3Q 2010 Tax Collections up Nationwide

According to tax collection data released yesterday by the U.S. Census, considerable economic gains were made during the third quarter of 2010.

The City Wire.com reports:

Overall state and local tax revenues grew in the third quarter compared to the third quarter of 2009, marking the fourth straight quarter of positive growth. Property tax, general sales tax and individual income tax revenues increased, while corporate income tax revenue declined. The decline in corporate income tax revenue is the third consecutive quarter of decline.

In Arkansas, general sales tax collections at the state level were up 7.8% in the quarter, individual income tax collections were up 3.2%, corporate net income taxes received were up 38.2%, and the severance tax total was up 41.5%.

It’s likely the fourth quarter report will show continued gains for Arkansas. The Arkansas Department of Finance & Administration reported Dec. 2 that year-to-date (July-November) total revenues are $2.198 billion, up 2.4% over the same period in 2009. Year-to-date gross receipts collections — primarily sales and use tax collections — total $891.9 million, up 7.8% above the 2009 period and up 0.9% above forecast.

Oklahoma saw the general sales tax totals up 9.8% in the quarter, individual income tax collections up 3.4%, corporate net income tax up 33.4%, and the severance tax up 26.4%.

During the 2010 third quarter 2010 tax revenues for state and local governments totaled $284.3 billion, up 5.21%, but down compared to the $285.6 billion in the third quarter of 2008.

Continue reading at The City Wire.com...

Dodging Repatriation Tax Lets Companies Bring Home Cash

Earlier in the month business executives reportedly asked President Obama for a new tax holiday. Apparently the executives have suggested the program would bring cash back to the U.S. economy.

From Bloomberg.com:

The money -- including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes -- is supposed to be taxed at up to 35 percent when it’s brought home, or “repatriated.” Executives including John T. Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.

What nobody’s saying publicly is that U.S. multinationals are already finding legal ways to avoid that tax. Over the years, they’ve brought cash home, tax-free, employing strategies with nicknames worthy of 1970s conspiracy thrillers -- including “the Killer B” and “the Deadly D.”

Merck & Co Inc., the second-largest drugmaker in the U.S., last year brought more than $9 billion from abroad without paying any U.S. tax to help finance its acquisition of Schering-Plough Corp., securities filings show. Merck is also appealing a federal judge’s 2009 finding that Schering-Plough owed taxes on $690 million it had earlier brought home from overseas tax-free.

The largest drugmaker, Pfizer Inc., imported more than $30 billion from offshore in connection with its acquisition of Wyeth last year, while taking steps to minimize the tax hit on its publicly reported profit.

Disclosures in Switzerland and Delaware by Eli Lilly & Co. show the Indianapolis-based pharmaceutical company carried out many of the steps for a tax-free importation of foreign cash after its roughly $6 billion purchase of ImClone Systems Inc. in 2008.

Read more here

IRS to Verify Refunds for Nonresident Aliens

Accounting to a new government report, the IRS is likely to take action to strengthen its controls over the processing of refunds sent out to nonresident aliens. The goal is to prevent issuing erroneous refunds.

Accounting Today reports:

The report, by the Treasury Inspector General for Tax Administration, noted that failure to address the problem could result in significant losses to the federal government as the questionable refunds issued to nonresident aliens are high and the probability of recovering fraudulent refunds from nonresidents living outside the U.S. very low.

“If the IRS does not take immediate steps to improve its ability to verify refunds to nonresident aliens before the refunds are sent out of the United States, the problem could increase significantly,” warned TIGTA Inspector General J. Russell George in a statement. “TIGTA discussed the control weaknesses we identified with the IRS and it is working on actions to address them.”

Nonresident aliens who receive U.S. sources of income must report and pay taxes on that income and file the U.S. Nonresident Alien Income Tax Return (Form 1040NR) with the IRS. This income is also subject to income tax withholding. In 2009, the IRS processed approximately 598,000 Forms 1040NR for tax year 2008. The total taxes withheld on these returns amounted to more than $2.4 billion and refunds amounted to more than $712 million.

TIGTA performed an audit to determine whether IRS controls ensured that only eligible nonresident aliens receive refunds. TIGTA found that inaccurate and fraudulent Forms 1040NR were not detected during processing. As a result, TIGTA identified a significant number of control weaknesses in the processing of refunds claimed on Forms 1040NR. In some 40 cases of questionable refunds issued to nonresident aliens, the refunds were very high, totaling more than $2.3 million.

Continue reading at Accounting Today.com...

Dilbert on the 'Dutch Sandwich' Tax Shelter Strategy

Check out this Dilbert comic on the 'Dutch Sandwich' tax shelter strategy used by many multinational corporations including Google.

Hat tip: Tax Prof

GAO Sees Problems in Government’s Financial Management

Yesterday the Government Accountability Office (GAO) said it would not officially form an opinion on the federal government financial management because of widespread material control weaknesses, significant uncertainties, among other limitations.

From Accounting Today.com:

“Even though significant progress has been made since the enactment of key financial management reforms in the 1990s, our report on the U.S. government's consolidated financial statement illustrates that much work remains to be done to improve federal financial management,” Acting Comptroller General Gene Dodaro said in a statement. “Shortcomings in three areas again prevented us from expressing an opinion on the accrual-based financial statements.”

The main obstacles to a GAO opinion were: (1) serious financial management problems at the Department of Defense that made its financial statements unauditable, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements.

