Average Tax Refund in 2010: $3,003

According to new figures, the average taxpayer received a refund of $3,000 last year, which is up 5% from the previous year. Overall the IRS gave out $328 billion in refunds. Remember, that is YOUR money! Adjust your withholdings and enjoy that money all year long.

CNN reports:

The jump was one of the biggest in years, thanks in part to several tax credits introduced as part of the American Recovery and Reinvestment Act.

The Homebuyer Tax Credit -- which gave buyers up to $8,000 for purchasing a home -- was expanded to include more taxpayers.

Meanwhile, the refundable American Opportunity Credit helped more students and parents pay for college tuition and course materials. It temporarily replaced the $700 non-refundable Hope Credit and gave students with income of $80,000 or less a credit of up to $2,500 a year.

(The Making Work Pay credit was part of the ARRA as well, but it didn't show up in refunds. Instead, it was distributed in paychecks.)

Refunds also likely received a boost from the sluggish unemployment picture, said Roberton Williams, a senior fellow at the Tax Policy Center.

Read more here

Consumer Bankruptcies Hit 5-Year High in 2010

According to estimates, the number of American taxpayers who filed for bankruptcy protection in 2010 was the highest in nearly half a decade. Experts predict these numbers could increase in 2011 as Americans continue to struggle with debt and an uncertain economy.

Reuters reports:

Roughly 1.53 million consumer bankruptcy petitions were filed in 2010, up 9 percent from 1.41 million in 2009, according to the American Bankruptcy Institute, citing data from the National Bankruptcy Research Center.

Filings in December totaled 118,146, up 4 percent from a year earlier and 3 percent from November's total.

The full-year total is the highest since the 2.04 million recorded in 2005, when there was a rush to seek bankruptcy protection ahead of a stricter federal law taking effect in October of that year.

Samuel Gerdano, executive director of the ABI, said filings are rising even as consumers try to cut spending and debt after the 2008 financial crisis and accompanying recession, and with the unemployment rate at 9.8 percent.

He said there is usually a 12- to 18-month lag between declines in consumer spending and bankruptcy levels.

According to the Federal Reserve, U.S. consumer credit outstanding has fallen in 19 of the last 21 months for which data are available, declining to $2.41 trillion in October 2010 from $2.57 trillion in January 2009.

"Consumers have been on sort of a strike when it comes to taking on more debt, as they become more aware of the dangers of high debt burdens in a weak economy," Gerdano said.

Continue reading at Reuters.com...

Nearly 70 Percent of Taxpayers Used IRS e-file in 2010

According to the IRS's newest press release about 99 million taxpayers filed their federal income tax returns electronically last tax season. This represents a 3% increase from the year before.

Of the 141.5 million returns filed so far this year, almost 70 percent were filed electronically.

Each year, more taxpayers chose to e-file their tax returns. Last year, nearly 95 million taxpayers, or 67 percent, used e-file. In the past decade, the number of individual tax returns e-filed has increased by 145 percent. The overall number of individual tax returns increased only by 8 percent. IRS e-file is no longer is the exception; now it is the norm.

Home Computer e-Filers

Taxpayers who prepare their own tax returns using home computers continued to set the pace for e-file. This year, more than 35 percent of e-filers prepared and filed their returns themselves.

Almost 35 million returns were e-filed from home computers, up 8 percent from last year.

Direct Deposit Refunds

More than 74 million refunds were electronically deposited into taxpayers’ accounts, saving taxpayers a trip to the bank. More importantly, these taxpayers received their refunds at least a week faster than those receiving paper checks.

Continued at IRS.gov...

Black Friday 2010: Buy American

As our economy continues to struggle, many Americans are looking for ways to help. According to WalletPop.com, one of the best ways consumers can help with economic recovery is to ensure items you buy are made in the country. Especially as we get closer to the Black Friday holiday, where many taxpayers do most of their holiday shopping. Check out the following article from WalletPop.com.

It's the rare story about retailing that doesn't garner reader comments about where the products are made. It's also the rare retailer that makes the effort to stock only American made goods. Deborah Leydig is one of those retailers. Her Barrington, Ill. business stocks exclusively products made in this country, something that has become increasingly difficult to do.

"Deborah Leydig is in search of a can opener manufactured in the U.S.," opens a story in the Chicago Tribune. "The artist-turned-merchant had been stocking the iconic Swing-A-Way can opener, but had to stop this year when production moved overseas."

For decades, American companies have been outsourcing labor and relying on foreign production to stabilize businesses at home. Over time, it incurs cost to the environment, negatively affects our employment rates, and discredits our claims of sustainability. In a utilitarian sense, trade and commerce with other economies are of course necessary, but, is it healthy for us to rely on foreign systems? Especially when we are so proud of being self-reliant.

