Signs You Might Need Help From A Tax Attorney

Earlier in the week my law firm’s Tax Relief Blog posted a helpful article on the signs that you might need help from a tax attorney. Listed below are a few of the signs, but you can find the full article here.

1. You Cannot Remember The Last Time You Filed A Tax Return

If you are earning income and have not filed a tax return for a few years, then you might want to consider hiring a tax attorney. Even if you do not think that you owe the IRS money, a tax attorney can provide you with a full review of your IRS account to determine if you are owed any refunds.

2. You Get An Assessment Letter From The IRS

If you receive an assessment letter in the mail from the IRS, then it means they have determined that you owe them money. The first letter they send informs you of the situation and outlines the penalties and interest they are adding to your debt. If you do nothing, your debt will continue to increase. Alternatively, if you retain a tax attorney, they can begin working to settle your debts.

3. The IRS Files A Lien Against Your Property

If the IRS assesses a tax debt against you and you do not respond, then they will begin the collection process. First, they may send you a Notice and Demand for Payment. If you do not respond after 10 days, then they can file a public Federal Tax Lien against you. The lien will attach itself to all of your property including homes, land, vehicles, etc. In order to get the lien released, you will need to first settle your IRS debts. This can be done by either paying the amount in full or hiring an attorney to negotiate an IRS settlement such as an Offer in Compromise.

Post CFC Tax Incentives to Buy a Car

Now that the popular Cash for Clunkers (CFC) program has ended, consumers can no longer take advantage of a $3,500 or $4,500 rebate towards the purchase of a new car. However, the CFC program was just one of the many incentives the government has setup to encourage taxpayers to buy a new vehicle. For those of you debating whether or not you can afford a new car, check out the following list of Federal tax incentives.

New Car Purchase Deduction

To help stimulate the economy, earlier this year the IRS announced a new tax deduction for taxpayers who purchase a car in 2009. The new deduction allows you to deduct “state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle." Therefore, if you pay $2,500 in taxes when you buy that new car, then you can deduct those funds from your taxable income come next tax season. Just be sure to keep all of your sales documents so you have proof of the taxes you paid. Additionally, there is no word yet on whether the deduction will be extended or not. So, if you are planning to buy a car then you might want to do so before the end of 2009.

Hybrid Tax Credits

There are numerous tax credits that are still available for those of you hoping to purchase a hybrid, or alternative fuel vehicle. The highest of which is a $4,000 credit for taxpayers who purchase a Honda Civic GX that runs entirely on compressed natural gas. As opposed to the new car sales tax deduction, the hybrid incentives are tax credits, meaning it will lower your tax bill dollar for dollar. To see a list of all the qualifying vehicles, check out FuelEconomy.gov.

Electric Vehicles

Although somewhat less practical then a hybrid vehicle, electric powered automobiles come with the best set of tax incentives. As part of the Obama administrations American Recovery and Reinvestment Act of 2009, a new credit was created to encourage taxpayers to purchase electric vehicles. The credit is up to 10% of the purchase price, and depending on how much the vehicle costs, it could be a pretty significant tax credit. For those of you who might be hesitant, later in 2010 plug-in electric vehicles are expected to hit the market and will be eligible for a similar credit.

Vehicle Donations

If you decide to purchase a new vehicle, then you may want to consider donating your old car. In addition to knowing you are supporting a good cause, you can also reap certain tax benefits. There are several reputable charities that will take your still-running (sometimes even not running) vehicles. Just make sure that the charity you select has a non-profit status with the IRS, that way you can include the donation as a charitable contribution on your next tax return.

Conversion

If you are a mechanic, or are just handy with cars, then you might be able to take advantage of conversion tax credits. Another section of the American Recovery and Reinvestment Act of 2009 gives taxpayers who purchase a kit to convert their car to an electric vehicle a 10% tax credit, up to $4,000. Additionally, according to the IRS taxpayers may claim this credit even if they have already claimed a hybrid purchase credit.

Business Expense

Finally, if you are self-employed or own a business then you might be able to take advantage of certain business car credits. You could take a mileage deduction based on the amount you drive your car for business reasons. Alternatively, if you lease a vehicle then you could write off a percentage of the monthly payments that corresponds with the amount of time you use the car for work. These credits could save you up to $1,500 per year. However, business related vehicle expenses can be quite tricky, and if you intend to take this route then I highly recommend speaking with a tax professional before making any decisions.

Tax Evaders Rush to Beat Amnesty Deadline

Now that the government has reached a settlement with UBS, American tax evaders have until September 23 to reveal their overseas holdings or risk serious legal troubles if their names appear on the list UBS is preparing to turn over to the IRS. If taxpayers do decide to turn themselves into the amnesty program, they will still need to pay a fine but will not face criminal prosecution.

The IRS expects to find some tax evaders soon. UBS AG, the Swiss banking giant, agreed to hand over to the IRS the names of about 4,450 secret accounts as part of a court settlement reached last month.

"This is sort of their last, best chance if they are going to get off with lenient treatment," said Evan Stewart, a regulatory lawyer at the firm Zuckerman Spaeder.

"If you're sitting there and you've sheltered $50 million from the U.S. government, are you willing to gamble with the (list of) 4,500 (names) and live in terror for a year?" Stewart said.

The IRS said that, in one week of July, about 400 individuals turned themselves in under the amnesty program. That was four times higher than the number of tax evaders who stepped forward in all of 2008, according to the agency.

Continue reading at Reuters.com…

Thousands of Businesses Need to File State Tax Returns

From Business Wire.com:

The Franchise Tax Board (FTB) today announced it has begun contacting more than 35,000 companies that did business in California in 2007 but failed to file a state tax return for that year.

The FTB annually reviews more than 5 million income records from government agencies and financial institutions and matches them against tax records filed to determine whether some businesses have yet to file. As part of this annual effort, FTB collected approximately $31 million last year from businesses that failed to file tax returns.

