Monday, May 31, 2010

Questions for the Tax Lady: May 31st, 2010

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

Question #1: How difficult is it to get a tax ID number for my business?

It is actually a pretty simple process. You just need to complete and file IRS Form SS-4, which can be done electronically at After you complete the form you will be your EIN (employer identification number) immediately. However, you can also simply apply online at the IRS website.

Question #2: How do I get a tax lien released?

The only way to have a tax lien released is by paying your original tax debt in full or paying your liability through an Offer in Compromise. Upon the occurrence of either of the previously mentioned events, the IRS will release the lien within 30 days. For more information you should visit the IRS’s website.

The Fishermen and the Tax Man

From LA

BP's request for tax records poses a problem for some residents of fishing communities in southeastern Louisiana — the nonconformists who haven't kept records or reported their cash income.

The first step for a commercial fisherman or coastal business seeking compensation for losses suffered in the oil spill seems simple enough: Submit copies of a commercial fishing license, proof of residence and tax statements.

But the request for tax records poses a serious challenge to some residents of close-knit fishing communities on the swampy edges of southeastern Louisiana, which for generations have harbored self-reliant nonconformists who don't pay much heed to everyday rules and regulations.

In other words, they often get paid in cash — and don't always report it.

"I worked for an uncle last year who paid me in cash," said a crab fisherman who asked to remain anonymous. "The BP guy wanted my tax statements, but how can I pay taxes if everything I earned was in cash?"

Many people involved in the seasonal harvesting of shrimp, crabs, oysters and fish — boat washers, fishermen, crab cookers, deckhands, dockworkers — said they felt caught by a pincer of environmental devastation and an assistance program that could expose them to the tax man.

Highlights of House Tax and Spending Bill

On Friday, the House of Representatives passed a new tax and spending bill. Over the weekend the Associated Press published a list explaining the changes that would occur if the legislation were signed into law. You can find a few of the highlights below, or read the full article on Google News.

  • Extends for one year about $32 billion in tax breaks that expired in January, including a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and develop new products, and a sales tax deduction that mainly helps people in states without income taxes.
  • Increases taxes on investment and hedge fund managers, venture capitalists and many real estate investment partnerships by $18.7 billion.
  • Increases taxes on oil companies by $11.8 billion by raising from 8 cents a barrel to 34 cents a barrel the tax they pay into the Oil Spill Liability Trust Fund.
  • Raises taxes on multinational companies some $14.5 billion by limiting their ability to use credits for paying foreign taxes to lower their U.S. tax liability.
  • Imposes $11.2 billion in new Medicare taxes on lawyers, doctors and other service providers.

Tax Deal Fuels New-Home Sales

According to the Wall Street Journal, sales of homes soared last month with buyers rushing to take advantage of the expiring federal tax credit. On Wednesday the Commerce Department announced that sales of “new single-family homes rose 14.8% from the prior month to a seasonally adjusted annual rate of 504,000.”

Demand for new homes had also surged in March, when sales climbed 29.9% from the prior month. Sales in April were 47.8% higher than a year earlier.

The recent surge was likely the result of expiring government incentives, which provided an $8,000 tax credit for first-time buyers and a $6,500 credit for repeat homeowners. Contracts for those homes had to be signed by April 30. Buyers have to complete purchases by June 30.

The housing market is stabilizing after both sales and prices plummeted during the recession. Sales of existing homes, a far bigger number than newly built homes, jumped 7.6% in April, the National Association of Realtors said earlier this week.

Construction of new homes also is picking up. Starts for single-family homes rose 10.2% in April from March, the fourth-straight monthly rise, Commerce said earlier this month.

Continue reading at…

Sunday, May 30, 2010

10 Reasons to Buy a Home in Spite of the Expired Federal Credit

The ongoing foreclosure crisis in this country is enough to make any potential homebuyer nervous. What’s more is that the deadline for the federal tax credit has passed for most taxpayers, and Congress has showed little interest in extending the credit. However, there are still plenty of other great reasons to purchase a home in 2010.

1. Recession Prices

While the market has had some recent hikes in sales – mostly because of the expiring credit and increased action by real estate investors – the total number of homes for sale still outweighs the number of potential buyers. Therefore, home prices are still at their rock bottom, “recession” level prices. However, as real estate sales continue to increase—home values and prices, are likely to rebound.

2. Local Credits

While the federal homebuyers tax credit has expired, dozens of states and local government agencies are offering significant incentives to purchase a home. Despite their economic struggle, California just reinstated a tax credit for homes bought in the state. The program was so popular last year that it ran out of funding in only four months. However, the $200 million put towards the program, which began May 1st, will provide residents up to $10,000 in tax incentives to buy a house.

3. Exceptions to the Rule

While for most of us, the federal credit is no longer an option, there are a few exceptions to the rule. If you are a member of the armed forces or federal employee who was serving outside the U.S during the past year, you may qualify for a one-year extension to claim the credit. Eligible taxpayers will need to enter in to a binding contract on or by April 30, 2011, and close escrow by June 30, 2011.

4. Green Homes

If you intend to make energy efficient upgrades to the home you purchase, you may be able to qualify for a handful of “green” tax credits. There are significant incentives to add solar panels to your home, as well as lesser credits to install energy saving appliances, windows, and heating/cooling systems.

5. Renovation Costs

In addition to making green upgrades, if you plan to make any renovations to a house you are buying then now is the time to do it. The unemployment rates among contractors are at an all time high and you should be able to keep your labor costs low. Additionally, prices for common remodel materials such as granite counters, tiles, carpet, etc. have all gone down over the past few years.

6. Safer Loans

After the major bank bailout occurred, it became clear to everyone that some financial reform was necessary to protect both our economy and American taxpayers. Among the many changes that have occurred, banks have become somewhat tighter on their qualification requirements, making it hard to get approved for a loan that you might not be able to afford.

