Wednesday, March 31, 2010

IRS Proposes New Regulations for Preparers

It is estimated that there are as many as 1.2 million paid tax return preparers. The Internal Revenue Service issued proposed regulations today allowing the IRS to require that all tax return preparer use a Preparer Tax Identification (PTINs) as the preparer’s identifying number on all tax returns and tax refund claims that they prepare. These regulations, when final, will implement some of the recommendations in Publication 4832, Return Preparer Review.

“These regulations allow the IRS to better identify and match tax return preparers with the tax forms and claims they prepare. This proposed PTIN system will help us ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of our tax system,” said IRS Commissioner Doug Shulman.

Under the proposed regulations, the IRS will issue forms, instructions, or other guidance that will require paid tax return preparers to begin using PTINs for all tax returns and refund claims filed after Dec. 31, 2010. Currently, tax return preparers must use either a PTIN or their social security number on tax returns or refund claims that they prepare.

The proposed regulations also provide that tax return preparers must apply for a PTIN, regularly renew the PTIN, and pay associated user fees, which will be described in upcoming guidance. As part of the process, some tax return preparers would also be subject to a tax compliance check, which could include a review of the preparer’s history of compliance with personal and business tax filing and payment obligations.

Tax professionals and other interested parties have until April 26, 2010 to submit comments regarding the attached proposed regulations.

The IRS plans to launch a new system later this year through which all tax return preparers will be required to register, including those who already have a PTIN. Tax return preparers who already have a PTIN will have the number revalidated and reassigned to them through the new system, while tax return preparers who do not have a PTIN will be issued one through the new system.

Business Owners Look to Extend Tax Time

All Americans know that filing a tax return is important, but for many business owners it is even more important to keep their business thriving. Therefore, some business owners like Sabina Gault of Los Angeles have decided to request a tax deadline extension in order to focus on operating her business. The Wall Street Journal wrote a great piece on some great reasons to file an extension, and the precautions to take when doing so. I have included a segment of their helpful article below.

At Sabina Gault's Los Angeles communications firm, Konnect PR Corp., the business day never ends. Ms. Gault and her staff of four regularly work nights, weekends—anytime—promoting the firm's 13 clients. With her mind so occupied, filing taxes for her company gets pushed to the end of her to-do list.

"Payroll and insurance and all of the legal bills—those go out every month," Ms. Galut says. "But with taxes…the next thing you know, it's April 10."

Recognizing she'd have to tackle a significant amount of paperwork before she could send Konnect's tax documents to her accountant, Ms. Gault decided to file for an extension. "We need to go through all expenses and it will take two or three weeks to get that together," Ms. Gault explains. The extension, which took less than two hours to file, will give Ms. Gault an additional six months.

Filing for an extension is a common way for business owners to buy some time during tax season. While extensions do not defer payment to a later date, they permit business owners to estimate what they owe and pay based on that estimate. Then, they can use the additional time to gather and organize all necessary paperwork for their actual tax return, which they file along with a check for the remainder of what they still owe—if their bill is more than they estimated.

Small business owners can receive an extension by filing IRS form 4868 for sole proprietorships or form 7004 for C-Corps, S-Corps and partnerships. These forms grant an automatic six-month extension for all entities except partnerships and corporations, which are granted a five-month extension.

Continue reading at…

Passenger Tax in Alaska Could Drop More than 50%

From USA Today:

Alaska's cruise passenger head tax could end up falling from to $46 to $19.50 on most inside passage itineraries, according to the final bill Alaska Gov. Sean Parnell submitted late last week.

The 59% reduction would more than double the 25% cut that Parnell proposed less than two weeks ago, because the new bill contains a provision to offset local head taxes in Juneau and Ketchikan, of $8 and $7, respectively.

After submitting the new proposal to Alaska's legislature last week, Parnell said in a statement on his website that, "Alaska's tourism head tax structure must be modified to grow our Alaska businesses... Declining visitor numbers and dollars have been felt throughout the state. We must do more to make Alaska a more affordable destination for travelers and create jobs for Alaskans."

Alaska's Legislature has until April 18 to decide on the reduction.

Most major lines operating in Alaska including Princess , Royal Caribbean and Norwegian Cruise Line have reduced capacity to Alaska significantly this year, citing the state's high taxes and fees.

Cruise line executives agreed that if Alaska were to cut the head tax, it would drop a federal lawsuit against the state to repeal the tax, and would increase ship capacity to the state.

Carnival Corp. Chairman and CEO Micky Arison said during a conference call last week to discuss first quarter earnings, that the proposal to cut the passenger head tax was "a good first step," but warned that a buildup of capacity would take years.

Taxes and Salaries, County by County

Earlier in the week, the annual report from the Transactional Records Access Clearinghouse at Syracuse University was released and it contains lots of fascinating tax data from 2008. It includes statistics about salaries and tax revenue from over 3,000 counties across the nation. The New York Times posted a great article on what the data suggests, and you can find a section of their piece below or the full text here.

