Thursday, February 25, 2010

How the Jobs Bill's Tax Credit Affects Business

The jobs bill passed by the Senate yesterday is already under fire, with critics claiming the legislation is all talk, and very little action. According to this article from SFGate.com, although the bill is meant to create jobs it is actually more likely to give tax breaks to business owners that are likely to hire new employees anyway. You can find more of their story below:

Desperate to look like they're working on jobs, the Senate passed a bill Wednesday that its backers say could create more than a million new positions by giving employers tax incentives to hire and retain the unemployed.

Critics say the bill is likely to reward employers who would have hired people anyway and will lead to little net increase in employment.

"If demand is not out there, they are not going to hire workers," says Sophia Koropeckyj, a managing director with Moody's Economy.com. "Obama and the Congress are under pressure to do something and this is something."

The bill includes what sponsors call the Hire Now Tax Cut. Under this provision, private-sector employers that hire a "qualified" unemployed person would not have to pay its share of the new worker's Social Security tax - 6.2 percent of wages - for the rest of the year. They say this would give the employer an incentive to hire sooner rather than later.

Continue reading at SF Gate.com…

Mortgage Rates on 30-Year U.S. Loans Rise to 5.05

According to Bloomberg.com, US mortgage rates climbed for the first time in nearly a month; this increased the cost of borrowing and caused home sales to be the lowest levels on record. The 30-year fixed rate rose to 5.05%, up from 4.93%.

“This is potentially a preview of the data we’ll have to watch over the next few months,” Donald Rissmiller, Chief Economist at Strategas Research Partners in New York, said in a telephone interview. “Big changes are on the horizon that are going to be critical for the economy.”

Mortgage rates may rise further when a Federal Reserve program to purchase as much as $1.25 trillion in mortgage-backed securities ends next month. The program is credited with helping reduce mortgage rates, which fell to a record low of 4.71 percent in December.

Bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae, which buy home loans from lenders and package them into securities, brought down yields and allowed lenders to reduce mortgage rates while still selling the bonds at a profit.

FDIC: Return to Profit Fails to Boost Bank Lending

From Risk.net:

Assistance from the US government has helped the country's banking industry back into profit, but the improvement hasn't been reflected in increased lending, according to the Federal Deposit Insurance Corporation (FDIC).

In its latest Quarterly Banking Profile, issued yesterday, the FDIC reports an aggregate net income for the banks it supervises of $914 million in the fourth quarter of 2009, down from $2 billion in the third quarter but still a huge rebound from the $37.3 billion loss the industry suffered in the fourth quarter of 2008.

But the report has more bad news than good. Non-current loans and leases, mainly residential mortgages, continued to rise, hitting $391.3 billion – 5.37 percent of all loans by value, the highest level ever recorded. And, the FDIC adds, the industry also reduced its coverage ratio – reserves as a fraction of non-current loans and leases – to a 28-year low of 58.1percent. In other words, the banks only managed to scrape into the black by deciding not to increase their reserves in line with their problem loan books – had they done so, it would have meant another $7.4 billion in reserves, meaning the industry would have been well into the red.

Although much of the aid to the banking industry had the explicit intention of improving the supply of credit to the wider economy, this has not yet happened. The FDIC has found: the quarter was the fourth in succession to see a drop in total assets, which fell 5.3%, the largest single-quarter drop since the FDIC was founded in 1942. Commercial and residential mortgages, and commercial and industrial loans fell hardest. This might represent a drop in demand, as well as reluctance to lend: in its most recent loan officers' survey, released last month, the Fed found that "demand from both businesses and households for all major categories of loans weakened further, on net, over the past three months".

Can Stores Really Ask You For That?

When it comes to our money, most of us are aware that we have rights as a taxpayer. However, what many of us do not know is that we also have rights as consumers. Unfortunately many of these rights are being ignored lately as retailers attempt to reduce shoplifting. MSN Money.com posted this great article earlier this week on how stores are walking all over consumer’s rights in the following ways:

  • Stopping customers to check their receipts before they let them out the doors.
  • Posting minimum-purchase requirements for credit cards.
  • Insisting that customers present identification when using credit cards.
  • Asking customers for personal information, such as phone numbers, addresses or (heaven forbid) Social Security numbers before starting transactions.

As MSN Money.com explains, these behaviors are so common place that you might not realize there's anything wrong with them.

But there is.

The receipt checkers

If you've signed a membership agreement with a warehouse club such as Costco or Sam's, you've agreed to present your receipt upon exiting one of their stores. Other retailers have no such agreement with you, but some station employees at their doors to ask for your receipts anyway.

Continue Reading at MSNMoney.com…

Latest Good Reads

More on speculation: Banks, credit default swaps, and Greece's debt

It’s unpopular, unworkable, and insane, so naturally they’re in a hurry to pass it (part 2)

It’s 2010: So what should investors and more importantly what should Americans do now?

IRS Commissioner requests $21m so IRS will not answer taxpayer phone calls 25% of the time

Wednesday, February 24, 2010

The Tax Implications of the Latest Health Care Reform Plan

President Obama recently put health care reform back into the spotlight by putting forth his own plan, loosely based on the legislation drafted by the House and Senate over the past year. In order to pay for the high price of reform, Obama’s proposal includes a number of tax increases.

Basics of the Legislation

Obama’s plan would cost an estimated $950 billion over the next ten years, and according to WhiteHouse.gov it would extend coverage to 31 million Americans. It would end discrimination against Americans with pre-existing conditions, and bring greater accountability to the health care industry. The President even claims the plan would reduce the deficit by $100 billion in the next decade, and $1 trillion during the second decade.

