Thursday, April 29, 2010
This past year, Congress cut individuals’ federal taxes this year by hundreds of billions of dollars even while state taxes increased to pay state budget deficits. But while tax bills were low for most taxpayers, we need to expect our tax bills will definitely go up in the next few years. What are the reasons for the increases, you ask? For one, former president George W. Bush’s tax cuts will be expiring in January (only a few to be renewed) and then there are Obama’s future increases in the health care overhaul. While some increases will hit lower income taxpayers, those making more than $200,000 ($250,000 for couples) a year will see the largest increase. For the first time, the Medicare payroll tax would be applied to investment income, beginning in 2013. A 3.8 percent tax will be imposed on interest, dividends, capital gains and other investment income for individuals making more than $200,000 a year. Read the full article here.
After millions of taxpayers expressed anger over concerns they might be hit with additional taxes for children under the age of 27 still receiving health benefits, both the IRS and Obama administration have spoken up regarding the issue. According to LA Times.com, the Federal government announced that tax bills will NOT increase for these families.
The president and his congressional allies have billed the new benefit for older children as one of the most immediate advantages of health legislation that in other respects remains highly controversial.
And last week, after prodding from Health and Human Services Secretary Kathleen Sebelius, several leading national insurance companies said they would offer the extended coverage immediately to parents who buy plans on their own.
But the healthcare bill did not make clear if employees would have to pay taxes on the additional benefit if they receive health insurance through work, as most Americans do.
Tuesday, the IRS issued a 12-page notice explaining that the added insurance for children under 27 would be tax-free, like other employer-provided health benefits, and that employers with some kinds of plans could begin offering the benefit immediately.
When you hear the words “government job,” you probably think of big paychecks, or extreme job security. However, new studies have revealed that some state and local government workers actually earn less than their private sector counterparts.
As this article from CNN Money.com explains, government workers earn between 11% and 12% less than workers in private companies, according to a joint study from the Center for State and Local Government Excellence and National Institute on Retirement Security.
The report, which analyzed 20 years of data from the Bureau of Labor Statistics, also found that the pay gap has generally widened over the last two decades, as private compensation moved higher while earnings for state and local workers fell.
"The big divergence began to occur in the late 1990s," said John S. Heywood, a professor in the economics department at University of Wisconsin-Milwaukee and co-author of the report. "It's an issue."
Since the U.S. recession began in December 2007, Congress has extended the duration of weekly unemployment benefits for the jobless three times. Now, the lawmakers may have reached their limit.
They are quietly drawing the line at 99 weeks of aid, a mark that hundreds of thousands of Americans have already reached. In coming months, the number of those who will receive their final government check is projected to top 1 million.
It’s a deadline that has rarely been mentioned in recent debates over jobless benefits, in which Republicans have delayed aid because of cost concerns. The deadline hasn’t been lost on Teauna Stephney, a 39-year-old single mother from Bothell, Washington, who said she could become homeless once her $407 weekly checks stop in June.
“What are people like me supposed to do?” said Stephney, who said almost two years of benefits haven’t proved long enough for her to find work after she lost her last job in August 2008. Referring to lawmakers, she said, “I would like them to come and talk to me and spend a day in my shoes.”
It seems like there have been plenty of new reports regarding the economy, and yesterday it was reported that Americans filed 11,000 less jobless claims last week than the week before.
Although this is good news, the national unemployment is still at 9.7%, and an estimated 448,000 Americans out of work. Check out the following story from Washington Post regarding the new jobless reports.
Continuing unemployment claims last week rose slightly to 4.66 million, up from 4.64 million the previous week.
The four-week moving average on new jobless claims, which smoothes out volatility in the data, rose 1,500 to 462,500. This bump up is so small as to be nearly statistically insignificant. If the four-week moving average begins to flatten and then eventually turn downward, the economy will get closer to creating new jobs.
Forecasters expected last week's number to come in at 448,000.
The official U.S. unemployment rate is 9.7 percent. The April number will be released next Friday and forecasters expect the number to remain unchanged. Economists say that the unemployment rate will stay near 10 percent through the end of the year.
Wednesday, April 28, 2010
The federal bank bailouts and financial crisis are hot topics currently on the minds of many. Regarding the topic, it seems like every day we hear more excuses from CEOs. However, taxpayers are becoming fed up with big banks and the lies they are telling. MSN Money published a great article this morning highlighting the five most common lies big banks are telling us all and I highly recommend reading their full list here.
It's tough to head off the next disaster if you don't understand why the last one happened -- an insight that's apparently lost on Wall Street.
Instead, as I watch banker after banker being grilled on how the mortgage mess happened, they seem to repeat a lot of the excuses I've heard for more than a year. Such as "No one knew." Or "It was everyone else's fault."
Although there's a little truth in each excuse, no excuse is completely honest. "If we're going to avoid these mistakes, it really starts with an honest assessment of what's happened," says Phil Angelides, the head of the Financial Crisis Inquiry Commission, an investigative panel charged with identifying to causes of the credit crisis.