Leydig is just one example of a well-intentioned business owner trying to save jobs in the U.S., and she is not alone. Conscious consumerism is on the rise. Americans are buying environment-friendly goods, fair-trade products, and locally grown or made food at increasing rates.

Continue reading at WalletPop.com…

Questions for the Tax Lady: October 4th, 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: Roni, I have a small business with about a dozen employees. If I throw a Halloween party can I deduct the expenses of the necessary supplies? Like decorations and food?

Absolutely. Your employees work hard for you, and I believe that rewarding them with a holiday -- any holiday -- party goes a long way in keeping employees feeling appreciated and happy. According to the IRS, the costs of holiday parties for your employees are 100% deductible. This includes food, decorations, entertainment and more. Just make sure to keep the expenses reasonable for the size of your staff. If you only employ 5 people, a $10,000 deduction for holiday parties will likely raise eyebrows at the IRS.

Question: What is the standard mileage rate for this year? Has it changed from 2009?

The IRS mileage standards decreased this year, since gas prices have fallen. The various mileage rates for 2010 are shown below:

• 50 cents per mile for business miles driven
• 16.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

These rates apply for cars, vans, pickups or even panel trucks.

IRS Issues Guidance on Expanded Adoption Credit Available for Tax-Year 2010

Earlier today the IRS published a new press release with guidance on the expanded adoption credit for the 2010 tax year, which was included in the Affordable Care Act. The IRS also released a draft version of the form that eligible taxpayers will use to claim the newly expanded adoption credit on 2010 tax returns filed next year.

The Affordable Care Act raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. It also makes the credit refundable, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply.

In addition to filling out Form 8839, Qualified Adoption Expenses, eligible taxpayers must include with their 2010 tax returns one or more adoption-related documents, detailed in the guidance issued today.

The documentation requirements, designed to ensure that taxpayers properly claim the credit, mean that taxpayers claiming the credit will have to file paper tax returns. Normally, it takes six to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. The IRS encourages taxpayers to use direct deposit to speed their refund.

Taxpayers claiming the credit will still be able to use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

No Estate Tax Due in 2010 but Beware of Cap Gains

As it gets closer and closer to the end of 2010, experts are beginning to wonder if Congress will make any changes to the estate tax or not. As you probably already know, there is no estate tax for people who pass away this year. Many had expected that Congress would impose a retroactive tax, but with only a few months left in 2010 it is unclear if legislators will tackle the estate tax before the end of the year. However, according to Boston.com that does not mean that large estates get a "free pass" this year.

Things might even be more complicated. That is because a "carryover basis" rule is in effect this year. In previous years, people inheriting property enjoyed a "step up" in basis. That is, the basis of the property they inherited was generally the value of the property when the previous owner died. In 2010 however, people inheriting property also inherit the decedent's tax basis. This means that if you are inheriting property this year, you have to hope the decedent kept very detailed records.

The executor administering the estate can, however, increase the basis of the assets by $1.3M plus any expiring loss carryforwards and the amount by which any asset is worth less than its original cost. The practical implication of this $1.3M is that any estate with untaxed appreciation of up to $1.3M will escape tax free. However, the executor is responsible for designating those assets that will receive the $1.3M. If he or she doesn't pick the assets you inherited, you could find yourself owing taxes upon the sale of the inherited property. However, the good news is that the gains will be taxed at capital gains tax rates.

It is important to note that assets that pass to a surviving spouse are entitled to another $3M in untaxed apprection so it is still possible to shelter as much as $4.3M in appreciation. If you are the executor of an estate for someone who died in 2010, be sure to seek the assistance of a CPA because the rules can be very complicated and you don't want to make a costly error. And if you inherit assets from someone who died in 2010 be sure you know the basis of the asset and if you might owe capital gains taxes be careful to time the sale to minimize any taxes.

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…

Three Signs Housing's Getting Weaker

Towards the end of 2009 there were reports suggesting the housing marketing was improving. However, as this new article from NPR.org points out, new statistics are suggesting a weakening real estate market once again. Listed below are their top three signs that the housing market is getting weaker.

1. Sales of previously-owned homes fell by 2.2 percent in May, the National Association of Realtors said today. Economists were predicting that sales would rise, driven by the tail end of the homebuyer tax credit.

2. Home builders' confidence in the housing market fell this month, according to a monthly survey of the industry.

3. Home prices have been falling this year, according to the Case-Shiller index.

To qualify for the home-buyer tax credit, people had to sign a contract by April 30 and close by June 30. Programs like this often encourage people who are planning to buy a home to hurry up and do it before the program ends. In that way, they sometimes steal home-buyers from future months.