Businesses contacted by FTB will have 30 days to file their delinquent tax return or show why one is not due. If no action is taken, the FTB will issue a tax assessment that may include penalties and fees. With the state`s automatic seven-month extension, companies doing business in California are provided up to 10 and one half months to timely file their California state tax return.

The failure to file tax returns is one part of the tax gap that is defined as the difference between taxes owed and taxes paid. California estimates its annual tax gap to be $6.5 billion per year.

For those receiving notices, information is available by calling 866.204.7902. Callers should be prepared to provide the 15 digit notice number.

IRS Approves Issuance by Tribes of First Tranche of Economic Development Bonds

According to their new press release, the IRS has announced their approval of the issuance of the first tranche of bonds by American Native Americans. The bonds were provided in Obama’s American Recovery and Reinvestment Act of 2009, and allow Native American tribes to apply for a maximum of $30 million in economic development bonds to sell. The profit can then be used to spur public infrastructure works within their communities. The act provided a total of $2 billion worth of bonds in total.

In Notice 2009-51, the IRS solicited applications for the allocation of $2 billion of national bond volume limitation authority (volume cap) to issue Tribal Economic Development Bonds under section 7871(f) of the Internal Revenue Code. Section seven of the notice provides that the volume cap is to be allocated in at least two tranches, the first of which would not exceed $1 billion in total with a $30 million limitation per Indian tribal government.

The IRS received 58 applications requesting a total of $1,329,487,364.88 in volume cap available under the first tranche. Pursuant to the notice, the IRS allocated pro rata amounts of volume cap to the projects described in the applications such that the total amount allocated under the first tranche did not exceed $1 billion.

For those applicants who elected to consent to public disclosure, the IRS is releasing an allocation schedule showing the names of the Indian tribal governments, the types and locations of the projects described in the applications and the amounts of the awarded allocations.

Lower 401(k) Contribution Limits Likely in 2010

Earlier today I came across this new article from Boston.com discussing the likelihood that 401(k) contribution limits might get lowered next year. As the author explains, the main reason for the reduction in contribution limits is because of the U.S. dollar’s poor inflation rate in 2009.

Unless inflation really kicks up in the last few months of 2009, it appears that the amount that working individuals can contribute to their 401(k) will actually go down in 2010. In 2009, individuals under age 50 could contribute as much as $16,500 to their 401(k). Individuals age 50 and older were able to contribute $22,000. In 2010, it looks like individuals under age 50 will only be able to contribute $16,000 to their 401(k). Those age 50 and older will still be able to contribute an additional $5,500 to their 401(k) but the total amount they can contribute will now be $21,500. In addition, the amount one can contribute to a defined contribution plan will also fall -- to $48,000 in 2010.

All of this is happening because inflation is flat. When inflation is not increasing, a lot of things are impacted. Social Security is a big one. After a record increase in benefits last year, there will be no increase in benefits in 2010. Most people are still not aware of this but they really need to be planning accordingly. On the "plus" side, the Social Security wage base is expected to remain unchanged next year. Earnings in excess of $106,800 will not be subject to the 6.20% Social Security tax.

The best course of action? Contribute the maximum amount permitted this year!

Questions for the Tax Lady: September 14th, 2009

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: If I rent out a spare bedroom in my house do I need to report the income to the IRS?

Yes, you will need to report your income to the IRS. When you prepare your tax return you should complete a Schedule E and attach it to your IRS Form 1040. In addition to rent you will need to include any lease canceling payments, or other expenses paid by tenants.

Question #2: How do I change the amount of taxes that get taken out of my paycheck?

Changing your withholdings or claiming an additional dependent is actually very easy. Just ask your employer for a new IRS Form W-4 and fill it out to reflect your current financial situation.

Death and Taxes

Last Friday, my team shot a new video for my Tax Tips Video Series. Check out the new video below where Edward Lester explains death and taxes. Click here to visit my YouTube channel to and subscribe to my videos.

Tax Inquiry Delays Pick by Obama at Treasury

From the Wall Street Journal:

President Barack Obama's nominee for the top international post at the Treasury Department has been sidetracked by a Senate committee's investigation into her personal tax returns.

Lael Brainard, nominated in March as Undersecretary for International Affairs, is the latest Obama appointee to be tripped up by the Senate Finance Committee. Of particular concern is Ms. Brainard's use of a home-office tax deduction, according to people familiar with the inquiry.

The delay in considering her nomination has left empty a treasury position responsible for negotiating with foreign governments as the U.S. gears up for the Group of 20 summit later this month, a meeting expected to focus heavily on financial regulation and economic stimulus programs. It is also reviving questions about whether a rigorous vetting process has gone too far and hobbled the administration.

"We're into September and with no confirmed undersecretary it seems to me that's a serious disadvantage," said John B. Taylor, a Stanford University professor who served in the post from 2001 to 2005.

Ms. Brainard has been working at the Treasury on preparations for the G-20, people familiar with the matter say, but until she is confirmed she can't directly negotiate with foreign governments.

March on US Capitol to Protest Spending

Over the weekend, thousands of Americans marched to the U.S. Capitol to protest the Federal government’s heath care plan, and “out-of-control” spending habits. According to the Associated Press, “the line of protesters spread across Pennsylvania Avenue for blocks, all the way to the capitol, according to the D.C. Homeland Security and Emergency Management Agency.”

People were chanting "enough, enough" and "We the People." Others yelled "You lie, you lie!" and "Pelosi has to go," referring to California congresswoman Nancy Pelosi.

Demonstrators waved U.S. flags and held signs reading "Go Green Recycle Congress" and "I'm Not Your ATM." Men wore colonial costumes as they listened to speakers who warned of "judgment day" - Election Day 2010.

Richard Brigle, 57, a Vietnam War veteran and former Teamster, came from Paw Paw, Mich. He said health care needs to be reformed - but not according to President Barack Obama's plan.

"My grandkids are going to be paying for this. It's going to cost too much money that we don't have," he said while marching, bracing himself with a wooden cane as he walked.

FreedomWorks Foundation, a conservative organization led by former House Majority Leader Dick Armey, organized several groups from across the country for what they billed as a "March on Washington."