The excuses also muddy the waters at a critical time. The nation is just starting to recover from the meltdown. Financial reform has finally taken center stage in Washington. We need to know what truly went wrong to keep this from happening again.
Big lie No. 1: No one could have known
Consider this scenario: You work at the top of a key bank on Wall Street. You hire the smartest guys from the best schools. You get paid big bucks to know your business better than anyone else. And warning signs are everywhere. When it goes bad, can you really say you didn't know?
While the homebuyer’s tax credit certainly gave the real estate market a jump, according to a new survey, the end of the credit may not be an end to increased sales. Consumer confidence in the housing market has increased along with home prices, which as this Reuters article explains, are both a good sign for the future of real estate.
Among consumers shopping for homes, 65 percent said the end of the tax credits will have little or no effect on their interest in purchasing a home, according to the survey, which was conducted by Prudential Real Estate and Relocation Services, part of Prudential Financial (PRU.N).
But 90 percent of the consumers believe that the tax credits have helped both first-time home buyers and the U.S. housing market overall.
Eligible borrowers must sign contracts by April 30 and close on their loans by June 30 to qualify for the tax credits, which include $8,000 for first-time buyers and $6,500 for home owners buying a new residence.
Hawaii Gov. Linda Lingle is vetoing measures raising taxes on oil, estates and traffic abstracts.
Lingle said in her veto message of the $22 million oil tax Tuesday that it would affect every resident by increasing the amount they pay for electricity, gas, shipping, retail goods, food and propane.
Traffic abstract fees would increase in cost from $7 to $20, generating $6.5 million.
The estate tax would raise $10 million next year.
The Republican governor also vetoed a measure preventing the closure of 31 welfare eligibility offices statewide and consolidating them into two processing centers in Honolulu and Hilo.
The Legislature plans to attempt veto overrides Thursday.
Once again, Democrats in the Senate have failed to come up with the votes needed to debate the Wall Street reform bill. Coming up only 4 votes short of the 60 votes required, this makes the 2nd time in the 48 hours that an attempt to start a debate has failed. According to CNN, all 40 Republicans present in the chamber joined with two Democrats, Sen. Ben Nelson of Nebraska and Majority Leader Harry Reid of Nevada in voting against.
Reid's vote was a procedural move that allows him, under the Senate rules, to bring the bill up again this week.
The Democrats failed the first two times by 57-41. On Wednesday, Sen. Robert Byrd, D-W.Va., a prior "yes" vote, was absent, while Sen. Robert Bennett, who voted "no," returned from a two-day absence.
Democrats and Republicans still disagree about the way to go about preventing future bailouts, cracking down on risky bets and ensuring consumers have stronger protection.
Sen. Christopher Dodd, D-Conn., and Sen. Richard Shelby, R-Ala., have been negotiating differences on the bill, but have yet to come up with a final compromise.
Although the economy appears to be recovering, a new survey was released yesterday asserting that a majority of the economists in the country believe the economic recovery had little to do with President Obama’s stimulus efforts. According to this CNN Money article, the latest quarterly survey by the National Association for Business Economics showed job growth for the first time in nearly two years.
NABE conducted the study by polling 68 of its members who work in economic roles at private-sector firms. About 73% of those surveyed said employment at their company is neither higher nor lower as a result of the $787 billion Recovery Act, which the White House's Council of Economic Advisers says is on track to create or save 3.5 million jobs by the end of the year.
That sentiment is shared for the recently passed $17.7 billion jobs bill that calls for tax breaks for businesses that hire and additional infrastructure spending. More than two-thirds of those polled believe the measure won't affect payrolls, while 30% expect it to boost hiring "moderately."
But the economists see conditions improving. More than half of respondents -- 57% -- say industrial demand is rising, while just 6% see it declining. A growing number also said their firms are increasing spending and profit margins are widening.
In the last few days there have been a handful of announcements with good new for our economy. In addition job growth, home prices in the U.S. showed a rise in the month of February, which is the first time we have seen an increase in three years. As this ABC News story explains, although this is a good sign, many economists have been quick to warn Americans not to assume the housing market is rebounding already.
Despite the 0.6 percent increase on a non-seasonally adjusted basis, 11 of the 20 cities in the Standard & Poor's/Case-Shiller home price index showed declines.
The last time prices rose on a year-over-year basis was December 2006. But economists polled by Thomson Reuters had predicted prices to rise 1.2 percent in February.
Home prices are up more than 3 percent from the bottom in May 2009, but still are 30 percent below the May 2006 peak.
Las Vegas saw the largest annual drop at almost 15 percent. San Francisco posted the biggest gain, at about 12 percent.
From NY Times.com:
As President Obama’s bipartisan commission on reducing the mounting federal debt headed to its first meeting on Tuesday, the president told its members that “everything has to be on the table” as they consider options for reducing spending and increasing tax revenue.
Mr. Obama, appearing in the Rose Garden at the White House, recounted some steps his administration has already taken to restrain the growth of annual deficits. But he said, “This alone will not make up for the years in which those in Washington refused to make hard choices and live within their means.”