Some of the findings based on tax data from 2008:

  • When it comes to exemptions claimed per taxpayer, Utah County (Provo), Utah, has the highest rate in the country, at 2.76. Residents of New York County (Manhattan) in New York claim the least number of exemptions on average, 1.54 per taxpayer.
  • Average wages and salaries were highest in Loudoun County (Round Hill), Va., at $85,028. They were lowest in Catron County (Glenwood), N.M., with an average of $14,289.
  • Combining all sources of income, Teton County (Moose), Wy. was No. 1., with an average of $142,048 in adjusted gross income. Adjusted gross income was lowest in Douglas County (Ava), Mo., reporting an average of $18,262.

An app that sorts the tax and income data by state and county can be found here.

Tuesday, March 30, 2010

Which Travel Expenses Are Safe To Deduct on Your Taxes?

There are a lot of expenses that business owners can deduct from their taxable income but it is difficult trying to stay on top of all the IRS’ rules for self employed taxpayers. One of the most confusing expenses are travel expenses. If you own a small business chances are you've got enough to think about. That’s why I’m here! I recently read an article in USA Today. USA Today did a good job putting together a helpful article explaining which travel expenses are safe to deduct and which are not.

The deadline to file taxes is just around the corner and knowing what business travel and entertainment expenses you can and can't deduct is critical so you don't pay the IRS more than you should or lose a legitimate write-off because you can't document it or risk an audit because your expenses went overboard.

"I always tell people, for taxes, it's the difference between what you earn and what you keep," says Barbara Weltman, a tax expert who advises small businesses. "You could earn a significant amount of money, but if you don't take legitimate deductions, then you're paying more taxes then you need to."

The truth is, you can write off everything from that suit you had dry cleaned on a business trip to the fax you sent from the hotel, as long as you have the records to back it up.

"Record keeping is so crucial," says Frank Degen, an agent licensed by the IRS to work with taxpayers and who is based in Setauket, N.Y. "You need to have records of the four 'P's' and a 'D,' and the four 'P's' are the person, the place, the purpose and the price, and the 'D' is the date. That's an easy way for business owners or self-employed people to remember what they need to do."

Continue reading at USA…

5 Steps To Starting a Business

My YouTube team uploaded another tax tips video over the weekend. In this episode, host Edward Lester shares five important steps to consider before opening a business. Be sure to enjoy the embedded video below and check out my YouTube channel and subscribe to my future videos.

Tax Receipts Rebound as 15 Biggest States Foresee Gain


The two-year slide in tax collections that opened a $196 billion gap in U.S. state budgets has stopped, easing pressure on credit ratings and giving leeway to lawmakers as they craft spending plans for next year.

The 15 largest states by population forecast a 3.9 percent gain in tax revenue in fiscal 2011, budget documents show. The 50 states on average may increase collections by about 3.5 percent, the first time in two years the figure is expected to grow, said Mark Zandi, chief economist at Moody’s,

California took in 3.9 percent more since December than projected in January, Controller John Chiang said this month. New York got $129 million above forecasts in its budget year through February, according to a report from Comptroller Thomas DiNapoli. In New Jersey, the second-wealthiest state per capita, January sales-tax collections were 1.9 percent higher than a year earlier, the first annual increase in 19 months, forecasters said in a report last month.

“This time last year, we were sliding down a mountain,” said David Rosen, chief budget officer for the New Jersey Legislature. “I don’t think we are now; it’s stabilized.”

States collected about $79 billion less in sales, income and corporate taxes in 2009 than in 2008, the U.S. Census Bureau said today in a report, as the economy struggled through its deepest slump since the Great Depression. Emergency spending cuts and tax increases became routine during the recession that began in December 2007.

30 Days and Counting: Homebuyer Tax Credit Expires

Time is running out to claim the popular first time homebuyers tax credit. Taxpayers thinking about claiming the credit only have 30 days to enter into a contract, and the sale has to close escrow before the end of June in order to quality. CNN Money posted a story discussing the upcoming deadline. You can checkout a section of their article below, or click here for the full text.

Attention shoppers: You have barely a month left before the homebuyer tax credit expires. But depending on where you live, you might not want to rush out to buy.

First-time homebuyers may qualify for up to $8,000, while those who are trading up could get as much as $6,500. But either way, buyers have to ink sales contracts by the end of April and close before July 1 to see the refund.

And this is absolutely, positively your last chance to claim the credit. (Probably.) So don't wait, thinking the credit will be extended for a third time.

There is little sentiment for continuing this program, especially because many consider the latest iteration's results to be disappointing. Even the Senate's biggest proponent of the homebuyer tax credit, Johnny Isakson, R-Ga., is ready to let it end.

"He has no plans to introduce legislation to extend the credit," said Isakson's spokeswoman. "Part of the benefit of the tax credit was the urgency its sun-setting generated."

That urgency was less pronounced after the latest extension, which was enacted last fall. While the first version, which just covered first-time homebuyers, netted huge sales jumps, the real estate market slumped over the winter and early spring.

Monday, March 29, 2010

The Great Tax Season Easter Egg Hunt

This Sunday is Easter and even if you do not celebrate the holiday it is hard not to be overwhelmed by all the pastel eggs and bunny themed candy. Since the tax deadline falls exactly ten days after Easter, millions of Parents will likely spend the weekend searching for tax tips while their children search for colored eggs. To help all of you enjoy your holiday weekend, I have done the hunting for you and gathered the following list of tax Easter Eggs.