White House Reports 1 Million Jobs Saved, Created

A new report from White House’s top economists was published this morning and claims that over 1 million jobs have been saved or created by the Obama administration. The economists also said, however that the estimates must "be regarded as preliminary and understood to be subject to considerable uncertainty."

President Barack Obama has promised that his $787 billion stimulus plan will create or save 3.5 million jobs by the end of next year. But the economy has fared worse than the White House predicted when it pitched the jobs plan and officials have sought to beat back criticism that the results did not justify the huge combination of tax cuts, state aid and government spending.

In its first report to Congress on the stimulus, the White House Council on Economic Advisers said Thursday that the economy would have been far worse without the stimulus.

The report attributes the million job figure to the stimulus and other policy actions but says the driving force behind the job creation is the stimulus. Economists cautioned, however, that the estimates must "be regarded as preliminary and understood to be subject to considerable uncertainty."

The report is certain to draw criticism because the U.S. economy has actually lost about 2.5 million jobs since the stimulus was signed in February. Because the White House number is based on economic models, it's impossible to say for certain what that number would have been without the stimulus.

Managing Debt: Get A Grip on Reality

From the Examiner.com:

Whether you spend more than you make or have borrowed too much along the way, it’s time to realize that you’re not the only person who has made this mistake or is faced with the payoff battle.

Whatever your case is, if you’re serious about getting out of debt, the bottom line in doing so is training yourself to live on what you earn versus living on what you want. To do that, you’re going to have to make a few modifications.

All the energy previously put into a lifestyle that’s virtually unaffordable, now needs to be put into paying down the debt. Below are several tips to get started.

The first thing you need to do is set up a budget. This way, you’ll know exactly where your money goes. Be sure to allow funding for an emergency fund.

If your situation permits, work overtime or get a part-time job. All additional money should be used to pay down debt.

Have a yard sale. This will cost you nothing and anything earned should be used to reduce current debt.

If you eat out three or four times a week, limit it to one or two.

Make changes to non-essential expenses in order to save money each month. Cable can be reduced to basic channels or cancelled. Contact your wireless telephone service provider and ask for a plan to reduce your monthly payment.

Stop using credit cards. Getting out of debt means no more debt. The sooner you stop using credit cards the better. Use a calendar to mark off each day without using a credit card as an incentive to continue this positive habit.

Credit Scores: What You Need to Know Now

Most people wrongfully assume that they have only one set credit score that anyone who runs a credit check will see. However, as this Washington Post article discusses, the average American actually has several different credit scores that creditors use to decide if you will qualify for a line of credit or not. Read the very informative article, below.

Are you keeping score?

Credit scores have been getting a lot of attention lately, as lenders tighten credit standards and contend with new legislation that has, among other things, reined in how credit-card issuers can raise rates.

Meanwhile, several firms, preying on our insecurities, are pushing credit scores and credit-score-tracking services for a monthly fee.

For all the attention they generate, though, credit scores are largely misunderstood. For instance, your precise score matters only when you're in need of new debt, like a home, auto or education loan or a new credit card, which should be a fairly rare occurrence.

You don't have just one score, but many. Your FICO score, the one developed by Fair Isaac Corp. that runs from a low of 300 to a high of 850, will vary depending on which credit bureau is reporting it and the kind of lender that requested it.

So the score that costs you $15.95 at MyFico.com may not be the score your lender sees. Beyond that, the three credit bureaus— Equifax, Experian and TransUnion— sell their own proprietary scores.

Special IRS Web Section Highlights Important Credits and New Additions

The IRS posted this new press release recently highlighting back to school tax breaks, an expansion of the 529 plan, and the relatively new $2,500 college tax credit. Check out an excerpt of the release below.

The new Tax Benefits for Education section on IRS.gov includes tips for taking advantage of long-standing education deductions and credits. The “one-stop” location for higher education information includes a special section highlighting 529 plans and frequently asked questions. The Web section also features two key changes that will be in effect during 2009 and 2010 that were included in the American Recovery and Reinvestment Act (ARRA), enacted earlier this year.

One change allows families saving for college to use popular 529 plans to pay for a student’s computer-related technology needs. Under the other change, more parents and students will be able to use a federal education credit to pay part of the cost of college using the new American opportunity credit.

“With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can,” said IRS Commissioner Doug Shulman. “529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans. In addition, the new American opportunity credit can help many parents and students pay part of the cost of the first four years of college.”

Latest Good Reads:

Joint Tax Committee Releases Tax Reports

Income Gap Shrinks in Slump at the Expense of the Wealthy

The Last Word

Education, Taxes and the Future Of Democracy In the US

Cigarettes vs. Coffee - Which Is Financially Worse For You?

Treasury Department Releases Analysis of Section 529 College Savings Plans

Taxpayers Face Heavy Losses on Auto Bailout

A new report coming from a congressional oversight panel suggests that a majority of the $81 billion given in the auto bailouts last year may never get paid back. This means that U.S. taxpayers will have taken a decent loss in order to keep the American auto industry from collapsing.

The Congressional Oversight Panel did not provide an estimate of the projected loss in its latest monthly report on the $700 billion Troubled Asset Relief Program. But it said most of the $23 billion initially provided to General Motors Corp. and Chrysler LLC late last year is unlikely to be repaid.

"I think they drove a very hard bargain," said Elizabeth Warren, the panel's chairwoman and a law professor at Harvard University, referring to the Obama administration's Treasury Department. "But it may not be enough."

The prospect of recovering the government's assistance to GM and Chrysler is heavily dependent on shares of the two companies rising to unprecedented levels, the report said. The government owns 10 percent of Chrysler and 61 percent of GM. The two companies are currently private but are expected to issue stock, in GM's case by next year.

The shares "will have to appreciate sharply" for taxpayers to get their money back, the report said.

For example, GM's market value would have to reach $67.6 billion, the report said, a "highly optimistic" estimate and more than the $57.2 billion GM was worth at the height of its share value in April 2008. And in the case of Chrysler, about $5.4 billion of the $14.3 billion provided to the company is "highly unlikely" to ever be repaid, the panel said.

