accounts.

Organized Crime Ties

While not all offshore bank accounts are being managed illegally, even the more humble ones can unknowingly foster criminal activity. It is a well-known fact that organized crime uses offshore bank accounts to disguise their criminal activity. Offshore banking protects the "underground economy". The most common of crimes is of course money laundering, which is made all the easier with offshore bank accounts that are highly protected and usually well disguised.

Ailing California Economy Could Prolong Recession

With an economy like California’s, it is no surprise that some experts are coming forward saying the desperate state may hold back the rest of the Country from a recession recovery. A new article by the Sacramento Bee claims that not only does California account for 12% of the countries gross domestic product, but it also has more retail activity then any other state.

Check out the following snippet form the article, or you can find the full post at SacBee.com.

California faces a $24 billion budget shortfall, an eye-popping amount that dwarfs many states' entire annual spending plans.

Beyond California's borders, why should anyone care that the home of Google and the Walt Disney Co. might stop paying its bills this week?

Virtually all states are suffering in the recession, some worse than California. But none has the economic horsepower of the world's eighth-largest economy, home to one in eight Americans.

California accounts for 12 percent of the nation's gross domestic product and the largest share of retail sales of any state. It also sends far more in tax revenue to the federal government than it receives - giving a dollar for every 80 cents it gets back - which means Californians are keeping social programs afloat across the country.

While the deficit only affects the state, California's deepening economic malaise could make it harder for the entire nation's economy to recover.

When the state stumbles, its sheer size - 38.3 million people - creates fallout for businesses from Texas to Michigan.

The article goes on to quote retail consultant Burk Flickinger, saying, “California is the key catalyst for U.S. retail sales, and if California falls further you will see the U.S. economy suffer significantly".

The Specter of the 1993 Energy Tax

The New York Times is reporting that after the house passed the energy and climate bill on Friday, some Republicans are referring to the legislation as the ghost of Clinton’s failed ’93 energy tax. However, according to blogger Andrew C. Revkin this is not the case. Please continue to read below.

In an effort to blunt the momentum of the energy and climate bill that the House narrowly passed on Friday, Republicans are raising the specter of the failed effort by President Bill Clinton to craft an energy tax in 1993, according to an article filed by Carl Hulse of our Washington bureau. Mr. Clinton alluded to this setback in an interview in 2008.

There are enormous differences between the two situations and initiatives. The 1993 tax was pursued mainly as a source of revenue to cut the deficit, not a means of reducing American dependence on foreign oil and cutting risks of dangerous climate change. But there is one similarity. Democrats, particularly from coal states, helped set the stage for the failure of the 1993 tax, according to various experts, and according to Mr. Clinton. He touched on this in the interview. Democrats from states that produce or depend on fossil fuels have been slow to buy into the climate bill.

White House Open To New Tax On Health Benefits

From The Associated Press:

The White House is leaving open the possibility that President Barack Obama might agree to pay for a health care overhaul by taxing employer-provided health insurance above a certain level.

White House adviser David Axelrod told the Sunday talk shows that there's a long way to go and a number of formulations to consider before a decision is made.

On the campaign trail, Obama had blasted John McCain's call for taxing health benefits saying it would be the "largest middle-class tax increase in history."

If Obama compromises on the issue, it would reverse his promise not to raise taxes on those earning less than $250,000.

Some Democrats are pushing a plan that would tax health benefits that come to more than $17,240 a year for a family and $6,800 for an individual. They say such a tax would be a way to pay for improvements in heath care without ballooning the federal deficit.

Obama plans to sell his health plan Wednesday at a town-hall-style meeting in suburban Washington.

American Land Title Association Urges Support of $15,000 Tax Credit

As I have posted multiple different times, numerous members of Congress are hoping to increase this year’s new homebuyers tax credit to $15,000. Now, the American Land Title Association has also sent an open letter to congress asking them to support the increase. You can find a clip from a MarketWatch.com article covering the story below.

In a letter sent June 26 to the Senate and House, ALTA asked legislatures to extend the $8,000 first-time home buyer tax credit and remove income and other restrictions on who can qualify for the credit.

The Senate version of the bill, S.B. 1230, was introduced by Sen. Johnny Isakson, R-Ga., and is co-sponsored by Senate Banking Committee Chairman Chris Dodd, D-Conn. The companion bill in the House, H.R. 1245, was introduced by Rep Ken Calvert, R-Calif. Both bills are known as the Home Buyer Tax Credit Act of 2009.

The proposals would extend the home buyer credit to multi-family properties used as the borrower's primary residence, eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit. The bill would extend the current credit, which expires Dec. 31, 2009, for one year after enacted.