In a note this morning, Ian Shepherdson of High Frequency Economics argued that this phenomenon will lead to more weakness in the housing market in the coming months.

Continue reading at NPR.org…

Questions for the Tax Lady: June 21st, 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: When does the 10% tanning tax take effect?

According to IRS guidelines the tanning tax is due to take effect on July 1^st, 2010. For more information check out this blog entry I posted last week on the subject.

Question #2: Do I need to report the sale of a second home?

Yes. The IRS considers a second residence a capital asset. You will need to complete Form 1040, Schedule D to report sales, exchanges, and other dispositions of capital assets.

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Extending the Homebuyer’s Credit… Again?

The Homebuyer’s Credit expired on April 30, 2010, but a handful of politicians are working to reinstate it, fearing an extended real estate slump. While Harry Reid proposes extending the closing deadline on the most expired credit (all pending deals must close before June 30 to be eligible for the credit) to September 30, Ron Paul is proposing we make the credit permanent.

Critics argue that the credit was wildly expensive for taxpayers as a whole, and does little to stimulate real estate sales. Many say that those who took advantage of the credit would have purchased a home anyway, and the credit simply made them accelerate their purchase.

On the other hand, following the expiration of the credit, many real estate experts fear that the housing market will slump, causing a “recession double dip.” Of course, homeowners who claimed the credit were thrilled to receive up to $8,000 in free money from Uncle Sam. Add in that this in an election year; every politician is looking for ways to curry favor with voters, and this tax credit was very popular with taxpayers.

Read more about Reid’s proposal here, and see more about Paul’s proposal here.

Questions for the Tax Lady: June 7th, 2010

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

Question #1: I do not usually itemize my tax return, but I have an old vehicle I was planning on donating to charity. Can I still claim the donation as a charitable contribution on my next return?

Unfortunately, no. You can only take advantage of the charitable contribution donation if you itemize your return, meaning you do not claim the standard deduction. For more information on charitable contributions, check out this article on the RDTC Tax Help Blog.

Question #2: Roni, I am a self-employed taxpayer. Is my next estimated quarterly payment due on July 15^th or June 15^th?

The next quarterly payment due date is actually June 15^th, even though it has only been two months since your last payment was due (April 15^th). Your next payment will be due on September 15^th, and then four months will go by before the final payment is due.

IRS Issues Spring 2010 Statistics of Income Bulletin

The IRS issued a new press release yesterday, announcing their Spring 2010 statistics of income bulletin. The bulletin includes high-income taxpayer statistics, such gift tax returns and trust income for various tax years.

For example, taxpayers filed over 4.5 million returns with adjusted gross income of $200,000 or more for 2007, up from over 4 million returns in the prior year. These high-income returns represent over 3 percent of all returns filed for 2007.

This issue of the quarterly Bulletin also contains articles about the following:

• Individual taxpayers who itemized reported $59 billion in deductions for noncash charitable contributions in 2007. Of these nearly 24 million taxpayers, almost 7 million reported close to $53 billion in deductions on Form 8283, Noncash Charitable Contributions. The number of Form 8283 filers increased 12 percent from 6 million in 2006, and the amount claimed in donations increased to nearly 13 percent from $47 billion.
• About 257,000 gift tax returns were filed in 2008, 96 percent were nontaxable. The reported total amount of gifts was $45 billion. Cash was the predominant type of asset gifted, representing 46 percent of the total, while corporate stock accounted for 24 percent and real estate 17 percent. The majority of gift tax returns, almost 52 percent, were filed by female donors.
• Of the more than 400,000 simple trusts analyzed in a panel study, total income was $15 billion in 2002 and reached $26 billion in 2006. Total deductions grew from $12 billion to $15 billion over the same period for simple trusts. For the more than 700,000 complex trusts analyzed in the panel study, reported total income increased from $28 billion in tax year 2002 to $60 billion in tax year 2006. Total deductions increased from $15 billion in 2002 to $20 billion in tax year 2006 for complex trusts.

High-Income Taxpayers Should Maximize Charitable Contributions, Other Itemized Deductions in 2010

If you are a high-income taxpayer, and are considering a significant charitable donation then you should consider making it in before the end of 2010, according to the Tax Foundation. This year, a handful of restrictions on itemized deductions – including those on charitable contributions – will return beginning in 2011, after a year-long hiatus.

"The federal individual income tax has, since its inception, allowed for personal exemptions to provide tax relief to low-income filers," said Tax Foundation Chief Economist Patrick Fleenor, who authored the report. "Over time, politicians have also created itemized deductions to favor certain products and services. To raise revenue, the federal government has over the past 20 years scaled back the benefits of personal exemptions and itemized deductions by phasing them out for high-income people through the PEP and Pease provisions, which have created significant problems, raising marginal tax rates and adding to tax complexity."