Continued at APNews.MyWay.com…

Obama: Explore soda tax

From the Times Union.com:

In an interview with Men’s Health Magazine, President Barack Obama says that the government ought to explore the idea of taxing soda or other sugary drinks, using essentially the same arguments that Gov. David Paterson used when he was pushing for the soda tax — that soda contributes to obesity.

In the end, the public didn’t like the idea of the tax and Paterson took it off the table early on in the budget process.

Obama also acknowledges the political difficulty of passing such a tax.

From the story:

“I actually think it’s an idea that we should be exploring,” the president says. “There’s no doubt that our kids drink way too much soda. And every study that’s been done about obesity shows that there is as high a correlation between increased soda consumption and obesity as just about anything else. Obviously it’s not the only factor, but it is a major factor.”

But even the most powerful man on the planet needs to keep an eye on what’s politically feasible: “Obviously there is resistance on Capitol Hill to those kinds of sin taxes,” he says. “Legislators from certain states that produce sugar or corn syrup are sensitive to anything that might reduce demand for those products. And look, people’s attitude is that they don’t necessarily want Big Brother telling them what to eat or drink, and I understand that. It is true, though, that if you wanted to make a big impact on people’s health in this country, reducing things like soda consumption would be helpful.”

Report: Americans More Stressed About Finances

Even though the housing market seems to be improving and the trouble on Wall Street has settled down, reports are showing that Americans are more stressed now about their finances than they have been in nearly a year. As such, consumer confidence is at a yearly low (38.1) according to the September Consumer Reports Index. Check out the following article explaining why confidence is continuing to decline courtesy of Biz Journals.com.

Increased credit card, health care and personal loan issues are the drivers behind their dour demeanor.

When the index is greater than 50, more consumers are feeling positive about their situation. When it is below 50, more consumers are feeling worse.

On a positive note, shopping for big-ticket items such as a home or car looks strong for September, the report noted.

"Despite the negative forces consumers are facing, we have seen some stabilization and improvement in key indicators that suggest we could see an improvement in consumer sentiment over the next month," said Ed Farrell, director of the Consumer Reports National Research Center.

Consumer Reports Trouble Tracker found almost 38 percent of Americans have experienced at least one major negative personal finance event in the last 30 days.

More Than 350,000 Homeowners Aided by Federal Mortgage Program

According to reports released this morning, federal mortgage programs have aided a surprisingly large amount of homeowners in the country. So far, over 300,000 families have been helped by the program, which is getting close to President Obama’s goal of half a million. Check out the following clip from a WashingtonPost.com article on the topic.

Lenders have helped more than 350,000 homeowners reduce their monthly mortgage payments through a federal foreclosure prevention program, according to government data released Wednesday morning.

That brings the industry closer to meeting the Obama administration's goal of modifying the loans of at least 500,000 borrowers by Nov. 1. But the data illustrate that some large lenders continue to struggle to address the backlog of homeowners in need of help.

Under the federal program, known as Making Home Affordable, lenders are paid to lower the payments of troubled borrowers. Consumer advocates and homeowners have complained that it's still difficult to reach lenders for help and confusion remains about how the program works.

Since the initiative was launched in March, 12 percent of delinquent borrowers have received help under the program, according to the Treasury data. That is up from less than 10 percent last month.

President Instructs IRS to Give Americans Easy Tax Time Option to Save

In the president’s weekly address last week, he made a big announcement about IRS forms. Starting in 2010, taxpayers will be allowed to purchase U.S savings bonds while filling out their tax return, simply by checking one box next time you fill out an IRS Form 1040. This will allow the IRS to use funds from your refund to order between $50 and $5,000 worth of savings bonds. According to Obama, “We have to revive this economy and rebuild it stronger than before. And making sure that folks have the opportunity and incentive to save. . .is essential to that effort.”

"We are thrilled to see the option to purchase U. S. Savings Bonds with tax refunds returned to the tax form," said Peter Tufano, a Harvard Business School professor and chairman of the not-for-profit Doorway to Dreams (D2D) Fund which has been working to restore the purchase option, removed from Form 1040 in 1968. "Saving is difficult for most people, as evidenced by low U.S. savings rates in the last few decades. Research shows that making it easy for people to save can boost savings, helping people take care of themselves and their families. The Obama administration is giving over 100 million refund recipients a universal, simple, and solid savings option."

"The process of buying a bond at a bank can be time-consuming and unfamiliar. Now the low and moderate-income clients we serve will have an easy way to create savings by checking a box," said Courtney Noble, United Way of King County Tax Campaign Manager and member of the Savings Bond Working Group, who, along with community-based groups nationwide worked with D2D and the Treasury Department on this project. "Moreover, enabling people to save at tax-time -- when refunds often give people the most money they will have all year -- will cultivate savings habits."

Continue reading at PR News Wire…

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.

Time Running Out for Bipartisan Health Compromise

With diminishing public support, time is running out for Obama to get his health care reform bill through Congress. Now that the holiday weekend is over, lawmakers are back to work and are trying to come up with a compromise in order to get the bill passed. Check out the following article explaining the latest activity on Capitol Hill courtesy of the Associated Press.

In a fresh sign of divisions in the president's own party, a key House Democratic moderate said he can no longer support legislation that includes a new public insurance plan to compete with private industry.

And in the Senate, any hope of bipartisan agreement hung in the balance as a small group of negotiators on the pivotal Finance Committee prepared to meet in a last-ditch effort to reach consensus on a compromise bill.

Rep. Mike Ross, D-Ark., took the lead in July in negotiating changes to House Democrats' health overhaul bill to make it more palatable to moderates. He voted for it in committee with a public plan — something most House liberals say they can't do without.

But Ross said Tuesday that after hearing from constituents during the August recess he could not support a bill with a public plan.

"If House leadership presents a final bill that contains a government-run public option, I will oppose it," Ross said.

Can Budget-Strapped California Afford More Wildfires?