The idea of expanding the tax credit first surfaced in the federal stimulus bill at the beginning of the year, passed the Senate but was dropped from the final version. The legislation has gained renewed attention since a noticeable uptick in purchase transactions driven by the $8,000 tax credit.

Continue reading this article, here.

Thursday, June 25, 2009

Sanford Traveled Had ‘Holiday’ With Mistress on Taxpayer Money

Over the past 24 hours news of South Carolina governor Mark Sanford’s affair with his Argentinean mistress has been discussed on nearly every major news outlet. Perhaps even more shocking than the affair itself is the recent discovery that taxpayer money paid for at least one of his trips to Argentina. It has also been announced that Mississippi governor Haley Barbour will take over Sanford's seat as chairman of the republican governors association.

I’ve included a section of the Law Dork blog entry that discusses the use of taxpayer money in the affair, but you can also check out the LATimes.com round-up of news on the story.

Gov. Mark Sanford ranks in the top 50 [of a list of South Carolina state employees' travel expenses] based on the total amount he spent on trips paid by his office and those paid by the state Commerce Department. Mr. Sanford has traveled to China, Argentina and Brazil through the Commerce Department, which has travel reports showing taxpayers covering $21,488 for those trips.

Mr. Sanford also spent $1,976 in travel through his office.

The Commerce-paid trips benefit the state, Sanford spokesman Joel Sawyer said. For instance, in October, FITESA, a Brazilian fabrics maker, announced it would spend $120 million on a Laurens County facility and create 80 jobs.

CONFIRMATION: Well, from the Governor himself, we have received confirmation that Sanford did see his mistress when in Argentina on state business and the public's dime. From an e-mail obtained by The State, Gov. Sanford wrote to his mistress on July 4, 2008:

Unbeleivably (sic) hard to imagine it has been a week.

Also, he wrote to her on July 8, 2008:

[W]as just going to find the movie the Holiday as we had spoken of it last Thursday. Its music was pleasant and made me think of you — its mood and the notion of a holiday (wrapped up in our case over two days) certainly fit as well … (though our visit in some ways for me was as well less of a holiday than it was uncovering and realization of some things and feelings that again are worth longer conversation)

He also noted in the e-mail that the mistress “opened up a new chapter last week wherein I was happy and content just being.”

According to CNN’s report (see below), Sanford would have been in Buenos Aires on June 26 and 27, 2008. July 4 was one week later. From the July 8 e-mail, he says he had a two-day “holiday” with her, which doesn’t make it sound like he was doing much of the state’s business while there.

At this point, Gov. Sanford obviously needs to explain this.

My Appearance on the Stu Taylor Show

A few weeks ago I made several appearances on Stu Taylor’s radio program to discuss a couple of tax related issues. For those of you who may have missed the segments, I uploaded a couple of videos to my YouTube channel with the audio of just my interviews. You can also download the MP3s of the full show at my web site, and be sure to check back for future clips. I have a feeling that this is the beginning of a long relationship with Mr. Taylor.

U.S. Corporate Tax Audits Down 9 Percent

From Reuters.com:

The percentage of corporate tax returns audited by U.S. collectors fell about 9 percent in 2008 and was down nearly 20 percent from about a decade earlier, an inspector general report released on Monday said.

About 15.3 percent of returns filed by corporations with $10 million or more in assets were examined by the Internal Revenue Service last fiscal year, down from about 16.8 percent in 2007, the Inspector General for Tax Administration for the U.S. Treasury Department said in its annual report.

In 1999, about 19 percent of tax returns for the group were examined by tax collectors. The rate of examination ranged between 15 and 19 percent in the intervening years, with the exception of a 20 percent rate in 2005.

The IRS's enforcement staff has been whittled down in recent years, a response to fervent complaints by some U.S. lawmakers critical of what was characterized as aggressive tax collection.

"After several years of improved results, many collection function activities and results declined during FY 2008," the report said.

The enforcement staff shrank 20 percent to 14,900 at the end of 2008, down from 18,700 in 1999, the report said.

President Barack Obama has proposed doubling the agency's enforcement budget for 2010, including hiring about 800 new staffers just to enforce international tax law. That is part of a wider effort by the administration to crack down on what it calls the abusive use of tax loopholes and outright tax evasion.

Enforcement revenue fell in 2008, though that interrupted a steady rise in the past decade or so, the report said.

The IRS collected $2.75 trillion in fiscal year 2008, a record.

The report did not make any specific recommendations, but noted the enforcement of tax laws is among the key "high-risk" areas consistently cited by the Government Accountability Office.

The tax gap -- the difference between what is owed and what is collected -- was about $345 billion in 2001, the last year it was examined, according to the government.