In addition, the GAO said last week it was unable to render an opinion on the 2010 Statement of Social Insurance because of significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth. The consolidated financial statements discuss these uncertainties, which relate to reductions in physician payment rates and to productivity improvements, and provide an illustrative alternative projection to illustrate the uncertainties.

Dodaro also cited material weaknesses involving an estimated $125.4 billion in improper payments, information security across government, and tax collection activities. He noted that three major agencies — the DOD, the Department of Homeland Security, and the Department of Labor — did not get clean opinions. Nineteen of 24 major agencies did get clean opinions on all their statements.

Read more here

New Estate Tax Law Could Hurt Charity

Some experts are warning that the recent tax legislation signed into law by the President may lead many taxpayers who had postponed charitable giving to cut back on future donations as well.

Forbes.com reports:

The new tax law raises the exemption from federal estate tax to $5 million a person ($10 million per couple) for deaths in 2011 and 2012. As a result, fewer families will even come close to paying the tax. That means that, except for the super wealthy, the tax benefits of giving through an estate plan have been wiped out.

Previously, charities could point to the estate planning benefits of both lifetime gifts and charitable bequests. There’s an income tax deduction associated with gifts during life--adjusted gross income can be reduced up to 50% for cash gifts to public charities and by up to 30% for donations of appreciated assets, such as stock held longer than 12 months. But charities could also make another argument: If you’re not comfortable making a large gift now, remember your favorite cause or alma mater money in your will and you will be leaving less for Uncle Sam.

Of course that’s still a huge estate tax benefit for the nearly 60 U.S. billionaires who have now pledged to give away at least half their fortunes during life or at death. Facebook co-founders Mark Zuckerberg and Dustin Moskovitz are among those to have recently joined the philanthropic campaign led by Berkshire Hathaway ( BRK - news - people )'s Warren Buffett and Microsoft ( MSFT - news - people ) co-founder Bill Gates.

And certainly there are many others of lesser means committed to supporting charity regardless of the tax benefits. But without being too cynical or ignoring the power of altruism, studies do suggest that tax incentives are a positive influence on giving, and tough economic times are a negative one.

Continue reading at Forbes.com…

Val Kilmer Facing 'Heat' from Feds

According to reports, the Santa Fe County Clerk has filed an IRS lien against cater Val Kilmer for $498,165, and listed on the lien is his Pecos River Ranch.

DETnews.com reports:

Actor Val Kilmer is having a hard time selling his 6,000-acre ranch in New Mexico and a harder time shaking the IRS. The "MacGruber" and "Kiss Kiss Bang Bang" star owes almost $500,000 in delinquent federal taxes, according to public records.

The new tax lien was filed in November, seven months after the IRS released a $538,858 tax debt.

The 50-year-old Juilliard-trained star was in Detroit last year shooting scenes for "Kill the Irishman" with co-star Christopher Walken. Filming locations included Corktown, the Cass Corridor, Roma Cafe in Eastern Market and the ruins of Tiger Stadium.

His latest flick, "Gun," was shot in Grand Rapids, where co-star 50 Cent recently introduced the movie during a red-carpet premiere.

Read more here

Rescued Banks Teeter Towards Collapse

New reports have emerged that nearly 100 banks that were rescued by the federal government are again poised to fail. This is in spite of the billions of dollars these financial institutions have received at the expense of American taxpayers.

The number of banks on the brink of collapse rose from 86 to 98 during the summer months, according to analysis of federal data from the Wall Street Journal. The banks in question have received $4.2 billion dollars in aid through the Troubled Asset Relief Program (TARP). Most of the troubled institutions are relatively small.

The latest sign of distress in the financial system suggests the bailout may have simply been a stopgap solution for a sector still contending with the aftershocks of the greatest banking crisis in 80 years.

The continued weakness of some banks now threatens to impede a tentative economic recovery, say experts. With many banks still troubled, lending remains tight, depriving businesses of capital to expand and hire. With expansion and hiring rare, the economy remains weak, depriving the banks of healthy customers--in short, a feedback loop of trouble.

The Wall Street Journal defined "troubled banks" as those with less than 6 percent of their primary assets both reliable and liquid.

Through TARP, the government has purchased hundreds of billions of troubled assets from banks in danger. Though the program was purportedly meant to benefit healthy institutions with a good chance of survival, these latest failures suggest that many banks were in tenuous shape to begin with. Seven TARP recipients have already failed, at a loss of $2.7 billion.

Continue reading at Huffington Post.com...

Ex-Shell President sees $5 Gas in 2012

From CNN.com:

The former president of Shell Oil, John Hofmeister, says Americans could be paying $5 for a gallon of gasoline by 2012.

In an interview with Platt's Energy Week television, Hofmeister predicted gasoline prices will spike as the global demand for oil increases.

"I'm predicting actually the worst outcome over the next two years which takes us to 2012 with higher gasoline prices," he said.

Tom Kloza, chief oil analyst with Oil Price Information Service says Americans will see gasoline prices hit the $5 a gallon mark in the next decade, but not by 2012.

"That wolf is out there and it's going to be at the door...I agree with him that we'll see those numbers at some point this decade but not yet." Kloza said.

"The demand is still sluggish enough in some of the mature economies."

More at CNN.com

Slashing $100 billion: What's first to go?

John Boehner, who will become the new Speaker of the House of Representatives, has announced that his number one priority in 2011 is to reduce spending. He's hoping to reduce spending by $100 billion from the $3 trillion federal budget.

