The Bush Tax Cuts and Small Business Owners

The Economic Growth and Tax Relief Reconciliation Act of 2001, and the Jobs and Growth Tax Relief Reconciliation Act of 2003, are the two pieces of legislation that are commonly referred to as the Bush tax cuts. They offer different forms of relief to most taxpayers in this country, and have been getting plenty of attention in the media as pressure mounts on Congress to either extend the tax laws, or let them expire at the end of the year. However, reporters and bloggers are focusing on the effect these cuts have had on small business owners specifically, as unemployment problems continue to hinder economic recovery.

Tax Rates and Incentives

The two pieces of legislation from the early 2000’s had a handful of effects on U.S. tax law. They reduced the “marriage penalty,” provided incentives to parents and low income working Americans, and also increased credits for education and retirement saving accounts. Most importantly, however the cuts reduced tax rates across the board. The Economic Growth and Tax Relief Reconciliation Act created six tax brackets based on income level (10%, 15%, 25%, 28%, 33%, and 35%). If the laws expire, the 10% bracket would disappear, and the brackets would revert back to 15%, 28%, 31%, 36% and 39.6%. This would represent an increase for nearly all Americans who pay taxes. Additionally, changes to itemized deduction phase outs could eliminate up to 80% of deductions for higher income taxpayers.

Capital Gains and Qualified Dividends

The 2001 and 2003 tax cuts also reduced the maximum tax rate on capital gains and qualified dividends from 20% to 15%. If allowed to expire, the top capital gains rate would return to 20% and qualified dividends would be taxed at the same rate as a taxpayer’s income, or up to 39.6%.

Looming Expiration

Unless extended, the Bush tax cuts are scheduled to expire at the end of the year. If Congress fails to act before they take their winter break, then the tax rates will automatically revert to what they were in 2000. Some experts are asserting that extending all of the cuts would provide a temporary economic stimulus, however the Congressional Budget Office asserts doing so would only have a slight impact on the economy. Others are warning that letting all the tax cuts expire could hurt small business owners, and hinder job creation.

Obama's Proposal

Instead of choosing to extend the cuts, or let them all expire, the White House has proposed a compromise. President Obama would like to extend all of the cuts for low and middle income Americans, while letting the cuts that impact taxpayers making over $200,000 ($250,000 for joint filers) expire.

Small Businesses and Job Creation

One of the most confusing aspects of the Bush tax cuts is how they will affect business owners, and the ongoing unemployment problem in this country. Many conservative experts have argued that even letting only the cuts that affect high-income taxpayers would hurt the recovering economy. Senator Orrin Hatch even said that allowing the cuts to expire would amount to "a job-killing tax hike on small business during tough economic times."

This statement is somewhat misleading. We can assume that a business owner making over $200,000 does not own a mom-and-pop store in a struggling neighborhood. Although 24% of taxpayers report some income from a business, only about 2.5% of Americans – or 900,000 taxpayers – would be affected Obama’s proposal. However, that 2.5% reports an estimated $400 billion in income, or nearly 44% of all business income in the country.

Impact on Larger Businesses

It is also important to note that there are over half a million taxpayers in the country who report business income over $700,000. These taxpayers would be significantly impacted by Obama’s proposal to let some of the Bush tax cuts expire. In addition to an increased income tax rate, they would also be hurt by capital gains tax increases, and the new deduction phase-outs. Although not technically small business owners, these doctors, investors, or successful owners of multiple franchise locations, employ a number of taxpayers.

Unemployment Problems

Although it is easy to review statistics from the IRS regarding income levels, it is difficult to predict exactly what impact the tax cuts have on job creation and unemployment. Some claim that any additional taxes would stop a business owner from hiring more employees. Others argue that the revenue from letting some cuts expire would lead to less government borrowing, and a better economy where small business credit is more easily accessible.

Federal Revenue

If Congress went with President Obama’s proposal and passed legislation allowing the Bush tax cuts to expire for taxpayers earning over $200,000 ($250,000 for joint filers), this it could generate an estimated $1.5 trillion in federal revenue over the next 10 years.

Future of the Bush Tax Cuts

When Congress returns after Labor Day, they will have a hand full of tax issues to consider, including the Bush tax cuts. However, with elections in only a few months, there is a lot of pressure on members of Congress to act a certain way. With the Democratic Party fighting to keep their majority, we might see a politically motivated compromise designed to please taxpayers.

Loan Picture Improves but Troubles Remain: FDIC

For the first time in four years, loans that are 90 days or more past due have decreased instead of increased. While this is no doubt a good sign for the housing industry, it comes just days after the National Association of Realtors reported a record 27% drop home sales.

According to Reuters the Federal Deposit Insurance Corp earned $21.6 billion during the quarter largely due to banks putting away less money to cover expected loan losses.

During the first quarter, the industry earned $17.8 billion.

In other signs of improvement, the total assets of banks characterized as "problem" institutions fell during the quarter to $403 billion from $431 billion, and the FDIC's insurance fund increased by $5.5 billion during the quarter.

But there are still troubling indicators.

Loan balances continued to decline during the second quarter, with net loan and lease balances declining by 1.3 percent. Loans to small businesses and farms -- a major focus of the Obama administration -- fell by 1.8 percent during the quarter.

Odds Brightening For Tax Cut Extension

While America waits for Congress to return from their summer break, experts are weighing in on whether the Bush tax cuts will be extended or not. As the January 1^st deadline approaches, the lack of information about tax rates for 2011 is frustrating many taxpayers.

Forbes reports:

On Jan. 1, 2011 the top income tax rate on ordinary income and dividends will go back to 39.6%, the top tax rate on capital gains will revert to 20%, and the top tax rate on estates will go back to 55%. Some in Congress want to extend the tax cuts for everyone, some want to extend them but not for the "rich," and others want to hold the dividend tax rate to 20%. These decisions make a huge difference to American business. But rather than putting it up for a vote, Congress is playing political games.

Our best guess is that, ultimately, all the current tax rates on regular income, dividends and capital gains get extended for another year. When this happens remains a major mystery, and no matter what we say or think, uncertainty about all of this remains extremely high.