7. Mortgage Deductions

When you think about the annual expense associated with buying a home, be sure to remember that there are a handful of very valuable mortgage deductions. The IRS will allow you to deduct all interest paid towards your mortgage on your tax return, as long as it is less than $1 million. This can significantly lower your tax bill, and you may even be able to adjust your withholdings to get some of this money throughout the year.

8. Real Estate Taxes

In addition to deducting mortgage interest, you can also deduct any property taxes that you pay your local government agency. Although most homeowners itemize their returns, you can take advantage of the property tax deduction even if you take the standard deduction.

9. Entrepreneurs

If you are thinking about starting a business, then working from home can be a great way to start small while also take advantage of the valuable home office deduction. However, keep in mind that the IRS is strict about claiming deductions for a home office, so be sure to check with a local tax professional before taking the deduction.

10. Investment Opportunity

If you have a secure job, and are looking for an investment opportunity you can control, then you should consider real estate. As I explained earlier, property prices are at an all time low and if you can afford to buy a home, you should see its value increase over the next few years.

Saturday, May 29, 2010

6 Surprising Facts About The Early Days Of Income Tax

When thinking about the word “taxes,” most taxpayers think about the money being taken out of their paychecks, rather than the early history of American taxation. However, some of the facts in this article from on the early days of the income tax are very interesting, so I though I would share the information with all of my blog readers. Check out a few of the facts below, or head over to for the full list.

Fact One: Taxes Were Simple

The first 1040 form produced by the Bureau of Revenue, as it was called then, totaled only four pages, with three pages to be filled out by the taxpayer, and one page of instructions. The tax system was so simple.

Fact Two: The Tax Base Was Small

The first $3,000 of income for an individual taxpayer, or $4,000 for a married couple was exempt from tax. In 1913, the tax only applied from income between March 1 and the end of the year, so these exemptions were adjusted to $ 2,500 and $3,333 for that year. This meant that most Americans didn't have to pay any tax. If you adjust $3,000 in 1913 for inflation, it is equivalent to $66,000 in today's dollars.

Fact Three: The Tax Rate Was Low

The tax rate for those who had to pay was minuscule - 1% of taxable income, less the exemptions above and the deductions that were allowed at the time. High-income earners paid more, however, as a 1% surcharge was levied on taxable income between $20,000 and $50,000. The surcharge went as high as 6% for taxable income above $500,000. A taxable income of $500,000 in 1913 is equal to approximately $11 million in today's dollars. (For more, see A Concise History Of Changes In U.S. Tax Law.)

Continue reading at SF…

How to Keep your Staff Motivated

The Roni Deutch Tax Center recently became a guest blogger for Franchise Business Review. The first entry discussed the most common mistakes made by prospective franchises, and now our second entry explains how to keep your staff motivated. Read a snippet of the post below or head on over to for the full entry.

If you open a franchised business, and have never managed employees before, then you may find it difficult to keep your staff motivated. However, you need to remember that a hard working team is essential for a successful business. To help the readers of the Franchise Business Review blog who might be worried about keeping a team motivated, we have put together the following list of tips.

Employee Appreciation

Every now and then it is a good idea to do something nice to show appreciation for your team by throwing a party or social event outside of the office. Your crew will feel great to know you were thinking of them, and they will be even more impressed that you went to the effort of throwing a party to show your appreciation.

Company Charity Day

Team-building seminars and events help your staff bond and learn to work together in different situations. One way to do so is by organizing a community service day for you and your staff, as a paid day of work. Whether you plant trees or run a marathon, it will make your team see your human side, and your fun side.

Well-Deserved Promotions

You do not need to give raise to or promote an employee every time an employee does something great, but when they do go above and beyond to get a job done, it is important to show that you noticed and appreciate their hard work.

Company Lunches

Take your team out – or order in – for lunch every now and then. You can use the opportunity to throw an impromptu lunch meeting where you can get feedback and ideas from your employees in a non-formal setting.

House to Vote on Tax Bill as Net Cost Drops to $60.5 Billion

From the Wall Street Journal:

The latest version of House legislation to extend tax cuts and unemployment benefits would add $60.5 billion to the deficit over the next 10 years, the Congressional Budget Office said Friday.

The House took the first step toward passing the package. On a 221-199 vote, the House approved a rule setting up two votes later Friday. The House will vote on the jobless and tax package, then vote separately on a provision to postpone scheduled cuts in Medicare payments to doctors.

The new cost estimate from CBO appeared to give Democrats the needed confidence to move ahead, after lacking the votes all week.

The estimate reflects changes House leaders made to the package including eliminating spending programs created by the 2009 stimulus bill, expanded Cobra health insurance subsidies and increased federal Medicaid payments to states.

Those and other changes shaved the net cost of the package to $60.5 billion from $140 billion earlier in the week.

The total cost of spending and tax cuts in the package is roughly $116 billion. About $56 billion of that is offset by targeted tax increases on business, including the fund manager tax rate increase and changes in the way overseas income of U.S.-based multinationals is taxed.

Special Tax Incentives for Small Businesses to Provide Health Care, Hire New Workers

In their newest press release the IRS explains recent legislation that will provide incentives to small business owners wanting to provide health care, and hire new workers.

A variety of business tax deductions and credits were created, extended and expanded by the American Recovery and Reinvestment Act of 2009 (ARRA), this year’s Hiring Incentives to Restore Employment (HIRE) Act and the Affordable Care Act. Because some of these changes are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a rundown of some of the key provisions.