CNN reports:

But GOP leaders say they will focus only on non-security discretionary spending, and won't slash funding for defense, Social Security or Medicare.

That makes their task a lot harder.

Cutting non-security discretionary funds by $100 billion means a 21% annual reduction in the part of the budget that includes funding for education, health and human services and housing and urban development, among other things, according to the Center on Budget and Policy Priorities, a liberal think tank.

In other words, the sacred cows of domestic Democratic policy.

Asked which programs will be cut to get to the $100 billion target, Boehner did not offer specifics.

"But I will tell you," he told reporters earlier this month. "We are going to cut spending."

Read more here

In 2011, Many Tax Benefits Increase Slightly Due to Inflation Adjustments

According to the IRS' newest press release, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation in 2011.

These inflation adjustments relate to eight tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17. New dollar amounts affecting 2011 returns, filed by most taxpayers in early 2012, include the following:

The value of each personal and dependent exemption, available to most taxpayers, is $3,700, up $50 from 2010.

The new standard deduction is $11,600 for married couples filing a joint return, up $200, $5,800 for singles and married individuals filing separately, up $100, and $8,500 for heads of household, also up $100. The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $69,000, up from $68,000 in 2010.

The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $102,000 for joint filers, up from $100,000, and $51,000 for singles and heads of household, up from $50,000.

Read more at IRS.gov...

Lower Taxes, Less Government in States Gaining Congressional Seats

Like most things, we can’t prove causation. The interesting thing will be to see how these growing states trend in the years to come. Will they become more like their higher tax counterparts?

From ATR.org:

An updated study by Americans for Tax Reform compared states gaining and losing Congressional seats in the decennial reapportionment process and found that states gaining seats had significantly lower taxes, less government spending, and were more likely to have “Right to Work” laws in place. Because reapportionment is based on population migration, this is further proof that fiscally conservative public policy spurs economic growth, creates jobs, and attracts population growth.

The Census Bureau announced today that eight states will gain at least one Congressional seat. Texas will gain four seats and Florida will gain two. Arizona, Georgia, Nevada, South Carolina, Utah and Washington will gain one seat each. The biggest losers will be New York and Ohio – both will lose two seats – while Illinois, Iowa, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, and Pennsylvania will lose one seat each.

The average top personal income tax rate among gainers is 116 percent lower than among losers. The total state and local tax burden is nearly one-third lower, as is per capita government spending. In eight of ten losers, workers can be forced to join a union as a condition of employment. In 7 of the 8 gainers, workers are given a choice whether to join or contribute financially to a union.

Read more here

3 Retirement Planning Moves to Make by December 31

The year is almost over, and Americans all over the country are taking care of last-minute tax planning. To help us all stay on top of retirement plan issues, MSN Money has put together this list of the important retirement planning moves to make before December 31. Time’s almost up, so make sure you’re doing what you need to avoid penalties, and plan for your future!

Establishing a qualified plan

Qualified plans that operate on a calendar-year basis must be established by Dec. 31 of the year for which contributions are to be deducted.

This includes completing the necessary documentation and notifying employees about the plan. Contributions may be made by the employer's tax-filing deadline, including extensions.

Convert Roth IRAs

Roth IRA conversions for a year must be completed by Dec. 31 of that year.

A conversion may be accomplished in one of three ways:

1. Conversion within the same financial institution

This kind of conversion takes place if the non-Roth retirement account and Roth IRAs are maintained at the same financial institution.

If the delivering account is a non-Roth IRA, the custodian may either require the IRA owner to move the assets from the non-Roth IRA to the Roth IRA, or may change the non-Roth IRA to a Roth IRA to accomplish the conversion. For qualified 403b and governmental 457b plans, the assets must be moved to a Roth IRA, as changing the account to a Roth IRA is not permitted.

2. Trustee-to-trustee transfer

Here the conversion occurs between two financial institutions. Generally, the Roth IRA owner will instruct the Roth IRA custodian to submit a request to the non-Roth IRA custodian or plan (qualified 403b or governmental 457b plan) trustee to deliver the assets to the Roth IRA.

Continue reading at MSN.com...

10 Top Money-Saving Innovations of The Last Decade

Wallet Pop put together a list of the best money saving innovations from the last decade. I love how technology is driving us toward thriftier living. Hulu, Skype and Smart phones are incredible ways I’m economizing my life. Which ones are you using?

1. Skype

Telephone companies used to love long-distance relationships. Lovers separated by vast distances made them rich, after all. To access the industry's dedicated system of telephone lines and switchboards, one had to pay those dreaded long-distance fees; that is, until Skype (and its peers) arrived on the scene.

Skype replaced telephone lines with Internet connections. By routing calls over the Web, the cost was cut down to nothing, or close to it. Suddenly, Ben in Boston could talk to his heart's content with Brandi in Budapest.

Skype also drove down the prices that cell phone companies charged for long distance calls, and it also introduced many Americans to video conferencing. Now those lovers can gaze into one another's eyes, no matter how far apart.

2. Groupon

The power of group purchasing and the Internet gave birth to one of the hottest new money-saving strategies of the late 2000's: Groupon. The site solicits special deals from local companies in dozens of locations, offering products and services at a fraction of the price -- as long as people are willing to pay upfront and as long as a certain number of customers are willing to sign up.

Continue reading at Wallet Pop.com...

Chrysler Financial Value Jumped 33% After Treasury's Exit

It’s a Christmas Miracle for Chrysler!