Get Free Help with your Tax Return

For those of you who have not yet prepared your tax return because of the associated costs, consider looking into the IRS’ Free File Alliance. The program helps taxpayers whose income is under $57,000 per year find free tax preparation help.

Use Last Years Return as a Guide

If you filed a tax return last year then you can use it as a guide to help prepare your new tax return. Unless you had a drastic change to your finances last year (bought a new house, got married, adopted a child, won the lottery, etc.) then you should be able to copy most of the information from your old return directly onto your 2010 return.

Do Not Assume you can e-File

Unfortunately, there are some instances when you will not be able to e-file your return, so do not make the mistake of waiting until 11:00 pm on April 14th to finish your return. If you need to mail in your return then be sure to check the hours of your local post office to make sure your return will be post marked on the 14th, otherwise you could be hit with a late filing fee.

Last Minute Rush… Always Triple Check

In the rush to get your return finished before the deadline you need to make sure and allow enough time to double, and triple check your return before filing it. I highly recommend finishing your return, then waiting at least a day to review it. If you look over your return right after you complete it then you are less likely to notice potential errors.

Amended Return

If you file your tax return then realize that you have made a mistake, you can always file an amended return. For more information you can check out Topic 308 - Amended Returns on

File an Extension Right Now

If you are worried about getting your tax return finished before the deadline then you can always request an automatic 6-month extension. To do so, print out IRS Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return and mail it to the IRS processing center. Just remember, it is an extension of time to file your return not an extension of time to pay the IRS.

Do Not Ignore the Problem for 6 More Months

If you file an automatic 6-month extension then you will have time to properly complete your tax return. However, do not make the mistake of just ignoring the problem for 6 months by waiting till the last minute. Start gathering your documents now, and if you are planning to get help from a professional then make an appointment within the next few weeks. Most tax offices are closed once tax season ends and it could become difficult to get help if you wait too long.

Last Minute Donations

Congress recently passed a law allowing donations made before April 15th to the Haitian of Chilean relief efforts deductible contributions on your 2009 tax returns. Therefore, you can make donations now to reduce your tax liability from last year. If you filed an automatic extension then make sure you make a donation before the deadline, since the extension will not give you an extra 6 months to make 2009 deductible contributions.

Start Preparing for Next Year

If you have already filed your return, then it is never too early to begin preparing for next year. If you got a refund, then you could follow the advice I provided in a blog entry early last month on tax friendly ways to spend your return. For more information on tax planning for 2010, checkout this article I posted with 10 tips to reduce your tax liability in ’10.

Questions for the Tax Lady: March 29th, 2010

Check out the following new Questions for the Tax Lady answers. 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: Is it true that the IRS is going to be in charge of enforcing the mandatory health insurance requirement?

Yes. Unfortunately, it looks like the IRS has been given the “enforcement job” by the new health care reform package passed by Congress. As I explained in my appearance on CNN last week, they are probably going to modify the IRS Form 1040 to include a section where you provide information on your health insurance coverage. If you do not have coverage and thus do not report health care coverage on your tax return to the IRS, you will be assessed a tax penalty.

Question #2: How do I find out if the IRS has sent my refund check yet?

The IRS’ website features a handy “Where’s my Refund” tool where you can monitor the status of your refund. You will need to provide your Social Security Number, filing status, and the dollar amount of the refund you are anticipating.

AT&T Plans $1 Billion Charge For Health Care

According to the Huffington Post, AT&T inc. plans to take a $1 billion non-cash accounting charge during the first quarter due to the new health care reform package. The company has also warned it may cut benefits currently being offered to employees and retired workers.

The charge is the largest disclosed so far. Earlier this week, AK Steel Corp., Caterpillar Inc., Deere & Co. and Valero Energy announced similar accounting charges, saying the health care law that President Barack Obama signed on Tuesday will raise their expenses. On Friday, 3M Co. said it will also take a charge of $85 million to $90 million.

All five are smaller than AT&T, and their combined charges are less than half of the $1 billion that AT&T is planning. The $1 billion is a third of AT&T's most recent quarterly earnings. In the fourth quarter of 2009, the company earned $3 billion on revenue of $30.9 billion.

AT&T said Friday that the charge reflects changes to how Medicare subsidies are taxed. Companies say the health care overhaul will require them to start paying taxes next year on a subsidy they receive for retiree drug coverage.

White House spokesman Robert Gibbs said Thursday that the tax law closed a loophole.

Under the 2003 Medicare prescription drug program, companies that provide prescription drug benefits for retirees have been able to receive subsidies covering 28 percent of eligible costs. But they could deduct the entire amount they spent on these drug benefits – including the subsidies – from their taxable income.

The new law allows companies to only deduct the 72 percent they spent.

Personal Income Drops Across the Country

From the Wall Street Journal:

Personal income in 42 states fell in 2009, the Commerce Department said Thursday.