New Health Care Tax Credit Helps Small Employers

The small business health care tax credit, created under the Affordable Care Act, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

The credit takes effect this year and is generally available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small employers that primarily employ low- and moderate-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers. The maximum credit goes to smaller employers ­­–– those with 10 or fewer full-time equivalent (FTE) employees ––­­ paying annual average wages of $25,000 or less. The credit is completely phased out for employers with more than 25 FTEs or with average wages of more than $50,000.

Friday, May 28, 2010

Unemployment stuck at 12.6% in California

Even though the state of California added 14,200 jobs in April, the unemployment rate didn’t budge much – It continues to be 12.6 percent. According to the U.S. Bureau of Labor Statistics, California’s rate is the third highest in the nation, right behind Michigan coming in at 14 percent and Nevada’s 13.7 percent. We’ve heard whispers of the economy improving, however, with unemployment numbers like these, as the saying goes, proof is in the pudding!

But, I am all about hope, and the good news is that California payrolls did grow by a total of 56,000 this year and hopefully the new HIRE ACT tax breaks will get employers more hiring again. I want to know what you think; do you believe California’s unemployment rate is going to fall by the end of summer? Tell me your thoughts on Facebook or on my Twitter at

Exclusion of Gain on the Sale of Certain Small Business Stock

Good news for individuals who invest in small businesses; you can now get an extra tax incentive!

As part of the American Recovery and Reinvestment Act (ARRA), investors in qualified small business stock can exclude 75 percent of the gain when they sell their stock. You usually can exclude up to 50% of your gain from your income from the sale or trade of qualified small business stock. See for more. This exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009 and before Jan. 1, 2011, and held for more than five years. In most cases, the exclusion rate for previously-acquired stock remains at 50 percent. The remaining gain will be taxed at a lower rate than what generally applies to one’s income. These lower rates are called the maximum capital gain rates.

So, how do you know if you are eligible for the tax incentive? In order to know whether it applies to you, you need to understand how the IRS defines small business and small business stock.

Description of qualified "small business": To qualify as a small business for the exclusion
  1. The stock must be in a C corporation
  2. The corporation’s gross assets cannot have exceeded $50 million when the stock was issued
  3. The corporation, including all “over 50-percent-owned” subsidiaries, cannot have gross assets that exceed $50 million. This includes cash, the value of contributed property, and the bases of other assets, without regard for short-term debt.
As an eligible corporation, you must submit information regarding your corporation’s aggregate gross assets to the Secretary of the Treasury and to your stockholders.

If you are an investor, talk to your CPA or tax attorney to make sure you qualify for this tax break. Hopefully this new incentive will help you out next tax season. I wish everyone success in their investing adventures!

Thursday, May 27, 2010

What to Consider Before Retiring Overseas

Ever considered living abroad in your golden years? Many Americans not only consider it, they actually do it, buying beautiful homes in great climates overseas and never looking back. Some even find lower health care costs to boot. However, because of the global economic and political changes, retirement hot spots across the globe may be losing their luster.

As New York Times article points out, although places like Ireland, Thailand and Costa Rica were the most recommended countries in the past to retire, they are not any longer. But why? Well, Ireland is said to have a high cost of living, Thailand is said to have increasing anti-foreign sentiments, and the Costa Rican capital, San José, has growing crime rates.

Retirees are now urged to consider places like Panama, Uruguay, and Argentina – as well as France, Croatia, and Malaysia when looking for a place to settle during retirement. “It has very good tax breaks, although the cost of living can be high,” Ms. Hannah Coppersmith, managing director of Pure International, a global property company in London said.

Wondering how you would be able to afford to live abroad when you retire? Kathleen Peddicord of Panama City, Panama, and author of “How to Retire Overseas” recommends selling nearly everything you own. “Seriously. Think about it this way. If you were to liquidate every asset you have, where would that leave you? What lump sum of capital would you net?” Then, the next step is to take a look at your investments. What level of yields and dividends might those give you on a monthly basis?

Some countries are quite affordable. “In Panama, for example, your rent could be $1,500 a month for a two-bedroom apartment in a nice building in Panama City with a doorman and a pool,” Ms. Peddicord said, “or it could be $200 a month if you choose instead to settle in a little house near the beach in Las Tablas, a beautiful, welcoming region.”

Read the full article here for more tips and information.

Democrats propose tax hikes in response to Schwarzenegger's fiscal plan

Party leaders have been getting together in response to California Governor Arnold Schwarzenegger’s proposed fiscal plan, which I wrote about here. Legislators agree that there needs to be a way to increase revenue to close the $19.1 billion deficit, but how that will be done is always the argument.

Governor Arnold Schwarzenegger’s “spending blueprint” proposes eliminating California’s welfare program and cutting other state services. Democrats are responding by making a proposal of their own: generate billions in the form of new taxes.

The democrats’ detailed $5 billion plan calls for taxing oil companies, borrowing from the state’s recyclable bottles and can deposits, delaying corporate tax breaks, increasing personal income taxes, increasing vehicle license fees and raising taxes on alcohol. In order to pass, the plan would require at least some Republican votes. Republican legislators are expected to reject these tax hikes.

According to the Los Angeles Times, Schwarzenegger's office immediately dismissed the Democrats' proposals. "It is unfortunate that the Democrats' first instinct is to raise taxes," said Schwarzenegger spokesman Aaron McLear.

Read more about the proposed plans here.

Recent Tax Law Changes that Might Affect your Business

Our recent RDTC Tax Help Blog entry discusses recent tax law changes that might affect your business. To learn more about these new changes that have been put in to place in the past year, you can read a segment of the entry below, but be sure to read the full text at the RDTC Tax Help Blog.

W-2 Changes

Starting next year, employers will need to make an adjustment to their employees W-2 Forms. Due to the recent health care reform package, employers are now required to list the value of provided health insurance plans on employees’ W-2 Forms.