Prepare for Hurricanes by Safeguarding Tax Records

Earlier in the week the IRS posted this press release recently, urging taxpayers in hurricane areas to prepare for hurricanes by putting their tax records in a safe place. They are warning taxpayers that the 2009 hurricane season is now underway, and have put together a simple list of ways you can prepare.

Create a Backup Set of Records Electronically

Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.

Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies home, etc. –– is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.

Document Valuables

Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

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Wednesday, June 24, 2009

Tax Friendly Ways to Save for your Children’s Education

Yesterday, the Roni Deutch Tax Center Tax Help Blog posted a new entry discussing the best tax friendly ways to save for your children education. In this economy, it may seem almost impossible to try saving money for the future, but as you will see there are dozens of ways to plan for your child’s future regardless of your income.

Are you already worried about trying to save for your children’s future education related expenses? In today’s economy, millions of taxpayers are struggling to pay their bills let alone save up for future bills. It may seem overwhelming to be thinking about a day when you will have to help your child earn their diploma, but by preparing early you can avoid expensive loans twenty years down the road.

It is a common misconception that only very wealthy families can save for their children’s future. In fact, there are multiple educational savings plans that were made especially for middle-class and low-income households. To help those of you looking to get a head start on the process, please enjoy the following article on tax friendly ways to save for your children's education.

1. Coverdell Education Savings Account

If you are looking for a way to avoid taxes and fees when you withdrawal your child's education money in the future, then a Coverdell Education Savings Account (ESA) is the way to go. It allows you to contribute $2,000 per year until the beneficiary is 18 years of age. Although the contributions are not tax-deductible, the distribution cash will become tax-free when withdrawn in the future. However, the funds must be used only for school expenses. For more information on opening a Coverdell ESA check out this page on IRS.gov.

Continue reading this blog entry, here.

U.S. Home Prices Drop Again as Concern Over Appraisals Grows

According to Bloomberg.com home prices this country fell another 6.8 percent across the country last month. As many experts have predicted, the ongoing rise in foreclosures and increasing unemployment rates are stalling the recovery of the U.S. real estate industry.

Measured monthly, the average price fell 0.1 percent from March, the Federal Housing Finance Agency in Washington said today. The number was projected to drop 0.4 percent in April, according to the median forecast of 15 economists in a Bloomberg survey.

The housing slump has reduced the median price of an existing home 26 percent from the July 2006 peak, pushing affordability to near record levels. Prospective buyers are now being constrained by rising mortgage rates, the highest unemployment since 1983 and concern the housing rebound will be anemic.

While U.S. builders increased housing starts by 17 percent in May to an annual rate of 532,000, a May 26 report from S&P/Case-Shiller showed home prices in 20 U.S. metropolitan areas fell 18.7 percent in March from the same month last year.

On a related note, another recent Bloomberg article also reported that home price recovery may be undermined by appraisals.

Flawed appraisals are derailing real estate sales and depressing values across the U.S., the National Association of Realtors said yesterday as it reported that existing home prices declined again.

“It’s pointing to thousands of delayed or canceled transactions,” Lawrence Yun, chief economist of the Chicago- based Realtors group, said in an interview. “We’ve had a massive inundation from members saying this is a big problem.”

Appraisal rules that went into effect on May 1 require lenders that sell loans to Fannie Mae or Freddie Mac to set up a firewall between appraisers and loan officers to prevent improper influence. The rules are the result of an agreement between the mortgage buyers and New York Attorney General Andrew Cuomo, who said an investigation found appraisers inflated values under pressure from lenders.

The agreement mandates that banks order a second appraisal on 10 percent of the loans they sell to Fannie Mae and Freddie Mac, and warns against accepting the higher of any two valuations. The guidelines have led to more conservative valuations by many appraisers and a “chill” in lending, according to John Brennan, research director at the Appraisal Foundation, a Washington-based trade group. A low appraisal is one that comes in under the price a prospective buyer has agreed to pay for a property.

State Cuts Tax Exemptions For Kids

On nearly any list of tax tips you will see the very popular child tax credit. However, starting this year California parents will be seeing less money from that deduction then they had in the past. In their efforts to reduce the State’s debt, California lawmakers have reduced the deduction by about $210 per dependent. Check out the following article on the change courtesy of SFGate.com.

California parents beware: Those little tax deductions running around the house are now worth less (in a strictly financial sense, of course).

To help balance its budget, California has reduced the state tax credit for dependents.

The change will increase a family's California taxes for 2009 by about $210 per dependent compared with 2008.

A family with one dependent that normally gets a state-tax refund will get back $210 less when they file their 2009 return next year. A family that normally owes money will have to pay $210 more. Multiply that by two or more dependents, and it really adds up.

