Thursday, August 27, 2009

Is 'Friending' in Your Future? Better Pay Your Taxes First

Most of you have probably heard the warning about putting things on your MySpace, FaceBook, or Twitter profile that you might not want your employers to see. But have you ever thought about not wanting the IRS to know what you put on your profile? Well, you might want think about it next time you post a blog entry about your personal finances. According to the Wall Street Journal, some state revenue agents have begun gathering information about tax evaders from social networking sites.

In Minnesota, authorities were able to levy back taxes on the wages of a long-sought tax evader after he announced on MySpace that he would be returning to his home town to work as a real-estate broker and gave his employer's name. The state collected several thousand dollars, the full amount due.

Meanwhile, agents in Nebraska collected $2,000 from a DJ after he advertised on his MySpace page that he would be working at a big public party.

In California, which has recently been so strapped for revenue it has had to pay some bills with IOUs, agents are also using social Web sites. When one delinquent was identified as a rigger of sails, a curious collection agent searched his name and the term online and found a discussion board used by local riggers. In one thread someone asked where the rigger was because his store had closed, and a reply was posted, "Oh, he moved across the bay." The agent found the man and collected a four-figure sum.

Continue reading at…

Democratic Health Care Bill Divulges IRS Tax Data

With all of the talk around the Obama administrations 1,000 page health care bill, it can be difficult to pick apart. However, CBS News published a great article this morning on one section we should all be aware of. According to the report private financial data of millions of Americans could end up being handed over to the health care choices commissioner. Read more about this story below.

One of the problems with any proposed law that's over 1,000 pages long and constantly changing is that much deviltry can lie in the details. Take the Democrats' proposal to rewrite health care policy, better known as H.R. 3200 or by opponents as "Obamacare." (Here's our CBS News television coverage.)

Section 431(a) of the bill says that the IRS must divulge taxpayer identity information, including the filing status, the modified adjusted gross income, the number of dependents, and "other information as is prescribed by" regulation. That information will be provided to the new Health Choices Commissioner and state health programs and used to determine who qualifies for "affordability credits."

Section 245(b)(2)(A) says the IRS must divulge tax return details -- there's no specified limit on what's available or unavailable -- to the Health Choices Commissioner. The purpose, again, is to verify "affordability credits."

Joe Francis to Use "Deductions Gone Wild" Defense in Tax Evasion Trial

According to the Smoking Gun, via the Tax Prof Blog, Joe Francis, founder of the Girls Gone Wild video series, is going to use a slide show to try to convince a jury in his upcoming tax evasion trial that various expenses are deductible as business expenses. Check out the following explanation on his defense, or head over to the Tax Prof Blog to see pictures of the slides that Francis intends to use.

As part of Joseph Francis's opening statement in U.S. District Court in Los Angeles, his defense team will show a series of slides (or "opening statement demonstratives") that link the "Girls Gone Wild" boss and his firm to movie stars like Jennifer Aniston, Jack Nicholson, Vince Vaughn, and Orlando Bloom. A copy of the slide presentation was filed last week in federal court by Francis's defense team.

Prosecutors allege that Francis, whose trial is set to open in mid-October, illegally sought to conceal income in offshore companies and deducted millions in phony business expenses, including costs incurred at Casa Aramara, Francis's beachfront Mexican home. One defense slide ... includes photos of Aniston, ... Bloom, and Vaughn, who are described as "celebrity guests" at the Punta Mita property. It appears that Francis, 36, will argue that the estate was an investment property frequently leased to wealthy tenants and, as such, certain business tax deductions were warranted.

[One] slide will helpfully inform jurors that Francis is "in Business of Sex," while another provides a "Marketing 101" overlook at the "Girls Gone Wild" soft-core franchise. The defense slide show will also attempt to draw parallels between Francis's business and Hugh Hefner's Playboy empire.

Cities Turn Off Streetlights to Save Money

USA Today posted a great article on the recession’s latest victim: the streetlight. Although turning off a few lights might seem like no bid deal, as the article explains, it can actually save local government agencies thousands of dollars per month. Some cities are even considering a new “streetlight fee” that could be added to resident’s local tax bills.

The cost-cutting moves coincide with changing attitudes about streetlights. Once viewed as helpful safety measures, the lights are increasingly seen by some public officials and researchers as an environmental issue, creating light pollution and burning excess energy.

In July, Santa Rosa, Calif., started a two-year effort to remove 6,000 of the city's 15,000 streetlights. An additional 3,000 will be placed on a timer that shuts lights off from midnight to 5:30 a.m. Savings: $400,000 a year.

The city boasts that it will cut its carbon footprint. What really matters, though, is money.

Public works director Rick Moshier says he'd already cut his department's budget by 25% when he turned to streetlights. "I can either fix potholes and storm drains or keep paying $800,000 a year for electricity," Moshier says.

Turning out the lights has met some local resistance. Santa Rosa has a hotline for complaints.

"What about the human factor?" says Kenneth Ozoonian of North Andover, Mass. His town is turning off 626 streetlights — about one-third of the town's total — to save $47,000 annually.

Latest Good Reads:

To Incorporate or Not to Incorporate - That is the Question!

Confessions of a City Girl: Navigating the Testosterone-laden Financial Industry

Tax for Clunkers

Another Don't Try This at Home Story

Bank Bonuses: Time for an International Fix?

Wednesday, August 26, 2009

Obama Raises 2010 Deficit Estimate to $1.5 Trillion Obama Raises 2010 Deficit Estimate to $1.5 Trillion

According to, the unemployment rate is expected to surge to 10 percent, while the budget deficit is predicted to be a staggering $1.5 trillion. These numbers are both much higher than the Obama administration had predicted, and the announcement has many wondering if the recession will last longer then we had all hoped.

The Office of Management and Budget forecasts a weaker economic recovery than it saw in May as the gross domestic product shrinks 2.8 percent this year before expanding 2 percent next year, according to the administration’s mid-year economic review issued today. The Congressional Budget Office, in a separate assessment, forecast the economy will grow 2.8 percent next year. Both see the GDP expanding 3.8 percent in 2011.