New Business Expenses

When a new business opens, the owner is allowed to take advantage of first year expense deductions on all business property up to a certain amount. In 2009, the limit was $250,000 but in 2010 the amount was drastically reduced to $134,000. This limit is also expected to drop again in 2011— to only $25,000.

Capital Gains Opportunity

2010 could be the last year for thousands of business owners to benefit from low capital gains tax rates. Currently, the rates are as low as 0% on the sale of assets held longer than one year for self-employed taxpayers in lower income brackets. In 2011, these capital gains rates will increase to align with income tax rates, which can be as high as 35%.

Charitable Property Deductions

In 2008 and 2009, there were temporary tax laws that provided enhanced charitable deductions to business owners who donated items such as computer equipment or office supplies to qualifying charities. Unfortunately, these enhanced deductions were not extended into 2010.

Social Security, Defense Top List of Debt Panel's Targets

The bipartisan fiscal commission has been working on a plan to reduce the national debt, and Social Security and Pentagon expenses are at the top of their list of major federal expenses. The commission has yet to propose tactics to reduce these expenses, but they are already being confronted with major opposition. Check out the following story on this new development—courtesy of USA Today.

Social Security and the Pentagon are among the early targets of the bipartisan fiscal commission established by President Obama to address the USA's spiraling national debt.

The panel, which held its second public meeting today, barely mentioned the biggest reason for the $13 trillion debt and annual $1.5 trillion budget deficits: health care. The president recently signed an overhaul that's projected to save $143 billion over 10 years, but that won't be nearly enough to reverse the tide of red ink.

What's emerging on the 18-member panel is a split between a majority favoring tough action to tame the debt and a minority, led by House Speaker Nancy Pelosi's appointees, who appear more concerned about today's economy and jobs picture.

"Cutting now would be a mistake," said Rep. Jan Schakowsky, D-Ill. -- despite the fact that cutting spending and/or increasing taxes is the presumed goal of the panel. Her colleague, Rep. Xavier Becerra, D-Calif., raised one of Congress' sacred cows -- treating wounded war veterans -- as but one reason to avoid too much deficit reduction.

On the other side were panel chairmen Erskine Bowles, a North Carolina Democrat, and Alan Simpson, a Wyoming Republican; several powerful Democrats who long have favored deficit reduction; and most of the commission's Republicans.

Continue reading at USA…

World’s Wealthy Tapped for Cash as Governments Tax High Incomes


From Athens to Olympia, Washington, governments made poorer by the recession are looking to higher taxes on the rich for cash.

Spain’s wealthiest should be tapped to help close the euro region’s third-largest budget deficit, Prime Minister Jose Luis Rodriguez Zapatero said yesterday. The U.K. has boosted taxes on high earners and French and Swedish politicians are calling for the same. The top U.S. tax rate is set to rise in 2011, while at least 14 states have lifted rates or are considering increases.

“There’s a real move to get at whatever revenue you can get at without being so broad as to get the populace all up in arms,” said Scott Pattison, executive director of the National Association of State Budget Officers in Washington. “You go where the money is.”

The longest recession since the Great Depression has deprived governments of revenue, opening gaps between what they take in and what they must spend to sustain their economies. Budget deficits in advanced economies have swollen more than eight-fold since 2007 to about 9 percent of gross domestic product, the International Monetary Fund said.

U.S. states are projected to confront $124 billion in cumulative budget gaps in the next two fiscal years, according to the Pew Center on the States, confronting politicians with the need to raise revenue and cut spending to balance budgets.

Arizona's Bill Is Bad For Business

There has been a lot of media attention placed on the effects of Arizona’s new immigration law and the impact on local residents. However, the bill also includes strict new immigration requirements for business owners. As this article from explains, the law is likely to make doing business in Arizona much more difficult.

SB 1070 is the most extreme anti-business law in recent history. For instance, sections 7 and 8 set out punishments for employers who knowingly or intentionally hire undocumented workers. In both cases for a first offense, the employer has to fire all undocumented workers, sign an affidavit attesting to that and promising not to repeat his mistake, and have all his business licenses suspended.

Additionally, and perhaps most gallingly, the business is then put on a three-year probation (five years for those that intentionally hire undocumented workers) and must file quarterly records to prove that it has not since broken the law again. This would amount to businesses being presumed guilty and being forced to prove their innocence. It will hurt entrepreneurship and endanger the economic recovery.

Most egregiously, if a business commits a second such offense and hires an undocumented worker, all of its business licenses are permanently revoked. Because it is illegal to operate a business without a state-sanctioned license in the state of Arizona, that amounts to the government forcibly shutting down someone's business.

Adam Smith, the father of modern economics, warned against business licensing because it is used to limit competition and entrench politically sanctioned monopolies. It accomplishes that by limiting entry or destroying businesses already in existence. A simple administration revocation of a piece of paper can be used to destroy someone's livelihood. This is not only destructive to business in the short term but sets a dangerous precedent.

Hire this Summer and Get a Tax Break

If you are an employer, you don’t want to overlook the HIRE Act tax benefits. If you are looking to hire some new employees, college students are a great idea for a summer position. This is exactly what Congress is trying to encourage people to do, hire an employee who hasn’t worked more than 40 hours in the last 60 days before getting hired, and you may qualify for a temporary tax break. Passed in March, the Hiring Incentives to Restore Employment (HIRE) Act would allow an employer with any qualified hire after February 3rd to skip paying the 6.2% Social Security taxes on the worker’s wages from March 19 through the rest of the year. This would save an employer nearly $2500 on $40,000 of pay.

A qualified hire would be someone who is unemployed this year (after February 3, 2010 and before Jan 1, 2011) and has not worked over 40 hours in the last 60 days.

The law is most useful to large corporations where they can use the HIRE provisions to save millions of dollars, but the law is also useful to small businesses. For example, these tax breaks work for businesses this summer who want to hire kids on summer break to help with paperwork or businesses that want to hire college students who haven’t worked elsewhere in the last 60 days and therefore, would be considered a “qualified employee.”