My struggling home state of California took another hit the past week, as rampant wildfires consumed trees, houses, buildings, etc. As such, the State has been forced to spend millions of dollars on supplies and labor fighting the fires, and assisting evacuees. However, as this article on Time.com pointed out, many are wondering how the budget problem riddled state can afford these expenses?

For more than a week, much of the Angeles National Forest has been an inferno as a ferocious fire, spurred by abnormally high temperatures and single-digit humidity, ripped through steep canyons, dense brush and forest untouched by flames for 60 years. The advancing fire has cut a moonscape swath through the middle of the mountain range that forms a barrier between the greater Los Angeles area and the Mojave Desert.

In addition to the lost lives of two firefighters, 76 destroyed homes and thousands of evacuees, the fire's financial toll has climbed to nearly $45 million. That has been the cost so far of a ground and air assault on the nearly 160,000-acre Station Fire, as it has been called, with more than 4,000 firefighters working the fire lines and an air fleet of 12 helitankers, seven helicopters and 11 airplanes — including a Boeing 747 and a DC-10 — pouring thousands of gallons of fire retardant on blazing hillsides. Only heroic work by firefighters saved the historic Mt. Wilson Observatory located 5,700 feet above Pasadena. (See pictures of this year's wildfires in California.)

But this season's firefighting in California comes just as the state has made vast and deep cuts in nearly all services to balance its books. Can California afford to fight fires given its budget woes? And when does the federal government step in? (What things should you save if your home is threatened by fire?)

The Jobless Stimulus: It's still not too late for business tax cuts

From the Wall Street Journal:

The recession may be over on Wall Street and Silicon Valley, but on Working Family Avenue it still has a ways to run. That's the lesson of yesterday's August jobs report that showed losses of 216,000, which believe it or not is the slowest monthly decline in a year and caused the White House to praise with the faint damn that the "trajectory is in the right direction." That's the good news.

On the other hand, the jobless rate popped up to 9.7%, the highest rate in 26 years, from 9.4%, reflecting an increase in the size of the labor force. The main concern we see going forward is the slow pace of new job creation to soak up the 7.4 million workers who have lost jobs since 2007.

There are now 26 million Americans who can't find a full-time job. Average weekly hours remained at an abysmally low 33.1—which is putting a strain on family budgets. And the jobless rate including so-called discouraged workers, or those who have stopped looking, leapt to 16.8% from 16.3% in July. Meanwhile, the number of Americans working part-time who want full-time work increased by 278,000 to 9.1 million, which as a share of the workforce is larger than at any time since the recession of 1982. These are the workers that employers will tend to hire first as a recovery unfolds, so it is worrisome that this cohort remains so large.

None of this does much for the credibility of the Obama Administration's stimulus spending plan, which was sold with the promise of a jobless rate this year of "below 8%" if the stimulus were passed. That was off by some three million jobs in a mere seven months. The same economists who fretted in February that $780 billion in stimulus was too small now claim that the $300 billion or so that has been spent has somehow ignited the recovery.

Popular Tax Myths About the Health Care Reform Legislation

This week President Obama intends to address Congress to encourage them to pass their health care reform bill. However, with recent polls showing that a majority of Americans either moderately or strongly oppose the current legislation, getting members of Congress to vote in favor of it is going to be difficult. As the debate continues, it seems like television commercials and e-mail blasts are going out left and right to either promote or discredit the bill. To help people confused by some of the claims being made in these advertisements I have put together the following list of the top tax myths about the health care reform bill.

The Bill is Fully Funded

President Obama has repeatedly claimed that the health care overhaul will be paid for, and that he would not sign a bill that is not "deficit-neutral." The plan to raise taxes on the top income earners is expected to generate $239 billion in additional federal revenue over the next ten years. However, the reform is expected to cost more than $600 billion. Obama stated that his team has identified cuts to pay for the rest of the bill, including cuts to Medicare and payments to insurers and practitioners. However, these cuts are quite unpopular and have a history of never coming to fruition. This has left many wondering if Obama will go back on his promise and sign a bill that will increase the national debt and ultimately lead to additional tax increases.

US Taxpayers will Pay for Heath Care for Illegal Immigrants

Although there has been speculation that over 5 million illegal immigrants will be covered by Obama's health care plan, it is almost entirely a fabrication. The bill drafted by the House of Representatives specifically says that no money will be spent giving illegal immigrants health care. H.R. 3200: Sec 246 claims "nothing in this subtitle shall allow Federal payments for affordability credits on behalf of individuals who are not lawfully present in the United States."

The Government Health Agency will have Unlimited Access to Taxpayer's Financial Information

The myth that the government's new health care agency will have access to every American's financial information has been making the rounds for a few weeks. The actually legislation does allow the government to get certain information about taxpayers attempting to qualify for health benefits. However, the bill limits the information that can be requested to "(i) taxpayer identity information with respect to such taxpayer, (ii) the filing status of such taxpayer, (iii) the modified adjusted gross income of such taxpayer (as defined in section 59B(e)(5)), (iv) the number of dependents of the taxpayer, (v) such other information as is prescribed by the Secretary of regulation as might indicate whether the taxpayer is eligible for such affordability credits (and the amount thereof)." Additionally, the bill also limits the use of the information to only establishing and verifying the appropriate credit, "and providing for the repayment of any such credit which was in excess of such appropriate amount."

Employers Not Offering the Public Option will Pay an Additional 8% Tax

This myth is actually somewhat based in fact, except is has been exaggerated slightly. The current health care bill does require employers to either offer private health benefits or help pay for the public option through additional taxes. Employers with annual payrolls over $400,000 will have to pay 8%, and those with payrolls between $250,000 and $400,000 will pay a lesser amount. However, employers with payrolls under $250,000 will not have to pay an additional tax or be forced to offer health benefits.

Taxpayers without Acceptable Health Care will Pay 10% or More in Taxes

As part of the health care package, there is a mandate requiring everyone to have insurance. Therefore, those without acceptable coverage will have to pay a penalty. There have been dozens of rumors swirling around that this penalty could exceed 10% or more, however the actual bill calls for a penalty of 2.5% of a taxpayer’s adjusted gross income, not exceeding the national average premium for individual coverage.