Ideally, it would happen before the election this year. But this would require President Barack Obama and the Democrats to turn dramatically, just when the public is paying more attention to politics. It would look opportunistic, demoralize some liberal voters and undermine the Democratic position that tax rates on the rich don't matter that much to the economy.

How about in a lame duck session? If the consensus is right and Republicans take the House and make large gains in the Senate, it would give Democrats a chance to say they are listening to the voters. But in a lame duck session, Speaker Nancy Pelosi would still rule the House with little to no incentive to do the heavy lifting needed to pass a bill.

Continue reading at Forbes.com…

Consumer confidence rises in August

From CNNMoney.com:

A key measure of consumer morale made a surprising turn higher in August, but Americans still feel jittery about the economy.

The Consumer Confidence Index rose to 53.5 in August, from July's upwardly revised level of 51.0, the Conference Board, a New York-based research group that compiles the index, said Tuesday.

The rise follows two months of losses and beats the drop to 50 that economists surveyed by Briefing.com were expecting. But the index is still painfully low, falling far below 90 -- a level that typically indicates a stable economy.

"Markets are broadly interpreting this as an improvement in the economy, but overall consumer confidence is still very, very bad," said Tim Quinlan, an economist with Wells Fargo. "We went from being severely depressed about the outlook, to just being depressed about the outlook."

While the uptick means consumers' short-term outlook for the economy has improved slightly, a weak job market continues to weigh on their attitudes, Lynn Franco, director of the Conference Board Consumer Research Center said in a statement.

IRS Seeks New Issues for the Industry Issue Resolution Program

In a new press release, the IRS encouraged business owners and other interested taxpayers to participate in the Industry Resolution Program by submitting tax issues that are in need of a resolution.

The objective of the IIR program is to resolve business tax issues common to significant numbers of taxpayers through new and improved guidance. In past years, issues have been submitted by associations and others representing both small and large business taxpayers, resulting in tax guidance that helps thousands of taxpayers.

Recent submissions accepted into the IIR program include:

• Network assets in the telecommunications industry (unit of property)
• Asset class determination under Revenue Procedure 87-56 for wireless telecommunication assets
• Vendor mark down allowances in calculation of inventory under the retail inventory method
• Network assets in the utilities industry (unit of property)

Guidance issued as a result of the IIR program includes:

• Technical terminations of publicly traded partnerships - procedures for requesting relief, delegation of authority for granting relief, and a sample closing agreement documenting the conditions under which relief is granted. (Industry Director Communication LMSB-04-0210-006)
• Auto Last In First Out - for automobile wholesalers, manufacturers and dealers regarding the proper treatment of the dollar-value, LIFO inventory method for pooling purposes of crossover vehicles, which have characteristics of trucks and cars. (Revenue Procedure 2008-33)

Questions for the Tax Lady: August 30th, 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: My wife and I make around $75,000 per year, and file a joint return. If Congress does not extend the Bush tax cuts will our federal income tax rate increase?

That is the big question being asked all over this country. The answer is, probably. Even if your official tax rate does not change, you might be facing a bigger tax bill. The Bush tax cuts involved a lot more than just marginal tax rates. Also included were a number of deductions and credits that reduced tax liabilities for people in every tax bracket.

There are a number of plans for the Bush tax cuts being circulated in Congress. Some groups want them all extended. Some want them all to expire. Some Congress members propose letting some of the cuts expire. To see how each plan may impact your tax bill, check out the Tax Foundation’s calculators here: (http://www.mytaxburden.org/).

Question #2: Can I make my quarterly tax payments electronically?

Yes. You can either make a one-time payment or recurring monthly payments using the IRS’ Electronic Federal Tax Payment System (EFTPS). For more information, check out Eftps.gov.

How to Stop the IRS Machine

Taxpayers all over the country are receiving letters from the IRS with unsettling news. According to Forbes, the IRS has been sending out bills to taxpayers because of discrepancies between their 2008 tax return and income totals reported by employers and other sources. However, before you reach for your checkbook, be sure to take a careful look at the notice. Many of the letters are reportedly incorrect and/or misleading.

Forbes.com reports:

It's document matching time at the Internal Revenue Service. Millions of taxpayers are opening their mailboxes to find a boldly stated notice shouting "Summary of Proposed Changes" identifying an increase to their 2008 taxes, penalties, interest and a whooping Proposed Balance Due. These notices are often more than 10 pages long, and not until you've gotten to page five do you find out what the IRS alleges created the problem: discrepancies between the amounts reported to them by others and what you included in your return. This is the meat of the letter (known as a CP-2000 notice) and often where you will find what led to the notice "mis-match."

Do not reach for your check book in defeat. Do not immediately scream obscenities about your tax preparer. These letters are often wrong. They are directed at getting your attention. They are machine-generated, generally unseen or untouched by human eyes or hands until the taxpayer responds to the notice. Until a response is received and logged in by IRS personnel, the machine will control the process. Uninterrupted, this automation will lead the IRS to be legally entitled to collection of the balance being proposed. Here are a few examples illustrating the variety of issues on notices I've seen recently:

Shock and Awe Proposed Balance Due: $54,871; Actual Balance Due: Zero

The IRS computers concluded the taxpayer had an IRA distribution of $198,981, but showed a taxable IRA distribution of just $40,000 on the return. The real story is this: The taxpayer converted a pre-tax IRA worth $198,981 to a Roth IRA early in 2008, and he correctly reported this as an IRA distribution on his 2008 return. The stock market dropped dramatically toward the end of 2008. Not willing to pay taxes on an amount well in excess of the account value in early 2009, he properly "re-characterized" (returned to his traditional IRA before filing) all but $40,000 of the converted amount, reporting that amount as taxable on the return. He correctly disclosed this and included Form 8606 on his return. It was all explained, but the IRS machines had not checked for those entries. (For 10 Reasons To Convert To A Roth IRA, click here.)