“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the White House report said. “The long-term deficit outlook remains daunting.”

The budget shortfall for 2010 would mark the second straight year of trillion-dollar deficits. Along with the unemployment numbers, the deficit may complicate President Barack Obama’s drive for his top domestic priority, overhauling the U.S. health care system.

“It throws a wrench in health-care reforms,” Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said in an interview. “No matter the specific numbers, they’re a constant reminder that we’re in bad, bad shape.”

College Saving: How To Avoid Losses, Save On Taxes

It is back to school time for kids and college students alike. As such dozens of news outlets are running stories on saving for college. Yesterday, I came across this interesting article from explaining how to save for college while avoiding losses. Check out the text of their article below, or for more information your can read this article on the RDTC Tax Help Blog titled Top 10 Tax Planning Tips for Families with Children.

As parents of young children see teenagers head off to college for the fall semester, they may be fretting about how they'll be able to meet the rising cost of tuition when their time comes.

That includes looking at 529 plans that offer special tax benefits on college savings and are named after the Internal Revenue Service code that regulates them. Accounts can be set up through a state agency or pre-paid university and college programs.

Let's look at the tax advantages, the home-state factor and the best way to protect the account from market losses.

Q: What are the tax advantages of a 529 plan?

A: Earnings in 529 plans are not subject to federal tax, and in most cases you do not pay state taxes as long as you use the money for eligible college expenses. That typically means tuition, room and board, and mandatory fees. Books and computers also qualify when they are required.

Money taken out of the account for reasons other than college expenses will be subject to income tax and a 10 percent federal tax penalty.

The Securities and Exchange Commission offers an introduction to 529 plans with some basic information on taxes and other issues on its Web site at:

Continue reading at…

College Saving: How To Avoid Losses, Save On Taxes

It is back to school time for kids and college students alike. As such dozens of news outlets are running stories on saving for college. Yesterday, I came across this interesting article from explaining how to save for college while avoiding losses. Check out the text of their article below, or for more information your can read this article on the RDTC Tax Help Blog titled Top 10 Tax Planning Tips for Families with Children.

As parents of young children see teenagers head off to college for the fall semester, they may be fretting about how they'll be able to meet the rising cost of tuition when their time comes.

That includes looking at 529 plans that offer special tax benefits on college savings and are named after the Internal Revenue Service code that regulates them. Accounts can be set up through a state agency or pre-paid university and college programs.

Let's look at the tax advantages, the home-state factor and the best way to protect the account from market losses.

Q: What are the tax advantages of a 529 plan?

A: Earnings in 529 plans are not subject to federal tax, and in most cases you do not pay state taxes as long as you use the money for eligible college expenses. That typically means tuition, room and board, and mandatory fees. Books and computers also qualify when they are required.

Money taken out of the account for reasons other than college expenses will be subject to income tax and a 10 percent federal tax penalty.

The Securities and Exchange Commission offers an introduction to 529 plans with some basic information on taxes and other issues on its Web site at:

Continue reading at…

Furloughs to Hurt Tax Collection, Officials Say

No matter how hard they try, it seems California legislators cannot get the state’s budget under control. After their choice to put State workers on two furlough days a month, a new study has come out reporting that the missed work will drastically reduce the amount of revenue the state collections in income taxes. The estimated loss over the next fiscal year could be as much as $1 billion. Below I’ve included a story about the new revelation courtesy of

The setback could further strain California's budget, contributing to shortfalls in the current and next fiscal years.

Officials from Gov. Arnold Schwarzenegger's administration - from the Department of Finance, the Franchise Tax Board and the Board of Equalization - presented the state Senate Budget Committee on Tuesday with the estimated revenue losses due to the furloughs and budget cuts.

At the hearing, Sen. Denise Moreno Ducheny, D-San Diego, told the officials they should rethink the wisdom of the work stoppages at the tax and equalization boards.

"I just don't see where we're getting savings," a visibly frustrated Ducheny, who chairs the Senate Budget Committee, told a panel of administration officials.

Food For Thought on Junk Food Taxes

From the LA

People love to talk, think, read and write about food. Ditto taxes. Put those two topics together, and you’re bound to get a dynamic conversation.

And so it is with the idea of a junk food tax, described in Sunday’s paper as a possible way to discourage people from eating unhealthful foods. Though scientific studies and real-world data suggest they wouldn’t be terribly effective at modifying people’s behavior, public opinion polls indicate that support for the idea is growing.

Here’s a sampling of some of the more thoughtful comments we’ve received about the story:

Peter Ford, a teacher in Inglewood, objected that a junk food tax would do plenty of harm and very little (if any) good:

“As a teacher in an urban school this tax would impact the people you're attempting to help; few of my students' parents shop at Whole Foods or Trader Joe's, and combining a tax on those things they eat too much plus our petroleum prices (and LAUSD looking to increase property taxes to pay for their construction bonds) and you make life more difficult for the people you allege you're trying to help.

People changing eating habits is a personal challenge that requires deep, intimate investment into the culture and habits of families and individuals; it's very difficult for any outside/government entity to impact that successfully.”

Beverly Smith, an educator in Calgary, Canada, noted that this problem will remain unsolved as long as healthful foods – like fruits, vegetables and lean meats – cost more than their calorie-laden counterparts:

“To tax those who have to eat cheap and fast is like hitting someone with crutches. First we must get cost of the good food down.”

Gregory Lites, who owns an entertainment company in Westwood, thought it was wrong to judge the effectiveness of junk food taxes based solely on whether they discouraged people from eating fattening foods:

“Raising taxes on soda and junk food across the board to help decrease obesity should be a secondary goal. The primary goal and the premise behind the tax hike should be that those that eat unhealthy (obesity) should contribute more towards health care than those that eat healthy. The revenue generated should therefore go directly to health care reform and/or national healthcare.”