Nevada's 4.8% plunge was the steepest, as construction and tourism industries took a beating. Also hit hard: Wyoming, where incomes fell 3.9%.

Incomes stayed flat in two states and rose in six and the District of Columbia. West Virginia had the best showing with a 2.1% increase. In Maine, Kentucky and Hawaii, increased government benefits, such as unemployment insurance and Social Security, offset drops in earnings and property values.

Nationally, personal income from wages, dividends, rent, retirement plans and government benefits declined 1.7% last year, unadjusted for inflation. One bright spot: As the economy recovered, personal income was up in all 50 states in the fourth quarter compared with the third. Connecticut, again, had the highest per capita income of the 50 states at $54,397 in 2009. Mississippi ranked lowest at $30,103.

Obama Makes Two Tax-Related Recess Appointments

Over the weekend President Obama announced he would bypass a vacationing Senate and name 15 people to key administration jobs. The move was his first use of the political tool known as recess appointments.

As Jay Heflin, of The explains, two of these appointments will serve take on tax-related duties. The first, Jeffrey Goldstein is the interim Under Secretary for Domestic Finance at Treasury.

During his Senate Finance Committee confirmation hearing, Chairman Max Baucus (D-Mont.) and ranking Republican Chuck Grassley (Iowa) both scrutinized Goldstein's role in setting up "blocker" corporations, a legal yet highly suspect type of tax shelter.

Goldstein was compensated for his effort by carried interest, another highly controvserial topic since payments are taxed as capital gains, which is much lower than ordinary income tax rates.

Obama also named Michael Mundaca to be interim Assistant Secretary for Tax Policy at Treasury.

Saturday, March 27, 2010

CNN News: Tax Filing Tips

Last week, I appeared on CNN news to provide tax filing tips to help get taxpayers prepared for the upcoming April 15th deadline. If you missed my interview, then you can watch it in the embedded video below. Also, make sure to watch The Today Show next Friday when I will be making an appearance in the 10 AM EST hour.

Rushing to do Taxes? Avoid These 10 Last-Minute Mistakes

People all over the country are rushing to get their tax returns prepared and filed, and as Sandra Block of USA explains in this new article, when you hurry, you're more likely to make mistakes. She put together a list of 10 last-minute errors that could attract unwelcome attention from the IRS. I have included a few of the items below, but be sure to check out the full list at USA

1. Incorrect Social Security numbers

In 1987, the IRS started requiring parents to provide Social Security numbers for children who were claimed as dependents on their tax returns.

If you omit Social Security numbers for any of your dependents — or use a wrong SSN — the IRS may disallow the exemption. You also could lose some valuable credits, such as the child tax credit, the child and dependent care credit and the earned income tax credit.

When you enter a dependent's last name, make sure it's the exact name that appears on the child's Social Security card. Likewise, if you got married and changed your name, make sure you notify the Social Security Administration before you file your taxes.

2. Incorrect bank account information

The IRS strongly encourages taxpayers to file electronically and arrange for direct deposit of their refunds. E-filing reduces errors and enables you to get your refund in a couple of weeks, vs. four to six weeks for paper-filed returns. But if you go this route, take extra care when you plug in your routing and account numbers. Otherwise, your money could end up in someone else's bank account.

3. Overlooking charitable contributions

Continue reading at USA…

Economy Not Likely To Reprise '09 Year-End Growth

From NPR News:

The economy grew at a 5.6 percent pace in the fourth quarter of last year, the Commerce Department reported Friday. Although the growth was slightly lower than expected, it was the economy's best showing in six years.

Most economists had expected no revision in the government's third and final estimate. Last month, the department put the growth rate for output of goods and services at 5.9 percent for the October-to-December period. That's up from third-quarter gross domestic product of 2.2 percent.

The latest announcement puts the GDP closer to the 5.7 percent in the initial advance estimate at the beginning of February.

The department's Bureau of Economic Analysis chalked up the downward revision to slower consumer spending and weakness in the commercial real-estate market.

Economists had reason to question whether the economy could sustain such a steep upward trend. Much of the growth comes from businesses restocking empty shelves after months of tepid consumer demand, which is expected to improve slightly — but not significantly — in the current quarter.

Why a $14/hour Employee Costs $20

Although we all hear about how expensive it is to be a business owner, most people rarely consider how costly it can be to hire new employees. CNN Money posted a very interesting article on why an employee making $14 per hour can really cost their employer as much as $20 an hour.

You probably cost your boss a lot more than you think you do.

For Jim Garland, who owns a corporate aircraft cleaning and support services company, a $14 per hour worker has a true cost of $19.63 per hour, or about 40% more than base pay. This so-called "loaded rate" includes fixed expenses -- federal and state taxes, health insurance, workman's compensation, uniforms, and paid time off -- along with soft costs like the time spent training a new hire.

Washington's lawmakers are throwing a lot of ammo at reducing the jobless rate, including a new tax break for hiring the unemployed. But no matter what incentives the government offers, it's hard to convince business owners to hire until they're absolutely certain they need to. Employees are often the most expensive investment a business makes.

"Our entire existence revolves around two numbers: revenue and payroll," Garland said of Sharp Details, in Dulles, Va., which he launched out of his car trunk in 1991. Payroll for 60 workers accounts for around 70% of his firm's operating costs.