Shock and Awe Proposed Balance Due: $524; Actual Balance Due: Zero

The taxpayer authorized $2,000 of her 2008 IRA distribution to be donated to her local church. Her tax return correctly indicated a $21,690 distribution with $19,691 taxable. As the IRS instructions dictated, the code "QCD" (for qualified charitable distribution) was indicated on the return. But the IRS' "automated underreporter" systems apparently did not notice the code.

Read more here

Official Statement

I believe the California Attorney General’s civil complaint against my law firm and me to simply be election year politics. My law firm has been representing taxpayers before the IRS for almost 20 years. We have saved thousands of people tens of millions of dollars. And I have fully cooperated with the California Attorney General’s Office over the past few months. As a result, I am very disappointed in their decision to file a complaint, but I look forward to a full and fair airing of this matter in a court of law where my law firm and I will aggressively and vigorously defend the claims against us, and I am absolutely confident we will prevail.

Questions for the Tax Lady: August 23rd, 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: Is it true that the child tax credit would be reduced if the Bush tax cuts expire?

Yes. The Economic Growth and Tax Relief Reconciliation Act passed in 2001 doubled the child tax credit form $500 to $1,000. It is set to expire at the end of the year, and unless extended by Congress, would revert back to $500 in 2011.

Question #2: What is the difference between an Individual Taxpayer Identification Number (ITIN) and a Social Security Number (SSN)

Taxpayer identification numbers are assigned to individuals that do not qualify for a Social Security number but may need to file a tax return. ITINs are often given to resident aliens living in the United States. While a taxpayer may use his or her social security card as proof to work in the United States, an ITIN does not serve as verification of one’s ability to work in the United States.

Tax Implications of Early IRA Withdrawals

Last week, the Roni Deutch Tax Center – Tax Help Blog posted an article on the tax implications of early IRA withdrawals. As the blog entry explains, although the purpose of an IRA is to save for the future, it is not uncommon for taxpayers to ‘borrow’ money from their account. Here are excerpts from the article:

Taxes and Penalties

Unless you qualify for a special exemption, every early withdrawal will be subject to a 10% tax penalty. In addition to the flat penalty, you will also have to pay income taxes on the money you take out.

Qualified Distributions

Fortunately, there are tax laws in place that allow taxpayers who have IRAs to take penalty-free withdrawals in certain situations. These instances are known as qualified distributions, and are made to assist those in special financial situations. If you have a Roth IRA which has been open at least five years, distributions can be taken both penalty, and tax-free.

Continue reading at RDTC.com…

Obama Housing Program Slowing To A Crawl While Homeowners Suffer

From Huffington Post.com:

More than 18 months after President Barack Obama announced a $75 billion program to help three to four million homeowners avoid foreclosure, the administration's primary foreclosure-prevention initiative is slowing to a crawl.

Less than 17,000 homeowners were offered temporary trial plans in July under the Home Affordable Modification Program to reduce their monthly mortgage payments, an 86 percent decrease from the same period last year, according to Treasury Department data released Friday. About 37,000 homeowners transitioned from trial plans into permanently-modified mortgages, which offer years of lower monthly payments thanks to cuts in the mortgage's interest rate and extensions to the life of the mortgage. It's the lowest figure since December, and a 28 percent decrease from June's total.

More than 100,000 homeowners were bounced from the program, known as HAMP, last month as homeowners either fail to provide documentation verifying their situation, fell behind on their new, reduced payments (an indication of how deeply in debt they are) or their mortgage servicers simply kicked them out due to error, a common occurrence, according to homeowners, their advocates, and government auditors. It's a seven percent increase from June. An average of 108,000 homeowners per month have been kicked out since March 1.

About half, or 48 percent, of struggling homeowners who have entered the program since the spring of 2009 have been kicked out.

IRS Announces New Return Preparer Application System and User Fee

In their newest press release, the IRS announced that they would launch a new online application system for tax return preparers in September.

The IRS has proposed to require all individuals who receive compensation for preparing all or substantially all of a federal tax return or claim for refund after Dec. 31, 2010, to have a Preparer Tax Identification Number (PTIN).

Under the proposed regulations, compensated tax return preparers will need to obtain, or reapply for, a PTIN and pay a user fee using this new comprehensive system, which is part of a series of steps planned to increase oversight of federal tax return preparation. Tax return preparers will be creating PTIN accounts with the IRS when they use the new system.

“This is an important first step because it lays the groundwork in our efforts to ensure the quality and integrity of professional tax return preparation, which most taxpayers rely on in one form or another,” said IRS Commissioner Doug Shulman.

Compensated tax return preparers would pay a $64.25 user fee the first year for a PTIN based on two underlying costs. The IRS proposes to collect $50 per user to pay for outreach, technology, and compliance efforts associated with the new program. And the third-party vendor will receive $14.25 per user to operate the online system and provide customer support.

Under the proposed regulations, compensated tax return preparers will be required to renew their PTINs annually and pay the associated user fee. The amount of the fee may change in future years as the actual program costs are periodically reevaluated.

Continue reading at IRS.gov…

Jobless Claims Hit Half A Million

In a disappointing turn of events, the number of people applying for unemployment benefits hit half a million last week. The represents the highest unemployment numbers since November of 2009. This also marks the third week in a row claims have increased, which is a major disappointment to those who thought the economy was recovering.

"These numbers are important because they indicate the rate of growth in the economy is weakening and that the rate for growth is now insufficient to stop unemployment from rising," said Mark Zandi, chief economist for Moody's Analytics.

The latest jobless claims numbers, released by the Labor Department today, mark the third straight week that they've risen. In a healthy economy, jobless claims usually drop below 400,000. Right now, they've risen to 500,000.

In Washington, the grim numbers prompted a statement from President Obama.

"This morning's news that unemployment claims rose again compels us to act," he said this morning, touting a plan to promote hiring by small business.

Continue reading at ABCNews.com…

15 Things You Shouldn't Be Paying For

In the past few years, many Americans have been forced to tighten their personal budgets. However, as this article from Yahoo! Finance there are a lot of things you are probably paying for that you do not necessarily need to. You can find a snippet of their article below, or read the full text here.

