Why the U.S. needs a Value Added Tax

A few months ago I mentioned the possibility of a Value Added Tax (VAT) being created in the U.S. to help increase Federal revenue. It looks like the issue is getting more attention, according to this new article on Reuters.com by Christopher Swann. In the article Swann suggests that a VAT could pay for health care reform, and provide enough revenue to lower tax rates across the board. Check out the text of the article below.

Swelling deficits and an aging population leave few palatable options when it comes to taxes. The best choice by far would be the creation of a new value added tax — a “money machine” that can bring in huge sums with relatively little effort. America is alone among rich nations in not charging a VAT, and its continued unwillingness to do so will make it harder to cope with the fiscal challenges ahead.

Giving birth to a new tax will certainly not be an easy sell. The stunning 1980 reelection defeat of Al Ullman, the powerful chairman of the House Ways and Means Committee who had advocated a VAT, is still a warning to American politicians.

The timing of a new tax on consumption may also seem suspect. Aren’t we supposed to be getting Americans back into the malls?

VAT, however, is worth the risk. It could yield enough money to pay for healthcare reform, as well as a meaty cut in income tax and a reduction in the deficit. It could also be done without destroying Obama or the Democrats.

Unlike taxing the rich — which has emerged as a favorite strategy of many Democrats — a VAT is extremely easy to collect. This is partly because it is gathered from each producer in a chain.

Everything you Need to Know About Taxes After Death

I am sure you have heard the famous Benjamin Franklin quote "nothing can be said to be certain except death and taxes". For some Americans, the two become truly intertwined as spouses and beneficiaries struggle to make sense of taxes after the death of a loved one. To educate my readers on the subject I have composed the following article explaining everything you will need to know about taxes after death.

The Taxpayer’s Estate

When a taxpayer passes away, a new entity known as the taxpayer’s estate is created to assure no taxes go unpaid. The taxpayer’s income will need to be included on their final tax return, which must be filed. If there is a beneficiary, then he or she may be able to pay the deceased’s income taxes on their own tax return. However, if the estate has a value of more then $600, then a tax return must be filed for the recently deceased taxpayer.

The Final Tax Return

The final tax return filing could fall in to the hands of several different persons, depending on your unique situation. If the estate had an executor or administrator, then they are typically responsible for making sure the return is filed. However, if there is none, then the closest surviving relatives must take care of it. There are no special forms that need to be filed for a taxpayer who has dies. Instead, the word "deceased" needs to be written after the person’s name on their standard return.

Due Dates

Many taxpayers trying to take care of recently deceased family member’s tax return might not think that the April 15^th deadline matters. However, this is a big mistake. Even with a deceased persons tax return, the IRS deadline is still April 15th. Remember though, if you are running behind then you can always request an automatic extension.

Deductions

After death, the rules regarding deductions are a little different. Any expenses that were paid before death in the tax year can as usual be deducted on the final return. Additionally, deductible medical bills that may have incurred in the final months can also be deducted, even if they were not paid until after death.

Property

If the property of the late taxpayer is to be inherited, a few things will change on it's value and taxes as well. After the death of the taxpayer, the value of their property will be adjusted to it current market price. This is helpful for the person who inherits the property, because if they decide to sell they would only owe tax on any appreciation of the property after the death. Therefore you need to validate the date of death value as soon as possible, which can make the process even more difficult.

Savings Bonds

United States savings bonds have their own set of special rules after the holders pass. When the bonds are passed on to a benefactor, the amounted interest will need to be treated as income by the person who inherited them. They would then become responsible for paying taxes on the bonds, which would usually not be due until said bonds were cashed out. Alternatively, you could report the accrued interest on the late taxpayers final tax return. However, if this option is chosen then the person who inherits the bonds will need to pay taxes on the amount of interest at that time.

IRAs and Retirement

A big misconception about inheritance taxes is that IRAs and retirement accounts are not subject to them. Unfortunately, this is not true. With IRA inheritance, you can choose to re-title it as an “inheritance account,” roll it over into your own IRA, or have it as your own separate account. The rules may be slightly different depending on your relationship to the recently deceased taxpayer. In most cases, taxes will still need to be paid on any distributions paid out of the IRA. However, it can get very complicated and I highly recommend speaking with a qualified attorney to make sure you are fully compliant with both federal and state tax laws.

The Four R’s – The Reasons We Pay Taxes

The concept of taxation dates back to ancient times and it had a large impact on the creation of the United States. I mean, who hasn’t heard the phrase “no taxation without representation,” at least a dozen times in grade school? But how often do we stop and think about the real reasons we pay taxes? In fact, there are four main ideological reasons we pay taxes, and in this entry I have examined each of those four reasons.