This may come as a shock to parents who have been too busy shuttling between soccer games and viola lessons to keep up with the state's budget fiasco. The Franchise Tax Board is trying to get the word out, so families can prepare.

The Tax Implications of Foreclosures

After writing this blog entry on the true costs of foreclosures, I came across this great SmartMoney.com article that I thought might be of interest to my readers. The post describes – in detail – the tax implications of foreclosures, and offers helpful advice on how to avoid them.

A foreclosure transaction occurs when a mortgage lender repossesses a borrower’s property and then sells it to pay off the debt. In most cases, however, a foreclosure will only happen when the mortgage debt exceeds the property's fair market value, or FMV. In this situation, the federal income tax rules treat the foreclosure as a sale for the FMV amount.

Therefore, a tax gain will result if the property’s FMV exceeds its tax basis. (The tax basis of a principal residence usually equals the original cost of the property, plus the cost of any improvements.) On the other hand, a tax loss will result if the property’s FMV is less than the tax basis.

If a mortgage lender also forgives some or all of the debt against your property in conjunction with or after the foreclosure transaction, you have cancellation of debt (COD) income. That income is taxable unless an exception applies.

Continue reading this article at SmartMoney.com.

The Best Surfing Video Ever!

Yesterday a friend sent me this amazing surfing video, and it has the single-greatest surfing move I have ever seen! As many of my readers and friends know, I am a huge surfing enthusiast, and often spend my spare time riding waves in Hawaii. If you enjoy surfing too, or just cool surfing videos, then you have to see this!

Tax Credit For Home Purchase Could Rise

A couple of weeks ago, I published an article on the pros and cons of buying a home in 2009, and one of the major pros on the list was the new homebuyers credit. Lately there has been a lot of talk surrounding the possibility of the same homebuyers tax credit being extended form $8,000 to $15,000.

This would come as a pleasant surprise to the many American taxpayers who have taken advantage of the credit, and could potentially provide another nice boost for the struggling real estate market. Will the change actually take effect this year? It is probably still too early to tell, but I certainly think it could be a possibility if the economy continues to struggle. For more information on the issue, check out the following story from USA Today.

Lawmakers and businesses are calling for expansion of a tax credit for first-time home buyers that has helped spark home sales in an otherwise dismal real estate market.

With the tax credit scheduled to expire in fall, some business groups say the amount of the credit, now capped at $8,000, should be raised to $15,000 and applied to anyone who buys a home.

First-time buyers make up a hefty 40% of home purchases, according to the National Association of Realtors (NAR), which is about 5 percentage points higher than the historical average.

The credit, introduced in July 2008, was expanded in February as part of the economic stimulus package. The proposals may face headwinds amid growing public criticism of government spending to rescue the economy and the widening budget deficit.

Some economists say a tax benefit is vital to spur home buying and help stabilize prices.

Continue reading this story, here.

US-Swiss Tax-Evasion Hearings Set In Fla.

The date of the hearings for the US-Swiss tax evasion cases have been set for this July in Florida. The case is already drawing global publicity, as so many different economies are being affected by off shore tax evasion.

Earlier today the Examiner posted a new article on the topic. Check out a snippet of their story below, and be on the look out for an entry I am working on that will explain how offshore tax evasion affects you!

During the global economic crisis, Switzerland, like other havens for tax evasion, have been increasingly facing scrutiny. Alongside the US, Germany, France and Britain have also been pressuring Switzerland to assist them in closing loopholes for tax evasion. A federal Florida judge has set hearings on July 13 to 15 on the Internal Revenue Service's endeavor to obtain 52,000 names of U.S. account holders of the UBS AG.

Initially, UBS refused to release 52,000 names, since it stated the release would violate the privacy laws of Swiss banking. UBS has already paid $789 mil. in fines and agreed to settle allegations it helped Americans evade taxes. The UBS holds $2 trillion in foreign money and its financial services constitute 12 percent of Switzerland's economic output.

"This Administration is committed to reducing off shore tax evasion to help ensure that all U.S. taxpayers are playing by the same rules," Timothy Geithner, the Secretary of Treasury, said in a Friday press release.

The UBS has proposed to release data on some of its American account-holders----with no names or account numbers attached.

Monday, June 22, 2009

4th of July Tea Parties Planned

According to the official TeaPartyDay.com website, there will be tea party protests in over 1,271 cities on the 4th of July. The group—whose name stands for “taxed enough already”—gained National attention when thousands attended their April 15th protests.

Now, the organization is ready for their next event with thousands of additional participants and hundreds of new locations. One of the tea party leaders is even planning on running for a seat in the Senate, according to Politico.

If you are interested in participating in a protest then you should definitely read up on the organization by checking out their website. Alternatively, you can find out if any tea party protests are scheduled in your hometown by visiting their locations page.