Opposition and 51 Vote Passage

Republicans in Congress have strongly opposed previous health care reform attempts and they now have enough votes to filibuster any future legislation. However, the White House and Democratic leaders in the Senate have threatened to use a process called “reconciliation” that would allow them to pass a bill with only 51 votes. Technically, this tactic can only be used on tax and spending bills, the most notable example was when President Bush used a reconciliation vote to pass the now infamous Bush Tax Cuts.

Medicare Tax Increase

The centerpiece of Obama’s plan to pay for the costs of health care reform is a 0.9% increase on the Medicare tax rate for individual taxpayers earning $200,000 or more per year. The rate increase would also apply to married couples earning over $250,000 a year that file a joint return.

Medicare Tax Extension

Another Medicare related tax increase is Obama’s desire to impose the 2.9% tax rate on interest, dividends, annuities, and most other investment income for individuals making over $200,000 and joint filers making over $250,000 per year.

This would represent a drastic change in American tax laws as the Medicare tax is typically considered a payroll tax that is only levied on wages. According to the Chicago-based Bretton Woods Research group, the 2.9 % tax on unearned income would produce a 3.5 percent to 4 percent decline in the broad stock indices.

Lesser Penalty for High End Policies

Obama’s proposal does include a tax on high-cost (Cadillac) health insurance policies, but it would not take effect until 2018 – as opposed to the 2013 date in the Senate’s legislation. Although the tax will be levied on insurers it is widely expected to result in reduced benefits for employees. In his proposal, Obama did raise the limits on this tax, and if the legislation became law the excise tax would only apply to individuals with premiums above $10,200 and $27,500 for families.

Fees on Pharmaceutical Business

Another source of funding in Obama’s plan are fees on the pharmaceutical industry – led by New York-based Pfizer – would be forced to pay over $10 billion in fees over the next 10 years. These fees would take effect faster than the Cadillac taxes, as pharmaceutical companies could begin making payments as early as 2011.

Fate of the Legislation

In order to become law, Obama’s proposal will have to jump through a few hoops. Both the Senate and the House of Representatives need to pass the controversial bill before it can be presented to Obama for a signature. Republican leaders are already speaking out about the legislation, and it will no doubt be a hot topic at tomorrow’s health summit at the Blair House.

Senate Approves Tax Breaks for New Hires

The Senate approved Obama’s job creation bill this morning with a 70-28 vote. The legislation includes tax breaks for businesses that hire previously unemployed workers. It will need to get passed by the House of Representatives before going to Obama’s desk for a signature, but many experts predict it will have no problem getting enough votes in the House. Democrats hope that this will be the first of many bills that will help encourage job creation.

According to Yahoo, it's the first major bill to pass the Senate since the Christmas Eve passage of a deeply controversial health care bill and the subsequent election of Massachusetts Republican Scott Brown, which rocked Democrats by demonstrating their falling standing even among heavily Democratic voters.

The bill contains two major provisions. First, it would exempt businesses hiring the unemployed from the 6.2 percent Social Security payroll tax through December and give them an additional $1,000 credit if new workers stay on the job a full year. The Social Security trust funds would be reimbursed for the lost revenue.

Second, it would extend highway and mass transit programs through the end of the year and pump $20 billion into them in time for the spring construction season. The money would make up for lower than expected gasoline tax revenues.

Continue reading at Yahoo.com…

Credit Card Companies Like Making Money! (DUH!)

Most of the much hyped credit card legislation went in to effect today, and the Huffington Post has put together a summary of all the new changes consumers should be aware of. Although many of these changes are beneficial to most Americans, credit companies will always find ways to get more money from their customers, so it is important to understand these new regulations. I have included a section of their article below, but be sure to checkout the full text at Huffington Post.com.

As of today, February 22nd, all credit card companies must do the following:

Keep all due dates the same on your credit card: Now you can better plan for your credit card payments each month without fear of being late because they have arbitrarily changed the grace period.

Provide you 45 days notice before they raise rates: While there are no limits as to how high the rates can go and they can still jack up your interest rates, at least you now have much more time to prepare for these rate increases.

Younger adults under the age of 21 will find it much harder to obtain a credit card: I used to have a portion of my workshop for college freshmen that cautioned them against credit card companies that solicited their business... that practice will severely be limited because of this age restriction.

No more double cycle billing: Card companies used to be able to charge interest on a debt that had already been paid in a previous month. As wrong as this practice was it was legal... not anymore.

States Weigh Campaign-Finance Changes

From USAToday.com:

State lawmakers around the country are rushing to rewrite campaign-finance laws following the U.S. Supreme Court's recent ruling that opened the door to unlimited corporate and union money in elections and upended laws in nearly half the states.

The nation's highest court ruled last month that limits on corporate and union spending on independent political ads violate the Constitution's free-speech protections.

Bills pending in Iowa and Maryland, for instance, seek to blunt the ruling's effect by requiring shareholder approval of political spending and forcing public disclosure of corporate spending in state candidate elections. Two top Democrats in Congress, New York Sen. Chuck Schumer and Maryland Rep. Chris Van Hollen, recently proposed a bill that would impose similar disclosure requirements in congressional and presidential elections.

"States can't overturn it directly, but they can nip at the edges to make it more difficult for corporations to spend this kind of money," said Nathaniel Persily, a Columbia Law School professor and election-law expert.

"The shareholder-approval bills, if they become law, could have a dramatic effect," Persily added, "only because few companies are going to want to jump through the hoop of getting shareholder approval" before launching ad campaigns that call for the election or defeat of candidates.

Taxpayers: Beware of Anticipation Refund Loans

The other day Charles Prescott, a tax preparer at the Roni Deutch Tax Center in Myrtle Beach, was interviewed by Carolina Live on the difference between refund anticipation loans and refund transfers, which are much better for consumers. Check out the article with the quote from Prescott below.