For Richard Platt, a retired Army officer in Universal City, Texas, a junk food tax is unnecessarily complicated. In his view, it’s no mystery why so many Americans are overweight, or what to do about it:

“This is nonsense and requires a skill below a 4th grade course in mathematics. The solution is: Eat food low in calories and burn more calories than you consume and you will not gain weight. Or, in a more simple vernacular . . . eat less and exercise more and you will not gain weight. You should not interject the intrusive, gluttonous government into every private and personal decision.”

Tuesday, August 25, 2009

iPhone as a Tax Gadget?

One of my favorite bloggers, the Tax Guru, published a great blog the other day on how many people are beginning to use iPhone apps in order to prepare for tax season. Most of us are used to using programs like QuickBooks to monitor expenses, but as mobile applications become more and more advanced the idea of managing your finances with your cell phone is becoming a reality. Check out the following blog entry from the Tax Guru, or click here to see’s list of the top 10 finance iPhone apps.

I don't have an iPhone and have no plans to get one; but as a life-long gadget freak, I have been intrigued by the growing list of applications being developed for it. In the latest Intuit newsletter, I just saw an ad for this app called Tap2Track Mileage that is supposed to use the iPhone's GPS capability to keep a log of vehicle trips that can produce an Excel spreadsheet that will be very useful at tax time.

This reminded me of a much more complicated gadget that was available in the mid 1980s for logging vehicle miles. That contraption required installing magnets onto the vehicle's drive shaft to record mileage on a device inside the vehicle, producing a paper listing of miles driven for business, medical and charitable purposes. If I remember correctly, that product sold for around $500; much more than the $3.99 this new app sells for.

The Ex-Wives Club of UBS Tax-Evaders

From the Wall Street Journal:

Let’s say you are a multimillionaire divorcee. You cleverly hid half your assets from your wife during the divorce settlement 10 years ago by stashing them in Switzerland.

So while she is scraping by on $20,000 a month in alimony, you are living large off the monthly cash flow from Zurich.

Now comes the UBS settlement, and the naming of the names.

An article in Time magazine quotes New York divorce lawyer Raoul Lionel Felder saying he is getting calls from multiple clients who want to know what they can do to get their share of the cash they suspect their ex–loved ones secreted away in Switzerland.

“You see allegations of Swiss bank accounts in divorce proceedings all the time,” says Felder, whose clients have included Rudy Giuliani and Robin Givens. “A lot of divorces are going to get opened up.”

And it doesn’t matter when the divorce took place. There is, apparently, no statute of limitations for divorce in most states, so even divorces of 30 years ago could be resurrected.

Obama Administration Extends Car Dealers' Cash for Clunkers Deadline

The popular Cash for Clunkers program gained so much momentum in its last few days, that dealerships had a hard time keeping up with the rebate-filing deadline. In response, The Department of Transportation has extended the deadline to this afternoon instead of 8 p.m. last night. The sales must have been completed by the original deadline, but dealers who were unable to submit their requests last night can do so today. Check out the following article from USA Today article about the announcement.

Department of Transportation spokeswoman Jill Zuckman said the deadline has been extended because "overwhelming demand" shut down the DOT website temporarily this afternoon.

As the Obama administration's popular auto rebate program wound into its final hours, Transportation Secretary Ray LaHood told reporters that it has been "wildly successful" in terms of jump-starting the economy.

"You've got dealers, you've got mechanics, you've got the banks doing the loans," LaHood said in Elizabethtown, Pa. "So this isn't just about the auto industry. We're talking about tons of common, ordinary people who are working today because of this program. This is such a win-win for the auto industry and for common ordinary citizens, too."

As of Monday morning, $2.58 billion worth of vouchers have been submitted and 625,000 old, polluting cars have been taken off the road in exchange for new, fuel-efficient cars, Zuckman said. Because most people turned in gas-guzzling trucks and SUVs in exchange for smaller cars, the Department of Transportation is figuring the program will mean a big decrease in pollution. The DOT says the clunkers that have been turned in were averaging 15 miles per gallon, and the new cars people got are 60% more efficient.

Why You Shouldn't Commingle Business and Personal Funds

When it comes to owning a business, you should always tread carefully when spending and saving your hard earned cash. However, it is essential that you keep your personal and business funds separate. Check out the following article on why it is so important courtesy of LLC Made Easy.

After all the hard work it takes to create a product or sell your service, the last thing most of use want to do is have more administrative hassles. Particularly after you've gone through the effort of forming an LLC.

When you finally make that sale, and collect that check (if you've ever been in business, you know the difference between making a sale and collecting the money), you want to spend it.

I understand.

But, for several reasons, you want to get your ducks in a line first and keep your business and personal accounts separate to avoid commingling of funds.

What exactly is "commingling"?

Commingling of funds means that you are treating your business's money as your own. Some ways to commingle funds are:

  • Depositing checks made payable to your business into your personal bank account
  • Making withdrawals from your business checking account to pay obviously personal expenses without documentation
  • Using the same bank account for your business and personal needs.
  • Writing business checks for obviously personal expenses
  • Moving money back and forth between your business and personal accounts without documentation

Continue reading here…

Monday, August 24, 2009

The 5 Biggest Celebrity Tax Scandals of 2009

So far in 2009 there have already been a dozen or so celebrities who have made headlines for their tax problems. I have covered a couple of them on my blog so far, but since there have been so many I wanted to put together a list of the biggest celebrity tax scandals. The individuals listed below may be rich and famous, but that does not mean anything to the Federal government. If you do not pay your taxes then the IRS will come after you, even if you are a celebrity.

5. David Brenner

Best known for his stand up comedy, Brenner is also and established author, actor, and filmmaker. He has made over a hundred television documentaries, one of which was even honored with an Emmy award. Brenner also holds the record for the most appearances on "The Tonight Show", with over 158 in his career. Currently, he is working on a new comedy website that will reportedly be known as The Funny Deli.

Earlier this year it was announced that Brenner owed the IRS over $68,222 in unpaid tax liabilities. Although he avoids discussing his finances in interviews, public records show that Brenner filed Chapter 7 bankruptcy in 2004, listing more than $1.73 million in liabilities and only $78,324 in assets. Unfortunately that did not seem to fix his financial troubles, as the IRS filed a lien against his property on June 25th of this year. Reports claim that Brenner has already negotiated an Installment Agreement with the IRS to repay his debts through monthly payments. For more information on IRS Installment Agreements, check out this page on my law firm’s website.