From Bloomberg.com:

Cerberus Capital Management LP’s sale of Chrysler Financial Corp. values the lender at least 33 percent more than when the U.S. Treasury Department sold its holding to the buyout firm seven months ago.

In a deal that valued the auto lender at $4.75 billion, the Treasury got $1.9 billion from Cerberus in May to pay off Chrysler Financial’s bailout debt. Yesterday’s purchase by Toronto-Dominion Bank values it at $6.3 billion. After the Treasury’s exit, Cerberus injected about $500 million into Chrysler Financial, and plans to keep about $900 million of the lender’s assets, people briefed on the deal said. Without those moves, the firm’s value would be 41 percent higher than in May.

The Treasury’s $700 billion Troubled Asset Relief Program is likely to suffer the “bulk” of its losses from aiding the auto industry, American International Group Inc. and homebuyers, the Congressional Oversight Panel said in a September report. The Treasury, which last week called TARP “one of the most effective crisis-response programs ever,” has said the main focus was to stabilize the financial system.

“We’re not a private-equity fund,” said Tim Massad, the Treasury’s acting assistant secretary for financial stability, about the agency’s management of TARP in an interview last month. “We believe that promoting financial stability means we should exit as soon as we can.”

Continue reading here

Sales of U.S. Previously Owned Homes Probably Rose in November

According to new data, the sales of existing homes may have risen in the month of November. Good news for the housing industry, but we’re still a long way from those pre-recession numbers.

Bloomberg.com reports:

Purchases increased to a 4.75 million annual rate, up 7.1 percent from October, according to the median of 70 estimates in a Bloomberg News survey. Another report may show the U.S. economy expanded at a faster pace in the third quarter than previously estimated.

Lower prices and mortgage rates have made houses more affordable, which may keep supporting demand after the end of a government tax credit caused the industry to slump. At the same time, unemployment hovering near 10 percent is a reminder it will take years for housing to regain pre-recession levels.

“The earliest I see sound improvement is 2012,” said Yelena Shulyatyeva, an economist at BNP Paribas in New York. Even so, she said, “we’re going to see some gradual improvement in the demand measures for housing.”

The National Association of Realtors is scheduled to release the sales figures at 10 a.m. in Washington. Survey estimates ranged from 4.25 million to 5.2 million.

A tax credit worth as much as $8,000 boosted sales to a two-year high 6.49 million pace in November 2009, when the incentive was originally due to expire.

Read more here

Christmas Food Court Flash Mob

This video is awesome! Happy holidays everyone!

No trust for Social Security

Fortune Magazine’s senior editor-at-large, Allan Sloan writes that the Social Security trust fund is a trap and a fantasy, and in no way a solid basis for the Social Security program.

From CNN.com:

The trust fund is nothing more than a trap and a fantasy for those who think it's a solid foundation for Social Security.

I used to joke about the government "solving" Social Security's long-term problems by creating Treasury IOUs out of thin air and sticking them in the program's trust fund. My point, of course, was to show that no matter how many Treasury securities there are in the trust fund -- currently, around $2.6 trillion -- the fund is merely an accounting fiction that has no economic value when it comes to protecting Social Security beneficiaries.

Now, with last week's passage of the much-ballyhooed tax deal between President Obama and Republican lawmakers, my sarcastic joke has become public policy. It all has to do with the provision cutting payroll taxes in 2011.

Let me show you how this works. Next year, as you probably know, workers subject to Social Security taxes will pay only 4.2% of their "covered wages" -- wages up to $106,800 -- rather than the normal 6.2%. This will reduce Social Security's cash proceeds by $112 billion, according to Congress' Joint Committee on Taxation.

What impact will this cash shortfall have on the Social Security trust fund? None. Zero. Zip.

How can a $112 billion cut in Social Security revenues not affect the trust fund? Because the Treasury will give the trust fund the same amount of bonds it would have gotten if the two-percentage-point tax holiday didn't exist.

In other words, the Treasury isn't selling bonds to Social Security, it's creating bonds out of thin air and putting them into the trust fund. The missing cash? Uncle Sam will just borrow $112 billion from somewhere.

Continue reading at CNN.com

Ducking Higher Taxes

It’s been about a year since the state of Oregon raised its income tax on wealthy residents by 2%, and now the treasury has admitted they collection significantly less than expected. Not surprising, since most new taxes raise far less revenue than predictions.

The Wall Street Journal reports:

In 2009 the state legislature raised the tax rate to 10.8% on joint-filer income of between $250,000 and $500,000, and to 11% on income above $500,000. Only New York City's rate is higher. Oregon's liberal voters ratified the tax increase on individuals and another on businesses in January of this year, no doubt feeling good about their "shared sacrifice."

Congratulations. Instead of $180 million collected last year from the new tax, the state received $130 million. The Eugene Register-Guard newspaper reports that after the tax was raised "income tax and other revenue collections began plunging so steeply that any gains from the two measures seemed trivial."

One reason revenues are so low is that about one-quarter of the rich tax filers seem to have gone missing. The state expected 38,000 Oregonians to pay the higher tax, but only 28,000 did. Funny how that always happens. These numbers are in line with a Cascade Policy Institute study, based on interstate migration patterns, predicting that the tax surcharge would lead to 80,000 fewer wealthy tax filers in Oregon over the next decade.

The tax wasn't enacted into law until June 2009 but was retroactively applied to January 1, 2009. So for the first half of the year wealthy Oregon residents weren't able to take steps to avoid the tax ambush because they didn't see it coming. This suggests that a bigger revenue loss from tax mitigation strategies will show up on tax return data in 2010 and 2011. The Revenue Office has already downwardly revised tax collection projections for the first three years by one-third.