In this economy, some look for quick and easy cash advances on your tax filings, but consumer advocates say beware.

One of the ways to get in the most trouble is through something called a Refund Anticipation Loan -- or an RAL.

RALs are short-term loans based on the taxpayers expected refund, but it comes with a cost, and in some cases that means astronomical interest rates.

Some major tax preparers offer RALS, but at the Roni Deutch Tax Center in Myrtle Beach, the preparers say stay away.

"As a financial product, they're creating a loan that has absolutely no risk that charges an obscene interest rate. You should avoid these whenever possible," said Charles Prescott, a tax preparer.

But many Americans don't especially the working poor who are enticed by the quick and easy cash and who may not think about the fine print.

"While there are disclosures there, most people just don't read them. Kind of like the 30 pages or mortgage paperwork that no one read a few years ago."

For tax preparers and financial institutions who deal in RALs, they're a high-profit, low-risk loan. For consumers, the fees and interest rates add up quickly.

Continue reading at Carolina Live.com…

Tuesday, February 23, 2010

A Deeper Look at Obama's Plan to Tax the Banks and Wall Street

Obama first announced his plan to tax Wall Street and major financial institutions during his State of the Union address last month. The basic premise of his proposal is to impose a fee on financial institutions that received government money through the TARP program but have made little effort to repay the funds. Since the announcement, there have been plenty of articles written in support and opposition to the tax. To help my blog readers better understand Obama’s proposal, I decided to take a deeper look at his plan and have put together this entry explaining what I discovered.

Fee vs. Tax

During his State of the Union Obama referred to his plan as a “fee” on financial institutions. However, the proposal is actually a new tax, but since the word “tax” elicits such a negative connotation in the minds of most Americans the President intentionally used the word “fee” to help generate support for his proposal. Although the name does not affect the actual legislation, it doest make it more difficult for taxpayers to understand.

Bonus Abuse?

Obama explained that "if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.”

The proposal definitely stems from the outrage being expressed by Americans in regard to the news stories of excessive bonuses being given to executives of financial institutions that received taxpayer money. However, the idea of targeting these banks specifically has created a lot of legal commotion. Many experts question whether the government should be allowed to institute this new tax, and have expressed concern about the long term effects of giving the federal government the power to levy a tax on one specific group of businesses.

Federal Revenue

In addition to pleasing taxpayers who are angry at banks for giving out large executive bonuses, the tax proposal would also generate a decent amount of federal revenue. Estimates say that the financial institution tax would generate nearly $120 billion over the next decade.

Wall Street Retaliation

One of the more common arguments against the bank tax is that when receiving TARP funds, the financial institutions were under the impression they had until 2013 to begin a repayment plan. However, Obama’s remarks in his State of the Union give the impression that these payments are already overdue.

Mounting Opposition

Although the Democratic leads in Congress have welcomed the bank tax, many Republicans are remaining silent on the proposal. However, financial institutions are already working to prevent the legislation. In addition to sending additional lobbyists to Washington, the largest institutions also have teams of lawyers working to argue that the tax is unconstitutional.

President Obama has already spoken out against the mounting opposition to his proposed bank tax. “Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee,” Obama asserted, “I suggest you might want to consider simply meeting your responsibilities.”

Financial Recovery

Perhaps the biggest question on everyone's mind surrounding the potential fee is whether or not it would help our country’s economic recovery or not. Many Wall Street executives have stressed that they are having a hard enough time recovering, and a new tax would only make more investors weary about spending their money.

Pass-on Fees

Although the popular sentiment among taxpayers is to let Wall Street pay for recovery on Main Street, many economists are predicting that the banks will just pass down the fees to consumers. These financial institutions are for-profit businesses, and will likely find a way to recoup any lost revenue due to new taxes from their customers.

Gambling and Taxes

My YouTube team recently shot another new episode for our tax tips video series. In this episode, host James Owens discusses the importance of understanding the tax implications of gambling. You can watch the embedded video below but be sure to check out my YouTube channel to subscribe to my future videos.


Snoop Dogg and Eve Owe Uncle Sam

Hip-hop artists Snoop Dogg and Eve have both reportedly joined the ever growing list of celebrities who owe tax debts to the IRS. According to DT News, the IRS “filed a $598,309 tax lien against Snoop Dogg last month. The new debt dwarfs a tax lien filed last year against the 38-year-old rapper, who showed up all over Detroit during the 2006 Super Bowl, holding a private concert and attending the game. He also was one of the headliners at the Rothbury Music and Art Festival in 2008.”

Just last week it was also reported that Eve “owes in excess of $357,000 in back state and federal taxes.”

  • In January 2008, the IRS in LA filed two liens against her, one for $242,245 and another for $56,597.

  • In January 2009, that same branch filed two additional liens against Eve, one for $29,439 and other for $29,059.

Married Filing Jointly, or Separate? How to Decide

Fox Business News recently reached out to me for my input on filing statuses for married couples. The finished article has a lot of great tips for married couples unsure on how to select the best filing status. You can find a section of the article below, but be sure to check out the full text at FOX Business.

For married couples, one crucial decision regarding taxes that can keep you out of -- or get you into -- trouble with the IRS comes before you even start dealing with forms and paperwork. Make sure to choose the correct filing status, whether that be married filing separately or jointly.

“Just like good dental hygiene will keep you out of the dentist chair, choosing the right status on your taxes will keep you out of the audit seat," said tax expert Roni Deutch.

While many experts agree that married filing jointly is usually the most advantageous, they also point out certain circumstances where filing separately is more beneficial.

“If you are married, the IRS has created it so that it is more beneficial for you to file jointly,” said Buz Aaron, director of tax services for Braver Wealth Management. “There aren’t many positive reasons to file separately, you should only do it when the numbers work out for you and it saves money — but you really have to do your research.”