So much money and energy is wasted on things we could get for free. If you're into new, shiny things and collecting stuff, this is not for you. But if you want less clutter in your life and want to keep more of your money, then check out these 15 things you shouldn't be paying for.

Basic Computer Software -- Thinking of purchasing a new computer? Think twice before you fork over the funds for a bunch of extra software. There are some great alternatives to the name brand software programs. The most notable is OpenOffice, the open-source alternative to those other guys. It's completely free and files can be exported in compatible formats.

Your Credit Report -- You don't have to pay for your credit report. You could sign up for one of the free credit monitoring services online to get a quick look at your credit report. You just have to remember to cancel the service before the end of the free trial. Or you could do one better and visit www.annualcreditreport.com, the only truly free place to see all three of your credit reports for free once a year.

Cell Phone -- The service plan may be expensive, but the phone itself doesn't have to cost a thing. Most major carriers will give you a free phone, even a free smart phone, with a two-year contract.

Books -- There's a cool place in your town that's renting out books for free: the library. Remember that place? Stop by and put your favorite book on reserve. And if you don't feel like getting out, visit www.paperbackswap.com and find your books there (small shipping fees apply).

U.S. Insurance Regulators Issue Consumer Alert on Death Benefits

From Bloomberg.com:

State insurance regulators, under pressure to improve disclosure of death-benefit payment options, issued a consumer alert about the industry practice of retaining funds rather than paying them in a lump sum.

“You may be able to earn a higher rate of interest on the life insurance proceeds if you select a different payout option,” the National Association of Insurance Commissioners said in the alert. “While the documents you receive might look like a checkbook, it might actually be drafts, which are similar to checks, but different in some ways.”

The alert was issued after an NAIC panel met yesterday in Seattle to review retained-asset accounts. The regulators created the panel after Bloomberg Markets magazine reported in July that insurers profit by holding and investing $28 billion owed to 1 million beneficiaries.

“Disclosure is paramount,” said Thomas R. Sullivan, co- chair of the working group, at its first meeting yesterday. “That seems to be the central issue.”

Retained-asset accounts let insurers keep proceeds of a life insurance policy in their general corporate accounts, earning investment income, while providing the beneficiary with a checkbook-like account that’s not insured by the Federal Deposit Insurance Corp. The NAIC heard testimony from Peter Gallanis of the National Organization of Life & Health Insurance Guaranty Associations that the accounts are covered by state insurance backstops. While beneficiaries can draw drafts on the funds, they don’t always clear as easily as checks.

California State Budget Crunch Brings Back Furlough Fridays

The California Supreme Court agreed to allow furloughs to resume on Friday, until they have enough time to thoroughly review the case. The judges must decide whether or not Governor Arnold Schwarzenegger has the right to order unpaid days off for state workers.

News10.net reports:

150,000 state workers will take an unpaid day off Friday in an effort to curb the state's budget crisis. Furloughing state employees three days a month will save $150 million a month.

The California Supreme Court cleared the way for furloughs to resume Wednesday, saying furloughs can resume while it reviews whether the governor has the authority to mandate unpaid days off for state employees.

Gov. Arnold Schwarzenegger recently ordered workers to be furloughed three days a month, following a previous round that ended in June.

It's a move that has an impact on the private sector as well as state employees.

Read more here

Some vices are good for you!

Every time we turn around, some expert or another is telling us that something we enjoy is bad for us. In honor of Friday, I wanted to share an article I found via CNN.com. The article lists 10 so-called vices that are actually good for you. Below are a few of my favorites:

1. Sleep – We all need it, but we tend to shortchange ourselves. Sleep is one luxurious treat that no one should be without.
   
2. Playing hooky – Taking the occasional day off helps relieve stress, lowering your blood pressure and your risk for heart disease. It can even encourage creativity! Even one quick day off can do the trick.
   
3. Girls’ or Guys’ Night Out – Spending time with your friends recharges you in ways other activities just don’t. Strong social ties can even increase your immunity, your brain health and your longevity!
   
4. Basking in the sun – With a little help from sunscreen, spending time in bright sunshine can help improve your mood, help you get better sleep and helps your body create vitamin D.
   
5. Massages – We all need a little human contact to maintain our overall health. You don’t have to spend much, even a few minute neck-rub from your sweetie helps reduce pain, depression, anxiety and anger.
   

Read the whole article to see if you can justify a few of your favorite things in the name of good health!

Happy Friday!

10 Tips for Finding a Job in Today’s Economy

It seems like whenever you turn on the news, or look through a newspaper, there are stories about the ongoing unemployment problem in this country. In fact, just a few weeks ago it was reported that the number of Americans who are receiving food stamps rose to a record 40.8 million in May. To assist taxpayers across the country looking for employment, I have put together the following list of tips for finding a job in today’s economy.

1. Make Goals

One of the hardest parts of job hunting is the amount of perseverance it requires. In order to keep motivated, set goals to strive for on a daily, weekly, and monthly basis. For example, your daily goal might be to send out 5 resumes, or your weekly goal might be to go to at least one interview. By keeping yourself motivated you can stay focused, and encouraged to keep working towards your goal.

2. Get Aggressive

The job market is competitive right now, and if you want to stand out you have to work hard. Be aggressive in your job search by calling back potential employers and making sure they know you want the position. Then, always send thank you notes after every interview. Above all, stay positive, a good attitude will keep your mind sharp and impress potential employers.

3. Online Resources

The Internet can be used as one of the most powerful tools in your job search. Create profiles on online job search sites, and look for jobs in your area. You should also check the job section on classified sites such as CraigsList.org on a daily basis.

4. Resume Tips

Having a resume that is too general will give the impression to potential employers that you are not really that interested in the specific position they are offering. You should always modify your resume before sending it in for consideration, so that it is relevant to the open position. You do not want recruiters to think that you send the exact same resume to every listing you see. It also helps to write a new cover letter for each application.

5. Work on your Skills

There are some skills that need to be learned on the job, however while you are looking for employment you should consider building up some of your relevant skills. If you are unfamiliar with Microsoft Office then check out an online tutorial or pick up a book from Amazon.com. Any extra skills you can add to your resume will help set you aside from other job candidates.