4. Stephen Baldwin

Nearly everyone in the country has heard of the famous Baldwin brothers. Nearly all four siblings work in the entertainment industry and Stephen is no exception. He first showed interest in entertainment while attending high school where he was active in choir and theater. Although he starred in films such as "The Beast of War", his first break-through role was in the 1995 hit movie "Usual Suspects”. Recently, he appeared in a handful of reality shows including "Celebrity Apprentice" and “I’m a Celebrity … Get Me Out of Here.”

Although he has been on a number of shows over the past few years, Stephen and his wife Kennya were forced to file chapter 11 bankruptcy earlier this year. In addition to millions of dollars in mortgage debt, the couple also owes the IRS a reported $749,974 in Federal tax debts stretching from 1999 to 2008. Their filing also cited another $194,527 in state tax debts owed to New York.

3. Sinbad

Although Sinbad was once a popular comic, these days his financial troubles are getting more attention than his comedy. Since the beginning of his career in the early 80’s, Sinbad has appeared in several motion pictures including "Jingle All The Way" and "The First Kid." Unfortunately, he has not had a hit project in nearly a decade.

In 2007, it was announced that Sinbad topped California’s list of delinquent taxpayers, with a state tax debt totaling over $2.1 million. At that time it was reported that the debts dated back to 1993. Two years later, Sinbad has apparently still has not settled his tax problems. He once again made California’s list of the top 10 delinquent taxpayers, but this time it is reported that he now owes the state over $2.5 million.

2. Chris Tucker

Comedian and actor Chris Tucker became famous in the early 1990’s because of films such as "Friday,” "The Fifth Element," "House Party 3" "Money Talks," and the “Rush Hour” trilogy. In fact, for the third Rush Hour movie, Tucker was reportedly paid over $20 million, something only a few elite actors can claim. In addition to his films, Tucker is also known for being friends with other celebrities including Bill Clinton, Jackie Chan, and the late Michael Jackson.

Considering the fact that Tucker earned millions of dollars in the past decade, it surprised me to learn that he owes the State of California nearly $3.6 million in unpaid taxes. The state recently slapped Tucker with a lien for the debts stemming from the years 2001-2002 and 2004-2007. Unfortunately, little is known as to the reason for his tax delinquency since his publicist has refused to make any statements on the issue.

1. Nicolas Cage

Nicolas Cage took the number one spot on my list of the 5 biggest celebrity tax scandals for a number of reasons. First of all, he is probably one of the most famous actors to wind up in trouble with the IRS. He has appeared in dozens of hit movies including “Moonstruck" and "Lord of War", Ghost Rider." Most recently he was seen in the "National Treasure" films, which ironically featured a character that had to go back to work because of IRS tax debts.

Just a few weeks ago, the IRS issued a lien against Cage in the in Orleans District Court in Louisiana. The lien cited delinquent IRS tax liabilities from 2007 totaling over $6.2 million, which is higher than any other celebrity on my list. The address listed on the lien is Cage’s $3.55 million haunted mansion in New Orleans, which was initially built for French royalty. Unfortunately, Cage has not spoken out regarding his debt, so there are no details on whether he has attempted to settle with the IRS or not.

Questions for the Tax Lady: August 23rd, 2009

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

Question #1: I recently filed late returns for years 2000-2008. All income was from traditional employment. All but 3 years show a return, and total owed for the 3 years is about 8K. I fully expected to be fined/penalized/interest assessed, etc. for those owed taxes. However, the last 3 years (06,07,08) should have given me a refund of over 60K. I got notices from the IRS that ALL of the money was applied to money owed from the tax years 2002 and 2004. It seems like I should be getting some type of refund, what should I do?

First of all, I would suggest getting a full review of your tax account with the IRS to determine exactly what money is owed, and from which years. My law firm offers a Tax Account Review service, as do other tax resolution companies. You could even call the IRS and work to get the information yourself, but IRS representatives can frequently be difficult to work with.

Since your refunds should have come from the past three years, then you are not entirely out of luck. Unfortunately, the IRS will only hold a taxpayers refund for three years, but they can come after you for taxes owed from over ten years ago. Once you get the information from your tax review, you should be able to request any refund you are owed. On the other hand, if you find out that you still do owe the IRS, then you can always negotiate for a settlement. Call 1-888-TAX-LADY to speak with one of my representatives who can help you determine the best solution to your tax problems.

Question #2: I'm an independent contractor. If I include extra expenses while filling my tax returns will I be more likely to get audited?

No, as long as all of the expenses you list are legitimate business expenses you will have nothing to worry about. According to the IRS, “a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”

A Rush to Cash in on "Cash for Clunkers"

As we all know, the massively popular Cash for Clunkers program sponsored by the Federal government has swamped U.S. car dealerships. Unfortunately though, the program is expected to end at 8 PM tonight, as a busy weekend for auto dealers is expected to use up the remaining rebates. So if you are hoping to take advantage of the program then you better hurry up!

CBS News published the following article about how busy dealerships were this past weekend after Friday’s announcement that over 2/3 of the available rebates had been requested.

"I've never seen the showroom - in the 27 years I've been here - this busy," said Brian Benstock, general manager of the dealership, Paragon Honda.

The story is the same all over. At a Toyota dealer in Maryland, salesmen are hip-deep in clunker deals. And the back lot of Christian Gomes's Ford store on Long Island it’s the clunkers themselves that run 60 deep.

Gomes said he sold his entire inventory. The government's Cash for Clunkers program invigorated comatose car showrooms. The biggest winners were Toyota, raking up 19 percent of all the sales, followed by GM with 18 percent, Ford with 15 percent, and Honda with 13 percent.

Richard and Stephanie Miller didn't plan on dumping their clunker. But their 16-year-old Ford Explorer was wheezing after 153,000 miles.