Estate Taxes will be Locked in Before a Taxpayers Death

This claim, along with others of a suicide council, are all misinterpretations of a provision to the House's bill asserting that Medicare will cover voluntary end-of-life counseling sessions between seniors and their doctors. These sessions can include topics such as hospice care, creating a living will, etc. However, there is no mention of forcing taxpayers to lock in their estate taxes while on their deathbeds.

IRS Tax Audit Myths

A few weeks ago a handful of employees from Roni Lynn Deutch, A Professional Tax Corporation and Roni Deutch Tax Center® got together to put together a series of educational videos. The first episode was published over the weekend, and I wanted to make sure and share it with all of you. Check out the embedded video below, where James discusses common IRS audit myths. Also, be sure to stop by my YouTube channel to subscribe to my video feed!

Questions for the Tax Lady: September 7th, 2009

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 recently received a settlement through mitigation. Is this money is going to be considered taxable income.

Yes, it will most likely be taxable income. The only settlements that you do not need to claim as income are those resulting from a physical injury. Therefore, any awards for discrimination, emotional distress, etc., should be considered income. Likewise, if you receive any settlement from a contractual dispute then it will also need to be reported on your income tax return.

I highly recommend speaking with a tax professional if you recently received a settlement and are confused about how to report it to the IRS.

Question #2: I need to get a copy of my tax return from last year for a home loan, but I cannot find it anywhere. Is it possible to get a copy from the IRS?

Yes. If you need to get a photocopy, or computer transcript, of your last tax return you can get it from the IRS for free. Just call 800-829-1040 or file Form 4506-T (Request for Transcript of Tax Return) with the IRS. Additionally, if you need an actual copy of a processed return then you will need to file IRS Form 4506 (Request for Copy of Tax Form) and pay a $57 fee.

Obama Would Keep $85 Billion in Tax Breaks for Working Poor

In the latest news from Capitol Hill, Obama has proposed to adding over $85 billion to the national deficit in order to extend two tax breaks for the working poor over the next two decades. Critics are saying this comes as a direct violation of Obama’s promise to only support fiscally neutral policies.

The tax breaks were included in the economic stimulus package Obama signed soon after taking office in January and are scheduled to expire in 2011. But last week, in its midyear update of the federal budget, the White House said it plans to extend the tax cuts through 2019 without covering the cost by cutting spending or raising taxes elsewhere.

The reason? Technically, the stimulus amended a series of sweeping tax cuts enacted in 2001 during the Bush administration. Obama has repeatedly said he does not expect Congress to cover the enormous cost of maintaining the Bush tax cuts past their 2010 expiration date. And because the stimulus provisions are now part of the Bush tax cuts, Congress shouldn't have to pay for them, either, White House budget documents say.

"Since these two policies… represent expansions of tax cuts first enacted in the 2001 tax bill, extension of the policies are incorporated in the baseline projection of current policy," the documents explain in a footnote.

Continue reading at Washington Post.com…

How to get High Quality Tax Service

Earlier this week the Roni Deutch Tax Center – Tax Help Blog posted helpful new article with tips on how to get high quality tax services. As the blog entry explains, it is very important to seek out competent tax professionals, as making a mistake on your return can result in thousands of dollars in missed deductions, or even IRS underpayment penalties.

1. False Guarantees

Always beware of a tax preparation office that guarantees you a large refund without even reviewing your financial information. They could be trying to mislead you. Alternatively, they might have the intention of using false claims to get you a refund no matter what. All of our tax professionals are committed to getting you the biggest refund possible, and can typically provide a free estimate over the phone. Check out our locations page to find the phone number to your nearest Roni Deutch Tax Center.

2. Ask What They Need

When you do call and speak to a tax preparer over the phone you should always ask them what they need from you. It is a huge red flag if they tell you they do not need much information from you, or if they rush you off the phone. In order to provide you with an estimate they should ask you a variety of questions to determine what credits and deductions you qualify for.

3. Know What You Need

Depending on how complicated your tax return is, you may have to seek out a professional qualified to prepare it. If you are a wage earning employee and do not own a house, then most tax preparers will probably be able to assist you. However, if you have a complicated business return, then you might want to call around and find a professional experienced with business taxes.

Continued at RDTC.com…

California Senate Approves Tax on Health Insurers

California lawmakers went forward with a $196-million plan yesterday to keep nearly 700,000 children on the State’s Healthy Families program. The State Senate passed the measure which taxes health insurance companies in order to fund the program. Check out the following article on the recent development courtesy of LA Times.com.

Reporting from Sacramento - State lawmakers pushed forward Wednesday with a $196-million plan to keep nearly 700,000 children from being yanked off a government health insurance program for the working poor.

The state Senate passed a measure to create a new tax on insurance companies and bring in federal money to rescue the decade-old Healthy Families program, which had been cut deeply in recent months as lawmakers scrambled to balance the state budget.

Assembly officials expressed confidence that they would garner the needed two-thirds vote in the lower house, where the bill is expected to be taken up today. Administration officials said Gov. Arnold Schwarzenegger would sign the measure.

"Sitting on our hands in this situation is not an option for California's children," said state Sen. Dave Cox (R-Fair Oaks), one of three Republican lawmakers to break ranks with tax-wary GOP colleagues and join with the majority Democrats in approving the measure 27 to 8.

U.S. Consumer Bankruptcies Rose 24 Percent in August

From Bloomberg.com:

U.S. consumer bankruptcy filings rose 24 percent in August from the previous year to 119,874, according to the American Bankruptcy Institute and National Bankruptcy Research Center.

“Consumers continue to turn to bankruptcy as a shield from the sustained financial pressures of today’s economy,” said Samuel Gerdano, the executive director of the American Bankruptcy Institute. “As a result, we expect consumer filings to top 1.4 million this year.”

While the August figure was an increase over the prior year, filings declined from July’s total of 126,434, the groups said in a statement.