6. Phone a Friend

According to the U.S. Bureau of Labor Statistics, 70% of jobs are found through networking. If you are serious about job hunting then you should call and email your friends and family members to see if anyone knows of a vacant position.

7. Use Social Media

Another great way to get the word out that you are looking for a new job is by participating in social media communities like FaceBook or LinkedIn. Just be sure that you do not post any questionable materials to your profile, as recruiters often Google the names of candidates, and you do not want your online presence to reflect an unprofessional image of yourself.

8. New strategies

Regularly checking the same job sites or the same newspaper could get you stuck in a rut. Therefore, you should try looking for job openings in new places whenever you have a chance. Maybe pick up a less popular newspaper or start a profile on a different job site.

9. Enlist Some Help

If you have been on the hunt for a while, you might want to enlist the help of a job placement agency. Run a search on Google for job placement help, and you should be able to find a few local agencies. However, you should always be cautious and avoid scams that make you pay excess fees for equipment, or invest in a pyramid scheme.

10. Nail the Interview

In the past you may have come to an interview expecting to answer a few questions, and leaving it at that. Not in this economy. Before you go in for an interview you should always research the company, and prepare a list of questions to ask the person conducting the interview. Preparation is the key, and if you look well prepared it will help you stand out from the list of applicants.

The Best Starter Credit Cards

Credit card companies frequently setup tables on college campuses these days, and often prey on vulnerable students who are already strapped for cash. Luckily, new laws have tightened restrictions on banks that offer credit to students, such as income and age requirements.

NewsWeek.com put together a great article on which credit cards are the best for “credit virgins,” read more below.

Laura Lee got her first credit card during the freshman Welcome Week at Central Michigan University.

“[Representatives] sat at a long table in the Student Union just outside the large conference room with displays from all the on-campus student organizations,” she tells MainStreet. “[I could] sign up for a Sears card, get a $5 gift certificate and a tote bag full of gifts.”

The opportunities to take on credit didn’t end there, however. Weeks later, applications from Citibank, Discover Card, J.C. Penney and Chase started appearing in her dorm room mailbox. By the holiday season, Lee’s wallet was bulging with plastic.

“They all welcomed this 18-year-old consumer with open arms,” she says.

Of course, credit issuers aren’t giving out cards quite so readily these days. Under the CARD Act, companies are now prohibited from issuing credit to anyone under 21 unless the applicant has a stable source of income or a willing co-signer. But college freshmen aren’t the only ones faced with roadblocks when trying to establish credit.

Continue reading at NewsWeek.com…

The World's Highest-Paid Female Athletes

The U.S. opening begins at the end of the month, and dozens of female tennis professionals have their endorsements lined up for the season. Forbes.com recently put together a list of the world’s highest paid female athletes, and as you might expect tennis starts top the list. I have included a section of the article below, but you can find the full text here.

Serena Williams may be the No. 1-ranked player, but she can not match the earnings power of Maria Sharapova. Thanks to a bevy of endorsements with blue chip companies like Nike, Sony Ericsson and Tiffany, Sharapova pulled in $24.5 million over the past year, making her the highest-paid female athlete in the world. She earned $1 million from prize money, with the rest derived from endorsements and appearance fees.

Sharapova's breakthrough came in 2004, when she won her first Grand Slam title at Wimbledon. Her agents at IMG quickly capitalized on her success and good looks by inking deals with Canon Colgate-Palmolive and Motorola.

Sharapova has struggled in recent years on the court with injuries, but has bounced back in 2010 with two tourney wins. She also signed a massive eight-year deal with Nike at the beginning of the year that could be worth as much as $70 million. The deal provides royalties from her tennis line, as well as a line of bags and shoes through Nike subsidiary Cole Haan.

Our income figures cover June 2009 through June 2010 and include prize money, endorsements, appearance fees and exhibitions. Tennis players dominate the top 10, making up half the list, while golfers nab three spots. Our list of the highest-paid athletes in the world (male or female) included 30% born outside the U.S. This list of highest-paid women is even more international, with women from six different countries making the cut.

Continue reading at Forbes.com…

CBO Reports U.S. 2010 Deficit to Exceed $1.3 Trillion

From C-Span.org:

The Congressional Budget Office (CBO) released a report this morning that estimates that the federal budget deficit for 2010 "will exceed $1.3 trillion—$71 billion below last year’s total and $27 billion lower than the amount that CBO projected in March 2010."

CBO Director Doug Elmendorf updates reporters today on the latest federal budget and economic numbers compiled by his office. In late July, the CBO released a report warning about a looming fiscal crisis if nothing is done about U.S. debt levels.

In June, the CBO indicated that the national debt will reach 62 percent of gross domestic product (GDP) by the end of 2010. The office also reported that the debt could reach its highest percentage since the end of World War II. The causes of the increase is driven by higher federal spending and lower tax revenues in the recent economic downturn.

IRS Files $63G Tax Lien Against Naomi Campbell

Supermodel Naomi Cambell is the latest celebrity to get in to trouble with the IRS. Cambell recently had a $63,000 lien filed against her for unpaid taxes. She was already in the headlines for a testimony in the trial of warlord Charles Taylor.

FoxNews.com reports:

Naomi Campbell might wish she'd kept one of those "blood diamonds" from Liberian warlord Charles Taylor to pay her taxes.

According to tax watchdog Robert Snell, the IRS filed a $63,487 lien against her last month with the New York City Register's office for taxes assessed in 2009.

Her flack in London didn't get back to us for comment.

Campbell was forced to testify recently at Taylor's war crimes trial at The Hague about receiving some "dirty-looking stones" one night in 1997 when she was a guest in South Africa of Nelson Mandela.

Read more here

Latest Good Reads

Dealing with the Sunset of the Bush Tax Cuts (Part I)

Famous Student Entrepreneurs

What Happens to your Debts After you Die?

5 Tips to Get that Promotion, Raise, or New Job

Common Franchise Myths Debunked

The Roni Deutch Tax Center had another guest blog entry published on Franchise Business Review.com. This new article debunks a haldful of common franchise myths. If you have ever been mislead to believe that Starbucks is the worlds largest coffee franchise, or thatall chain restaurants are franchises, then you will want to check out this informative new guest blog entry.