Garland outsources his entire human resource department. Joe Sherrier, director of human resources for Employment Enterprises -- the company that manages Garland's HR -- said that as a general rule, business owners should to expect an employee to cost an additional 25% to 30% on top of base salary each year.

Continue reading at CNN…

Thursday, March 25, 2010

Answers on Health Care Reform and Taxes

An article in USA TODAY answers questions posed by readers about the new health care law. Take a look at two of the questions and their answers:

Q: How will the new health care bill affect the amount I am taxed from each pay check?

A: It depends on how much you earn. In 2013, the Medicare payroll tax, which is now 1.45%, will increase to 2.35% for individuals who earn more than $200,000 and married couples filing jointly who earn more than $250,000. The additional tax is applied only to the amounts above those threshold levels. That means a single taxpayer with an annual income of $250,000 will pay an additional $450 per year in Medicare taxes, while someone earning $500,000 will pay $2,700 more a year.

Q: My wife and I are self-employed, own and operate a mom-and-pop retail/service business. (Our health care) premiums just went up $100 per month. We simply cannot afford this, but have no other choice. Most insurance companies only want group policies. Will this new bill do anything to help us?

A: Maybe, but not immediately. Beginning in 2014, small companies and individuals who don't have insurance through work will be able to purchase insurance through newly created marketplaces, known as insurance exchanges, created and regulated by the states.
Think of it as an Orbitz or Travelocity for health care insurance. The idea is to lower costs by applying the same market principles as the purchasing power of group plans.

The Congressional Budget Office (
CBO) estimates that about 26 million Americans will purchase their policies through the exchanges. The CBO also estimates, however, that four in 10 people who buy insurance independently of a large employer could wind up paying 10% to 13% more. Others would receive federal subsidies to significantly lower those costs, so it depends how much you and your wife earn. Those earning up to 400% of the poverty level, or up to $88,200 for a family of four, will get some assistance.

Also, small businesses with fewer than 25 employees will be eligible for tax credits to help pay for health care costs for employees, as explained in a question above.

See more Q&A’s in the full article.

A Financial Report Card, Right in Your Tax Return

In today’s tough economic climate most Americans are confused about their finances, and it can be difficult to determine where you stand financially. However, as New York Times author Jan Rosen explains, your tax return can offer several clues to help assess your finances. Check out a snippet of her piece below.

MOST of us would like an answer to this question: Am I on the royal highway toward realizing my long-term financial goals — building up savings for the children’s education and for retirement, for example — or am I bumping along a back road that ends far short of my goals?

Your tax return can provide clues for answering that question. So, before filing away a copy of your 2009 return, spend some time reviewing it. Even if you want professional advice, you should still review the return first. “The client who gets the best advice is often the one who raises the best questions,” said Sidney Kess, a New York tax lawyer and certified public accountant. He and two other accountants who specialize in personal finance offered pointers for going through the return, the topics to consider and the questions to ask.

INVESTMENTS. Look at Lines 8 and 9 of the 1040 for interest and dividends, and, if you have more than $1,500 of either, look at the attached Schedule B. Line 13 will show net capital gains or losses with the details of your trades reflected on Schedule D.

If Schedule D showed only gains, take it as a warning sign, said Lyle K. Benson Jr., who heads his own firm, L. K. Benson & Company in Baltimore, adding, “Harvesting losses is an important part of good planning.” Often investors do not want to sell losers, feeling a stock will surely bounce back. But a capital loss could offset a capital gain, making the gain tax-free, and the money that was recognized in selling losers could be reinvested, perhaps more productively, he pointed out. Net losses of up to $3,000 can offset ordinary income with any excess carried forward to future years.

Many tax professionals expect tax rates to rise, and if they do, harvesting losses can become even more valuable. President Obama has proposed raising the rate on long-term gains — those held more than a year — to 20 percent for most taxpayers, and under present law the top rate for ordinary income next year is to rise to the 2001 top of 39.6 percent.

Continue reading at NY…

Prince & The Taxman

It looks like another celebrity may be in trouble with the IRS. According to Carver County, Minnesota famed musical artist Prince is delinquent on his state tax liabilities. As this Associated Press article explains Price’s business (PRN Music Corp.) owes over $227,000 to local tax agencies, on top of his personal tax obligations.

PRN Music houses Prince's Paisley Park Studios in Chanhassen. County records list several other properties under his full name, Prince R. Nelson, as delinquent.

County taxpayer services manager Laurie Engelen estimates PRN Music and Prince's other properties owe about $450,000 in taxes.

PRN and Prince's studios don't have listed phone numbers. A talent agency that has represented Prince didn't immediately respond to e-mail seeking comment.

The delinquency list was published last week in the Chaska Herald.

Student-Loan Reform


Government takeover!" So yelled the many critics of President Barack Obama's health care reform bill. But in their focus on the main event, Republicans seem to have all but ignored another part of the legislation that more precisely fits their rhetoric. In addition to securing the President a victory on health care, the House bill took him one step closer to delivering on a promise to reform the college-student-loan system. If a final piece of legislation before the Senate is approved, millions of students will get their federal loans directly from the Department of Education. In other words, the federal government would sweep aside private competitors in the biggest change to the federal student-loan program since its creation in 1965. It's a legitimate government takeover.