The current wave of consumer bankruptcies has swept up celebrities such as actor Stephen Baldwin, former baseball player Lenny Dykstra and celebrity photographers Markus Klinko and Indrani Pal-Chaudhuri.

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Wireless Group Wants Repeal of Cell Phone Tax Law

Wireless association CTIA is the latest group to support new legislation attempting to repeal the 20 year old cell phone tax. It is supposed to be levied on the personal use of employer provided cell phones, but there is a lot of confusion about how these taxes should be calculated. As such, several groups have spoken out against the law, including the IRS Commissioner.

"The alternatives [to legislation] proposed by the IRS are either incomplete or inadequate solutions that would continue to subject employees and employers to onerous call log requirements," CTIA President Steve Largent said.

CTIA counts among its members the country's largest wireless companies – Verizon Wireless, AT&T Inc., Sprint Nextel Corp., and T-Mobile USA. Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone PLC. T-Mobile is a unit of Deutsche Telekom.

The IRS is collecting comments on the cell phone-tax law. In June, IRS Commissioner Doug Shulman asked Congress to repeal it, calling it "obsolete."

Mr. Shulman's statement signaled a quick turnabout for the IRS, which had earlier proposed that employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax.

Continued at the Wall Street Journal…

Pending Home Sales Hit 6th Straight Increase

Yesterday a new report was published with more good news for the real estate market. According to the study, more Americans bought homes in July than in June, which represents the sixth straight month that there was an increase in home sales. Many experts claim that the increase is a direct result of the first-time homebuyers credit that expires at the end of the year. Checkout the following article from CNN on the recent findings.

The pending home sales index from the National Association of Realtors rose 3.2% in July after rising by 3.6% in June. That's 12% higher than July 2008, and it marks the sixth straight increase since record-keeping began in 2001.

The reading far exceeded forecasts of economists surveyed by Briefing.com, who predicted a 1.5% increase. Signed real estate contracts often take many weeks or months to complete, so they are considered a forward-looking indicator.

Momentum in the housing market has clearly turned for the better, said NAR chief economist Lawrence Yun, in a written statement.

"The recovery is broad-based across many parts of the country," Yun said. "Housing affordability has been at record highs this year with the added stimulus of a first-time homebuyer tax credit."

The first-time homebuyers tax credit, passed earlier this year as part of the economic stimulus package, is worth 10% of the home purchase price up to $8,000. People who have not owned a home in the previous three years are eligible for the credit.

However, the tax credit expires on Nov. 30 and it usually takes about 90 days to close on a house after a contract is signed. As of Sept. 1, there were only 90 days left before the credit ends.

Mortgage Data could Help Catch Tax Cheats

According to a new article on Reuters.com, the Federal government could generate up to $1.4 billion in additional tax revenue by comparing mortgage interest statements from banks, with the deductions taken by taxpayers on their returns.

The Internal Revenue Service uses mortgage interest statements, known as 1098 Forms, to catch tax cheats. But a review of 200 samples for 2005 estimated that the agency may be missing tens of thousands of taxpayers who are not reporting or underreporting their income, the Treasury inspector general for tax administration said in a report.

"A large number of individuals are paying a significant amount of mortgage interest and either are not filing tax returns or are filing tax returns indicating their income is not sufficient to cover their mortgage obligations and basic living expenses," said the report, dated August 6.

"The considerable difference between expenditures and income raises very serious questions about whether these taxpayers have additional sources of income that should have been reported on their tax returns," it continued.

The IRS, in a response included in the report, said it agreed with the recommendation that it make greater use of mortgage interest data to track tax evaders. The report did find that the IRS collected $276 million from delinquent taxpayers based on mortgage data from 2005 returns.

'Girls Gone Wild' Producer Sues Former Employees over Tax Evasion Charges

From the LATimes.com:

"Girls Gone Wild" empire founder Joe Francis is blaming his tax troubles on a trio of former employees in a new lawsuit.

The complaint, filed in Los Angeles Superior Court on Tuesday by "Girls Gone Wild" production company Mantra Films, alleges that the firm's former chief financial officer Michael Barrett, former head of technology Roman Pelikh and former vice president of operations Will L'Heureux defrauded Mantra and falsely accused Francis of tax evasion.

The lawsuit charges that the three formed their own company, WMR Marketing, and hid their involvement in it as they approved fraudulent invoices it submitted to Mantra worth nearly $500,000. It also claims that Pelikh submitted and obtained reimbursements for hundreds of thousands of dollars of fraudulent expense reports.

It claims that the three contacted the Internal Revenue Service to falsely accuse Francis of tax evasion, a charge for which he was indicted in 2007, in order to remove "the possibility that Francis could catch the ongoing fraud and theft." The trial for those charges will reportedly start in October. It's one of numerous legal problems in which Francis has found himself in recent years.

The lawsuit asks for at least $5 million in damages.

A person who answered a phone number listed for Pelikh hung up when contacted by The Times. Barrett and L'Heureux could not be located.

The Pros and Cons of Loan Modifications

As announced by this new press release, my law firm has begun offering loan modification services in addition to tax debt resolution. As the country’s economy continues to lag, and more and more jobs are being cut, thousands of families are turning to loan modifications to stay in their homes. Unfortunately, there is a lot of confusion in the industry, so to help my blog readers who might be considering a loan modification I have put together the following list of pros and cons.

Pro: Avoiding Foreclosure

For many families, the biggest incentive to get a loan modification is to avoid being forced into foreclosure or even bankruptcy. By modifying the terms of your loan, you can reduce your monthly payments without loosing your home.

Con: Confusing Process

The loan modification process is actually more like a tangled web of arguments, negotiations, and presentation of evidence. It can take months to reach any type of settlement, and involves dozens of phone calls, countless letters, and hours of direct negotiation. Fortunately, if you hire a professional then they can handle all of this on your behalf.