While I was looking up stories on the TEA protests, I came across this article from Olympian.com on a local chapter’s plans for their Independence Day protest.

More big protests against the Obama administration are planned at the state Capitol on the next two weekends, but a top state Democrat says he’s not yet worried about the effort to build a backlash movement against the new president.

The protests include a June 27 “TEA party” rally at Heritage Park with popular right-of-center motivational speaker Bob Basso, who dresses up as patriot Tom Paine, and longtime Republican political operative Floyd Brown.

The specific targets for both events include efforts by President Barack Obama’s administration to bail out automakers, rescue banks from insolvency, create a cap-and-trade proposal to deal with greenhouse-gas emissions, and establish universal health care coverage.

“This is definitely aimed at Washington, D.C., and reining in the uncontrolled spending. … We’re concerned about how the Constitution is simply being shredded. Laws are being broken. People who run the government don’t seem to understand what the Constitution says,” said Ken Morse, organizer of Saturday’s rally.

If you are interested in learning more about other tax protests, check the blog entry I posted a few weeks ago on the 5 biggest tax protests in US history.

California’s Solution to $24 Billion Budget Gap Is Going to Bring Some Pain

With a massive debt of $24 billion, there is no doubt California is going to have to make some major cuts in order to break even again. Unfortunately not all of these cuts can be small, and no matter what action the state takes there are going to be people who are affected. The New York Times wrote a great piece examining this issue, and I’ve included a snippet of their article below.

While Democrats struggle to preserve programs for the state’s neediest residents through one-time accounting maneuvers and by passing some of the pain to smokers and oil companies through fees and taxes, Republicans are holding the line on new taxes and trying to force large cuts that will have an effect on policies like health care for children in poor families and the early release of thousands of prisoners.

Lawmakers passed a budget for both 2009 and 2010 in February, but the legislation, which covered 17 months’ worth of spending, was dependent on the passage of several ballot propositions that voters overwhelmingly sank in May. As a result, the state’s budget gap expanded.

In response, Gov. Arnold Schwarzenegger threatened to allow the government to come to a “grinding halt,” rather than authorize more borrowing to cover shortfalls, and proposed $16 billion in cuts. Those cuts would largely be carried out through the state’s programs for the poor: the Healthy Family Program, the health insurance program that covers more than 900,000 children; the main welfare program, known as CalWorks, which provides temporary financial assistance to poor families; and Cal Grants, a college financial aid program.

Continue reading this story at NY Times.com.

Save on Your Taxes with New IRA Rules

With new rules on IRA’s, there are even more ways for you to reduce your tax liability. MainStreet.com published an article on how you can take advantage of these new laws to legally lower your tax bill. I’ve included a section of their post below, but the entire story can be read here.

A change in tax rules, which will allow savers at any income level to take advantage of Roth IRAs, could mean a lower tax bill for you come January.

Currently, retirement savers who make more than $120,000 including certain deductions can't convert their funds to a potentially tax-advantaged Roth IRA. Traditional IRAs and 401(k) funds are taxed on their way out (when you take a distribution), while Roth IRAs are funded on the way in, with after-tax money. The distributions are then tax-free.

As of January 2010, the income cap preventing those with a modified adjusted gross income of more than $120,000 a year (or $176,000 or more if you’re married and filing jointly) from converting their retirement savings to a Roth IRA will be lifted, according to a report in The Wall Street Journal.

More People Qualify for Car-Tax Deduction

There is nothing better than realizing you can save more on taxes than you had originally thought! Well that is exactly what is happening to hundreds of American taxpayers who are beginning to realize that they will benefit from the IRS’ new rules regarding car tax deductions. Check out the following story courtesy of the Wall Street Journal.

Some people who thought they weren't eligible for a new tax break might qualify after all. A law enacted earlier this year allows many taxpayers who buy new cars and other types of motor vehicles during a certain time period this year to deduct the state or local sales taxes, or excise taxes, paid on the purchase. That may sound fairly simple, but it isn't.

For example, what about taxpayers who live in states that don't impose a state sales tax?

The Treasury Department and the Internal Revenue Service recently decided that "purchases made in states without a sales tax -- such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon -- can also qualify for the deduction."

How so? Taxpayers who buy a qualified new motor vehicle in states without sales taxes "are entitled to deduct other fees or taxes imposed by the state or local government," the IRS said. The fees or taxes that qualify "must be assessed on the purchase of the vehicle and must be based on the vehicle's sales price or as a per-unit fee."

Continue reading this story here.

K-Fed's Company Dodges Tax Bill

From DET News:

A company owned by Britney Spears' ex-husband Kevin Federline, a ridiculed rapper and former background dancer, owes $14,371 in federal taxes, records show.