So where's all that outrage now? The thing is, the government already runs much of the student-loan industry. For decades under the Federal Family Education Loan (FFEL) program, the government has handed out subsidies to large banks and companies like Sallie Mae that lend money to student borrowers and collect it from them. In addition, the federal government has been obligated to cover up to 97% of any defaulted loan, effectively eliminating risk for lenders. Figuring that money could be saved by cutting out the middleman, Congress created the Direct Loan program--in which money goes from the Education Department to students--in 1993. The programs have been in competition with each other since then.

Until now. Gone will be the subsidies, and gone will be the FFEL program. As of July 1, all new student loans will go through the Direct Loan program. The savings--an estimated $61 billion over 10 years--will be used to shore up and increase the need-based Pell Grant program by $36 billion and invest in community colleges. While the Administration has reason enough to crow about the proposed measures, it has had to scale back some of its bigger plans. An earlier version of the bill would have invested an additional $20 billion and offered even more substantial financial-aid increases. As it stands, $13.5 billion will be used to stem Pell Grant shortfalls resulting from the increased number of students forced back to college by the ailing economy. And a plan to raise the maximum Pell amount to almost $7,000 per year by 2020 has been replaced with one that maxes out at about $6,000.

With his first major piece of education legislation out of the way, Obama will likely move on to K-12 matters later this year as he attempts to rework the unpopular No Child Left Behind law. But before then, members of Congress (and America's students) are going on spring break.

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Wednesday, March 24, 2010

Google or China—Who Has More to Lose?

On Monday, Google closed its Internet search service in China and redirected users to its uncensored search engine in Hong Kong.

In an article I adapted from the New York Times today, “Behind the Free-Market Veneer (Google or China—Who Has More to Lose?)” it asks the questions, “Should Google take a harder stance and withdraw from China completely? Should multinationals like Google play a greater role in challenging China’s policies?” The article reads, "Google’s showdown with China is over censorship and now leaves the company with few choices". But did we really think it would be any different?

Ai Weiwei is an artist and political activist based in Beijing feels Google has set a different example. It has shown that it values decency and integrity, even when that means standing up to the Chinese government. The Chinese government has always been arrogant in dealing with protests of any kind when it comes to censorship or judicial reform. Google’s departure now teaches millions of people how much is at stake. What the Chinese government doing is suicidal.

Oded Shenkar is the Ford Motor Company Chair in Global Business Management and professor of management and human resources at the Fisher College of Business at Ohio State University. He is the author of “The Chinese Century.” Whether Google should take a harder stance is not really up to Google anymore. The company might have thought it could continue to have a presence in the search business in China from Hong Kong and elsewhere and keep other businesses like online ads sales and operating system/smartphone programs, but China does not work like that.

To an extent, this is a government-to-government dispute, since the U.S. is holding the flag of Internet freedom and has a stake in ensuring that American firms, particularly those in a field where the U.S. has a competitive advantage, are allowed to compete in a major foreign market.

See the full article here.

New Home Sales Fall to Record Low

A government report released Wednesday showed that the sales of new homes at fell to a record low in February. It is believed to be the outcome from all of the foreclosed homes and a weak economy with high unemployment.

New-home sales fell 2.2% to a seasonally adjusted rate of 308,000 last month, compared to an upwardly revised annual rate of 315,000 in January, the Census Bureau said. What’s crazy is that “this is the lowest rate since the government began keeping records in 1963 and marked the fourth straight month of declines.”

Economists expected February sales to rise to an annual rate of 315,000. New-home sales were down 13% from February 2009. New-home sales fell in every region of the United States, except the West region, which saw a 20.8% jump in new-home sales. The Northeast was hardest hit, with a 20% decline in February. Most likely effected by weather.

A stubborn job market is what is said to of kept pressure on the housing market. The U.S. unemployment rate stood at 9.7% last month, after unexpectedly falling in January, suggesting that the economic recovery could be gaining steam. But, "the economy, while recovering, is still not full speed ahead," said Hoffman.

In regards to new homes, the Census Bureau estimated that 236,000 new homes hit the market in February.

In November, Congress extended and expanded an $8,000 tax credit for first-time home buyers, which also allows some repeat buyers to qualify for a $6,500 credit. Buyers have until April 30 to qualify for the credit.
New-home sales saw a surge of activity when home buyers thought the November tax credit would expire, but retreated after the extension.

Although February's data was "a bit disappointing," Hoffman says the real test will come during peak home buying season in the spring.

"The real story will be if no one knocks at the door for a new-home in an environment of record low mortgage rates, a home buyer's tax credit and a recovering economy," said Hoffman. "If they don't, then it's lights out." Read the full article here: New-home sales fall to record low from

IRS To Open More Than 180 Local IRS Offices This Saturday to Help Taxpayers

The IRS is planning to provide help to taxpayers this year by being open for business this Saturday, March 27 from 9 a.m. to 2 p.m.—your local time. The location of participating offices is listed here.