Some couples, such as John and Cindy McCain, for example, choose to file separately for private reasons, according to Deutch, author of “The Tax Lady's Guide to Beating the IRS.” “They do it for privacy reasons, so the income [Cindy McCain] makes and the money she distributes to her children remain confidential.”

Continue reading at FOX Business.com…

A Bipartisan Plan for Tax Fairness

From the Wall Street Journal:

There is an important issue looming on the congressional horizon: how to address the expiration of the Bush tax cuts at the end of this year. We believe there is a consensus way forward, which is why we are introducing the Bipartisan Tax Fairness and Simplification Act of 2010.

By streamlining and modernizing the outdated tax code, our proposal would eliminate many of the specialized tax breaks that currently benefit one group of Americans over another. The changes we propose will create policies that benefit everyone. They include: fiscally responsible middle-class tax cuts, business tax breaks to help American companies compete globally and create jobs, and a fairer and simpler tax system for all Americans.

The IRS estimates that each year Americans spend nearly $194 billion and 6.6 billion hours on tax compliance. Under our simplified approach, most taxpayers will be able to use a straightforward and shortened one-page 1040 IRS form to file their federal income taxes. In an effort to make paying taxes even simpler, taxpayers will be able to request that the IRS prepare a tax return for them to review, edit and sign.

We reduce the number of tax brackets from six to three—15%, 25% and 35%—and simplify the tax code for individuals and families by eliminating the alternative minimum tax. By nearly tripling the standard tax deduction, creating new opportunities for tax-free saving, and eliminating restrictions on personal exemptions and itemized deductions, under our proposal most Americans with an annual income of up to $200,000 will fare as well or better than they do under the current system. Furthermore, they won’t have to worry about maintaining the records and receipts necessary to document itemized deductions.

In order to encourage investment, our legislation would exempt taxpayers from paying taxes on the first 35% of their long-term capital gains income. To qualify as a long-term gain, investments would have to be held for at least six months for the first $500,000 of capital gains and for at least one year for capital gains after the first $500,000. This will give smaller investors more flexibility than they have now to respond to a volatile investment climate.

FaceBook Fan Page

I setup a new FaceBook fan page over the weekend, be sure to click on the graphic below to check it out!

Monday, February 22, 2010

Questions for the Tax Lady: February 22nd, 2010

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: How long does it take to get a refund from the IRS?

If you e-file and use the direct deposit option then you could receive your refund within three weeks. However, if you went the paper route it could take upwards of eight weeks. If you want to know exactly when to expect your money, you can track your refund on the IRS's Where's My Refund page.

Question #2: What is the statute of limitations on Federal income taxes owed?

Generally speaking, the IRS statute of limitations is 10 years. However, there are a number of ways the IRS can get past this limit. According to IRS.gov “the IRS generally must collect the tax owed within 10 years after the assessment of the tax. Depending on the taxpayer, the assessment of tax may be the date a taxpayer files a tax return with a balance owing or the date the IRS files a tax return on behalf of a non-filer taxpayer. Thus, the statute of limitations will begin once the tax liability has been ‘assessed’ by the IRS.”

“Although the IRS generally has just 10 years to collect on an outstanding tax liability, there are certain events or transactions that may extend or suspend the statute from expiring. Various laws affect the statue of limitations expiration date. For example, if a taxpayer files bankruptcy or files an Offer in Compromise, the statute of limitations is generally suspended during the time the bankruptcy or Offer in Compromise is under review. Also, additional assessments of tax owing may extend the amount of time that the IRS is allowed to collect. Therefore, if the IRS is going to collect taxes owed, they must do so within the time frame permitted by law.”

Taxes and Identity Theft

Last week, the RDTC Tax Help Blog posted a new article on tax related identity theft. You can find a section of the article below, or click here to view the full text.

Now that tax season is here, people across the country are worrying about getting their tax return prepared and filed with the IRS. However, there is another issue that taxpayers have to worry about: tax-related identity theft. Fortunately, you can prevent becoming an identity theft victim by following a few instructions. The good news is, even if your identity is stolen the IRS will work with you to resolve the matter as quickly as possible.

Increased Risk

A few years ago, Nina Olson, the National Taxpayer Advocate made the startling revelation that between 2004 and 2007, the number of tax-related identity theft problems rose by 644%.

Erroneous Returns or Stolen Refunds

If you get a notice from the IRS indicating that more than one return was filled using your social security number (SSN), you will want to contact them immediately to find out if you are a victim of identity theft. Using erroneous returns, thieves can obtain refunds from the IRS in your name, a common tactic used by tax scammers. The IRS will work with you to resolve the problem, but it is important to contact them as soon as possible.

Continued at RDTC.com…

Threats Against IRS Employees on the Rise

From the Wall Street Journal:

The federal agency charged with ensuring the safety of IRS employees said it has seen an increase within the past several years in threats against agency personnel.

In the past four years, there appears to have been a "steady, upward trend" in the number of threats against IRS employees, said an official with the Treasury Department's Inspector General for Tax Administration. That assessment, offered in response to an inquiry from Dow Jones Newswires, is based on preliminary data, the official cautioned.

On Thursday, 53-year old Andrew Joseph Stack crashed his private plane into an Austin, Texas, office building that housed IRS workers, killing himself and one IRS employee and injuring 13 others.

Following the attack, Inspector General J. Russell George said his agency will consider whether changes to security policies are necessary to improve safety.

"There's no question that in the wake of this tragedy, we will be directing attention to that very issue," Mr. George said in an interview. "There are limitations, however, on what you can anticipate about what a disturbed, troubled person can do."