"She gave us a lot of good years, but she's had it," Stephanie Miller said.

So the millers went shopping today. An hour and a half later, awarded with $3,500 in clunker cash from the government and a $1,500 rebate from ford, they were they owners of a bright red 2010 Ford Fusion.

"I voted against Obama but the man has a lot of imagination," Richard Miller said. Stephanie Miller added that she was excited about the gas mileage of the new car.

IRS Features Recovery Tax Credits on YouTube & iTunes

According to their newest press release, the IRS is uploading a series of videos and audio segments to “help taxpayers take full advantage of the 2009 tax provisions in the American Recovery and Reinvestment Act.” They have even launched a YouTube channel and iTunes pod cast to connect with younger audiences.

People can visit the video site at to view information about the Recovery, tax tips and how-to videos. These videos will be in English, Spanish, American Sign Language and other languages.

The YouTube focus will be on the provisions of the American Recovery and Reinvestment Act. Videos will highlight the $8,000 first-time homebuyer’s credit for those who purchase a house this year, the sales or excise tax deduction on new car purchases and the expanded credits for education and energy conservation.

The IRS YouTube channel will debut with seven Recovery videos in English and ASL and eight in Spanish. Also, included will be a video on using the IRS Withholding Calculator. Many workers received the Making Work Pay tax credit in April through their tax withholding at work. However, people who have more than one job or working spouses should especially check their withholding to ensure neither too much nor too little is being withheld. People can use the calculator to help determine if they should make adjustments.

Rise of the Super-Rich Hits a Sobering Wall

From the New York Times:

The rich have been getting richer for so long that the trend has come to seem almost permanent.

They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.

But economists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

The relative struggles of the rich may elicit little sympathy from less well-off families who are dealing with the effects of the worst recession in a generation. But the change does raise several broader economic questions. Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group. In blunter terms, the question is whether the better metaphor for the economy is a rising tide that can lift all boats — or a zero-sum game.

Thursday, August 20, 2009

Swiss Sell UBS AG Stocks, Tax Settlement Already Rewarding

As a result of the yesterday’s announcement that the names of over 4,500 Americans using bank accounts to avoid taxes would get turned over to the US government, Switzerland decided to let go of their UBS AG investments this morning. The sale earned the Swiss government an estimated $1.2 billion Francs – or about $1.1 billion in US currency.

The Swiss state sold 332.2 million shares to institutional investors at 16.50 francs each, the government said in a statement today. Including a 1.8 billion-franc cash payment the state is getting from UBS, the proceeds amount to about 7.2 billion francs.

The government bought 6 billion francs of UBS mandatory convertible notes last year to help the Zurich-based bank split off toxic assets amid the worst economic crisis since the Great Depression. The settlement of a U.S. lawsuit that sought data on 52,000 UBS clients and a 3.8 billion-franc capital increase in June strengthened confidence in the bank, the government said.

“The exit is a positive signal, as it shows the confidence of the Swiss government regarding the situation of UBS,” Stefan Schuermann, an analyst at Vontobel with a “hold” rating on the stock, said in a note. “The placement increases UBS’s flexibility in rebuilding its franchise and will help to keep or hire key employees.”

UBS rose 76 centimes, or 4.5 percent, to 17.50 francs in Swiss trading. UBS shares have risen 17 percent since the U.S. and Switzerland said they had reached an agreement in principle on the tax lawsuit on July 31.

Continued at…

Ruling in Tax-Auditing Case Puts Corporations on Edge

According to the Wall Street Journal, a recent tax federal appeals court ruling is causing stress for corporate lawyers across the country. The decision gives the IRS authority to look through documents that have been complied by independent businesses. However, legal experts assert this is a violation of the “word-product doctrine” which shields an individual or business from having to turn over documents created "in anticipation" of litigation.” Check out the WJS story below.

Last week, in a widely anticipated ruling, a federal appeals court in Boston said the IRS could gain access to documents created by a defense-contracting firm to determine whether the company's calculation of its tax liabilities would pass muster during a possible IRS audit. The decision in U.S. v. Textron Inc. reversed a January ruling by a smaller panel of judges on the same court.

To some lawyers who represent corporations, the decision signaled an attack by the courts on the "work-product doctrine," the legal rule that shields an individual or business from having to turn over documents created "in anticipation" of litigation. In its ruling, the First Circuit Court of Appeals said the documents at Textron weren't protected under the doctrine because they weren't prepared specifically "for use" in litigation.

The ruling "eviscerates the work-product doctrine," says Frederick Krebs, president of the Association of Corporate Counsel, an organization for in-house corporate lawyers. He says the ruling, which is binding in federal courts in the Northeast where the First Circuit is based but could influence other courts, will embolden the IRS -- as well as plaintiffs' lawyers who bring shareholder lawsuits -- to seek more such documents from public companies. "If the IRS gets access, [it] can immediately figure out where the client thinks it's weak, what it's willing to pay," he says. The IRS praised the ruling in a statement last week but declined further comment.

Health Insurance Stocks Dip Lower Than Market

From The Associated Press:

Managed care stocks dipped slightly lower than the overall market Wednesday, after insurers received more bad publicity with letters from Congress asking for executive compensation details and other financial information.

Several stocks fell around 1 percent while the broader Standard & Poor's 500 index climbed slightly. Wednesday's performance followed a managed care rally on Monday, after statements from the Obama administration downplayed the possibility of a government-backed public health plan that many investors fear would provide unfair competition to private health insurers.

The stocks have gone through several volatile periods since the health care reform overhaul debate started taking shape earlier this year.

Dozens of insurers received requests for information that included records relating to compensation of highly paid employees, documents relating to companies' premium income and claims payments, and information on expenses stemming from any event held outside company facilities in the past 2 1/2 years.

The requests were made in letters signed by Rep. Henry Waxman, D-Calif., who guided a portion of health care legislation through the House Energy and Commerce Committee last month as chairman, and Rep. Bart Stupak, D-Mich.

Of the largest publicly traded health insurers, only Louisville, Ky.-based Humana Inc. has said it plans to cooperate fully. Others have only said they received the letters.