“And it will not make up for the failure to level with the American people about the costs of the services that they value,” he added. “This is going to require people of both parties to come together and take a hard look at the growing gap between what the government spends and what the government raises in revenue. And it will require that we put politics aside, and that we think more about the next generation than the next election.”
The president was flanked by his choices to chair the commission: Alan K. Simpson, the former Republican senator from Wyoming, and Erskine Bowles, a Democrat and former White House chief of staff. With a grin, Mr. Obama saluted them for their courage in accepting the assignment — a nod to the low expectations that many in Washington have for the commission, given the polarization between the parties, especially in an election year.
According to a 2010 survey on retirement confidence, about 70% of workers plan to work for pay during retirement. In today’s poor economic conditions many Americans have no idea how to plan for retirement. Fortunately, SmartMoney.com has published a great article explaining how you can make reductions in your sending now to help save for your future. Check out a section of their useful article below.
Trim your housing costs
Consider trading down to a smaller home. Doing so can not only allow you to plow your gains (if you have them) into a retirement savings account, it can also help shrink your taxes, utility bills and home maintenance costs, says Jean Setzfand, the director of financial security for AARP. If you plan to buy rather than rent, which might also deliver some savings in this market especially, be realistic. Purchase only what you need, not what others will buy, she says. “A house is not an investment.”
Keep taxes in mind
Consider moving to a place that offers tax advantages, suggests Mark Kennedy, the president of Kennedy Wealth Management, an investment advisory firm in Woodland Hills, Calif. Alaska, Florida, Nevada, South Dakota, Wyoming and Washington, for example, don’t have state income taxes. New Hampshire and Tennessee tax dividend and interest income only, while Oregon, Alaska, Delaware, Montana and New Hampshire don’t levy a sales tax. Further, he adds that homeowners over the age of 55 who move within the same county in California can carry their property tax basis with them as long as the new home is of equal or lesser value than the former home. (Note that this transaction is only allowed once in a single individual’s lifetime.)
Eliminate pricey debts
Although some debt such as a mortgage and student loans can offer valuable tax deductions, other debts are just plain worthless. Before you can even begin to save, you have to eliminate high priced debts such as credit cards or payday loans, says Adam. Even mortgages can keep you lodged in a hole, she says. “Start paying down extra on mortgage or your credit cards each month, then you can really save.”
Monday, April 26, 2010
Tax season has come and gone and spring is here in full force. During these transitional weeks many people take on extra spring-cleaning duties. However, in addition to cleaning out your garage, or spending hours getting your yard ready for a huge pool party, I recommend taking a few minutes to clean up your finances.
Clean out your Filing Cabinet
The IRS recommends you keep copies of all tax returns, however additional tax related documents – such as W-2s, 1099s, and receipts – do not need to be kept more then a few years. You can clear up some room in your filing cabinet by shredding any documents that do not need to be kept. You should also think about getting rid of any documents that can be replaced such as credit card and bank statements you still have from previous years.
Review your Credit Report
All taxpayers are allowed one free credit report per year. While doing your spring cleaning it is a good idea to request a copy of your credit report to make sure there are no mistakes or unfamiliar activity. It is better to address these issues sooner then later and if you have not reviewed your credit report recently, I highly recommend doing so as soon as possible.
Create a Plan for your Debts
Debt is a serious problem for millions of Americans, but it does not have to be. By taking the time to establish a plan to deal with your debt, you will see that it does not have to ruin your life. Start paying off credit cards with the highest interest rates, and if your debt is seriously out of control you might want to consider a debt settlement program.
If you have more than one banking account then you might want to spend some time consolidating your accounts. Unless you have a banking account for your business you probably do not need multiple checking and savings accounts. It can be very difficult to manage your money, and plan a path to get out of debt when you have dozens of bank statements to review. However, by consolidating your accounts you can keep better track of your finances, and depending on where you do your banking you can take advantage of additional features such as online bill payments.
Track your Spending and Start a Money Calendar
If you find yourself scratching your head at the end of every month wondering where all of your money went then you might want to track your spending a little better. Keep a receipt from every purchase you make, and after a few weeks you should have a pretty good idea of where your money is going. It can also be helpful to create a money calendar listing days that you get paid, and due dates for important bills.
Most banks will allow you to setup automatic transfers to your savings account, and this can be a great way to help build up an emergency savings. Even if it is only a $10 or $20 reoccurring transfer it can still help you get in the habit of saving money for a rainy day. Just make sure that your savings account is not charging a high monthly fee.
Prepare for Next Tax Season
It is never too early to begin preparing for next tax season. By keeping a close eye on your tax liability, credits, and deductions, you can avoid having to owe the IRS next April. It is also a good idea to create a new folder in your filing cabinet so that you can keep all of your tax related documents in one safe place. Finally, you might want to adjust your withholdings if you substantially over or underpaid on your taxes last year.