Lawmakers Want to tax Amazon Sales in California

According to LA Times, lawmakers in my home state of California are hoping to bring in over $150 per year in new revenue by levying sales taxes on purchases made online from businesses without a physical presence in the state. The company that would be hit hardest by this new law would be Amazon, who has had a competitive advantage over retail stores in California for years thanks to a 1992 Supreme Court decision.

Consumers here are required to pay sales tax on the goods they purchase at Amazon but almost never do, because the state has no mechanism for tracking Amazon purchases and collecting the money.

Now California is one of several cash-strapped states exploring a novel legal strategy that could force Amazon and others like it, including Overstock.com, to start collecting tax from their customers. New York launched the effort with a law that took effect in 2008. North Carolina and Rhode Island have passed similar laws; other proposals have advanced in the statehouses of Virginia, Illinois, Colorado and Hawaii.

The Democrats who control California's Legislature plan to put their own bid on the governor's desk this month in hopes of reaping up to $150 million annually for state and local coffers. The revenue would make only a tiny dent in the state's $20-billion deficit, but supporters say every dollar counts in tight times, and there's a principle at stake.

Continued at LA Times…

Thursday, February 18, 2010

Tax Issues Confront Retirees

Although retirement is a time to relax, planning for your retirement can be stressful and difficult. However, by doing a little research you can make the most out of your retirement. Market Watch has put together a helpful article explaining tax issues related to retirement, and what states are better to retire in. You can find a snippet of their article below.

As you enter retirement, probably the largest and most daunting expense you encounter will be taxes. And we're talking not just of a benign single item of expense, but quite possibly many different kinds of levies. Each one of our 50 states can enact and enforce state and local taxes by the dozen, as well as property taxes by the hundreds, and countless more.

These taxes can vary so much in size and scope from place to place that they sometimes become key factors in your decision of where to retire -- indeed, whether you choose to retire at all.

People who retire to low-tax or no-tax states have an economic advantage over those who do not. But only nine states have no broad-based state income tax. Those states are: Alaska, Texas, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington and Wyoming. (In New Hampshire and Tennessee, income tax is limited to dividends and interest income.) See this Federation of Tax Administrators page for more details on state tax rates.

One means to determine which state is the least costly in terms of total taxes is to check a study called "Tax Freedom Day." That's the day on which the ordinary American's total federal, state and local tax bill is fully paid from his or her earnings for the year to date. Ostensibly, this is the day you stopped working for the government and started working for yourself; that is, the day you earned enough to pay your federal, state and local taxes and are now starting to make money you'll be able to spend on things for yourself. For more on Tax Freedom day, visit the Tax Foundation site.

In recent years, states posting the worst Tax Freedom Days; that is, the highest overall tax bills have included Maine, New York, Ohio, Minnesota and Hawaii. And states with the lowest overall taxes have included Alaska, New Hampshire, Delaware, Tennessee and Alabama.

Finding the Facts in the Stimulus Debate

It has been about one year since President Barack Obama signed the well-known American Recovery and Reinvestment Act. Taxpayers across the country are asking where the money has gone, how much is left, and what has been accomplished due to the spending. DailyFinance.com put together a post with answers to these questions, and a few facts surrounding the stimulus debate. Check out a section of the article below, or head over to DailyFinance.com for the full text.

Facts are sometimes a casualty in the struggle for power. This comes to mind in the discussion of President Obama's biggest legislative accomplishment, the $787 billion stimulus bill -- more formally called the American Recovery and Reinvestment Act (ARRA) -- which he signed into law about a year ago.

Given the intensity of emotions on either side of the debate over the value of the ARRA, it is worth finding some factual answers to the most basic questions about the program. For example, how much of the stimulus money has actually been spent? How many jobs has that money created? How much remains to be spent and how many more jobs will it create?

Finding Some Answers

The answer to the first question is that over a third of the money has already been paid out. According to Recovery.gov, of the $787 billion ARRA, $272.2 billion or 34.6% of the funds had been paid out by the end of January 2010. That money has been spent in three areas: $105 billion (38.6%) on entitlements -- such as unemployment benefits, $92.8 billion (34.1%) on tax benefits, and $74.4 billion (27.3%) on contracts, grants and loans.

The number of jobs that the stimulus has saved or created is in dispute. According to The New York Times, the nonpartisan Congressional Budget Office (CBO) estimates that ARRA has saved or created between 900,000 and 2.3 million jobs. Why the big range? The answer is in the growth assumptions used. CBO Director Douglas W. Elmendorf testified to Congress in January 2009 that the number of jobs created by ARRA would vary depending on how much additional economic output it produced -- which he assumed would range from 1.3% and 3.6% in 2009. The more output, the more jobs created.

Continue reading at Daily Finance.com…

Muni Threat: Cities Weigh Chapter 9

From the WallStreetJournal.com:

Just days after becoming Controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9.

The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders.

The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities that are traditionally considered low risk.

"People believe that municipal debt is safe based on assumptions that are no longer true," says Kenneth Buckfire, managing director and chief executive of Miller Buckfire & Co., an investment bank that has worked with corporations on restructurings and now is advising municipalities. For example, it isn't safe to assume that governments can raise taxes to cover shortfalls, he says.

Even threatening bankruptcy signals that municipalities are willing to compromise the security of bondholders, says Richard Raphael, an analyst at Fitch Ratings. That makes it harder for cities and towns to raise money from investors and will slow the U.S. economic recovery.

President Orders Debt Panel, Names Chairmen

President Barack Obama issued an executive order this morning to formally create his debt panel. The goal is to help get our country’s debt under control, and Obama has even appointed a new chairman for the commission. The 18-member panel is expected to deliver a report to the Presidents desk December 1st, with well thought out recommendations for lowering the deficit.