The biggest loss of revenues came from capital gains receipts. The new 11% top tax rate applies to stock and asset sales, which means that Oregonians now pay virtually the highest capital gains tax in North America. Instead of $3.5 billion of capital gains in 2009, there was only $2 billion to tax—43% less. Successful entrepreneurs like Nike owner Phil Knight don't get rich by being fools with their money. They don't sell tens of millions of dollars of assets when capital gains taxes go up.

Continue reading here

10 Tax Goofs Many of us Keep Making

Every year the IRS sees a handful of mistakes on Americans’ tax returns. Many of these errors are easy to avoid. MSN Money put together a list of the 10 largest tax goofs. How many of these mistakes have you been guilty of? You can find a few items from their list below or click here for the full article.

Claiming the wrong status

Sorry, you can't just choose to file single or married. Your marital status is determined as of Dec. 31. Anything before that date really doesn't matter for tax purposes. If you're married you file either jointly or married filing separately. You may qualify for "head of household," but you have to satisfy all the requirements.

You don't qualify just because you consider yourself the head of your household. In fact, you can't be head of household if you're married unless you qualify as an abandoned spouse.

Claiming the wrong status could kill your eligibility for the child tax credit, the earned-income credit and exemptions for dependents.

Check out the instructions for Form 1040 detailed information to help you select your correct filing status.

Omitting or using wrong Social Security numbers

The Social Security numbers you list for your dependents, the earned-income credit and the child tax credit must match your dependents' Social Security cards. Otherwise, the IRS computers will reject your credits and deductions.

If you're still doing your return by hand, put down that stone tablet you're reading and pay attention. Make sure your handwriting is legible, at least on your tax return. Although to be fair, I suspect that many of these mistakes attributed to taxpayer error actually result from bad inputting by the IRS.

Read more here

Congress OK’s Stripped-Down Spending Bill

Last night the Senate approved a funding bill to keep the government functioning into March. A few hours later the House also passed the legislation and sent it to the President's desk to be signed into law.

Boston.com reports:

On a 193-to-165 vote, the House backed a stripped-down measure that would freeze pay for federal employees, provide $160 billion for the wars in Iraq and Afghanistan, and head off cuts in Pell grants for college tuition. The Senate approved the bill hours earlier, 79-16.

Excluded from the measure were thousands of proposed pet projects known as earmarks, and provisions opposed by the White House that would have prevented a trial on US soil of Khalid Sheikh Mohammed, the alleged mastermind of the Sept. 11 attacks who is being held at the detention facility at Guantanamo Bay, Cuba.

The bill goes to President Obama, who was expected to sign it before midnight last night, when a lack of funds would have forced a government shutdown.

The measure is needed because the Democratic-controlled Congress — in an unprecedented breakdown of the budget process — has failed to pass a single one of the 12 annual spending bills that fund the day-to-day operations of every federal agency.

The spending bill is expected to protect, at least temporarily, a large defense contract funding a jet engine that would be partially built in Lynn, Mass. General Electric, which makes the backup prototype engine to the F-35 Joint Strike Fighter, said the program would provide up to 400 jobs in Lynn.

Read more here

Fall 2010 Statistics of Income Bulletin Is Now Available

According to their newest press release, the IRS has unveiled their fall 2010 issue of the Statistics of Income Bulletin. The report contains data on the 142.5 million individual income tax returns filed for tax year 2008 with adjusted gross income (AGI) totaling $8.3 trillion.

The Statistics of Income (SOI) Division of the IRS produces the SOI Bulletin on a quarterly basis. Articles included in the publication focus on key segments of the most recent data available from various tax and information returns filed by U.S. taxpayers.

The fall issue includes two additional articles: One features an analysis of partnership returns for tax year 2008. The other features an analysis of information returns of nonprofit charitable organizations filed for tax year 2007.

Prior SOI Bulletins can be found on the Tax Statistic page of this website. Historical Tables and Appendix of the Bulletin can also be found there.

The Statistics of Income Bulletin is available for download at IRS.gov/taxstats. Printed copies of the Statistics of Income Bulletin are available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. The annual subscription rate is $53 ($74.20 foreign), single issues cost $39 ($48.75 foreign).

Continue reading at IRS.gov...

10 Fastest-Growing States

Now that the new Census data has been released, CNN put together a list of the 10 fastest growing states. You might be surprised to see some of the states that made the top 10. You can find a portion of the article below, or check out the full list at CNN Money.com.

Nevada

Population: 2,700,551

Growth rate: 35.1%

Unemployment rate: 14.3%

Nevada was a very sleepy place for nearly a century, with a state population of just over 160,000 in 1950.

Hoover Dam helped change all that, bringing cheap power to Vegas to light all that neon and glitz.

The state's population exploded since then, growing by at least 50% every decade from 1950 through 2000. The recession took a bite out of that growth rate, however. In 2009 the state only swelled by 1%.

Arizona

Population: 6,392,017

Growth rate: 24.6%

Unemployment rate: 9.4%

Arizona's population has nearly quadrupled since 1970, no doubt benefiting from the rise of air conditioning.

The recession, however, has slowed migration to Arizona. Phoenix, for example had a net gain of about 50,000 residents from 2007 to 2008, about half its average during the boom years.