Wednesday, May 26, 2010

18 Ways to Earn 5% or More

Due to the poor economy and weak banking industry, most account holders are earning next to nothing from interest on their savings. Many Americans are being forced to find other investment opportunities, however finding a safe investment is much easier said than done. Fortunately, MSN put together a helpful article with over a dozen tips on earning 5% or more on your savings. I have included a few of their tips below, but you can find the full story here.

Taxable munis

In little more than a year, cities, states and public agencies have issued $100 billion of taxable Build America Bonds (BABs). BABs pay extraordinarily high interest rates because Uncle Sam, as part of the 2009 financial-rescue package, picks up 35% of the issuers' interest costs. BABs now yield more than corporate bonds with similar maturities and credit ratings, making them great not just for IRAs and other tax-deferred accounts, but for taxable accounts as well.

Yields of at least 6% are common for new, long-term BABs. The state of Illinois, for example, just issued 25-year BABs at 6.6%. These are general-obligation bonds, backed by the state's taxing power. Standard & Poor's rates Illinois A-plus, although the state is on watch for a possible rating downgrade. If you prefer to lend to an entity that appears to be in better shape, consider a new, 30-year New York City water-and-sewer revenue bond. The BAB, rated double-A-plus, hit the market at 6.4%.

Fans of exchange-traded funds should consider PowerShares Build America Bond ETF (BAB, news, msgs). With an average credit quality of double-A, it pays dividends once a month and was recently yielding 6.2%.

Preferred stocks

A preferred stock is closer in spirit to a bond than a common stock because a preferred dividend is almost always fixed. So, if long-term interest rates rise, a preferred reacts like a bond and loses value. You also face company risk should the issuer run into trouble and suspend preferred dividends. If you can stand some price fluctuation, consider reinsurer Endurance Specialty Holdings 7.75% Preferred (ENH-A, news, msgs). Rated triple-B-minus, the issue is not callable until 2015 and sports a current yield of 8.1%. Under current federal law, the top tax rate on qualified dividends is just 15%. (Many stocks that look like preferred are actually hybrid securities and aren't eligible for preferential tax treatment.)

Banks, insurers, and real-estate investment trusts are the most common issuers of preferreds. With a preferred-stock ETF, you can diversify into utilities and industrials. The oldest and largest among these is iShares U.S. Preferred Stock Index ETF (PFF, news, msgs). It pays dividends monthly and yields 6.5%.

At Risk: The Gulf's $234 Billion Economy

In addition to the devastating affect on their delicate ecosystems, states near the Gulf of Mexico will likely take a huge financial hit because of the massive oil leak. The total cost of the damage cannot be determined just yet, as oil continues to spew into the ocean, but as this article on explains, some experts are predicting it could surpass $200 billion.

The numbers being batted around when it comes to how much the oil spill will ultimately cost BP and the local Gulf of Mexico economies are huge. $3 billion? $14 billion? One politician put it at over $100 billion.

The range is so big because two important questions remain unanswered: When will the leak be sealed, and will most of the oil wash ashore? Until those questions are answered no one will know the exact price tag of the damages. However, there have been studies done looking at what's broadly at stake and the number is quite large indeed.

The four biggest industries in the Gulf of Mexico are oil, tourism, fishing and shipping, and they account for some $234 billion in economic activity each year, according to a 2007 study done by regional scholars and published by Texas A&M University Press.

Two thirds of that amount is in the United States, with the other third in Mexico.

SBA Out of Money For Loan Breaks


The Small Business Administration once again has run out of money for breaks that made its loans less risky for lenders and more affordable for borrowers.

The economic stimulus bill temporarily increased the government guarantee to 90 percent on the SBA’s flagship 7(a) loans and reduced or eliminated fees on 7(a) and 504 loans, which primarily are used for real estate. Congress has extended these enhancements four times, but the SBA announced Wednesday that it has exhausted all of the funds provided in the most recent extension.

As a result, the agency has reactivated its waiting list for borrowers who want to receive the higher guarantee and reduced fees when — and if — Congress provides funds for another extension. Pending legislation would extend these breaks through the end of the year, but it is not clear whether this bill will be enacted before Congress leaves for its weeklong Memorial Day break.

Until Congress acts, small businesses seeking SBA loans can either place their applications in a queue to wait for additional funding, or take a loan without the higher government guarantee or reduced fees.

The higher guarantee and reduced fees “engineered a significant turnaround in SBA lending and have been successful in helping jumpstart our economy for small businesses,” SBA Administrator Karen Mills said.

5 Ways to Curb Bank Overdraft Fees

While some bank account holders may be happy to see the end of overdraft fees, other consumers are upset they may have their card declined for important bills if there are insufficient funds. However, says this is not a good enough reason to opt for overdraft protection, and is offering five ways to curb overdraft fees.

Carry backup cards

Cardholders who don’t opt in for overdraft coverage but carry borderline balances still may get turned away at the register. Consumers should keep at least two or three backup cards in their wallet and a little cash just in case, says Odysseas Papadimitriou, the CEO of Evolution Finance, which publishes, a credit card comparison web site. “Keeping an extra one or two credit cards on hand can help prevent running out of payment options if some sort of fraud-related hold strikes your account,” he says.

Balance your checkbook

To avoid needing a backup, account holders should keep an eye on their account balances, says Papadimitriou. They should check weekly, or even daily if they’re operating on the edge, he says. Then, cardholders should be vigilant about withdrawing funds from retail stores that offer cash back on debit-card transactions. Although banks will generally alert customers if they’re about to go over their limit at ATMs, in-store debit withdrawals typically won’t trigger any overage notification, Papadimitriou says. It’s still not clear whether this problem will be fixed when the overdraft coverage opt-in provision takes effect, he says.