Question #1: If I make energy efficient upgrades to a rental property will they still qualify for the federal tax credit?
Unfortunately, the IRS will only allow you to claim the federal tax credit for energy efficient improvements made to your primary residence. Therefore, rental properties or summer homes will generally not qualify.
Question #2: I just realized I made a mistake on my federal tax return, how do I correct it?
According to Christine Hauser of the New York Times, the housing industry in this country is showing improvement largely because of the federal homebuyer tax credit. On Friday the Commerce Department announced that sales of new homes rose in March to their highest levels since last summer.
Over all, the sales of new single-family houses in March were up nearly 27 percent at a seasonally adjusted annual rate of 411,000 units, the Commerce Department reported. The increase, which was against a revised rate of 324,000 for February, exceeded expectations.
“In simple terms, housing is a bargain again, and buyers are responding,” Michael D. Larson, a real estate and interest rate analyst at Weiss Research, wrote in a research note. “That is unambiguously good news for the market going forward.”
On Thursday, the National Association of Realtors said that sales of previously owned homes had also exceeded expectations, rising 6.8 percent. The monthly rise in sales of new homes was the biggest since April 1963, when it was 31.2 percent, Mr. Larson said.
Economists said the figures suggested that buyers were taking advantage of an $8,000 government tax credit that was scheduled to expire at the end of the month.
But there were other factors beside the tax credit, like an increase in builder optimism and housing starts, that helped push sales higher. Mr. Larson said he expected to see continual improvement in construction activity.
Attorney Client Privilege
Attorney-client privilege and confidentiality are often mistaken as being one in the same; however, they are in fact different. While the attorney-client privilege protects communications between a client and his or her attorney from disclosure before a court, confidentiality protects a client from any information a client chooses to share with his or her attorney.
Why is confidentiality such an integral aspect of legal representation? The answer is trust—to effectively represent a client, an attorney needs the client’s complete trust. Think of it this way, we are all more willing to share information that may be embarrassing or difficult to talk about with someone that we know we can trust. This is why attorneys are held to a high standard of protecting a client’s confidential information.
Confidences and Secrets
With respect to client confidentiality, the definition of a secret is anything either the client has requested to be held in confidence or anything that, if told, would be detrimental to the client. Confidential information is any information related to the representation of the client. Furthermore confidential client information can only come from the client, whereas a client’s secrets can come from any source.
From NY Times.com:
Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship.
“What we have seen is a substantial change in mentality among the overseas community in the past two years,” said Jackie Bugnion, director of American Citizens Abroad, an advocacy group based in Geneva. “Before, no one would dare mention to other Americans that they were even thinking of renouncing their U.S. nationality. Now, it is an openly discussed issue.”
The Federal Register, the government publication that records such decisions, shows that 502 expatriates gave up their U.S. citizenship or permanent residency status in the last quarter of 2009. That is a tiny portion of the 5.2 million Americans estimated by the State Department to be living abroad.
Saturday, April 24, 2010
Finance ministers, representing 20 of the largest economies in the world, are meeting this weekend. They reportedly plan to discuss an international tax on banks, although it is unsure how many countries support the proposal. However, the group is not expected to reach a final agreement.
The IMF and World Bank are also holding their spring meetings in Washington this weekend. Ahead of those talks, smaller gatherings of central bankers and finance ministers will take place. Officials of the Group of Seven wealthiest nations will gather Thursday night, but the group has ceded policy supremacy to the larger G20, which will kick off their meeting Friday.
A U.S. Treasury official said he detected growing international support for a bank levy, but that the details needed to be worked out. The official said that not all countries would have to follow the exact same approach.
President Barack Obama has proposed a bank tax in his budget, aimed at recouping U.S. government spending on the $700 billion bank bailout.
The U.K. has also proposed a bank tax to protect taxpayers from future bailouts.
Not all G20 nations are supportive of the idea.
A Congressional Budget Office (CBO) report has been released, and if their predictions are correct 21 million Americans will be without health insurance in the year 2016. 4 million of them will likely be required to pay a penalty for being uninsured. According to this CNN article, the CBO is projecting the federal government could see a $4 billion per year revenue increase between 2017 and 2019.
High-income families making at least $96,000 will pay two-thirds of those fines, while families making between $24,000 and $96,000 will contribute nearly one-third of the funds collected.
Under the health care overhaul, which legislators passed in March, most U.S. residents will be required to purchase health care or pay a fine. By 2016, the penalty will be either a flat $695, or 2.5% of household income -- which ever is higher. The fines are capped based on income.
According to their newest press release, the IRS has awarded nearly $10 million in matching grants to Low Income Taxpayer Clinics (LITCs) for the 2010 grant cycle (Jan. 1 to Dec. 31, 2010).
LITCs are organizations that represent low-income taxpayers in federal tax controversies with the IRS for free or for a nominal charge, provide tax education and outreach for taxpayers who speak English as a second language, or both.