Read more here

Stocks Hit Highest Level in 2 Years

Finally, some good news on the economy to report! When Obama signed the tax compromise deal it sent Stocks to their highest levels in 2 years. The S&P 500 gained 1.3% for the week. Is this the beginning of the end of our tough times?

From USA Today.com:

An encouraging trade report and signs that a tax cut package would pass the Senate sent stocks to their highest levels in two years Friday. Bond prices fell for another day as investors expected the tax deal to lead to economic growth and higher budget deficits.

The Commerce Department reported that the U.S. trade deficit fell to its lowest level in nine months in October. Growing demand for American goods overseas pushed exports to their highest level in more than two years.

Separately, the Treasury Department said the federal government's budget shortfall hit $150.4 billion in November. Treasury prices dropped after the report was released, pushing their yields higher. The yield for the 10-year note rose to 3.33%, up from 3.21% late Thursday.

The Standard & Poor's 500 index rose 7.40, or 0.6%, to 1,240.40. It was the third straight day that the S&P index closed at a new high for the year. The index has gained 11.2% this year and is now trading at the same price it did the week before Lehman Brothers filed for bankruptcy in September 2008.

The Dow Jones industrial average rose 40.26, or 0.4%, to 11,410.32. General Electric led the 30 stocks that make up the index with a 3.4% jump to $17.72. GE said it planned to raise its dividend by 17%.

The Nasdaq composite index rose 20.87, or 0.8%, to 2,637.54.

The Dow was the weakest of the three main stock average for the week, gaining just 0.3%. The S&P 500 added 1.3% and the Nasdaq rose 1.8%.

Read more here

Last Minute Tax Themed Holiday Presents

Hanukah ended a few weeks ago, Christmas is just a couple of days away, and Kwanzaa begins on the 26th. In this season of giving, you might need ideas for those last minute gifts for the tax savvy person in your life. Check out some ideas below and give that tax fanatic something they’ll truly enjoy.

1. 1040 Tax Form Paperweight

It may be a little late to order a present online if you are hoping it will get here by Christmas, but if the person you are shopping for doesn't mind a late present, you could get them this 1040 paperweight from FindGift.com.

2. 1040 Toiler Paper

Another 1040 gift, but instead of a paper weight it’s toilet paper from Prank Place.com:

Does it pain you to fill out a tax form each year? This product isn't deductible, but it'll sure make you feel better. A collage of the 1040 IRS Form is printed throughout the whole roll!

3. Certified Tax Evader T-Shirt

You could either buy this brown and orange shirt from FindGift.com or swing by a craft store to get supplies to make your own! The shirt sells for about $20, but you could easily make your own for less.

4. My New Book

If you order Surviving the Coming Tax Disaster on Amazon, it probably won't arrive on time. However, the Kindle ebook is available for download instantly!

5. Subscription to a Finance Magazine

SmartMoney is one of my favorite magazines, and you can purchase a subscription for that special tax someone on their website. Just be sure to use the name and address of the person you are giving the gift to, and not your own.

6. IRS Candy Bars

They might not arrive before Christmas, but these “Bite Back at the IRS” chocolate candy bars would certainly put a smile on the face of anyone who works in taxes or finance. They are available in cases of 50, for around $75. That puts the price per candy bar at around $1.50. Maybe a belated holiday gift for your accounting department?

Hat Tip: TaxProf

7. Money Tree

Here's another present you could either order online or make yourself: a money tree! All you need is a clay pot, some fake leaves, a green stick, some dollar bills and pennies, and a hot glue gun.

Ethanol Reaches Five-Week High as Lawmakers Extend Tax Credit

From Bloomberg.com:

Ethanol futures in Chicago climbed to a five-week high on speculation demand for the fuel will grow after Congress last week passed an $858 billion tax-cut plan including provisions that support the biofuel industry.

The grain-based additive rose after lawmakers extended a 45-cent incentive to refiners for each gallon of the fuel blended with gasoline and renewed a 54-cent tariff on Brazilian imports. U.S. ethanol output reached a record 939,000 barrels a day in the week ended Dec. 3, government data show.

Denatured ethanol for January delivery rose 2.6 cents, or 1.2 percent, to settle at $2.244 a gallon on the Chicago Board of Trade, the highest price since Nov. 11.

In cash market trading, ethanol in Chicago climbed 6.5 cents, or 2.9 percent, to $2.275 a gallon and in the U.S. Gulf the additive increased 3.5 cents, or 1.6 percent, to $2.275, according to data compiled by Bloomberg.

Ethanol on the West Coast rose 8 cents, or 3.5 percent, to $2.375 a gallon, and in New York the biofuel jumped 7.5 cents, or 3.3 percent, to $2.375.

U.S. carmakers and engine manufacturers asked an appeals court to force the U.S. Environmental Protection Agency to reconsider its October decision allowing the sale of gasoline with 15 percent ethanol.

Continue reading at Bloomberg.com...

Top 10 Ways to Lower Your Rent

If you are a renter, believe it or not you may be able to lower your rent. Check out the following list of suggestions from MSN Real Estate.

1. Negotiate with the property-owner

Before you renew your lease, research the prices that are charged for similar rental houses or apartments in your area. Write a respectful letter detailing your understanding of the current average rents in your area and make sure you emphasize your excellent record as a tenant. Property owners may be willing to negotiate rent prices with current tenants rather than going through the hassle of finding new tenants. (Bing: Are there any "gotchas" in your state's landlord and tenant laws?)