1. Revenue

The most important purpose, taxes raise revenue for the government to spend on education, transportation, jobs, local governments, military, and judicial systems. Without taxes finding funding to build schools and buy books for them would be incredible difficult. Our country, as well as many others, is literally funded by our own taxes. Individuals, companies, and small businesses all get taxed for certain endeavors and those funds then go back into our economy.

As long as a country is thriving, there should be revenue coming in through taxes. However, concerns have arose in the past few years as to whether or not the United States is meeting expected revenue. Experts claim the economy is protected enough to let the low revenue affect taxpayer’s day to day lives.

2. Redistribution

Many debate the purpose of using taxes for redistribution, but the main idea is to tax those who can afford it (i.e. the wealthy) and use the money to fund programs for lower income families. Debate rages on as to whether or not this tactic is fair or if our government is even properly redistributing in the first place. Current presidential candidates disagree on the President Bush tax cuts in particular, which democratic candidates Sen. Barack Obama and Sen. Joe Biden feel give tax cuts to the wealthiest Americans, completely defeating the purpose of redistribution in our tax system.

3. Re-pricing

The tax system is also used to discourage and encourage. Taxes on things such as cigarettes and liquor discourage the intake of substances. The idea of implementing a carbon tax encourages fuel efficiency, but again is much like a penalty. Re-pricing is another main purpose of the inner workings of our tax system, because it is a large and equal flat tax, given to any and everyone indulging in such taxable items. Re-pricing happens all over the market in multiple ways in order to keep a sort of balance and subtle control on spending.

4. Representation

American revolutionists often coined the phrase “no taxation without representation,” so taxpayers know the government may be able to tax them, but accountability is mandatory. It is important for United States citizens and the government to be on even terms with taxes, and that all reasons and uses for said collected taxes are available to the public in multiple forms. It’s hard to remember that taxes are there to help us, but representation will always keep the information available.

IRS Releases 2006 State-by-State Income Data

Earlier in the week, the IRS Statistics of Income Division published the “First-Time Release of Tax Year 2006 Individual Income Tax Return Statistics by Cumulative Percentiles Based on Income Size and State” report that you can download in Microsoft Excel format here.

According to the report, “the first annual IRS release of tax year 2006 individual income tax return statistics by selected descending cumulative percentiles classified by state is now available. This table shows statistics on income and tax by cumulative percentiles based on numbers of returns filed for each state and the District of Columbia. The information includes distributions of AGI and total income tax by descending cumulative percentiles of returns for the top 1%, 5%, 10%, 25%, and 50% of returns with positive amounts of AGI. The table was compiled from the master file of tax year 2006 income tax returns that were filed and processed by the IRS during calendar year 2007. Returns for prior years processed during calendar year 2007 were not included in this tabulation. Tax year 2006 is the only year that percentile data by state are available. Similar data for tax year 2007 are planned for release in the spring 2009.”

Hawaii economy stuck in fairly decent rut

According to the Honolulu Observer, Hawaii has been suffering slow economic growth, but it has not altogether stopped their ten-year economic expansion. A Weakening US economy and high-energy prices have contributed to the relatively slow growth over the past year.

"We do not yet see an end to the current long economic expansion," said UH economist Carl Bonham. The outlook "is a little bit weaker, but not much. The tone of the report is a little more pessimistic."

Tourism and construction are expected to remain stable next year, which could translate into continued income and job growth and low unemployment, though at less favorable levels than in recent years. So far, Hawaii is expected to sidestep a US real estate slowdown that has hobbled home prices in many Mainland markets.

Slower growth also means Honolulu residents are expecting to get relief from rising prices. Honolulu's inflation rate is expected to drop from 5 percent this year to 3.8 percent next year. Honolulu's inflation rate hit a 15-year high of 5.8 percent in 2006 because of booming real estate prices.

New IRS Tax Talk Today

Later today the IRS will feature a new webcast on their Tax Talk Today website. The Webcast is scheduled for Tuesday, October 16, at 2 p.m. ET. Discussion topics on the Webcast will include an overview of OPR, Circular 230 and monetary penalties. The live hour-long Webcast will focus on the IRS’s Office of Professional Responsibility (OPR), which is responsible for setting, communicating and enforcing standards of competence, integrity and conduct among tax professionals who practice before the IRS. Tax Talk Today is a Webcast put out by the IRS with the goal of educating tax and payroll professionals on the most current and complex tax issues. You can access the Webcast for free by registering online at www.TaxTalkToday.tv.

Full List of 2007 Baseball Champions

Nutty About Sports.com has a very informative article on their site with a list of all the current baseball champions of 2007. The list includes not only Major League Baseball Champions, but Minor League Baseball Champions, Independent League Champions, College Baseball Champions and Little League Baseball Champions as well. You can see the full list by clicking here.