Stifel Nicolaus analyst Thomas Carroll said the request implies that health insurers are doing something wrong.

"It's further demonizing of the health insurance industry, and it's pushing the stocks back down today a little bit," he said.

In Debt, Do They Part? Recession Delays Divorces

Yesterday I came across this interesting article from discussing how more unhappy couples these days are deciding to stay together for financial reasons. According to the author, the recession has made it difficult for many couples that would like to file for divorce, but simply cannot afford to do so.

Breaking up is hard to do, but during a recession, it's even tougher.

Couples who want to split up often are handicapped: by the high cost of attorneys' fees, because they can't sell their homes or can't afford to set up two households.

So some of them are stuck living together - miserably.

"Some are agreeing to be roommates and stay at separate ends of the house," said attorney J.J. Dahl, who handles about 65 divorce cases each year. "And we have some who have gotten divorced and they're staying in the house together until the market improves and they can sell it."

This is new territory for Dahl, who says that none of her clients was doing this two or three years ago. But today, she finds that 25 percent of her clients are living together to make ends meet until they sell the house - and another quarter have given up and are losing their homes to foreclosure because they couldn't stand living together anymore.

Nationwide, the divorce rate appears to be the lowest since 1970, according to preliminary numbers from the National Center for Health Statistics.

"There is a lot of fear, so people are staying put," said Gary Nickelson, president of the American Academy of Matrimonial Lawyers. "People look at their assets and their liquidity, and they realize they don't have any."

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Wednesday, August 19, 2009

Swiss to Reveal UBS Accounts to Settle U.S. Tax Fight

The legal battle between the U.S. and the Swiss looks like it may finally be coming to an end, according to a new story. As part of the deal, Switzerland has agreed to hand over 4,450 UBS AG bank accounts to U.S. authorities. This historic deal represents a new direction for IRS enforcement, and will likely result in millions of dollars in federal revenue.

With Switzerland's famed banking secrecy under fire, the Swiss have also agreed to process requests by the United States seeking information from its banks besides UBS about account holders who may have tried to evade U.S. taxes.

"This announcement today should send a signal - no matter what institution you're with, the IRS is willing to pursue both the institution and the individual," Internal Revenue Service Commissioner Doug Shulman told reporters on Wednesday.

The accounts were at one time worth $18 billion, Shulman said, though he could not provide a current figure.

U.S. authorities would not name any other foreign banks under probe but the IRS is expected to use the Swiss deal as a template to pursue further prosecutions.

"The IRS is now gaining institutional skill and knowledge in how to pursue these types of cases and they're going to use that. This is, I believe, the beginning and not the end," said Peter Hardy, a former federal prosecutor and specialist in white-collar crime at Post & Schell in Philadelphia.

China's Sovereign Wealth Fund to Buy U.S. Mortgages


China's $200 billion sovereign wealth fund, China Investment Corp., is preparing to invest up to $2 billion in U.S. mortgage securities under the U.S. Treasury-backed Public-Private Investment Plan (PPIP), according to a media report Monday.

The Beijing-based fund, which is funded by cash from China's foreign exchange reserves, is in talks with at least a dozen PPIP managers and sub advisors, according to a Reuter's report, which cited sources it did not identify.

The report said CIC has yet to select any companies but is likely to finalize a decision before the end of August.

China Investment Corp. was eager to participate in real estate securities because it believes the U.S. property market will start to recover later this year in a gradual fashion, the repots cited its sources as saying.

Wells Fargo Sued Over Home Equity Lines of Credit

This morning I was surprised when I came across this new Associated Press article reporting that the popular U.S. bank Wells Fargo & Co. has run into some legal trouble. According to the lawsuit, Wells Fargo has been accused of illegally reducing the size of customers’ home equity lines of credit. Check out the full story below.

The suit, which was filed in Illinois, claims Wells Fargo failed to accurately assess the value of customers' houses before deciding to cut the size of their credit lines. San Francisco-based Wells Fargo is being accused of using unreliable computer models that wrongly valued home prices too low to justify cutting the size of customers' loans.

Home equity lines of credit are similar to credit cards in that a customer has a credit limit and can continue to borrow money until the limit is reached. Once a portion is paid off, it again becomes accessible to borrow. But, home equity lines of credit are backed by a borrower's property, whereas credit cares are unsecured.

Michael Hickman, who filed the lawsuit on behalf of himself and is seeking class action status for it, claims Wells Fargo also did not provide proper notice that the bank was reducing the size of the credit lines.

The bank's notice for reducing the lines also did not specifically provide a new estimated value for the property or the method used to determine the houses value. Hickman's lawsuit said that information was needed so a customer could challenge the change in the credit limit and try and reinstate the previous limit.

Hickman is being represented by KamberEdelson LLC, a Chicago-based law firm, which is also representing clients that have filed similar suits against JPMorgan Chase & Co. and Citigroup Inc.

Continue reading here…

Where's My Stimulus?

With so much effort being spent on re-building the banking industry, and pushing through a health care reform package, many small business owners around the country are feeling forgotten. posted a new article explaining the frustration of small business owners who are beginning to ask, “what about me?” I’ve included a snippet of their article below, but you can check out the full text at

During her four years as an entrepreneur, Trina Nelson has seen plenty of ups and downs. But nothing prepared her for the crisis last December, when the American economy lay in tatters and her Dallas-based catering business nearly collapsed. "The phones stopped ringing," says the founder of Par-T-Trayz Catering (motto: "From sushi to soul food").

Unfortunately, Nelson, 38, has had a history of borrowing woes. In 2007 she needed a loan to stay afloat but was turned down by four banks because she didn't have an established line of credit. (Like many startup founders, Nelson had used personal credit cards to fund her business; now her credit rating is "shot.") Lenders said the amount she was seeking -- $15,000 -- was too small.

"They told me I wasn't asking for enough money," she recalls. "Why would I ask for more money than I needed?"