Raising taxes, cutting spending and reforming Medicare and Social Security are all fair game, and thought to be impossible without the backing of both Republicans and Democrats.

"Everything's on the table. That's how this thing is going to work," the President said immediately after signing the order.

The commission must deliver a report to the President by Dec. 1 that makes recommendations for bringing annual deficits to no more than 3% of the size of the economy, as measured by gross domestic product, or GDP. Currently annual deficits for the next decade are on track to be well above that level.

The commission will also be expected to suggest ways to permanently lower the country's total debt - currently expected to hit 77% of GDP in 2020, according to the White House Budget Office.

Continue reading at CNN.com…

Latest Good Reads

Life in grad school doesn't have to suck...all your money

Employees as "independent contractors"--another tax scam on the way down

IRS Releases 2007 Tax Return Data on Wealthiest 400 Americans

The use tax mess in California

Snow, jobs, and taxes

Wednesday, February 17, 2010

‘Tis the Season: Don’t Fall Victim to Tax Scams

IRS impersonation schemes run rampant during tax season. The scam-artists running these schemes are out to steal your personal identification information. Because these schemes could take place through email, phone, fax, internet sites and even your social networking sites, you need to be very cautious. Here is what you need to know to avoid these scams:
  • The IRS will never send you unsolicited e-mails about your personal tax situation, tax accounts or other tax issues. If you receive such an e-mail, it is most likely a scam.
  • Some impersonations may even go so far as to be an actual commercial internet site that you might happen to visit thinking you’re accessing the official IRS Web site. Such sites have no connection to the IRS and are trying to trick people into revealing personal and financial information, or trying to access your financial accounts.
  • Some email scams could contain links or attachments that ultimately download malicious code (a virus) that will infect your computer, trying to access your personal information and passwords that way, or they may direct you to a bogus “IRS” form or website when you click on them.
  • If you get such an e-mail, delete it immediately, and don’t get lured by bogus site.
  • If you are directed to what seems to be an IRS site asking for your information, it never hurts to exit out of the window and open a new window where you can actually type in the IRS’s website yourself. Once at the official IRS website, you can perform a search for the web-page you were previously viewing.
I hope these tips help you to steer clear of those seeking to take advantage of unsuspecting taxpayers.

"8 After 8" Radio Interview

On February 11, I was a guest on Andy Vierra's "8 After 8" radio show on KNUU-AM in Las Vegas. For my readers who do not live in the area, I have uploaded the audio of my interview to my YouTube channel. The embedded videos below feature parts 1 and 2 of the segment I was featured in.




Money For Life: Forbes.com Publishes their 2010 Tax Guide

Forbes.com recently published their annual tax guide, with dozens of informative articles written by financial experts from across the country. I have listed a few of my favorite guides below, be sure to click on the links to access the full articles.

Earn Tax-Free Income

Tax rates are going up, so it pays to find sources of income that the tax collector can't touch. Here are 20 of them.

Stimulus Creates New Tax-Time Headaches

IRS computers are rejecting retirees' 1040s. Working couples are facing unexpected bills. The stimulus created both traps--and money-saving opportunities--on 2009 returns.

Will Your Tax Pro Get You Audited?

The IRS doesn't regulate preparers--yet. Here's how to spot and avoid a problem pro now.

Second Homes Bring Tax Traps

Homeownership has lots of tax benefits. But owning a second home is trickier.

Stimulus Funds Going to Slashed Programs

From USAToday.com:

More than $3.5 billion in economic stimulus funds are going to programs that President Obama wants to eliminate or trim in his new budget.

The President released his budget this month and a USA TODAY review of stimulus spending reports shows the budget recommends getting rid of Army Corps of Engineers' drinking-water projects, which received $200 million in stimulus funds, and a U.S. Department of Agriculture flood-prevention program, which received $290 million.

The administration's budget plan says the corps and USDA programs are inefficient and duplicate similar but more effective work by other agencies. The proposed cuts indicate the programs “shouldn't have gotten money from the $862 billion stimulus package”, said Tom Schatz of the non-partisan budget watchdog Citizens Against Government Waste.

"It's certainly inconsistent, and it would have been better to have this realization a year ago," Schatz said. "But if inconsistency means they're going to cut the programs, it's OK. It's the other way around that bothers us."

5 Tax Law Changes you MUST Know About

Earlier in the week, I provided Marvelous Girl – an online woman’s interest magazine – with information on five important tax law changes for 2010. I wanted to make sure and share the advice with all of my blog readers as well. You can find a summary of the important tax law changes below or checkout the full article at Marvelous Girl.com.

  • Newly Expanded Home Buyer Credit – If you were thinking about buying a home, get a move on! Congress approved the newly expanded homebuyer credit which counts for all homes with closing dates before April 30, 2010. First time homebuyers are eligible for up to $8,000 in refundable credit for new home purchases!
  • Increased Contribution Limit for 401(k) Plans – Invest in your retirement! The maximum employee contribution rises to $16,500 from $15,500 in 2009 for these and similar workplace retirement plans including 403(b)s and the federal Thrift Savings Plan.
  • Tax Credit for College Tuition – For 2009 and 2010, the new American Opportunity credit provides up to $2,500 per student a year for four years of college, not just the first two years. It now also covers the cost of books!
  • Higher Annual Gift Tax Exemption – For 2009, you can give up any individual up to $13,000 without owing any gift tax, a $1,000 increase over 2008.
  • Partial Exclusion for Unemployment Benefits – While your unemployment checks are usually considered taxable income, in 2009, the first $2,400 you received will not be taxed. Simply subtract that amount from the total benefits your received (which should be reported to you on form 1099-G).