IRS Commissioner Doug Shulman says the purpose of the Saturday office hours is to give economically struggling taxpayers the opportunity to work directly with IRS employees to resolve their tax issues via economic hardship status and payment arrangements. Taxpayers will also be able to get help claiming any of the special tax breaks in last year’s American Recovery and Reinvestment Act, many that I have gone over previously in my blog, such as, the:

- Homebuyer tax credit - the refundable credit equal to 10 percent of the purchase price up to a maximum of $8,000 ($4,000 if married filing separately). A first-time homebuyer is an individual who, with his or her spouse if married, has not owned any other principal residence for three years prior to the date of purchase of the new principal residence for which the credit is being claimed.

- American Opportunity Credit - a federal education credit to offset part of the cost of college. This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

- Making Work Pay credit - In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.

- Expanded Earned Income Tax Credit - There is now a new tax classification for EITC recipients who have three or more children and a higher credit amount – up to $5,657.

The IRS may hold three additional Saturday office hours this spring and early summer.

10 Things you Should Know About the Tax Implications of Health Care Reform

Yesterday morning President Barack Obama signed the historic health care reform bill into law. Many experts are citing the legislation as the largest social package to pass through Congress in over forty years, and it will obviously have a significant impact on all American taxpayers. There have been dozens of stories published regarding health care reform, and it can be hard to comprehend everything. Therefore, I have gathered a list of the 10 most important things you should know about the tax implications of the legislation.

1. Mandatory Coverage Penalties in 2014

As you have probably already heard, beginning in 2014 you will be required to have health insurance. If you do not, then you will be forced to pay a $95 per person (or 1% of your income) fee. In 2016 this amount will increase to $695 or 2.5% of your income.

2. IRS Enforcement / Additional Costs

Unfortunately, the IRS is slated to take care of handling the mandatory coverage penalties that take effect in 2014. However, as Professor James Maule explains in this blog entry the thought of the IRS reviewing and approving every single American’s health insurance plan, when they can barely handle processing tax returns will be interesting to see. Additionally, the Congressional Budget Office has estimated they would need at least $10 billion dollars in additional funding to meet this new responsibility.

3. Low Income Subsidies

To help offset the cost of purchasing health insurance for your family, the federal government will provide taxpayers who cannot afford coverage with significant subsidies. It has been estimated that all families making under about $88,000 per year will qualify for some type of tax incentive.

4. Fees on Employers

You probably already know that under the package large businesses will be required to provide coverage for employees or pay a per worker fine. However, under the compromise package this fee was raised from $750 to a staggering $2,000. Employers will be able to qualify for a temporary tax credit of up to 35% of their contributions towards health insurance premiums.

5. Medicare Tax Changes

One of the largest tax increases in the new health care reform legislation is the additional Medicare tax on high-income taxpayers. Single workers making over $200,000 and married couples filing a joint return that make over $250,000 will be required to pay an additional 0.9% Medicare payroll tax. However, this is not the only Medicare related tax increase. A new 3.8% Medicare tax will be imposed on net investment income.

6. Doughnut Hole Rebates

In order to fill the hole in prescription drug coverage, all senior taxpayers in the country will receive a $250 “doughnut” hole rebate this year.

7. Medical Expense Deduction Increase

Another component of the new law increases the minimum for qualifying for the medical expense deduction. Currently, in order to claim the deduction your medical expenses need to total 7.5% of your adjusted gross income, but in 2013 it will be raised to 10%. However, seniors will be exempt from this increase until 2017.

8. Cadillac Taxes

Another tax implication of health care reform that I have discussed many times over the past few months, are the “Cadillac taxes” that will be imposed on high-cost employer provided health care plans. This tax will be 40%. However, the qualifying amounts were raised in the compromise package to $10,200 for single taxpayers or $27,500 per family.

9. The Tanning Tax

Starting July 1, 2010 a 10% tax will be levied on all payments made for indoor tanning services. This new “vanity tax” could raise up to $2.7 billion over the next decade, but it has been estimated that the tax could result in a lost of nearly 9,000 jobs in the tanning industry.

10. Adoption Tax Incentives

On a seemingly unrelated note, the health care reform bill also extends and expands the tax credits for adopting a child. The refundable credit has been extended through 2011, and the value was increased by $1,000.

Hawaiians Rally For and Against Tax Hike Proposal

In response to a proposal for an increase in Hawaii’s excise tax, hundreds of citizens gathered at the States capital to protest. Hawaii is already one of the most taxed states in the country, so it is no surprise that local taxpayers would strongly oppose any increases. The New York Times posted a new article about the protest; you can find a snippet of their piece below.

More than 200 people gathered at the state capitol to ask lawmakers for a 1-percentage point increase in the general excise tax imposed on goods and services. The tax, known as GET, is currently 4.5 percent on Oahu and 4 percent elsewhere in Hawaii.

They waved colored signs saying ''GET'' and urged lawmakers not to eliminate jobs and services.

''The cuts are too deep. They are damaging the economy,'' the Rev. Bob Nakata, a Methodist minister, told the crowd. ''It's not just the bleeding hearts that are saying this needs to be done.''