For the past nine months, Nelson has struggled to keep her business alive. Fortunately, her phones have started ringing again. But that's revealed another problem. "I'm turning down big business because I don't have the staff to execute the orders," she says. If Nelson had the capital, she would hire 10 full-time employees and expand to offer mail order and personal-chef services.

"The government is giving billions to companies that make billions, and they're still going out of business," she complains. "Why don't they give some of that money to small businesses?"

Tuesday, August 18, 2009

Roni on Fox’s Money for Breakfast

Over the weekend, I made another appearance on FOX Business Network’s “Money for Breakfast.” During the segment, I discussed the recent drop in federal revenue and recent tax trends. In case you missed it, I uploaded the appearance to my YouTube channel.

Federal Income Tax Increases Throughout U.S. History

With all the attention being given to Obama’s health care reform campaign, and Congress’ bill that includes a hefty tax increase to pay for it, I began thinking about tax rates and increases throughout American history. To put the pending tax rate changes into perspective for all of my readers, I have put together the following outline of tax increases in U.S. history.

The Revenue Act of 1916

Nearly a hundred years ago, one of the earliest major tax increases in America was under the Revenue Act of 1916. Prior to the act, only 2% of citizens paid income taxes, and those who did have to pay only paid a mere 1-5%. In order to pay for war expenses, and stabilize the U.S. economy, the new act raised the lowest tax rates by 1%, and the top tax rate by a staggering 15%. However, these increases were not exclusive to income taxes, as rates levied on businesses and estates were also raised. Although experts at the time predicted these taxes would be enough, the First World War quickly became more costly than expected.

The War Revenue Act

Just one year later, in 1917 the properly named War Revenue Act increased taxes yet again. As part of the act, the cutoff for the U.S.’s highest income tax rate went from $1.5 million to only $40,000. Keep in mind that this was “1917” dollars, and citizens making $40,000 per year would be considered wealthy by today’s standards. Only a few months after the War Revenue Act passed, another act was passed to collect additional revenue from taxpayers. All in all, personal income taxes reportedly paid for over a third of all the Word War I related expenses the U.S. incurred.

The Great Depression

As we all know, the 1920’s were a great time in America. The economy was great, tax rates were low, and Federal revenue was flowing. That is until the stock market crash of 1929, which triggered the start of the great depression. Between 1932 and 1936, taxes were increased several times to support economic recovery. By 1937 the lowest income tax rate in the country was 4% and the highest was an astounding 79%. Comparatively, the highest 2009 tax Federal income tax rate is only 35%.

The "Victory" Tax

Often referred to as the biggest tax increase in more than 20 years, the US Revenue Act of 1942 – also known as the "victory" tax – was more than just one little tax increase. Although it's name may lead you to think the act was meant to bump the economy, the money was actually used to prepare for World War II.

Another reason this particular act was so upsetting to many was because up until it passed, only about 5% of Americans had to pay Federal income taxes. However after it was enacted, the act raised the percentage of Americans paying income taxes to 75%. In addition to raising income taxes, the act also increased corporate tax rates by nearly 10%, decreased personal exemptions from $1,500 to $1,200, and decreased dependent exemptions from $400 to $350.

The Revenue Act of 1951

Only 9 years after the last large tax increase bill, the Revenue Act of 1951 was introduced to generate even more Federal revenue. However, although both personal and corporate tax rates were raised by as much as 5%, the government’s total tax revenue actually dropped in the years following the Revenue Act of 1951.

The Tax Equity and Fiscal Responsibility Act of 1982

In 1981, the Economy Recovery Act became law and contained some of the biggest tax cuts of modern American history. However, just a year later, Congress passed the Tax Equity and Fiscal Responsibility Act, which raised the federal unemployment base wage and the FUTA tax rate. The act also setup new excise taxes on airports, airways, telephones and cigarettes. Finally, the act also reduced the limit on tax-free contributions to defined-contribution pension plans by $15,475, and reduced limits on benefits from a defined-benefit plan from $136,425 to $90,000.

The Omnibus Budget Reconciliation Act of 1993

Signed into law by President Bill Clinton, the highly controversial Omnibus Budget Reconciliation Act of 1993 drastically increased personal income tax rates. Just three years prior, the Omnibus Budget Reconciliation Act of 1990 had increased the top U.S. income tax rate to 31%, but under the new act it was further increased to 39.6%. Corporate tax rates also increased to 35%.

Expiration of the “Bush Tax Cuts”

Although they have not expired yet, in 2001 and 2003 Congress passed significant income tax cuts that became known as the “Bush Tax Cuts.” The acts reduced the top Federal income tax rate to 35%. However, both Congress and the Obama administration have vowed to let these cuts expire next year, which will result in a nearly 5% increase for taxpayers in the top tax bracket.

Roth IRA Change May Not Be ‘Game Changer’ for Savers

Earlier today I came across this fascinating article from, discussing the changes to the US tax code that would allow more taxpayers to convert to a Roth IRA. In the article, the author discusses how changing may not make as big of a difference as one would think, and provides several examples of why.

Changes to U.S. tax laws next year give high-income earners planning for retirement a decision to make: pay now or pay later.

Taxpayers making more than $100,000 a year in adjusted income will be allowed to convert to Roth IRA accounts from traditional IRAs after that limit is lifted at the end of the year. That means 16 million Americans, according to tax returns filed with the Internal Revenue Service in 2007, can consider whether they want to make tax-deductible contributions if they have a traditional IRA or pay the taxes up front and have tax- free withdrawals during retirement with a Roth IRA.

Which is better depends on future tax rates and how much the conversion will cost. It may not make sense to pay taxes today at a higher rate because many investors will be in a lower tax bracket during retirement, according to Tom Orecchio, a fee-only adviser at Modera Wealth Management in Old Tappan, New Jersey.

“From a tax perspective, I think when people do the math, it’s not going to be as game changing as they expect it to be,” Orecchio said.

Higher-income households that could benefit from the income limit changes are not rushing to switch, according to a survey released today by San Antonio-based United Services Automobile Association. The national survey of 1,259 adults between 45 and 64 years of age shows that for those with an IRA and a household income of $100,000 or more, 9 percent are planning to convert in 2010.