Federline's company, Gooseneck Productions Inc., was set up to handle his "artistic" endeavors, which included the much-maligned tune "PopoZao" and the poor-selling 2006 CD "Playing with Fire."

Federline's finances came into focus last year during a custody battle with Spears. Aside from strip club bills and fancy clothes, court records showed his production company spent $841,129 and made only $544,075.

What's owed:

The IRS filed a $14,371 lien against the company on May 18 in the Los Angeles County Recorder of Deeds office.

His side:

Federline's accountant, Laurence Kantor, could not be reached for comment.

Missed the Quarterly Payment Due Date?

Although the estimated quarterly tax system was made to make taxes simpler for business owners and self employed taxpayers, sometimes it seems like they do just the opposite. The economy is making life more difficult on millions of Americans, and it can be very easy to miss an estimated quarterly due date. For those of you who may have missed last week’s June 15 deadline, I’ve put together the following article explaining what you can do.

Do Not Worry

First of all, do not worry. If you miss the quarterly payment by a few days then the IRS probably will not assess any penalties or fees, but you should still get your payment in the mail as soon as possible. The IRS’s main concern is that they get their money, and as long as you get yours to them within a couple of days then you should be fine.

Do Not Wait

Although some people will tell you it’s fine to just include more money in your next quarterly payment, this option can have serious consequences. The IRS wants self-employed taxpayers to make regular quarterly payments, and can enforce heavy fines if you wait. Unless you did not have any profit this quarter then you want to get your payment mailed out ASAP.

Get Professional Help

Calculating your own estimated payments is actually pretty simple—see The Truth About Estimated Quarterly Tax Payments on the RDTC Tax Help Blog—but if you are confused then you might want to seek out professional help. Not all tax preparation offices are open year round, so you might need to find an accountant. Additionally, most Roni Deutch Tax Center franchises are open year round and can help with estimated payments. To find a store close to you, check out the Locations Page on RDTC.com.

If You Need Time

If you cannot afford your entire tax payment right away right away then you can take another route. One common option is to simply pay by credit card. That way you take care of your tax liability with the IRS, and pay off your credit card balance whenever it is most convenient for you. You could also just pay what you can now, and pay the rest over time as you can. If the IRS sees you are making steady payments on the total, they are probably not going to penalize you much, if at all.

Confusing Dates

The name "quarterly payments" has misled more than one taxpayer. Since they are quarterly, it would be correct to assume you need to pay every three months right? Wrong. There is actually only a two month space between the April 15th, and June 15th due date. Later in the year you also have a four month quarter to make up for the reduced spring time quarter.

Avoiding Missed Payments

There are several ways you can make sure you do not make this mistake again. Put the due dates (April 15th, June 15th, September 15th, and January 15th) in as many places as you need to in order to remember. This can include your calendar, planner, iCal, a date book, or even a sticky note on your desk. You may even be able to set an alert on your cell telephone months ahead of time.

The Hidden Problems with Forgiven Credit Card Debt

Let’s be honest, the economy is a nightmare. No one’s job is safe, people are losing their homes, and relying on their credit cards to make ends meet. Credit card companies are feeling the pinch too, and are responding by settling delinquent accounts for a fraction of what is owed.

Why would they do this? Simple: collection activities cost credit card company’s money. They have to pay the person calling you to nag about payments, they have to pay for all the letters and notices. And they may never recover all the money you owe. So, when a customer offers a lump sum payment to settle the entire debt, many companies are jumping at the chance. Moreover, whatever balance is not covered by the lump sum, the credit card company just forgives. Which is great for consumers… in the short-term.

Aside from the damage to your credit (though the delinquent payments certainly are not any better), there is a problem laying in wait for you next tax season. If your credit card company forgave your debt, the IRS calls that taxable income, reported to the IRS on a 1099-C. Oh yes, if you settle your $25,000 Visa bill for only $5,000, the “forgiven” twenty grand is now considered income. So, if you are taxed at 15%, your tax bill will increase by $3,000. The increased “income” can even bump you up into a higher tax bracket!

(It is important to note that if your debt is mortgage-related and is forgiven, this may NOT qualify as taxable income, thanks to the Mortgage Debt Forgiveness Act of 2007.)

You get your credit card debt handled, only to find a brand new tax debt waiting for you. What a trade off, eh? Of course there are some ways to get around this. A title 11 bankruptcy can relieve you of the tax debt. Or you can claim insolvency (i.e. your total debts are higher than the fair market value of your assets). Neither option sounds very appealing.

One would hope that the government would see this problem as a major issue, given the large numbers of people currently dealing with overwhelming credit card debts. However, to date, no legislation on par with the Mortgage Debt Forgiveness Act of 2007 has been introduced. And with the inherent inefficiency of Congress, any new legislation would likely be too late to help the millions of struggling Americans with debt today.