Hawaii's money troubles have resulted in less government support for public schools, child protective services, mental health, social service providers and agriculture inspectors. Hundreds of public employees were laid off, and the rest are taking pay cuts through furloughs.

Continue reading at NY…

IRS Health Care Oversight

I made an appearance on Fox Business news this morning to discuss the IRS’ new health care related responsibilities including individual mandates and enforcing penalties for businesses that do not provide coverage. Checkout the embedded video below, and be sure to tune into The Today Show next Friday when I will be making an appearance in the 10 AM EST hour.

Summer Job Outlook Is Cloudy


The search for a summer job won't be any easier this year, despite nascent signs of a recovery.

Almost half of hiring managers -- 47% -- don't plan to hire any seasonal workers this summer, said a survey from hourly job site That's about the same as last summer's 46%.

The majority of respondents, 54%, said they think it will be "difficult" for teens to find a summer job this year. The survey did not ask that question last year.

"Just like last summer, employers have a wide range of [applicants] this year," said Shawn Boyer, chief executive of "When managers can pick from the cream of the crop, it makes it tough for those applying."

Teens were likely hoping for a sunnier outlook this year, since 2009's summer job openings were slim amid a churning economy. But even as the recession has begun to abate this year, the unemployment rate remains at 9.7%.

7 New Tax Credits Now Available Through the Recovery Act

This year the average tax refund is up by around 10% from 2008, and according to Representative John Larson, this increase can be attributed to the numerous tax savings in the Recovery and Reinvestment Act. In a new Huffington Post piece Larson explains the 7 new tax incentives created by the act, you can find some of them below or click here for the full list.

The Making Work Pay tax credit - Ninety-five percent of working families are already receiving the Recovery Act's Making Work Pay tax credit of $400 for an individual or $800 for married couples filing jointly in their 2009 paychecks - and will continue to see these benefits in 2010.

Tax credits for college expenses - Families and students are eligible for up to $2,500 in tax savings under the American Opportunity Credit as well as enhanced benefits under 529 college savings plans, which help families and students pay for college expenses.

The Homebuyers tax credit - Homebuyers can get a credit - up to $8,000 for first-time home buyers and up to $6,500 for upgrade homebuyers - for homes under contract by April 30, 2010 and purchased by June 30, 2010 under the Homebuyer tax credit. Over 1.7 million households have already taken advantage of the First Time Homebuyers tax credit.

Tax credits for energy efficient renovations - Taxpayers are eligible for up to $1,500 in tax credits for making energy-efficient improvements to their homes, such as adding insulation and installing energy efficient windows.

The vehicle sales tax deduction - Taxpayers can deduct the state and local sales taxes they paid for new vehicles purchased from Feb. 17, 2009 through Dec. 31, 2009 under the vehicle sales tax deduction.

Continue reading at Huffington…

Tuesday, March 23, 2010

California Lawmakers Approve Tax Breaks to Create Jobs

On Monday, lawmakers in California sent Governor Arnold Schwarzenegger two job creation bills. The first piece of legislation would extend the $10,000 homebuyer's tax credit through the end of while the second would provide tax break to the green-technology industry.

According to Business Week, the Senate and Assembly passed the bills with bipartisan support in hopes of promoting housing construction and making California more inviting to businesses involved in developing alternative energy.

"Today, the Legislature approved two important job creation measures that put Californians back to work," Assembly Speaker John Perez said in a statement after the votes were completed.

Passage of the legislation was intended to buy favor with Schwarzenegger in hopes that he would sign a budget bill Democrats sent to him earlier this month. That bill involves a complicated swap of the state sales tax on gasoline for a gasoline excise tax that would send more money to the cash-starved general fund.

The governor signed that bill late Monday and indicated he would sign the two tax-break bills later.

Continue reading at Business…

Americans Remain Skeptical Over Health-Care Revamp


Americans remain skeptical about the health-care overhaul even after the U.S. House passed landmark legislation that promises to provide access to medical coverage for tens of millions of the uninsured.

At the same time, most say the government should play a role in ensuring everyone has access to affordable care, a Bloomberg National Poll shows. A majority also agree that health care is a private matter and consider the new rules approved by Congress to be a government takeover.

The poll found the percentage of Americans who favor the almost $1 trillion 10-year plan remained at about just four in 10 following the House vote on March 21 to send the bill to President Barack Obama, who signed it into law today.

“Anything called a ‘massive overhaul’ will be complicated, and it is hard for people to see what is in it for them,” said J. Ann Selzer, president of Selzer & Co., a Des Moines, Iowa- based firm that conducted the nationwide survey. “Even as Americans of all stripes agree there are problems with the current system, the escalating deficit makes them worry what the country can really afford.”

The poll of 1,002 adults was conducted March 19-22 and has a margin of error of plus or minus 3.1 percent. There was no meaningful movement of opinion the final night of interviewing, after the vote was taken.

Democratic lawmakers who approved the revamp over the unanimous objections of Republicans are counting on public support to grow once voters see the benefits of the legislation, which places new restrictions on insurers from denying coverage to people.

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