Tax Assumptions

Most IRA assets are held in traditional IRAs, based on a June report by the Investment Company Institute, a Washington- based trade group for mutual funds. Investors held $3.2 trillion, or 89 percent of IRA assets, in traditional IRAs at the end of 2008. Roth IRAs accounted for $165 billion, or 5 percent, of all IRA assets.

Continue reading here…

Recession Reality: U.S. Cities, States Close for Days

Across the country city and state offices are showing signs of the recession. Mandatory half days, furlough Fridays in California, and other unpaid workdays, are just some of the tactics being used by local governments to save money. Check out the following article courtesy of explaining how cities all over the US are making cuts to survive the recession.

Frank Giannola drove nearly 40 miles from Lockport, Illinois, to downtown Chicago on Monday, only to find city hall shuttered for the day.

"This is the city that works?" he asked, mockingly referring to a Chicago motto.

The subcontractor, who had taken the day off to obtain a sewer permit, joined a steady stream of residents, contractors and business people who came by car, taxi and on foot at midday looking for city services.

They were greeted with a sign that city hall was closed for "a reduced service day" -- the first of three days this year Chicago will curtail services such as garbage pick-up, libraries and health clinics -- but not public safety -- to save $8.3 million.

The savings is small compared with the $300 million revenue shortfall Chicago expects in its fiscal 2009 budget as the economic recession dramatically slows key tax generators.

"Every dollar we save from these measures helps to save jobs, and in the long term, maintain services for Chicagoans," Mayor Richard Daley said in a statement last week announcing the closures.

For residents in Chicago and many other cities, counties and states, unpaid furlough days are becoming a reality of the recession. Services normally expected to be available may not be accessible on certain days. Or lines for services may get longer if workers can choose the days they are furloughed.

For the governments, it is a sign of how desperate they have become to reduce spending to combat shrinking revenue.

"It's turned into a very wide-spread tactic for dealing with shortfalls this year," said Ron Snell, director of state services at the National Conference of State Legislatures.

With states facing projected cumulative budget shortfalls topping $348 billion from 2008 through 2012, at least 12 have turned to furloughs to save money, according to the legislative group.

A deal enacted late last month to erase California's massive $24 billion budget deficit included three furlough days a month for state workers to save $820 million.

Michigan, which has sprung numerous budget holes due to the ailing automotive industry, has scheduled six days on which it won't pay about 37,400 employees to save $21.7 million by September 30.

IRS Seeks Comments from Government Agencies at Upcoming Forum

Yesterday the IRS posted a new press release announcing that “the second in a series of public forums will be held on Wednesday, Sept. 2, in Washington, D.C., and feature a panel of federal and state officials, moderated by IRS Commissioner Doug Shulman.”

The panel will include representatives from the Treasury Inspector General for Tax Administration (TIGTA) and the U.S. Government Accountability Office (GAO). Representatives from the states of California, Maryland, Oregon and New York will also participate on the panel.

Shulman announced a far-reaching review of paid preparers on June 4 to produce a comprehensive set of recommendations by the end of this year to boost taxpayer compliance and strengthen industry standards.

“This is the next important step in our open dialogue with interested parties in this effort,” Shulman said. “I’m very pleased with the quality of the feedback we’ve received so far. I’m confident these forums will ensure that all ideas are on the table when it’s time to form our recommendations.”

The forum will convene at 9 a.m. ET in the IRS Headquarters at 1111 Constitution Ave. NW, Washington, DC 20224. Anyone interested in attending should confirm attendance by sending an e-mail message to

The first public forum was held on July 30 in Washington, D.C., and featured a panel of consumer groups and another panel of tax professional organizations. A third forum will be held in Chicago on Sept. 30 featuring independent return preparers and software industry representatives.

Monday, August 17, 2009

Questions for the Tax Lady: August 17th, 2009

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

Question #1: My fiancé and I are buying a house. The loan is in my name only but we are using her $30,000 inheritance. Will a gift tax apply?

It depends. Technically any transfer of property valued at over $12,000 (where full reimbursement is not received) will be subject to the gift tax. However, gifts between spouses are excluded. Therefore if you and your fiancé got married before the end of the calendar year then you might be exempt.

UBS Tax Crackdown Widens to Hong Kong

Just weeks after reaching a settlement with the U.S. government, Switzerland’s largest bank UBS AG is running into even more problems. This time reports suggest that American taxpayers used illegal bank accounts and fake businesses in Hong Kong to avoid reporting their income. Check out the following story from the Wall Street Journal.

The U.S. crackdown on clients of UBS AG is widening into a global hunt, with the government detailing in court documents how the Swiss bank and outside advisers helped Americans hide money using enterprises set up in Hong Kong.

For the first time in the government's long-running bid to ferret out the names of U.S. tax-evaders from the Swiss bank's client list, plea agreements entered in the case are providing a clearer picture of UBS's sophisticated efforts to help Americans hide income or the existence of foreign bank accounts.

Soft Drink Makers Launch Anti-Tax Ads


U.S. soft drink makers say they have launched a $2 million advertising campaign to counter moves to fight obesity and fund health care by taxing sugary soda.

The American Beverage Association has joined forces with the National Restaurant Association and the Grocery Manufacturers Association to fight the consideration of any such taxes, building a coalition of groups called Americans Against Food Taxes, USA Today reported Monday.

The newspaper says the ads depict soft drinks as "simple pleasures" being subjected to grasping government bureaucrats.

"People view it as an overreach of government when the tax code is used to tell them what to eat and drink," Kevin Keane of the beverage association told USA Today, adding that such taxes would hurt low- and middle-income people most.

Tax Professionals Active on Twitter

While I was looking around for other people working in the tax industry on Twitter I came across this list on Tax Girl of “Twittering Tax Pros.” However, I noticed that some of the people I follow were missing from her list, and some had not updated in months. Therefore I have put together the following updated list of tax professionals who are active on Twitter.

Me - Roni Deutch

Tax Girl

RDF Tax Pro

Tax Tweet

















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