2. Use Craigslist to secure a roommate

Craigslist's "rooms and shares" section can be a good way to get a roommate or roommates who can help reduce your monthly rental costs dramatically. You could cut your rental costs in half, and typically, the more roommates, the more you can expect to save. Make sure to screen any potential roommates for poor hygiene, bad boyfriends or body odor ahead of time or suffer the consequences.

3. Be willing to walk or ride the bus

In larger cities with well-established public-transportation systems, apartments that are closer to train stations and bus stops can be more expensive. If you are willing to walk a block or two, you could save yourself a couple hundred dollars a month. It also could be cheaper to rent an apartment when you do not need to reserve a parking space for a car.

4. Help out the landlord

Some landlords will be happy to give a discount if you offer to do some extra work around your rental unit. If you are renting a house, offer to perform seasonal work, such as cleaning out the gutters or shoveling snow. If you are in an apartment, offer to paint the walls or refinish the cabinets. When you can perform the maintenance yourself, the property owner will not have to hire someone else. You and the owner can save money.

Read more here

It’s Time to Rethink the Charity Deduction

The tax compromise has passed, so at least we know what our taxes look like for the next two years. But what happens after that? What will Congress do when our economy recovers? We know we’ll need to raise more tax revenue to make up for all this federal debt, but how? The author of the NYTimes article below believes we need to rethink the charitable contributions deduction. But, will people give so generously without the tax incentive?

First, some basics. If there is one thing that most economists agree about in the realm of tax policy, it is that it’s best to broaden the base of any tax, all else being equal. That means minimizing the number of deductions and exclusions from taxable income in order to lower marginal rates and reduce distortions. N. Gregory Mankiw made this case powerfully in this space recently, and President Obama and the Bowles-Simpson fiscal commission have taken up the cause as well.

In light of our prolonged economic doldrums, a decision to cut taxes for now is both popular and justifiable. But, eventually, Congress will have to face up to the fact that to deal with the long-run deficit problem we have to raise tax revenue as well as cut spending. Many Republicans know this deep in their hearts but can’t bring themselves to actually say it, for fear of excommunication.

Broadening the base can solve this quandary because, by reducing deductions, lawmakers can cut tax rates but increase revenue. This is one type of voodoo economics that actually works.

Two deductions are likely to be central in any debate on tax reform: those for mortgage interest and for donations to charity. With the housing market still suffering, it is hard to persuade anyone to consider changing the mortgage deduction right now, so I will concentrate on charitable giving.

Read more at NYTimes.com…

7 Steps to an Early Tax Refund

Tax season is closer than you think, so to get your tax refund back as quickly as possible, you need to get on the ball. I know, you’re all wrapped up in the holidays, but by starting your tax season chore list now, you’ll be ready to file and get your refund fast. Where do you start? MSN Money put together 7 steps to take in order to get your tax refund early. I have included a few of the items below, but click here for the full list.

1. Get started

The first step is the hardest. Stop thinking about it and get moving. Until you actually start your return, you'll never finish it. And that's probably going to slow down your refund.

If you don't have all your numbers, just put your name and address on the form. It will get you in the mindset to move forward.

Your first step is to break the inertia. As my father used to say, a trip of a thousand miles begins with a traffic jam. Break that jam and get moving.

2. Accumulate the data

January is collection month. By the second week of February, you should have the numbers in hand. Make sure you've gotten W-2s and any statements from your brokers and banks. You'll receive 1099 forms for any interest, dividends and stock sales.

Your mortgage company will send you a Form 1098 for any interest and real-estate taxes paid. Get those statements together and review the numbers. They're not always right. They won't include any interest you paid at the very end of December because the creditor won't have received the money until 2011.

3. Put the numbers in IRS categories

Neither the Internal Revenue Service nor your CPA is going to add up those numbers for you. Well, maybe your CPA. Many years ago, a psychiatrist near Philadelphia paid me $150 an hour to open his mail because he couldn't be bothered.

Continue reading at MSN.com...

Questions for the Tax Lady: December 20th, 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: I bought a home in 2008 and took advantage of a $7,500 incentive. I recently got a letter saying the money was a 0% interest loan from the government and that I must pay back $500 per year. I can barely pay my bills and have to get food from the good bank. Is there any way to get this lowered or removed?

Answer: You are in good company. Many people who received the First-time Homebuyer Credit in 2008 did not realize they were going to have to pay back the credit. Unfortunately, there really isn’t a work around. Since the IRS considered this an interest-free loan, they will come collecting.

Your best bet is to increase your income tax withholding by $42 a month. I know times are tough, but trust me, $42 a month is a lot less than the interest and penalties that would result from failure to pay back the credit.


Question: Since Obama signed the tax cut deal, does that mean my tax rate is going down next year?

Answer: Isn’t that the question of the week? Everyone is desperately trying to figure out what the tax deal means for them. Here’s the basic breakdown:

The short answer is no, your tax rate will not change. This means your official marginal tax rate will be the same that it was last year. That being said, there are other changes to the tax laws that might affect your overall tax liabilities. The most obvious example is the payroll tax deduction.

The Making Work Pay Tax Credit is gone, however, the tax deal reduced Social Security tax withholding by about 2%, so you might get a better tax break in the long run. If you earn $40,000, you’ll end up saving $800 in payroll taxes.

Dems: Tax Cut Package Will Kill Social Security

Is the tax deal the beginning of the end of Social Security? Some Democrats in Congress sure think so.