Pro: Professional Help

As I mentioned before, modifying the terms of your loan is a confusing process. However, by hiring a professional you can relax while some one else fights with your lender to renegotiate the terms of your loan. Additionally, a professional loan modification company will have more experience with the process, and can often obtain better settlements then a consumer could negotiating on their own. For more information on the loan modification services offered by my law firm, checkout this page on RoniDeutch.com.

Con: Time Consuming

Loan modifications can take weeks, or even months depending on your bank or lender. For this reason, you should begin the loan modification process as soon as you realize that you can no longer afford to make your mortgage payments. If you wait until the foreclosure process has already begun, then it can make modifying your loan more difficult.

Pro: Affordable Monthly Payments

The main goal of a loan modification is to reduce your monthly payments so that you can afford to stay in your house. This can be done either through reducing your principal amount, or reducing your interest rate. Either way, the end result is an affordable monthly payment.

Con: Affect on Credit

Although a loan modification itself will not impact your credit, missed mortgage payments will. Therefore, if it takes a few months to negotiate a loan modification and you accidentally miss a mortgage payment then it will hurt your credit.

Pro: Cancelled Debt is NOT Taxable

Unlike cancelled credit card debt, the IRS does not consider cancelled mortgage debt taxable income. Therefore, if part of your loan modification includes a reduction of your principal loan amount, then you will not need to worry about paying taxes on it. For more information on the topic, check out this entry on the Roni Deutch Tax Relief Blog titled Tax Implications of Mortgage Loan Modifications.

IRS Corporate Audit Division Will Examine UBS Tax Evasion Cases

When the average taxpayer gets audited by the IRS, they usually get contacted by a regular IRS revenue office. However, this is not the case for those who are being audited as a result of the recent UBS settlement. According to Bloomberg.com, the IRS has created a new division for auditing wealthy Americans suspected of evading taxes offshore as part of an effort to get every dollar they are owed.

The tax agency posted internal job listings yesterday seeking auditors to work for a newly created office within its Large and Mid-Size Business division that will be tasked with monitoring what it called the “global high-wealth industry.”

The move centralizes responsibility for auditing wealthy individuals suspected of offshore tax evasion in a unit with the most experience navigating international tax treaties and untangling complex cross-border business structures.

“That’s where the most sophistication is at IRS,” said Michael Murphy, a former deputy IRS commissioner who is now a consultant for the law firm Sutherland Asbill & Brennan LLP in Washington.

Responsibility for auditing wealthy individuals is currently split among IRS divisions devoted to small businesses and self-employed wage earners and investors, which don’t have as much experience in cross-border transactions, Murphy said.

The IRS says it anticipates handling up to 10,000 new cases related to UBS, including thousands of people who come forward voluntarily in exchange for reduced penalties before Sept. 23.

Cities Brace for a Prolonged Bout of Declining Tax Revenues

A new study released today by the American League of Cities shows that local tax revenues are decreasing for the first time in 7 years. As if it was not bad enough, the same study also predicts that revenue will continue to decrease for up to two more years. Check out the following story below on the recent findings courtesy of the Wall Street Journal:

Weak growth in property taxes, reflecting soft housing prices, did not counterbalance sharp declines in other sources of income, including sales taxes, income taxes and state aid, according to a survey of 379 league member cities.

Overall city revenues declined by 0.4%, even as expenses rose 2.5%, and city officials expect steep drops in tax collections in the next two years, making for the worst outlook in the 24 years the group has been surveying its members. Western cities were particularly downbeat.

The gloomy mood "is indicative of the depths of the downturn, that they have the worst ahead of them, and the fact that the recession is universally hitting their revenue sources," said Chris Hoene, research director for the league.

Because employee wages, health care and pensions are a major component of municipal budgets, two-thirds of the cities reported hiring freezes or layoffs. Almost as many cities said they were postponing big construction projects.

IRS Says Retired Steeler Owes $631K in Back Taxes

From the Associated Press:

The Internal Revenue Service is alleging that a Pittsburgh Steelers Hall of Famer owes more than half-a-million dollars in back income taxes.

The IRS filed a civil action Monday in federal court in Pittsburgh. It accuses Mel Blount of owing more than $631,000 in federal income taxes between 1994 and 2006.

A summons for Blount has been mailed to the Mel Blount Youth Home, about 30 miles southwest of Pittsburgh. He could not immediately be reached for comment.

The 61-year-old Blount was a key member of the Steelers' first four Super Bowl teams, and his 57 career interceptions remain a team record.

Blount retired in 1983 and was enshrined in the Pro Football Hall of Fame in 1989 — the same year he established the youth home near Claysville.

How To Become a Debt-Free Single Parent

Healthy finances are important for any family, especially those led by only one parent. Earlier today I came across this interesting article on Examiner.com explaining how single mother’s can work to become debt free, and I think that the tips are relevant to any one raising a child on their own. Checkout a snippet of the article below.

1. Save $1000 in an emergency fund: You should save this money as fast as possible by paying only minimum payments on all your debt, and putting every last penny into savings. The money should be kept in a liquid (easy to access) account such as a normal savings account. Additionally, the money should be used only in an emergency. That new purse or pair of shoes doesn't count, sorry!

2. Become debt-free using the debt snowball: Dave's debt snowball idea is a simple tool that means to list every single debt from smallest to largest, and attack the smallest one first. You don't have to include your house in this section. Again, you will pay minimum payments on every debt. Except this time, any extra money will go towards your smallest debt. Once that one is paid (Yay!), you move on to the next and so forth. This step requires that you create a written monthly budget ahead of time to track where your dollars will go.

3. Build your emergency fund to include 3-6 months of expenses: Now that you are debt free, where will all your money go? You need to return to your $1000 emergency fund and build it to cover you in case you lose your job or have another large emergency.

4. Invest 15% of your income into Roth IRA's & pre-tax retirement: Many financial planners advise you to save for retirement as soon as possible. Dave's view is that you'll only be able to invest a small amount if you're also paying off debt. In addition, he wants you to retire debt-free. Otherwise you'd have a big retirement account, and a lot of debt to pay off as well. By paying off your debt first, you are able to invest at least 15% of your income and build your retirement account faster.