Republican Debate Comments From Tax Foundation

The other night was a Republican primary debate with the topic on taxes and the economy. Tax Foundation.org has put together a good review of the debate with their comments and observations on various things candidates said in the debate. Topics include revising the current tax code, government subsidies, the federal budget, corporate taxes, and others. Check out the full review at Tax Foundation.org: Observations from the Republican Debate.

New IRS Employer ID Application Process

Yesterday the IRS announced that they had launched a new Employer Identification Number application process on their website. According to said Richard Morgante, Commissioner of the IRS Wage & Investment Division, "This new and improved online application will reduce the time it takes taxpayers to get an EIN. Essentially they can get one while they wait –– within minutes." You can read the whole announcement on the IRS’s website.

New September/October Tax Watch Now Available

Tax Foundation has released the newest version of their bimonthly tax policy newsletter, Tax Watch. The newsletter contains research and analysis on many current tax issues. Some of the featured articles include:

Paying for Public Schools: What's the Cost of Judicial Mandates?
U.S. Corporate Taxes Still Among World's Most Punitive
Fixing AMT without Raising Tax Rates
Study Finds Income Redistribution between Young, Middle-Age and Elderly

You can download the PDF of the newsletter for free by heading over to Tax Foundation.org, or if you are a member of the Tax Foundation you can request a hard copy version.

Poker Tournaments Must Withhold Taxes

According to Tax Foundation, the IRS has added a new regulation, 26 C.F.R. § 31.3402(q), requiring that sponsors of poker tournaments withhold for taxes 25% of a players' winnings above $5,000. The sponsors must then provide this information to the IRS so that they can properly determine the taxpayer’s income tax liability. The regulation is set to take effect on March 4th 2008. However online and offshore poker games are not subject to the regulation.

5 Mistakes That Can Tax Your 401(k)

These day’s it is essential to put into a 401(k), or some other type of retirement plan, if you want to be able to comfortably retire. The problem, however, is that people don’t take the time or effort to fully understand their plan to ensure maximum benefits. "Too many workers set up their 401(k) plan and then just forget about it," claims Glenn Kautt, a financial planner. USA Today.com has an interesting article on the five most common mistakes people make with their 401(k) that can result in a tax liability. The five mistakes include: rejecting free money, loading up on company stock, chasing performance, investing too conservatively, and failing to fine-tune.

New Ferrari F430 Scuderia Announced

Ferrari recently announced their newest vehicle to be produced, the F430 Scuderia. It weighs about 220 lbs. and has a Ferrari 4.3L V8 engine that produces 510 horsepower, which gives the Scuderia a power-to-weight ratio of 1 horsepower for every 5.4 lbs. Michael Schumacher will officially unveil the new car in Frankfurt this September. You can see move pictures at AutoBlog.com.

Tax Watch Spring 2007 Edition Available

Tax Foundation.org has posted the Spring 2007 edition of their quarterly tax policy newsletter, Tax Watch. The newsletter includes non-technical research and discussion of current tax issues including Gross Receipts Taxes, the Alternative Minimum Tax, and much more. Click here to see the full newsletter.

Help With W2 Forms

Associated Content has added an article with a detailed breakdown of the information on W2 forms. Included is a box by box breakdown of what appears in every box on W2 forms and how it pertains to individual taxpayers. You can read the full article here.

Revisions to Offer in Compromise Application Form

On Monday the IRS announced they had revised the application for an Offer in Compromise, Form 656 package. IRS Commissioner Mark W. Everson notes, "we hope that these changes help more people who qualify satisfy their tax obligations." The changes were made as a result of the Tax Increase Prevention and Reconciliation Act of 2005 and some of the changes include new payment terms and submission rules. For more details on the changes visit the IRS’s website.

New IRS Information Reporting Committee

Earlier today the IRS appointed eight new members to its Information Reporting Program Advisory Committee. The group was established in 1991 and serves the purpose of reporting information from the IRS to the public. For more information on the committee or to learn who the new members are visit the IRS’s website.

$92.2 Million in Unclaimed Refunds

The IRS recently announced that they are waiting on 95,746 taxpayers whose refund checks have been returned undeliverable to the IRS. The total amount is over $92.2 million dollars, with an average refund of $963. The IRS Commissioner made this announcement to encourage taxpayers to notify the IRS with their updated address by using new features on the IRS’s website. You can now go to the "Where Is My Refund" page on the IRS website and find out if you are owed any money by the IRS. Or if you prefer you can request the form by calling 1-800-TAX-FORM (1-800-829-3676). For more information visit the IRS’s website at www.IRS.gov.