Through the LITC program, the IRS awards matching grants of up to $100,000 a year to qualifying organizations. For the 2010 grant cycle, the IRS awarded LITC grants to 160 organizations. LITCs and their employees and volunteers operate independently of the federal government.
The LITC grant program is a federal program administered by the Taxpayer Advocate Service, led by National Taxpayer Advocate Nina E. Olson.
First the family of Norman F. Levy, the late New York City real estate tycoon, was swindled out of hundreds of millions of dollars by close friend Bernard L. Madoff, forcing the closing of two Levy charities. Then Levy heirs coughed up $220 million to the Madoff bankruptcy trustee to repay personal withdrawals made before Madoff's Ponzi fraud collapsed in 2008.
Now, adding insult to injury, the unlucky clan is fighting a $61 million estate tax bill from the Internal Revenue Service.
In a previously unreported U.S. Tax Court lawsuit against the IRS, Levy's estate and his two grown children, Francis N. Levy and Jeanne Levy-Church, contend they don't owe the $61 million. Instead, they claim the feds actually owe the estate a $19 million refund for losses from Madoff's thievery of certain assets after their father's death in 2005 at age 93.
Madoff, along with the Levy children, was initially named an executor of the estate. He has since resigned as an executor and is now serving a 150-year federal prison sentence after admitting he defrauded hundreds of investors out of an estimated $60 billion.
According to Tax Court and probate filings, Levy's gross estate was valued at $1.09 billion in 2005. Although some of that likely represented nonexistent wealth already looted by Madoff, Levy during his lifetime probably should have been on the Forbes list of the 400 Richest People in America, which he never made.
Friday, April 23, 2010
1. Don’t Pay Full Freight. Are you going cross-country? A move for a 3-bedroom home could cost as much as $8,000! Try to move in the off-season, between October and April and you can save 10%. Get several written estimates with rates per hour (for a local move) or per pound (for an interstate move). Bids should cover every room in your house and should be done in person.
2. Kick the tires. If you're moving across town, ask around for recommendations and then go to the Better Business Bureau's Web site to make sure there haven't been any complaints filed against your prospects. If you're moving across state lines, your first pit stop is the web site of the American Moving & Storage Association, a trade group. From the home page, click on "Find a ProMover Now," and as many as six movers will call to set up an in-home estimate. If you have a firm you want to use for an interstate move, you can make sure it's licensed with the Federal Motor Carrier Safety Administration and view the company's complaint and safety record by clicking "Search Movers & Complaint History."
3. Let Uncle Sam help pay for it. If your move is job-related, you may be able to deduct some of your moving expenses whether or not you itemize your deductions. You must move within a year of your first day at the new job. In addition, your new office has to be at least 50 miles farther from your old house and office. If you qualify, you can deduct the cost of moving your household goods and traveling, but not meals. Some moving-related expenses that can be deducted for a job-related move include:
- Packing and transportation costs for moving household goods
- The cost of shipping goods from a place other than your former home (such as a storage unit)
- Any storage bills, or fees for disconnecting or reconnecting utilities
- All move-related travel expenses (such as mileage, tolls, lodging, parking fees, etc.)
- Expenses of shipping or relocating your car and pets to your new home
Continue reading Kiplinger’s full article here.
Thursday, April 22, 2010
Earth Day is a great reminder to go green and reduce our carbon footprints. As I have explained before, there are plenty of tax incentives to live a more energy efficient lifestyle. A few weeks ago, the RDTC Tax Help Blog posted a blog entry explaining some of the tax advantages of going green in 2010. Check out the article, and think about what you can do to help the planet today in honor of Earth Day! I give thanks to Sacramento Scoop.com for the above graphic.
Later today, President Obama is scheduled to give a highly anticipated speech on the topic of banking reform. According to the White House, the President wants Wall Street to know that he is not hoping to fight them, but work with them to reform the banking industry.
Obama will give the speech at Cooper Union in New York, and as this CNN Money article explains, he is going to proclaim his support for legislation in both houses of Congress aimed at reforming the banking industry. The President will reportedly claim the bills represent "significant improvement on the flawed rules we have in place today."
Obama said he's sure many of the lobbyists working to defeat the measure are acting on behalf of the Wall Street firms represented by members of the audience.
"But I am here today because I want to urge you to join us, instead of fighting us in this effort," said the president. "I am here because I believe these reforms are, in the end, not only in the best interest of our country, but in the best interest of our financial sector."
The speech has prompted some hand-wringing in the investment world this week. Senior officials in the Obama administration told CNN that top bankers have called the White House recently to express concerns about "how bad" the speech would be for Wall Street.
Sales of previously owned homes in the U.S. rose in March for the first time in four months as buyers took advantage of a government tax credit and the weather improved.
Purchases climbed 6.8 percent to a 5.35 million annual rate, more than anticipated, from a 5.01 million pace in February, figures from the National Association of Realtors showed today in Washington. The median prices climbed 0.4 percent from March 2009.