All Chain Restaurants are Franchises

Whenever people see a chain restaurant, from Outback to Olive Garden, they always assume it is a franchised unit. However, there are two business models that these chains commonly use. The first involves selling franchises, and the other involves hiring individual store managers to run corporate owned locations. You might be surprised to learn that the following chains do not franchise: Cheesecake Factory, Lone Star Steakhouse, O Charleys, and Bob Evans.

Buying a Franchise Means Guaranteed Success

Although your odds of success are statistically higher with a franchised business, there are no guarantees. Even with a proven business concept, no business venture is without risks. Hundreds of franchised businesses do close every month, however studies show that the most common reason a franchise fails is because they do not follow the system.

It’s Wasteful to Invest in a Franchise, Just Open your own Business

All franchises have an initial fee that must be paid to open a location, and some people may view this as a waste of money. However, studies show that nearly 95% of franchised businesses remain open for at least 5 years, and 94% of franchise business owners consider themselves successful. The money you give the franchisor lets you in on a proven business model that will make your business much more likely to succeed.

Starbucks is the Worlds Largest Coffee Franchise

As we mentioned earlier, there are two business models used by large chains, and although many people assume Starbucks franchises their stores, they actually do not. The only Starbucks locations that are not corporate owned are those inside hotels and grocery stores.

Continue reading at Franchise Business Review.com…

Celebrities with the Worst Money Problems

We have all heard it said, “Mo’ money, Mo’ problems”. Although most of us associate celebrity status with money and fame, a lot of the so-called “rich and famous” are actually facing serious financial problems. WalletPop.com put together a great piece on which celebrities have the largest money issues. You can find a section or their list below, but checkout the full article at WalletPop.com.

Tiger Woods: $100 million

The $100 million that Woods owes to his ex-wife in a divorce settlement may not be a money problem to Woods, who has a net worth of $900 million and makes $85 million a year, according to CelebrityNetWorth.com. But $100 million is still a lot of money and it has to hurt to write a check that large to an ex. And with his golf game falling short lately, that annual salary may also be on the decline.

Jay-Z: $50 million

The rapper must be thankful he signed that $150 million music deal with concert promoter Live Nation. That money should come in handy as he tries to cover his $50 million loss on two Manhattan hotel projects that he bought in 2007, but has been unable to turn into J Hotels. Some reports have him spending $65 million on the property. Whatever the amount, it's been a losing proposition for Jay-Z. The housing market crashed, something even Jay-Z, born Shawn Carter, couldn't fix with the Midas touch he has had on his other businesses.

O.J. Simpson: $33 million

After being acquitted of murdering Nicole Brown Simpson and Ronald Goldman, a civil court found Simpson liable for $33.5 million to the Goldman family in a wrongful death suit. But then things got even worse. Simpson is now in a Nevada prison serving up to 33 years for robbery and kidnapping. Simpson tried to make money by writing a book entitled If I Did It, Here's How It Happened, but that project was quickly shelved.

Home Refinancing Demand At Highest In 15 Months

From Reuters.com:

Mortgage applications leaped last week as rock-bottom rates lifted demand for home refinancing loans to its highest level in 15 months, the Mortgage Bankers Association said on Wednesday.

Home loan refinancing puts extra cash into consumers' hands that can be used to pay off existing debt or funnel into the economy through purchases. By lowering a monthly mortgage payment it may also help some homeowners avoid default and foreclosure.

The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended August 13, increased 13.0 percent. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 2.6 percent.

The MBA's seasonally adjusted index of refinancing applications increased 17.1 percent, the highest since the week ended May 15, 2009.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.60 percent, up 0.03 percentage point from the previous week's record low. The survey has been conducted weekly since 1990.

Interest rates were also below their year-ago level of 5.15 percent.

California Exhausts $100 Million in Film Tax Credits for Year

Less than three months into the new fiscal year, my home state of California has reportedly already exhausted its entire $100 million film and television tax credit budget. They have provided credits to over 30 different projects already.

BusinessWeek.com reports:

Additional subsidies, designed to keep movie jobs in the state, won’t be available until July 2011, Amy Lemisch, executive director of the California Film Commission, said in an interview. About 45 productions are on a waiting list.

California is competing with states including New York, New Mexico and Louisiana that also offer incentives to attract movie and television production. California offered tax breaks for the first time in fiscal 2010. Demand increased with awareness of the program, Lemisch said.

New York offers $420 million a year in incentives, according to the website for the state’s Office for Motion Picture & Television Development.

The California incentives can cover 20 percent to 25 percent of a movie’s production budget, according to the California Film Commission website.

Read more here

Tax Hikes Loom For Businesses

Congress is going to have a handful of tax issues to consider when they return from summer recess, many of which will affect American businesses. According to Forbes.com, legislators will need to take on bills dealing with expiring tax cuts, tax relief for businesses, and energy laws likely to have significant tax implications.

The difficult part: Paying for it all. No member of Congress wants to be viewed as raising taxes in the weeks before Election Day. Much of the work can--and probably will--be done in the "lame-duck" session following the election, but the dynamics of such sessions are notoriously unpredictable. At the same time, lawmakers will be feeling pressure to trim the $1.4 trillion federal budget deficit. The president's Fiscal Commission suggesting steps to do this is due by Dec. 1.

Business is watching closely. Congress is also cooking up an alphabet soup of tax measures to offset some of the outlays, and how it turns out is anyone's guess.

"Everything that has been in any bill that has been passed by the House or Senate is fair game and is at high risk of being done," warns Clint Stretch, managing principal for tax policy in the Washington office of Deloitte Tax.

The most debated item is whether to extend the Bush tax cuts, which expire at the end of the year. The Obama administration has proposed keeping them in place for about 98% of all Americans, but letting the top marginal income tax rates rise for individuals earning more than $200,000 per year and couples who make more than $250,000. The top two rates would be 36% and 39.6%, up from 33% and 35%, respectively, at present.