Sign up for payment alerts

Cardholders given to procrastination should consider signing up for payment alerts, says Papadimitriou. Most card issuers, including JPMorgan Chase (JPM: 39.04*, +0.10, +0.25%), American Express (AXP: 39.15*, +0.14, +0.35%) and Bank of America, have long offered to alert their customers when account overages occur or when payment due dates are imminent. “We’re trying to help customers to reduce overdraft fees,” says a BofA spokesman. “We don’t want them to buy a $40 cup of coffee.”

Continue reading at…

The Tax Caps Cometh

Today, the Wall Street Journal published an online article exploring the different ways China and the US are using property taxes to stimulate the economy. China may be considering a property tax to “dampen” their possible housing bubble. Whether this will keep China from experiencing a housing crash is up for debate, but it certainly didn’t keep the US housing market from plummeting.

On the other hand, people in Indiana, New Jersey and New York may see reduced property taxes to help stimulate their local economies. Here are the facts as stated in the article:
In Indiana, Republican Governor Mitch Daniels has already lowered property taxes on homes to 1% of assessed value. In New Jersey, Republican, Governor Chris Christie has introduced a reform package that would cap property tax increases to 2.5% each year. And in New York, Democrat Andrew Cuomo has just announced his candidacy for governor with a call for a 2% cap on property tax increases.

So, will property tax caps help homeowners? Are the caps good? Bad? This article explains that it depends on how you think of government. If you see shortfalls in city and state budgets as a revenue problem, you probably think property tax caps are a bad idea. Alternatively, if you think of budget shortfalls as mostly a spending problem, you will see a property tax cap as a tool to control that spending.

Read the full article here.

Tuesday, May 25, 2010

Ford to Move Hybrid and Electric-Car Jobs to Michigan

Great news for Michigan! Recently, Ford Motor Company has announced that they are investing $135 million to design, engineer and produce key components for its next-generation hybrid-electric vehicles in Michigan. These vehicles will go into production in 2012. Ford states that Michigan will become its “center of excellence for vehicle electrification” and will add 170 combined green technology jobs at the Rawsonville and Van Dyke Transmission plants, as well as 50 electric vehicle engineer jobs. In an article posted on the Ford website, Michigan Governor Jennifer M. Granholm stated, “Today’s announcement by Ford represents another step forward in moving Michigan from the Rust Belt to the Green Belt by investing in green technology and creating green jobs.”

Ford’s Van Dyke Transmission plant will produce a new electric-drive trans-axle for the new hybrids; this will move work to Michigan that is currently performed by a supplier in Japan. Ford’s Rawsonville Plant in Ypsilanti, Michigan will begin to assemble the battery packs in 2012—moving work to Michigan that is currently performed in Mexico.

The new hybrids are part of Ford’s plan to launch five electric vehicle models in the United States by 2012 and in Europe by 2013. I will be looking forward to the impact on our environment as well as our economy in the coming years.

Read the full article here.

GOP wants website to put policy in hands of voters

Do you think you would be able to make great public policy decisions—possibly better than those made by past and current government officials? Many people think of politics as something that happens despite their opinion on the matter.

If you could Tweet Congress, would you? What issues would you like the House to focus on during this election year? Would you interact on a website that is read by actual government officials? To encourage this type of community and conversation, the House of Representatives’ Republicans are going to launch a new website on Tuesday, June 1st. The new GOP website,, will make the Republican 2010 midterm policy agenda accessible to Americans. It will also use different types of social media so that Americans can interact and talk about what policies they think Congress should be working on.

According to, “the new GOP website is an official government project, supported by leadership staff and funded with taxpayer dollars.” The website aims to give control to voters, and was a team effort by the GOP and Microsoft. After creating a profile, users will choose their username and accumulate “points” every time they submit an idea or engage in an online debate. This will encourage people to visit the website and get involved in politics. California Republican Representative Kevin McCarthy stated that the feedback leaders get from the site will lead to the development of legislation that Republicans will try to enact this year.

Read the full article here.

Monday, May 24, 2010

Questions for the Tax Lady: May 24th, 2010

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

Question #1: I have been doing some graphic design for a company as an independent contractor. How much money do I have to make in order to be taxed?

Self-employed individuals are required to report any income earned over $400. If you work for a company, as a contractor, the company is required to send you an IRS Form 1099. The IRS Form 1099 will have the exact amount the company paid you for your contracting work.

Question #2: I just started working as a waitress in a upscale restaurant, do I need to report my tips to the IRS?

Yes. All tips you receive should be reported to the IRS and are therefore are subject to federal income taxes. Technically you should keep track of your tips, and include the yearly total on your next tax return.

Congress's Carried Interest Tax Folly

From the Wall Street Journal:

Nero fiddled while Rome burned, but at least he didn't strike the match. Members of Congress are doing Nero one better. In the middle of the second global financial crisis in two years, Congress is preparing to dramatically raise a key tax rate on long-term investment. This is sure to discourage capital investment, increase the cost of money to start and grow businesses, and depress real-estate and stock prices, all at the worst possible time.

Last week, Senate Finance Committee Chairman Max Baucus (D., Mont.) and House Ways and Means Chairman Sander Levin (D., Mich.) released joint legislation that would among other measures significantly raise the tax on "carried interest." Now the tax rate on these long-term capital gains earned by the general (managing) partners of investment partnerships is 15%. The new law would raise the rate to as high as 38.5% (three-fourths of the gain would be taxed at ordinary income tax rates and one-fourth at capital gains rates, both of which will be increasing as well).

Tax rates matter. And what matters about them is what activities get taxed, not who gets taxed. When you increase the tax rate on an activity, you get less of it. The only question is how much less of it you will get.