The Hill.com reports:

Rep. Peter DeFazio (D-Ore.), who voted against the legislation, said on Thursday that “this [vote] is the beginning of the end of Social Security.”

“Next year Republicans are going to want to continue to undermine Social Security, and we are not going to be in any position to borrow the money under whatever new rules the Republicans adopt to make it whole,” he said.

Rep. Jim McDermott (D-Wash.) told The Hill that the tax bill -- which passed the lower chamber on Thursday night -- is a “trojan horse” designed to kill the Social Security program.

“My view is this is like the magician. He has got people looking at the estate tax. Meanwhile, he is putting his hand in your pocket and taking your Social Security,” McDermott said.

In the tax bill that the White House hailed on Friday as a "big win," workers will get a two-percent tax break for one year on their payroll taxes -- a tax that funds Social Security. The cut will leave Social Security with a $112 billion short fall. To make up the difference, the government will need to borrow the money.

Proponents of the bill contend the payroll tax holiday will provide a significant boost to the economy.

Read more here

Payroll Tax Cut to Boost Take-Home Pay for Most Workers

In their latest press release, the IRS released instructions to help employers implement the 2011 cut in payroll taxes, along with new income tax withholding tables that employers will use during 2011. Since the tax deal was so late in being finalized, employers have until January 31, 2011 to get up to speed.

From IRS.gov:

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.

The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011. Notice 1036, released today, contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov in a few days.

The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011.

Continue reading at IRS.gov...

IRS Agent Accused of Stealing Tax Refunds

According to new reports, an IRS revenue officer has been charged by the U.S. Attorney's office for stealing unclaimed tax refunds. Fern Stephens allegedly took over $160,000 from the government agency over the past year. For an agency as unpopular as the IRS, this is not the best PR they’ve ever had.

If convicted of all counts of mail fraud, theft of government funds, and unlawful access of a government computer, Stephens faces a maximum sentence of 35 years in prison.

In one instance the U.S. Attorney's office accuses Stephens of duping $3,340 from a Manhattan-based bankrupt company by claiming that the principal of the business asked for the money by the IRS and then pocketing it herself.

Stephens also allegedly took advantage of her position in the IRS to put in fake tax refund requests and transfers in an IRS computer system so the money would go right back to her or relatives and friends.

Read more at NBC New York.com...

51 Million, Mostly Lower-Income, will do WORSE Under New Tax Law

According to Consumer Reports.org, the new tax bill passed by Congress last week will actually take more money from paychecks of individuals making less than $20,000 and households making less than $40,000. How is that possible? Read on to find out:

That's because the Making Work Pay credit, a temporary tax credit that's been in effect for the past two years, is going away as of January 1. That credit provides up to $400 per individual, $800 per household, for all eligible workers. And it adds more to the pockets of households making between $20,000 and $40,000 than the new, 2-percent drop in the Social Security payroll tax.

Why is the payroll-tax cut not as beneficial to those workers? Because at lower income levels, a 2-percent decline doesn't add up to much.The Tax Policy Center, a non-profit, non-partisan research organization, estimates that 51 million households, including many making $40,000 or less, would do worse under the new law. (On the Tax Policy Center's table illustrating that point, see the fourth column from the right, in the row labeled "All," for the total number of households benefiting more from Making Work Pay than from the Social Security payroll tax cut; the number is in thousands, so add three zeros to it.)

With the Making Work Pay tax credit, individuals between $6,452 and $75,000, have been eligible for up to $400 a year. Couples making between $12,903 and $150,000 have received up to $800. But, as Roberton Williams, a senior fellow with the Tax Policy Center, points out, the 2-percent drop in the payroll tax doesn't yield $400 until a worker makes $20,000. So workers making less won't get as much under the new system.

To confirm the TPC's assertions, I checked with both Barbara Weltman, a tax attorney and author of J.K. Lasser's 1001 Deductions and Tax Breaks, and John W. Roth, a senior tax analyst with CCH Wolters Kluwer, publisher of tax information and software. Both agreed with the TPC's assertion. "The net will be a negative for the lower working class," Roth said.

Read more here

FedEx Wins Ruling That Contract Drivers Seeking Benefits Aren't Employees

Let’s hope those contract employees have been making their quarterly estimated tax payments…

From Bloomberg.com:

FedEx Corp. drivers were found by a judge to be independent contractors in a nationwide series of lawsuits claiming the company treats them as employees and owes them full benefits.

U.S. District Judge Robert Miller in South Bend, Indiana, yesterday threw out claims of drivers in 20 class-action cases in California, New York, New Jersey and other states alleging the company misclassified their employment status and owed them back pay, overtime and other damages.

“We are very pleased with today’s significant rulings from the federal District Court in Indiana,” Maury Lane, a FedEx spokesman, said yesterday in an e-mail. FedEx, based in Memphis, Tennessee, is the second-largest U.S. package-shipping company after United Parcel Service Inc.

FedEx saves money by using contractors because it doesn’t offer them the same benefits and vacation time as it does employees. The company has encouraged its contractors to consolidate routes and hire their own subcontractors in an effort to bolster its position that the workers are small- business owners and not employees.

The contractor model gives FedEx’s Ground unit a cost advantage of as much as 30 percent over Atlanta-based UPS, University of Pittsburgh business professor Marick Masters has estimated.

Miller found that the drivers are independent contractors in 20 of the 28 remaining group lawsuits, and ruled in favor of FedEx on some claims in the other eight class-action cases, Lane said. In three cases, the court ruled against FedEx on at least one claim, he said.