Thursday, June 18, 2009

The $9.5 Billion Gay Marriage Windfall

So far five states in this country have legalized gay marriages, but the Federal government has yet to make any changes to the definition of marriage – although on a related note Obama did sign an executive order earlier in the weekend extending benefits to domestic partners of Federal employees. Those states have reportedly seen increased revenue from the increase in marriages, and the issue has gotten many experts questioning what type of impact Federal recognition of gay marriages could create.

Miriam Marcus of Forbes.com addressed this question in a new article where he claims, “if same-sex marriage were legalized nationwide, the lackluster wedding industry would perk up fast.”

Howls of protest erupted last month when California's Supreme Court upheld Proposition 8, stripping gay and lesbian couples of their right to marry. Adding to the din: all the disappointed planners, seamstresses, jewelers, travel agents and caterers who comprise the massive yet plodding American wedding industry.

There are 781,267 same-sex couples living together in the U.S., according to the Census Bureau's 2005-07 American Community Survey. The Williams Institute, a research arm of UCLA's law school, predicts that if gay marriage were legalized nationwide--only Massachusetts, Connecticut, Maine, Vermont, Iowa and (as of earlier this month) New Hampshire allow it now--about half of those couples would tie the knot within three years.

Talk about a stimulus package. While wedding-related revenues--snagged by small shops to giant corporations like Tiffany, Williams-Sonoma and Marriott International --top $160 billion (an average wedding now costs $20,400), the industry has shrunk at an annualized 1.9% rate after inflation since 1999. If half of the same-sex couples got hitched, Forbes estimates that the industry would reap nearly $10 billion in additional revenue.

Check out the rest of the article at Forbes.com, or you might be interested in reading a few earlier entries I’ve posted on LGBT financial issues – Taxes 101 For Domestic Parents & Same-Sex Couples and Taxes 101 For Domestic Parents & Same-Sex Couples.

Confusion Over Canceled Mortgage & Credit Card Debt

As tough economic times continue, more and more consumers are seeking to negotiate reductions to their credit card debts, as the NY Times points out their new article titled Credit Bailout: Issuers Slashing Card Balances.

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.

They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.

“Now it’s the card company calling you and saying, ‘Let’s talk turkey,’ ” said David Robertson, publisher of the credit industry journal The Nilson Report.

Although it may be getting easier to negotiate with credit card companies, the IRS still considers this canceled debt taxable income. Which is creating some confusion since they changed the tax code to not tax canceled mortgage debt, which occurs when a bank allows some one out their mortgage for less than the original value.

One of my favorite blogs, Don’t Mess With Taxes, examined this issue in a new blog entry. Check it out at trading credit card debt for a tax bill.

Schwarzenegger Says He'll Veto Democrats' Plan For Balancing Budget

California Governor Arnold Schwarzenegger spoke outside of his office earlier today, making a promise to veto the new democratic budget-balancing bill should it reach his desk. The bill includes tax hikes on oil, tobacco, and motorist fees, all of which Schwarzenegger claims are unfair for Californians already rising tax bills.

“The proposal included what the lawmakers said were $11 billion in cuts to programs dear to Democrats -- to education, healthcare and welfare -- along with $10 billion in accounting maneuvers and other financial moves such as selling state assets,” asserts the LA Times.

But it was the levies intended to raise $1.9 billion in new taxes on oil and tobacco, and fees on motorists to fund state parks, that Schwarzenegger said would be unfair to Californians after higher taxes were imposed on them in February.

"None of that will fly with me," the governor said. "It will be irresponsible after the largest tax increase in California's history just four months ago to go back to the people and to say we want to increase your taxes but we want to protect the salaries of state workers."

The Democrat-controlled budget committee Tuesday rejected the governor's proposal to cut state employee salaries by 5% on top of the two unpaid days off per month that they are already required to take. The lawmakers also dispensed with many of his steepest cuts to state programs, which would have eliminated California's welfare system, its health insurance for children and college tuition aid for low-income students.

Continue reading this story at LATimes.com

Embarq, Sprint Sue Government Over Taxes

From the Associated Press:

Embarq Corp. and its former corporate parent, Sprint Nextel Corp., have sued the federal government to recover $31.6 million in income taxes.

The two companies filed the lawsuit Wednesday in Kansas City, Kan., federal court. The complaint claims Sprint paid the taxes by mistake in the 1990 through 1994 tax years.

Sprint said it mistakenly included subsidies its local telephone division received from the Universal Service Fund as taxable income. The fund helps defray the cost of running lines to rural and poor areas.

The Internal Revenue Service denied Sprint's refund requests, which were filed in 2004.