The thawing out from February’s blizzards probably helped the market last month, while the Obama administration’s credit worth up to $8,000 may keep underpinning demand through June, when it’s next due to lapse. The outlook for the second half of the year depends on the speed and magnitude of the recovery in the job market, indicating the housing rebound may be slow to develop.
“You have some fundamental improvement in housing,” said Stuart Hoffman, chief economist at PNC Financial Services Group. Inc. in Pittsburgh. “Housing is coming back. It’s still got a long way to go.”
April is usually a stressful month for most Americans and if you were one of the millions of taxpayers who were rushing to beat the tax deadline last week, you might want to take more action during the year to avoid the unnecessary stress next tax season. Earlier this week, the RDTC Tax Help Blog posted a great entry on how to start prepping for next tax season throughout the year. You can find a few of the tips below, or check out the full article here.
Collect and Store 2009 Tax Documents
Now that tax season is officially over it is time to store your financial records and copies of your tax returns. Depending on how the year goes, you might be able to use your tax return as a guide to prepare and file next year’s tax return.
If you had either a large refund, or a tax bill due this year then you might want to consider adjusting your withholdings. You can ask your employer for a W4 and have either more or less withheld from your paychecks. This can prevent an unwelcome tax bill next year.
Even if you received a refund, you should still consider adjusting your withholdings. By giving the IRS more money out of each of your paychecks than necessary, you are basically giving the federal government an interest free loan. Additionally, by changing your withholdings you can get more money every pay period.
A Klipinger.com article explains how CDIFs can be more flexible. Read on!
Read the full article here.
Wednesday, April 21, 2010
There are a lot of tax breaks out there for home owners, but it can be difficult trying to figure out which you qualify for. AOL.com put together a new piece on tax breaks for the home, room-by-room, and interviewed me regarding home-related tax benefits for business owners. You can find a section of their article – including my quote – or head on RealEstate.AOL.com for the rest
If you primarily work from home, you should be able to deduct a percentage of your mortgage interest, real estate taxes, casualty losses, home repairs and maintenance, utilities, house insurance, security system and even garbage removal based on the square footage of your home office space compared to the overall square footage of your home.
"In order to qualify as a home office in the eyes of the IRS," says tax attorney Roni Deutch, CEO of the Roni Deutch Tax Center," you need to have a separate room or designated space that is used exclusively for business purposes. If it is not a room, then the space needs to be separated by a room divider of some sort. Additionally, the IRS is very strict about the exclusive use rule, so if your children play in the office or your spouse uses the room as a home gym then it will not qualify."
Despite expectations, Wells Fargo has announced that their credit improved in the force quarter of 2010, and that their losses were much less than had been predicted. Many experts are calling the positive news a sign that American financial institutions are on the road to recovery, along with the economy as a whole.
According to the Associated Press, Wells Fargo & Co. said Wednesday its first-quarter earnings fell 1 percent to $2.37 billion as the bank dealt with continuing losses on consumer loans. It also originated fewer mortgages compared to a year earlier as refinancing activity trickled off.
However, the bank said it believes it has "turned the corner" with its credit problems.
The results surpassed expectations and provided further evidence that the banking industry and the economy are recovering. Wells Fargo rose in early trading and hit a new 52-week high of $34.25, but was down 62 cents, or 1.9 percent, at $33.06 by midday.
Investors appeared to have doubts about consumers' ability to pay their bills because many banks are still reporting a high number of loan defaults.
San Francisco-based Wells Fargo joined other big banks in the most recent quarter in reporting improvement in their consumer loan businesses.
From CNN Money.com:
John Miller wasn't too nervous when he lost his job in the mortgage industry in June 2008.
The worst of the financial crisis was still months away. While the subprime mortgage industry had already imploded, there was still a debate at the time whether a recession had started. Job losses were steady but not dramatic.
Miller lost his job when Deutsche Bank shut down a unit making government-guaranteed FHA loans, but he had found work in the past when an employer had closed a unit. He thought that even if it took a few months to find another job, something would turn up.
Almost two years later, he's still looking.
"It's unfathomable to me," said Miller. "Never in my wildest dreams did I think I'd be coming up on two years without a job."
Summer is on its way, and so are costly summer activities. As MP Dunleavey of MSN Money points out, although summer seems harmless with its lazy afternoons and warm weather, costly summer activities can cause serious financial troubles for many American taxpayers. Check out a few of Dunleavey’s tips for summer budgeting below.
The catalogs are coming
I know. You want to believe that summer doesn't pose any financial risks. You want to sit on your patio and drink a cold one and pretend you're not going to read the Boden and Brookstone catalogs.
Well, take those rose-tinted sunglasses off and look at the dangers:
- Wedding season.
- Graduation season.
- Long weekends where you go somewhere or guests come to you -- either way, it's expensive.
- Home improvement season (my husband is painting as I type).
Continue reading at MSN Money…
Tuesday, April 20, 2010
In an elaborate scheme to file false returns, operators of two tax preparation businesses (Seguros Internacionales and Poz Servicios Para Hispanos) in North Carolina defrauded the IRS of about $13 million between 2006 and 2009. Within these three years, the ten preparers made approximately 10,000 filings of income tax returns that sought more than $22 million in refunds. The IRS paid approximately $13 million of the fraudulently claimed refunds before investigators caught on to the scheme! The two businesses are no longer in operation.