Tax Foundation Special Report, No. 178, "PEP and Pease: Repealed for 2010 But Preparing a Comeback," is available online at http://www.taxfoundation.org/publications/show/26260.html.

In some cases, PEP and Pease push the marginal tax rate up substantially. Next year, under President Obama's budget, a married couple filing jointly with combined AGI of $254,550 would pay a 28 percent rate without PEP and Pease, but a 30.5 percent rate with PEP and Pease. Couples earning a little more, over $262,950 in AGI, would face a marginal effective tax rate of 39.2 percent instead of 36 percent, according to the report.

The Pease provision, named after former U.S. Representative Donald Pease (D-OH), phases out the benefits of itemized deductions -- such as deductions for mortgage interest, state and local tax paid and charitable contributions -- for high-income earners. In 1991, the first year it was in effect, the income threshold below which a taxpayer would keep the entire value of his itemized deductions was $100,000 in AGI for joint filers and $50,000 for all other filers. A taxpayer declaring income above the threshold and claiming itemized deductions that are subject to Pease would have to subtract 3 percent of the income above the threshold from the deduction amount.

In 2009, the phase-out threshold for Pease, which is indexed for inflation, was $166,800 for joint filers and $83,400 for other filers. Under President Obama's policies, the threshold for Pease would be $254,550 for married couples and $203,650 for singles.

Continue reading at TaxFoundation.org…

Happy Earth Day!

Earth Day is a great reminder to go green and reduce our carbon footprints. As I have explained before, there are plenty of tax incentives to live a more energy efficient lifestyle. A few weeks ago, the RDTC Tax Help Blog posted a blog entry explaining some of the tax advantages of going green in 2010. Check out the article, and think about what you can do to help the planet today in honor of Earth Day! I give thanks to Sacramento Scoop.com for the above graphic.

Tax Tips for 2010

Last week, I sat down with Kelsey Hubbard of MarketWatch.com to share some tax tips for 2010. We discussed various topics including tax strategies, multi-generation households, and filing status. Checkout the embedded video below to watch the full interview.

Questions for the Tax Lady: April 5th, 2010

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

Question #1: I visit my local tanning salon every few weeks, and they have warned me that a new tanning tax will be enacted as part of the health care reform package. When will this new tax take effect?

Beginning on July 1^st of this year a 10% “tanning tax” will be imposed on all payments made for indoor tanning services.

Question #2: Was there an increase in the standard deduction amount for 2010?

The standard deduction for married couples filing a joint return remains unchanged at $11,400 for 2010. The standard deduction for single individuals and married couples filing separate returns is $5,700 for 2010. The standard deduction for taxpayers filing head of household increases by $50—from 8350 to $8,400—for tax year 2010.

Questions for the Tax Lady: March 29th, 2010

Check out the following new Questions for the Tax Lady answers. 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 IRS is going to be in charge of enforcing the mandatory health insurance requirement?

Yes. Unfortunately, it looks like the IRS has been given the “enforcement job” by the new health care reform package passed by Congress. As I explained in my appearance on CNN last week, they are probably going to modify the IRS Form 1040 to include a section where you provide information on your health insurance coverage. If you do not have coverage and thus do not report health care coverage on your tax return to the IRS, you will be assessed a tax penalty.

Question #2: How do I find out if the IRS has sent my refund check yet?

The IRS’ website features a handy “Where’s my Refund” tool where you can monitor the status of your refund. You will need to provide your Social Security Number, filing status, and the dollar amount of the refund you are anticipating.

Beware of IRS’ 2010 “Dirty Dozen” Tax Scams

Earlier today the IRS published their 2010 list of 12 tax scams to look out for in this new press release. Amongst the “dirty dozen” scams are phishing, zero wages, and income hidden offshore. You can find a section of the release below, or read the full text at IRS.gov.

Hiding Income Offshore

The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.

IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. While special civil-penalty provisions for those with undisclosed offshore accounts expired in 2009, the IRS continues to urge taxpayers with offshore accounts or entities to voluntarily come forward and resolve their tax matters. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution.

Phishing

Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Scammers may also use phones and faxes to reach their victims.

Scam artists will try to mislead consumers by telling them they are entitled to a tax refund from the IRS and that they must reveal personal information to claim it. Criminals use the information they get to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Taxpayers who receive suspicious e-mails claiming to come from the IRS should not open any attachments or click on any of the links in the e-mail. Suspicious e-mails claiming to be from the IRS or Web addresses that do not begin with http://www.irs.gov should be forwarded to the IRS mailbox: phishing@irs.gov.