Tuesday, February 16, 2010

Unemployment Benefits, Canceled Debt Trigger Tax Bills

The last thing most of us want to think of in this economy is an unexpected tax bill. However, as Sandra Block of USA Today explains, financial hardships can often result in a tax bill instead of a refund. Block explained a few situations that can lead to owing taxes in this new article. You can find a few of her examples below.

Taxes on unemployment benefits. Millions of Americans who have been out of work for months are relying on unemployment benefits to put food on the table. In November, Congress extended benefits by up to 20 weeks for workers in states with high jobless rates.

But what many people may not realize is that some of those benefits are taxable. The economic stimulus package enacted last year excluded the first $2,400 of unemployment benefits from 2009 gross income. For unemployed married couples, each spouse is eligible to exclude up to $2,400 in benefits.

Taxpayers who receive unemployment benefits should receive Form 1099-G, which shows the amount of benefits you received for the year. You should report unemployment compensation that exceeds $2,400 on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.

Continue reading at USA Today.com…

Other Options Than Foreclosure

My YouTube team recently shot another new episode for our YouTube tax tips video series. In this episode, host Edward Lester, discusses some alternatives to foreclosure. You can watch the embedded video below but be sure to check out my YouTube channel to subscribe to my videos.


President Obama Promises To Help Finance New Nuclear Power Plants

From NPR.org:

President Obama traveled to Lanham, Md., today, to the headquarters of the IBEW Local 26, to announce that his administration plans to offer $8 billion in loan guarantees to build a new nuclear power facility. And more loan guarantees for clean energy are on the way.

"My budget proposes tripling the loan guarantees we provide to help finance safe, clean nuclear facilities," the president said. "And we'll continue to provide financing for clean energy projects here in Maryland and across America."

In his remarks, Obama addressed safety and environmental concerns about nuclear energy:

Now, I know it has long been assumed that those who champion the environment are opposed to nuclear power. But the fact is, even though we have not broken ground on a new nuclear plant in nearly thirty years, nuclear energy remains our largest source of fuel that produces no carbon emissions. To meet our growing energy needs and prevent the worst consequences of climate change, we'll need to increase our supply of nuclear power. It's that simple. This one plant, for example, will cut carbon pollution by 16 million tons each year when compared to a similar coal plant. That's like taking 3.5 million cars off the road.

"On an issue which affects our economy, our security, and the future of our planet, we cannot continue to be mired in the same old debates between left and right; between environmentalists and entrepreneurs," he said.

The president called investment in nuclear energy "a necessary step," and repeatedly emphasized its potential to create thousands of new jobs.

'Cash For Appliances' Coming to a State Near You

The Government’s $300 million ‘Cash for Appliances’ program first introduced through the American Recovery and Reinvestment Act has started to go into effect in some states. According to CNN Money.com, it will allow taxpayers to receive rebates for purchasing qualifying energy efficient appliances. The program was designed to act similarly to the recently successful Cash for Caulkers and Cash for Clunkers incentives from last year.

Under the program, consumers are eligible to receive rebates on new, energy-efficient appliances such as refrigerators or washing machines. The rebates vary by state, type of appliance, and level of efficiency.

Rebates are only available on appliances with the Energy Star logo, which meet the energy efficiency guidelines set by the Environmental Protection Agency and Department of Energy.

The goal of Cash for Appliances is to help American's conserve energy, while also boosting retail sales and ultimately helping spur the economic recovery.

In New York, where the program went into effect Friday, rebates range from $75 to $105 on refrigerators, freezers and clothes washers. The rebates can be as high as $555 for bundled purchases of all three appliances.

Continue reading at CNN Money.com…

Monday, February 15, 2010

The Senate’s New Job Creation Bill

After Obama announced his intention to make job creation a number one priority, Senate leaders moved quickly to put together legislation they hope will fix the ongoing unemployment problem in this country. Although there have been a few stalls, Congress is hoping to get some type of job creation legislation passed and signed into law within a few weeks.

Forgotten House Legislation

With all this talk about the Senate’s bill, many people have forgotten that the House of Representatives passed similar legislation back in December. Their plan would cost an estimated $154 billion but lost momentum after the beginning of the New Year when the Democratic party lost its 60 vote filibuster-proof majority.

Original $85 Billion Legislation

Early last week, the White House and Senior Democrats had announced their intention to vote on an $85 billion dollar package after negotiating with Republicans to come up with a bipartisan bill. However, after the full legislation was revealed it was met with fierce resistance from many liberal Senators who preferred the House’s bill.

Last Minute Reduction

After receiving criticism from numerous Senators, Majority Leader Harry Reid unveiled a new, lesser bill at the last minute on Friday. This new legislation combines about $15 billion in tax provisions, with about $20 billion in cash infusions into Federal highway and infrastructure programs, for a total cost of only $35 billion. However, these last minute changes angered Republicans who spent weeks working with Reid on a bipartisan bill.

What’s Left in the Bill?

  • Incentives to Hire

    One of the cornerstones of the legislation is the incentive for businesses to hire unemployed workers this year. All businesses that hire qualifying workers will get an exemption from the 6.2% Social Security payroll tax in 2010. Additionally, businesses that keep those workers for more than a year will be eligible for a $1,000 tax credit per employee. Data suggests this incentive would result in 180,000 new jobs, and cost an estimated $13 billion.

  • Capital Investments

    Another tax break for business owners that remains in the bill is a law that would allow businesses to write off up to $250,000 in capital investments in 2010 as opposed to depreciating those costs over time.

  • Expanded Build America Bonds

    The new bill would also extend the Build America Bonds program, which was a result of last year’s stimulus spending. The program subsidizes interest costs for local bonds issued to pay for infrastructure improvement and development projects.