Congress should be asking one question: "Is long-term investment something we really want less of, especially now?" Unfortunately, in today's political climate, tax policy discussions focus almost exclusively upon whom, not what, gets taxed. This means singling out specific groups of people—bankers, Wall Street, "the rich," the owners and executives of insurance, oil and drug companies—to punish for our economic difficulties. This may be politically popular but will have bad consequences for the economy.

Jobs and Tax Bill to Cost $134 Billion

According to this new article on CNN, Congress is scheduled to consider a new bill this week that is expected to increase the federal deficit by $134 billion over the next decade.

The bill, which is likely to become a flash point in the debate over the federal debt, would raise $40 billion worth in additional revenue, according to estimates by the Congressional Budget Office and the Joint Committee on Taxation.

But that's not enough to fully offset the $174 billion in additional federal outlays that would occur as a result under the bill. CBO released its cost estimate late Friday.

The legislation would extend a host of tax breaks, give continued relief to the unemployed, delay cuts to doctors' Medicare reimbursements, provide support for job growth and fund disaster relief, among other things.

The bill, a melded version of proposal passed earlier by the House and Senate, won't be free of opposition on either side of the aisle. There is pressure to pay for more of the bill's provisions, and there is strong disagreement over some of the pay-fors that are included.

Continue reading at CNN…

Soda Tax Uncaps a Fight

Soda taxes are becoming more and more popular among state and local governments. However, as this article on explains, the producers and sellers of sodas and sweetened beverages have increased their efforts to campaign against any new taxes. Check out a snippet of their article below, or for more information on soda taxes you can read this article I posted on my blog last month explaining the pros and cons of soda taxes.

Makers and sellers of soda and other sweet drinks have intensified a fight against proposed taxes on their products, as a growing number of cities and states are weighing the measures to help fill depleted coffers.

A soft-drink bottler offered what it called a $10 million good-will-gesture donation for health and recreation programs in Philadelphia, as city officials there considered a proposal for an excise tax to help plug a budget hole and fight obesity. The tax, proposed by Philadelphia's Democratic Mayor Michael Nutter, would amount to two cents an ounce on soda and other sweet drinks.

Industry officials are also considering trying to organize a referendum in Washington State to repeal a three-year excise tax on carbonated beverages of two cents on every 12 ounces.

The moves come as officials in at least 20 cities and states have proposed new taxes or the removal of tax exemptions on non-alcoholic beverages so far this year. The beverage industry has spent millions of dollars since 2009 on lobbying and advertising against proposed taxes, including a federal tax initially proposed as part of the health-care reform bill.

So far, few such taxes have actually been imposed. The final federal health overhaul didn't include a soft-drink tax. And while several state and city legislators initially expressed enthusiasm for new soda taxes, only Washington State has approved a new excise tax on soda thus far, while Colorado removed a sales-tax exemption.

Saturday, May 22, 2010

Unemployment Falls In 34 States

The U.S. Labor Department made an exciting announcement yesterday morning. According to Federal data the unemployment fell in 34 states – and the District of Columbia – last month. Jobless rates did increase in a few states, and 10 states reported no change.

That compares to last month's gloomy state unemployment report, showing that 24 states suffered jobless rate hikes in March, and rates only eased in 17 states and the District of Columbia.

Annually, the state unemployment landscape is still grim, but getting better, Friday's report showed. Jobless rates rose in 38 states and the District of Columbia from a year earlier. But that's down from a total of 44 states and D.C. reporting rising rates in March.

Last month, the Labor Department's latest national report showed the U.S. economy gained 290,000 jobs in April, the biggest gain in four years. But the unemployment rate crept higher, to 9.9% from 9.7% in the previous month.

Continue reading at…

U.S. Sets Application Window for Drug Tax Credit


Small U.S. drugs and biomedical research firms will have a one-month window to apply for a new $1 billion tax credit for research into new therapies, according to guidance issued by the U.S. Treasury Department on Friday.

The two-year tax credit, created under this year's landmark health care legislation championed by President Barack Obama, aims to accelerate research into new therapies and projects that reduce medical costs.

Firms with less than 250 employees can apply for the credit, which covers up to 50 percent of qualifying research costs up to $5 million annually, from June 21 to July 21, the Treasury said. The credits can be applied to expenses incurred in 2009 and 2010.

Decisions on qualifying projects, which will be evaluated by the Department of Health and Human Services, will be issued by Oct. 29, the Treasury said.

"This new tax credit will help advance research to find life-saving treatments and help U.S. companies lead the way in innovative medical discoveries," Treasury Secretary Timothy Geithner said in a statement.

Stealth IRS Changes Mean Millions of New Tax Forms

The IRS is going to have to make a few changes to the way the process tax returns because of the new health care reform law. As such, new forms are going to be introduced next year, including a new 1099-K, which requires financial firms to send clients as well as the IRS an annual run-down of every debit and credit card purchase.

According to CNN Money, the massive expansion of requirements for businesses to file 1099 tax forms that was hidden in the 2,409-page health reform bill took many by surprise when it came to light last month. But it's just one piece of a years-long legislative stealth campaign to create ways for the federal government to track down unreported income.

"It was actually something that we were following back under the Bush administration under the 2008 budget -- we started to see these kinds of rumblings about the 'tax gap' and whether or not businesses were paying their fair share," says Tom Henschke, president of the Pennsylvania-based SMC Business Councils, which was one of the first organizations to call attention to the health care amendment when it was introduced last fall. "So two administrations can claim credit for this."

The first tax-reporting expansion was buried in a different bill, the Housing Assistance Tax Act introduced by House Speaker Nancy Pelosi and signed into law by President George W. Bush in July 2008. Best known for its first-time homebuyers' credit, the bill also created a new addition to the family of 1099 tax forms: the 1099-K.