The preparers plead guilty to charges of mail fraud and illegal entry into the U.S. All of them are facing a lengthy prison term of anywhere between 5 and 20 years, and of course, will then be deported to their country of origin after they have served their jail term. It turns out, federal agents arrested even more people in connection with this tax scheme last week—all in all, it is believed that about 20 people were involved.
The IRS has made it clear they are increasing enforcement efforts and are working closely with the Justice Department to increase legal actions against dishonest tax return preparers. The IRS has used investigative measures such as having agents pose as taxpayers to seek out and stop dishonest preparers from filing inaccurate returns. The IRS claims to have conducted 230 undercover visits to various tax return preparers and as a result, dozens of search warrants have been issued.
The IRS is not messing around. The IRS warns it will continue civil and criminal action as appropriate. The increased efforts will ultimately make a difference for taxpayers nationwide and will help protect the many tax professionals who play by the rules.
In January, the IRS has proposed new regulations regarding the registration, testing and continuing education of tax return preparers. You can see the press release here:
Let me end by saying, it is not only the responsibility of the tax preparer but also a responsibility of the taxpayer to choose carefully when hiring a tax professional.
The full article, "10 Illegal Immigrants Plead Guilty of Tax Fraud” can be found here.
Buying a home is usually the largest purchase an American taxpayer will ever make, but it can also be one of the most confusing. As any one who has ever owner property can attest, there are many decisions to be made and what seems like hundreds of documents that must be signed. To help potential homebuyers rushing to purchase a house before the federal tax credit deadline, CNN Money has composed a helpful article explaining the 6 biggest mistakes to avoid.
1. Not knowing your credit score
If you're even toying with the idea of buying a home, you must know your exact FICO score. If you find it is less than ideal, wage a systematic campaign to raise it. Too many borrowers ignore this step and get surprised when they get interest rate quotes.
Once you've pored over your credit history and corrected any errors, your next step is to pay down revolving debt balances to no more than 30% usage. That will help raise your score significantly.
Why does it matter?
The lower your score, the higher your costs of borrowing. Fannie Mae and Freddie Mac, for example, charge higher up-front fees to borrowers with credit scores below 740.
For a buyer with a credit score between 680 and 700, the fee comes to 1.5% of the mortgage principal. On a $200,000 mortgage, that adds up to $3,000. Someone with a 740 score pays nothing.
From the Wall Street Journal.com:
Senate Finance Committee staff is considering banning a questionable use of foreign tax credits by multinational companies, the latest potential revenue source that could pay for extending a range of popular but expired tax breaks.
The foreign tax break proposal has been put forward by President Barack Obama in his budget proposals two years running. The Joint Committee on Taxation estimates it would raise $9.5 billion over 10 years.
Perhaps uncharacteristically, no business lobbyists are stepping forward to defend the foreign tax credit practice, according to Senate aides and lobbyist sources. That makes it an easy target for lawmakers who see it as an abuse of the U.S. tax system and are also eager to use the revenue to pay for extending expired tax benefits.
But some business officials are voicing worry about using one of Mr. Obama's international tax proposals to pay for unrelated tax measures. They have sought to postpone action on those proposals until there is broader tax overhaul legislation, in the hopes of using them to leverage a cut in the corporate tax rate.
In their newest press release, the IRS announced their selection of seven new members for the Internal Revenue Service Advisory Council (IRSAC), which provides an organized public forum for IRS officials and representatives of the public to discuss key tax administration issues.
“IRSAC members provide feedback and insight on a wide variety of issues related to providing sound tax administration,” said IRS Commissioner Doug Shulman.
Members are selected to represent the taxpaying public, tax professionals, small and large businesses, and the payroll community. The council provides the IRS commissioner and division leadership with important feedback, observations and suggestions.
Tomorrow, General Motors is supposed to announce its plan for repayment of government bailout loans, something they have been promising for months. As this USA Today article explains, the recovering auto manufacturer still owes money to the U.S government as well as the Canadian government, in the amount of $5.8 billion.
CEO Ed Whitacre is set to announce the payment at GM's plant in Fairfax, Kansas assembly plant. He'll then fly off to Washington to meet with House Speaker Nancy Pelosi and Michigan's Congressional delegation, The Detroit Free Press says.
Anyone who takes the repayment as a sign that business is completely back on track may want to pause before taking a victory lap.
The $4.7 billion check going to the U.S. Treasury and the $1.1 billion check going to the Canadian governments comes directly out of an escrow fund the two governments set up for the automaker when it was coming out of bankruptcy. The automaker was required to pay back that money by June.
And repaying the loans doesn't mean the automaker is free from government ownership: The U.S. still has a 60.1% stake in GM.