Continue reading at Forbes.com…

22 Cities In Danger of a Double-Dip Recession

Some experts have warned of the potential for a double-dip recession nation wide, while others are still pointing to signs of recovery. However, no one can argue that there are dozens of cities in serious danger of slipping back into a recession. CNN Money put together a list of 22 cities that are at risk, I have included a section of their article below.

A new report from Moody's Economy.com singled out 22 cities that are at risk of slipping back into a recession in as early as three months. To come to this conclusion, the economists considered dwindling progress in employment, housing starts, home prices and industrial production.

The at-risk cities are spread across the country, though more than half of the cities are in the South, and five are concentrated in the Midwest.

"With chances of a national double-dip recession now estimated at about one in four, several metro areas will probably experience their own downturns in the first half of 2011," said economist Andrew Gledhill, author of the report.

Private sector hiring has been tapering off in recent months compared to the start of the year, triggering Moody's to boost its forecast for a national double-dip from a 20% chance to 25% chance.

Read more here

Obama Seeks New Design For Housing, Fannie/Freddie

From Reuters.com:

The Obama administration called for "fundamental change" at Fannie Mae and Freddie Mac, but a long, politically explosive debate lies ahead on the future of the bailed-out mortgage giants and housing policy that affects millions of Americans and billions in investment.

U.S. Treasury Secretary Timothy Geithner on Tuesday raised basic questions about the government's long-standing role in subsidizing the $10.7 trillion housing market and supporting the historic "American dream" of home ownership.

Critically for both homebuyers and investors, he backed some form of government guarantee for mortgages. Geithner said a key question was whether the private sector could provide insurance or guarantees as part of a new home financing regime with enough safeguards to avoid another mortgage meltdown.

"It is not tenable to leave in place the system we have today," Geithner said.

"The challenge is to make sure than any government guarantee is priced to cover the risk of losses, and structured, to minimize taxpayer exposure," he told housing industry leaders at a conference convened by the Treasury almost two years after the government seized Fannie Mae and Freddie Mac to save them from collapse.

Your Card Has Been Declined, Just as You Wanted

If you are one of those people who just cannot seem to stay within your monthly budget, you might want to look into the new personal finance tools Citigroup plans to begin offering customers. They intend to offer a feature that will allow customers to set budgets for themselves, and have their card decline purchases that would put them over budget.

The service, called inControl and already in use by some Barclaycard holders in Britain, is a sort of financial chastity belt that offers the potential to prevent a variety of budget sins and other money traps.

Worried about your restaurant habit? If your bank adopts MasterCard’s service, you could tell it to have your debit or credit card reject any restaurant purchase above whatever monthly cap you set.

Sick of your credit card number falling into the hands of thieves? Tell your card issuer to never allow charges originating from the fraud-prone countries that end in “stan” or “ia.” (Don’t worry: You can instruct your bank to make an exception for Australia during the few weeks that you’ll be honeymooning in Sydney.)

Continue reading at NY Times.com…

Questions for the Tax Lady: August 16th, 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 long should I keep my business receipts?

Generally speaking, you should keep all business receipts for at least three years. However, you should try to keep other financial documents – such as your business tax returns – for at least five years.

Question #2: Is it possible to get copies of my old tax returns?

Yes. You can request an official copy of your old tax returns using IRS Form 4506. However, there is a $57 fee for each tax return you request. Alternatively, you could request a tax return transcript or tax account transcript from the IRS free of charge by filling IRS Form 4506T-EZ.

America Goes Dark

In a new opinion piece for the New York Times, author Paul Krugman explains some of the drastic measures being taken to save money. Cities like Colorado Springs have gained nation media attention in their attempt to reduce expenses by turning off a third of their streetlights. I have included a snippet of Krugman’s piece below, but you can find the full text at NYTimes.com.

Meanwhile, a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel.

And a nation that once prized education — that was among the first to provide basic schooling to all its children — is now cutting back. Teachers are being laid off; programs are being canceled; in Hawaii, the school year itself is being drastically shortened. And all signs point to even more cuts ahead.

We’re told that we have no choice, that basic government functions — essential services that have been provided for generations — are no longer affordable. And it’s true that state and local governments, hit hard by the recession, are cash-strapped. But they wouldn’t be quite as cash-strapped if their politicians were willing to consider at least some tax increases.

And the federal government, which can sell inflation-protected long-term bonds at an interest rate of only 1.04 percent, isn’t cash-strapped at all. It could and should be offering aid to local governments, to protect the future of our infrastructure and our children.

But Washington is providing only a trickle of help, and even that grudgingly. We must place priority on reducing the deficit, say Republicans and “centrist” Democrats. And then, virtually in the next breath, they declare that we must preserve tax cuts for the very affluent, at a budget cost of $700 billion over the next decade.

Continue reading at NYTimes.com…

'Junk' Bonds Hit Record

From the Wall Street Journal:

U.S. companies issued risky "junk" bonds at a record clip this week, taking advantage of keen investor appetite for returns amid declining interest rates and tepid stock markets.

The borrowing binge comes as the Federal Reserve keeps interest rates near zero and yields on U.S. government debt are near record lows. Those low rates have spread across a variety of markets, making it cheaper for companies with low credit ratings to borrow from investors.

Corporate borrowers with less than investment-grade ratings sold $15.4 billion in junk bonds this week, a record total for a single week, according to data provider Dealogic. The month-to-date total, $21.1 billion, is especially high for August, typically a quiet month that has seen an average of just $6.5 billion in issuance over the past decade.

For the year, the volume of U.S. junk bonds has exceeded $155 billion, 80% higher than in the year-ago period and easily on pace to surpass the record $163.6 billion total for 2009.

High-Income People Would Benefit From Extension of “Middle-Class” Tax Cuts

According to the Center on Budget and Policy Priorities, the media seems to ignoring a set of tax incentives for middle class Americans when discussing the expiration of the Bush tax cuts. In addition to helping taxpayers with average incomes, they would also provide tax breaks to taxpayers making over $200,000 per year.