The 1099 is a catch-all series of IRS documents used to report non-wage income from a variety of sources like contract work, dividends, earned interest and pension distributions. The new 1099-K aims to shine a light on a currently hard-to-track payment stream: credit cards. Starting in 2011, financial firms that process credit or debit card payments will be required to send their clients, and the IRS, an annual form documenting the year's transactions.

Continue reading at CNN…

Getting A Homebuyer Tax-Credit Through The IRS Can Be Taxing

The homebuyer credit has the IRS busy processing over 1.8 million claims for the credit. As this article from the Wall Street Journal explains, $12.6 billion has already been given out to taxpayers. Check out a snippet of their article on the story below.

Let's get this processing volume into perspective. IRS started processing claims for the first-time home-buyer credit when taxpayers started filing their 2008 tax returns in early 2009. That means IRS employees have processed about 150,000 claims a month.

It's a monumental task. Since discovering millions of dollars of fraudulent claims, the IRS has been reviewing a substantial portion of the claims instead of letting the computer process and pay.

That's where the delays start.

Steve B. said he feels he's being lied to about his tax-credit claim. He filed for his home-buyer credit in January, certain that everything the IRS requested was attached. It's now been more than four months and the IRS simply tells him "it is in the errors department" and they have no further information. Steve has tried calling the IRS "a million times," he said. He's even tried the Taxpayers Advocate Service, but they tell him they don't deal with this issue.

Friday, May 21, 2010

Bill Gates Sr. on Raising Taxes

According to an interview in Bloomberg News, Microsoft founder Bill Gates’s father, the retired Washington State lawyer Bill Gates Sr., wants his son to pay more in state income taxes. Mr. Gates Sr. supports a Washington State initiative to impose a state income tax on individuals earning more than $200,000 a year and couples earning more than $400,000. More specifically, individuals would pay a 5 percent tax on income over $200,000 and 9 percent tax if they earned over $500,000. Couples would pay 5 percent over $400,000 and 9 percent if they earned a combined income over $1 million.

According to the Department of Revenue for Washington State, Washington doesn’t collect personal income taxes. However, persons that engage in business in Washington State are subject to business and occupation and/or public utility tax. “Poor people and middle-income people are paying too much to support the state, and rich people aren't paying enough,” Mr. Gates Sr. stated in his interview.

I agree with the editor of, “if Mr. Gates Sr. wants to pay more in on a voluntary basis that is one thing, and like David Koch points out, it will mean he has less to give away to charity.” This would also apply to all others above the $200,000 threshold. Other opponents to this initiative and higher taxes say taxes like these will kill jobs.

Initiative 1098, as it is called, was co-authored by the Economic Opportunity Institute, a non-profit group in Seattle, and has drawn funding from the Service Employees International Union. Supporters must collect more than 240,000 valid signatures by July 2 to qualify for the November ballot.

Tax Advice for Students Working a Summer Job

The school year is nearing an end for student all across the country and whether it is summer school or an entry level career job, millions of new employees will begin to enter the work force. If you are a working student yourself, or a parent of a child looking to get their first summer job, you might be concerned about the tax implications of being an employee. I have put together the following list of tax tips—let’s call it taxes 101 for wage earners—specifically for students working a summer job.

You will Need to Complete a W-4 Form

Whenever you start a new job you required to complete an IRS Form W-4, which essentially tells your employer the amount of tax to withhold from your paycheck. If you are not sure about what filing status you should claim or the number of exemptions to take, check out the withholding calculator on At the start of a new job, you will also need to provide a government issued form of identification such as a driver’s license and proof of your social security number.

Tips and Odd Jobs are Taxable Income

If you work as a waiter, or any other position where you receive tips, you will need to report this money on your tax return. According to the IRS, all income from tips is subject to the federal income tax. Additionally, earnings from odd jobs such as house sitting, baby sitting, or mowing your neighbor’s lawn, are also subject to federal taxes.

Wages Paid Under the Table

Some employers will offer to pay students’ wages under the table – meaning they will not report the income to the IRS or withhold any taxes. However, it is your legal responsibility to claim this income on your federal tax return, regardless of whether or not the employer sends you a W-2 Form.

$400 or More Rule

If you earn $400 or more from any form of self-employment then you will have to pay self-employment tax on the income. This tax goes to Social Security and Medicare, which are usually taxes that are withheld from a wage earners paycheck. You will need to include your income, and calculate your self-employment tax on Schedule SE of your next IRS Form 1040.

Special Tax Laws for Newspaper Deliverers

There are a handful of special rules that apply to newspaper carriers or distributors. Technically, the IRS will treat you like a self-employed taxpayer as long as you meet the following conditions:

  • You are in the business of distributing newspapers
  • The pay you receive is related to your sales as opposed to the number of hours worked
  • The distribution services are performed under a written agreement stating that you are not to be treated as a wage-earning employee in regards to federal taxes.

On a related note, children under the age of 18 working in the newspaper delivery business are not usually subject to the federal self-employment tax.

Thursday, May 20, 2010

Fund manager tax bill could hit House floor Friday

There will be plenty of debate amongst lawmakers tonight regarding increasing taxes on the profits earned by investment fund managers. This measure isn’t a stranger to the House; it’s been brought up for four years now, but it has usually died in the Senate. However, this year might be different; the intense need to increase revenue and the “public anger at the financial industry” right now might just give the measure the momentum it needs this time.

The tax change would impact private equity, venture capital, real estate fund and hedge fund managers. Basically, profits earned by fund managers would be treated as ordinary income subject to a 35 percent rate instead of the current 15 percent rate currently taxed as capital gains. ( This fund manager tax increase is supposed to help pay for a broader package of legislation that would extend jobless benefits and renew expired tax breaks.

Read more of the article here.

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