Future of the Legislation

Unfortunately, the future of even this new legislation is questionable. Congress is on recess next week, but when they return on the 22nd Harry Reid is going to need to work on generating support for the bill. Top Republicans and Democrats expect that the legislation would fall short of the 60 votes needed to proceed, and even if does pass the Senate resistance is already building in the House of Representatives where top Democrats – including Nancy Pelosi – have expressed concern about the bill.

Is Something Better than Nothing?

I think Harley Shaiken, a professor at the University of California, Berkeley put it best when he was quoted in a Washington Post article asserting that the watered down legislation “is better than nothing, but it ought not be confused with a solution to the jobs problem." Since the recession began 8 million jobs have been lost, and current estimates show the stripped down legislation would only create around 200,000 jobs. It is going to take a lot more than just this legislation to stop the ongoing unemployment problem in this country.

Some Relief for the Nation's Unemployed

Recent reports seem to indicate that while the economy may find its way out of the current recession and job growth is on the horizon (See article on job growth) the nation's unemployment rate is unlikely to be effected.

Although this is undoubtedly disheartening for the jobless, there is a bit of silver lining when it comes to unemployment benefits. If you haven't heard already, there's good news for those who were unemployed at any time in 2009 and collecting unemployment benefits. These taxpayers are entitled to a special tax break when they file their 2009 federal tax returns. This tax break is part of the American Recovery and Reinvestment Act (ARRA) of 2009.

Here are five important facts you need to know about your unemployment benefits:

1. Unemployment compensation generally includes any amounts received under the employment compensation laws of the United States or of a specific state. It includes state unemployment insurance benefits, railroad compensation benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It does not include worker's compensation.

2. Normally, all unemployment benefits are taxable; however, under the ARRA, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their federal tax return.

3. For a married couple, if each spouse received unemployment compensation, then each spouse is eligible to exclude the first $2,400 of benefits.

4. You should receive a Form 1099-G, Certain Government Payments, which will show the total unemployment compensation paid to you in 2009, in box 1.

5. All you have to do is subtract $2,400 from the amount in box 1 of your Form 1099-G to figure out how much of your unemployment compensation is taxable and then report this amount on your federal tax return, do not enter less than zero. You must report unemployment benefits received on your tax return.

Finally, if you collected more than $2,400 in unemployment benefits in 2009, don't forget to claim a deduction for your job-hunting expenses. Tips on expenses you can include in the job-hunting deduction can be found here.

Questions for the Tax Lady: February 15th, 2010

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: In addition to donating to organizations providing relief in Haiti, is there anything else I can do now to lower my 2009 tax liability?

Yes, you can make retroactive payments to a traditional IRA anytime before the April 15th deadline. Therefore, any contributions can help reduce your 2009 tax liability. For more information, check out this blog entry explaining traditional IRA deductions.

Question #2: Do I need to report income from a rental property on my tax return?

Yes. You will need to report your rental property income on Schedule E of IRS Form 1040. You will need to include all rent payments as part of your gross income—this is line 17 on IRS Form 1040. However, you must also report the following rental property related items as income:

  • Advanced rent
  • Security deposits
  • Lease canceling payments
  • Property or services received
  • Other expenses paid by tenants

Carbon Tax: The French Connection

Last week, European finance expert √Čloi Laurent published a new paper on the new French carbon tax (Carbon Tax: The French Connection, The Economists' Voice: Vol. 6 : Iss. 13, Article 2 {2009}). You can find the abstract from his article below via Tax Prof, or download the full PDF by clicking here.

In early 2010, France will introduce a carbon tax, becoming the largest economy in the world to do so. According to √Čloi Laurent, the introduction of a carbon tax in France is a good example that ecologically efficient and socially fair solutions do exist to curb climate change, but that it takes public pedagogy, sound economic reasoning and above all political courage to bring them into being.

States to Senate: Send More Federal Aid

From CNNMoney.com:

States are looking to the federal government for more help balancing their budgets, but the Senate is not heeding their call.

Federal aid to the states was among the top priorities in an early Senate job creation bill, as well as in a $154 billion measure passed by the House in December. But it has fallen off the list as Senate Democrats look to craft legislation that will attract bipartisan support.

Senate Majority Leader Harry Reid, D-Nev., on Thursday unveiled a jobs bill that does not contain state aid. A Senate Democratic aide said Reid hopes to back a state aid measure in the future. Republican support, however, remains questionable.

Experts and state officials say they need to know now whether they'll get more funds. Governors are currently crafting their budgets and, for many, it will be their third year of contending with massive deficits due to declining tax revenues.

Big budget gaps

States are looking at a total budget gap of $180 billion for fiscal 2011, which for most of them, will begin July 1. These cuts could lead to a loss of 900,000 jobs, according to Mark Zandi, chief economist of Moody's Economy.com.

IRS Suspends Tax Practitioner for Preparing False Tax Returns

Last week, the IRS published a new press release announcing that, “a Certified Public Accountant has been suspended for twelve months from practice before the Internal Revenue Service by the Office of Professional Responsibility for providing false or misleading information in connection with the preparation of his clients’ tax returns.”

“Practitioners have a duty both to their clients and to the system to insure taxpayers are complying with tax laws and filing complete and accurate tax returns,” Karen L. Hawkins, Director of the Office of Professional Responsibility said.

Robert A. Loeser, a certified public accountant from Houston, Texas, assisted his clients to lower their tax bills by claiming false business expenses on tax returns he prepared.

For no legitimate business purpose, Loeser’s clients were advised to forward funds from their businesses to two corporations Loeser controlled. The corporations then rebated the funds to his clients. Loeser prepared the clients’ books and business tax returns expensing and deducting the entire amounts that were paid to the corporations.

The IRS alleged Loeser violated Circular 230 by giving false or misleading information to the Department of Treasury and the IRS.

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