Monday, April 19, 2010
The deadline for filing your 2009 taxes was last week. If you are one of the millions of Americans who missed the deadline, then you may find comfort in knowing that you are not alone. In 2008, the IRS received over 9.5 million extension requests from taxpayers who were unable to get their returns filed before the deadline. Although you may face a penalty for filing your return late, it is important that you try to get your returns completed as soon as possible.
Can I Still Request an Extension?
The IRS will deny a request for an extension that is filed after midnight on April 15. Therefore, if you have missed the deadline, you need to file your tax return as soon as possible. Keep this in mind for next year; if you know you will not be able to finish your taxes before the deadline, you should always request an extension before the April 15 deadline.
Missing the Deadline
If you completely missed the deadline and did not file a request for an extension with the IRS, you need to act quickly and get your returns filed and pay any taxes you might owe. The longer you wait, the higher the late penalties will be. The failure-to-file penalty is 5 percent of the balance due per month. If your return is more than 60 days late, the minimum penalty is the smaller of $135 or 100 percent of the tax due.
The Danger of Rushing
Although, I advise you get your return filed as quickly as possible, it is important that you do not rush through the process of preparing your return. When you rush, you are more likely to make mistakes that could result in additional penalties. Always review your math carefully before sending in your return, and make sure to include your Social Security Number on any checks you write to the IRS. You definitely do not want your payment going to pay someone else’s tax liability!
Get Professional Help
If the thought of getting your returns filed causes you anxiety, then you may want to consider having a professional prepare your return on your behalf. This can help reduce the likelihood of a mistake and a tax professional can also get your return prepared and filed quickly. However, keep in mind that many tax preparation offices have seasonal hours so you should call and make an appointment as soon as possible.
Types of Penalties
There are two main types of penalties the IRS may assess on a taxpayer who files or pays late. They are failure to pay (FTP) penalties and failure to file (FTF) penalties. Oddly enough, the taxes for failing to file on time are often higher than those for failing to pay on time, so even if you cannot afford to pay the taxes owed, you should still file your return.
The Cost of Being Late
Late penalties for filing are normally 5% of the unpaid taxes for each month they are late. If you fail to file and fail to pay, the failure to file penalty will be reduced to the failure to pay penalty, which is 0.5% of your unpaid taxes per month.
Question #1: What are the IRS deadlines for estimated quarterly payments?
The first estimated quarterly payment for 2010 was actually due last week (April 15th). However, if you missed the deadline then you should calculate your payment and get it in as soon as possible. The IRS typically does not have a problem with estimated payments that are only a few days late, and if you get your in by the end of the week then you probably will not need to worry about any late penalties. I’ve listed the rest of the estimated payment due dates for the year so you can avoid being late next quarter.
- April 15, 2010
- June 15, 2010
- September 15, 2010
- January 15, 2011
It is no secret that my home state of California has had a rising unemployment rate. Therefore, it should come as no surprise that the number of Californians without jobs increased last month to 12.6%. The state Employment Development Department made the announcement last Friday.
California's jobless rate grew from 12.5 percent in February after holding steady for a month. The rate was 10.6 percent in March 2009.
Howard Roth, Chief Economist for the State Department of Finance, said the unemployment rate appears to be at or near its peak.
It was the first time since mid-2007 that the state saw job gains for three consecutive months. The department previously had reported a job loss in February, but revised those numbers Friday based on new data.
According to Reuters.com, the number of countries included on the Organization for Economic Cooperation and Development "gray list" of tax havens – who have neglected to implement international tax standards – decreased from 40 to 17 over the past 12 months. Although the OECD has hailed this report as progress in their attempt to stamp out untaxed and illicit cash flows across the world, many critics are claiming the compliance bar was set too low to make a significant impact.
The stakes are certainly high, as the signing of bilateral Tax Information Exchange Agreements (TIEA) is the centerpiece of OECD and G20 efforts to crack down on tax havens.
The amount of money in tax havens has been estimated at $11.5 trillion by the Tax Justice Network, a respected and independent advocacy group that monitors such trends.
Spurred by public outrage over bonus-earning bankers and frauds by wealthy financiers, G20 leaders launched a campaign in April 2009 to name and shame tax havens and penalize those who failed to tighten standards and transparency.
But some say the havens are getting off lightly, and that it is more or less business as usual.
From Market Watch.com:
With April 15 behind you, it's time to breathe a sigh of relief. But if you got a tax refund this year, consider making changes now to avoid giving the government an interest-free loan until next April.
Organizing your finances so that you get no refund and owe nothing when you file your return is the ideal touted by some financial planners. Managing your taxes is not easy.
Still, by adjusting your withholding now you can at least reduce your refund.
"There are lots of people who say any refund is too big because they don't want the government to have their money and not [pay] interest on it," said Diane Winland, certified public accountant and certified financial planner at Financial Finesse Inc.
Winland said she isn't a fan of writing checks to the Internal Revenue Service, but "I actually like to owe a little."
You can choose to have less in taxes deducted from each paycheck, and instead take that money and put it to work for you by investing or saving it.
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