This is because the 2001 tax law’s reductions in the lower tax brackets benefit not only people whose incomes fall within the lower brackets but also those whose incomes exceed those brackets. In fact, high-income people actually receive much larger benefits in dollar terms from the so-called “middle-class tax cuts” than middle-class people do.

Specifically, recent estimates from the Joint Committee on Taxation show that extending just the middle-class tax cuts would provide more than $6,300 in tax cuts to households with incomes above $200,000, on average, compared to $1,132 in tax cuts for households with incomes between $50,000 and $75,000. The Joint Tax Committee estimates show:

• Households with incomes exceeding $1 million will receive an average tax cut of $6,349 in 2011 if the middle-class tax cuts are extended while the high-income tax cuts are allowed to expire. (They will receive an average tax cut of nearly $104,000 if the high-income tax cuts are extended as well.)
• The story is similar, if not quite as dramatic, for households that make between $500,000 and $1 million. They will receive an average tax cut of $6,701 if the middle-class tax cuts are excluded (and of $17,467 if the high-income tax cuts are also extended).
• For all other income categories, by contrast, the size of the tax cuts are about the same whether the high-income tax cuts are extended or not. Even for households with incomes between $200,000 and $500,000, the effects are similar. The Joint Tax Committee figures show that they would receive an average tax cut of $6,743 if only the middle-class tax cuts are extended, and of $7,152 if the high-income tax cuts are extended, as well.

Continue reading at CBPP.org…

Jobless Claims Rise Highlights Economy's Ills

New reports have come out that jobless claims increased again last week. The news come just days after the Federal Reserve lowered their expectations for the economy. All of this new information has experts worried about the economic recovery.

Reuters reports:

The number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week to the highest level in close to six months, the latest evidence the economy's recovery is faltering.

Thursday's data came two days after the Federal Reserve spooked investors by downgrading its assessment of the economy. The increase in jobless claims added to worries in the stock market, which has failed to make any gains this year.

The number of new claims for state unemployment insurance rose by 2,000 to 484,000 in the week ended August 7, the second straight increase, the Labor Department said. Economists had expected claims to edge down to 469,000.

"This is not a good number," said John Brady, an analyst at MF Global in Chicago. "Claims are going the wrong way. That has the market concerned."

U.S. stocks closed down for a third straight day, pressured by the data and a disappointing revenue forecast from tech bellwether Cisco Systems Inc (CSCO.O).

Read more here

Schools Pack In More Kids to Cope With Cuts

Many California students returning to school this week are being squeezed into over-crowded classrooms. According to the Sacramento Bee, the state is seeing the largest average class sizes in over a decade. The change is part of a new trend where schools are requesting class-size increases, without having to pay stiff penalties, in order to save money.

Large numbers of school districts are bombarding the state with requests to expand classes beyond the legal limits.

The California Board of Education, which reviews class-size waiver requests, gave out 16 exemptions in an 11-month period ending in July. Since then, the board heard 16 more waiver requests at its board meeting Aug. 2 and expects another 16 in September, said Judy Pinegar, manager of the waiver office at the California Department of Education.

The state had no requests for class size increases between 1999 and 2009.

"It's the hot item right now," Pinegar said. "I'm expecting almost every district in the state to request one."

The state allows an average of 31 students in kindergarten, 30 in first through third grade and 29.9 in fourth through eighth grade.

Continue reading at SacBee.com…

Business Inventories Up 0.3 Percent In June

From MSNMoney.com:

Inventories held by businesses rose for a sixth straight month in June but sales declined for a second month in a row.

Inventories increased 0.3 percent in June, the Commerce Department reported Friday. But sales fell 0.6 percent following an even larger 1.2 percent sales decline in May.

The weakness in sales raises concerns about whether companies will continue boosting inventories. Inventory rebuilding had been an important source of strength driving the economic rebound.

Businesses had been rebuilding their inventories in recent months after slashing them aggressively during the recession. But if consumer demand weakens further, businesses could start cutting back. That would mean fewer orders to U.S. factories and weaker output for manufacturers.

The consecutive declines in sales in May and June followed 13 straight increases in total business sales. The June decrease reflected less demand for manufacturers, wholesalers and retailers. A separate report Friday showed that sales at the retail level rebounded in July but the strength was concentrated in higher demand for autos and gasoline.

BP's Tax Deductions from the Gulf Oil Spill

The Congressional Research Service issued a new report earlier this week titled Tax Deductible Expenses: The BP Case. You can find the text of the introduction below, or download a PDF of the full report here, courtesy of the Tax Prof Blog.

Following the release of BP’s second quarter earning statement, which showed a $10 billion reduction in tax liability for oil-spill-related cleanup and expenses, media headlines have generated public concern, and in some cases outrage, over these tax savings. Further, the ability of BP to realize these tax savings has generated a number of inquiries as to how and why BP is entitled to this reduction in tax liability.

BP’s reduction in tax liability is the result of standard business expense deductions and the general ability of taxpayers to claim refunds for previously paid taxes when realizing a net operating loss (NOL) or carrying the loss forward to offset future tax liabilities. Business expense deductions and NOLs play a significant role in enhancing economic efficiency by reducing business-cycle-induced fluctuations and spreading risk. BP has reportedly incurred, or expects to incur, $32 billion in cleanup-related costs and settlements over a multiyear period. Under current law, these costs can be used to offset business income and reduce tax liability. To the extent that these costs generate an NOL, these costs can be used to collect a refund for taxes paid in previous years or carried forward to offset tax liability in future years.

The $10 billion “credit” that appears on BP’s second quarter earnings statement is a financial account of BP’s anticipated tax savings associated with legitimate cleanup-related expenses. The figure does not reflect a tax credit as typically defined in the tax code. The $10 billion reduction in tax liability relates to a multiyear period, over which the $32 billion will be spent. The $32 billion was reported in 2010 for financial reporting purposes, but reflects cleanup spending costs in the current year as well as costs the company expects to incur in future years. The financial account and financial reports do not directly correspond to current year tax liabilities. Actual oilspill- related expenditures will be made over multiple years. Consequently, the associated tax savings will not be realized until the year expenditures are made.