Sprint's local division spun off in 2006 to become Embarq, which would receive any refunds.

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Wednesday, June 17, 2009

The True Cost of Foreclosures

Foreclosures are running rampant across the country. According to recent studies, an estimated 1 out of every 300 households was forced into foreclosure last month. If you have not witnessed a foreclosure, you may think the only people affected are the homeowners and banks. However, foreclosures actually affect their entire neighboring community, and can drastically impact local tax revenue.

Decreasing Real Estate Values

There are actually several reasons foreclosed homes are bringing down real estate values. Many foreclosures happen quietly and quickly, where residents in the area do not even realize the house was empty until the foreclosure sale sign is in the yard. However, some homes are littered with huge warning signs, or sit on the market unkempt for months. Since there is usually no one in charge of maintaining foreclosed homes, yards grow tall, pools fog up, and the whole home itself begins to look artificially aged. In order to unload these properties the banks will drastically reduce their asking price. This forces regular sellers to lower their prices in order to stay competitive, and results in deflated real estate values for an entire neighborhood.

Devalued Neighborhoods

In addition to forcing sellers to reduce prices, foreclosed homes can also devalue a neighborhood just by sitting there unsold. As I mentioned before, the banks do not assign someone to look over the property, and if several homes on one street go into foreclosure then it can quickly turn the neighborhood into a ghost town. Once the area begins to decline, real estate values will drop quickly, and residents will find it nearly impossible to sell their homes.

Loss of Local Revenue

When a house has been vacated due to foreclosure, it means that there is no one living in the property, and there is no one to pay local property taxes. This can be disastrous to local government agencies that rely on this revenue. For example, the municipality of Greenville, California received over 40% of its revenue from property taxes and in the past year alone home values have decreased by over 15% due to record foreclosure rates. This had led to a budget shortfall and the town is now desperately struggling to get by without the additional funds full occupancy of its homes would bring.

Reassessed Property Tax Rates

Even if a foreclosed property is sold, the local government is going to get less money then it would have if the original homeowner had stayed. This is because property taxes are based on the value of the property, and if a house sells for significantly less then it had five years ago, then its tax rate will be reassessed and taxpayer will only be required to pay the reduced property tax.

Additional Costs to Local Governments

In addition to the lack of property tax revenue, the overall cost of a foreclosed home can be quite large. According to a study from Chicago, the cost of securing and processing a foreclosure can be as high as $5,400 per property. Furthermore if the property is abandoned for more then a few months, local governments will lose out on utility taxes, and may have to pay for water service, and trash removal. The total estimated cost on a foreclosed property could be as high as $20,000.

Local Service Cuts

With out this valuable revenue from property taxes, many cities are being forced to make up the revenue elsewhere. Local governments are being forced to lay off city workers (including firefighters and law enforcement), cut funding for education, increase retail taxes, and even sell precious historical landmarks. There is not a lot taxpayers can do to prevent these rash actions in their hometowns but sit by idly and hope that they do not get hit with a tax increase.

What can YOU do?

One of the best ways to counterbalance your communities’ loss in city revenue is to directly support your local economy. By making a few changes to your spending habits, and encouraging your neighbors to do so as well, you can make a difference. To learn more about how you can help, be sure to check out an entry I posted a few weeks ago titled 10 ways to help your local economy with your tax refund.

Tax Deductions For Car Purchases Now Apply To All States

From the Boston.com:

[T]he American Recovery and Reinvestment Act (ARRA) passed earlier this year, provides a tax deduction for the purchase of a new qualified vehicle. The Treasury announced last week that this incentive now applies to all states – including those that do not impose a sales or excise tax. This includes Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

Purchasers of a new qualified vehicle in the states mentioned above can now take an above-the-line tax deduction for fees and other taxes that are imposed by the state or local government. These fees and other taxes must be based on the vehicle's sales price or as a per unit fee in order to qualify for the deduction.

All of the other provisions of this incentive are the same for all states including:

  • New vehicles include cars, light trucks, motor homes, or motorcycles.
  • The deduction is only available for purchases made on or after February 17, 2009 and before January 1, 2010.
  • The deduction is limited to the sales tax, excise taxes, or fees paid on vehicles with a maximum purchase price of $49,500 dollars.
  • If you are married and you file a joint tax return have, the deduction gets phased-out once your modified adjusted gross income (MAGI) reaches $250,000 dollars and is completely gone if your MAGI is more than $260,000 dollars. For all other taxpayers, the phase-out range is a MAGI of $125,000 dollars to $135,000 dollars.
  • The deduction is available whether or not you itemize your deduction on your tax return.
  • The deduction must be taken on your 2009 tax return (which is filed in 2010).

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