IRS Is Taxing My Nobel Prize!

Winning a Nobel Prize comes with a lot of perks, but one thing most people do not realize it also comes with is a tax bill.

Forbes.com reports:

Most of us will never win a Nobel Prize, but if we do, it comes with a tax bill. Our old friend the IRS gets a cut of the roughly $1.4 million USD ($10 million Swedish kronor) cash prize. The 2010 winners may not be complaining, but some may be surprised. See Life After Winning a Nobel Prize. Martin Chalfie, won the 2008 Nobel Prize in Chemistry, lamenting that since the Reagan era when the tax code was changed, the IRS collects tax on prizes just like any other income.

President Obama cleverly avoided tax on his Nobel Peace Prize last year—and got great press—by regifting it. Since Jerry Seinfeld’s eponymous series brought “regifting” out of the closet, 60% of women and 40% of men admit they regift. There’s even a “Gift and Re-Gifts” neighborhood on eBay.

Before 1986, many prizes were tax-free as long as no significant services were involved. Since 1986, though, prizes and awards are taxable.

You can decline an award, as George C. Scott did an Academy Award for Patton in 1971. You can even decline a Nobel Prize to avoid the tax. That’s actually surprising, since the tax law routinely attributes taxable income to you “constructively” when you could have received a payment but chose not to. See When You’ve Got Taxable Income but No Cash.

If you are awarded a cash prize you can turn around and give it to charity but that doesn’t avoid all the tax. Why? You can’t deduct charitable contributions exceeding 50% of your “contribution base”—generally your adjusted gross income. The limit is even lower (30%) for gifts to certain types of organizations. You can carry over excess deductions for up to five years, but in the meantime, are paying tax on monies you’ve given away.

Read more here

Senate Democrats Unveil Fund-Manager Profits Tax Boost

The topic of the fund-manager tax has not been a stranger to my blog over the past couple weeks. Now, Senate Democratic leaders are proposing some differences from the proposal passed by the House last month. According to the Wall Street Journal, the investment fund-manager tax is part of a broader $140 billion package to extend jobless benefits and expired tax breaks the Senate began debating Tuesday. The broader bill would extend unemployment benefits to November 30 of this year, extend business tax breaks, such as the research credit, for one year, and prevent a cut in Medicare payments to doctors. It also includes funding for state and local infrastructure projects.

Other differences from the House bill according to the article are:

• Senate Democrats decided not to include in the House bill a plan to require greater fee disclosure to workers who participate in 401(k) retirement plans, which was opposed by mutual-fund companies.
• Senate Democrats are proposing to extend generous aid to states that was approved in last year's stimulus legislation. The Senate bill would extend that aid for six months, through June 30, 2011, at a cost of $24 billion.
• The Senate proposal also increases a per barrel tax on oil produced in or imported into the U.S to 41 cents from eight cents per-barrel. The difference? The House-passed bill would have increased that tax to 34 cents a barrel.
• The large Senate package also includes $1 billion for a federal youth summer jobs program and $4.6 billion to settle lawsuits that black and Native American farmers have brought against the government.
• About $58 billion of the $140 billion cost of the package is offset by targeted tax increases, including the fund-manager tax and new curbs on the ability of U.S. multinationals to use foreign tax credits.
• That means the package would add roughly $82 billion to the deficit over 10 years, compared to $60 billion under the House-passed bill.

The Senate will consider additional amendments to the bill, and a final vote isn't expected until next week or later.

Read the full article here.

House to Vote on Tax Bill as Net Cost Drops to $60.5 Billion

From the Wall Street Journal:

The latest version of House legislation to extend tax cuts and unemployment benefits would add $60.5 billion to the deficit over the next 10 years, the Congressional Budget Office said Friday.

The House took the first step toward passing the package. On a 221-199 vote, the House approved a rule setting up two votes later Friday. The House will vote on the jobless and tax package, then vote separately on a provision to postpone scheduled cuts in Medicare payments to doctors.

The new cost estimate from CBO appeared to give Democrats the needed confidence to move ahead, after lacking the votes all week.

The estimate reflects changes House leaders made to the package including eliminating spending programs created by the 2009 stimulus bill, expanded Cobra health insurance subsidies and increased federal Medicaid payments to states.

Those and other changes shaved the net cost of the package to $60.5 billion from $140 billion earlier in the week.

The total cost of spending and tax cuts in the package is roughly $116 billion. About $56 billion of that is offset by targeted tax increases on business, including the fund manager tax rate increase and changes in the way overseas income of U.S.-based multinationals is taxed.

Jobs and Tax Bill to Cost $134 Billion

According to this new article on CNN Money.com, Congress is scheduled to consider a new bill this week that is expected to increase the federal deficit by $134 billion over the next decade.

The bill, which is likely to become a flash point in the debate over the federal debt, would raise $40 billion worth in additional revenue, according to estimates by the Congressional Budget Office and the Joint Committee on Taxation.

But that's not enough to fully offset the $174 billion in additional federal outlays that would occur as a result under the bill. CBO released its cost estimate late Friday.

The legislation would extend a host of tax breaks, give continued relief to the unemployed, delay cuts to doctors' Medicare reimbursements, provide support for job growth and fund disaster relief, among other things.

The bill, a melded version of proposal passed earlier by the House and Senate, won't be free of opposition on either side of the aisle. There is pressure to pay for more of the bill's provisions, and there is strong disagreement over some of the pay-fors that are included.

Continue reading at CNN Money.com…

Tax Bills In 2009 At Lowest Level Since 1950

According to a new analysis of federal data, the average U.S. taxpayers paid less tax last year then they have since 1950. Federal, state, and local taxes, consumed about 9.2% of personal income in 2009, which is much lower then the 12% average we have seen for the past few decades.

The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.

"The idea that taxes are high right now is pretty much nuts," says Michael Ettlinger, head of economic policy at the liberal Center for American Progress. The real problem is spending,counters Adam Brandon of FreedomWorks, which organizes Tea Party groups. "The money we borrow is going to be paid back through taxation in the future," he says.

Individual tax rates vary widely based on how much a taxpayer earns, where the person lives and other factors. On average, though, the tax rate paid by all Americans — rich and poor, combined — has fallen 26% since the recession began in 2007. That means a $3,400 annual tax savings for a household paying the average national rate and earning the average national household income of $102,000.

Continue reading at USA Today.com…

Tax bills are lower this year, but they will increase

When it comes to our federal government, it seems that nothing good lasts forever. While most of us had lower tax bills due to all the nice tax credits this year, taxpayers earning higher incomes will soon find themselves paying more. I recently read an article published in The Huffington Post indicating that the economic recovery package this year included about $300 billion in tax cuts over 10 years. $232 billion of which, were tax cuts for individuals.

This past year, Congress cut individuals’ federal taxes this year by hundreds of billions of dollars even while state taxes increased to pay state budget deficits. But while tax bills were low for most taxpayers, we need to expect our tax bills will definitely go up in the next few years. What are the reasons for the increases, you ask? For one, former president George W. Bush’s tax cuts will be expiring in January (only a few to be renewed) and then there are Obama’s future increases in the health care overhaul. While some increases will hit lower income taxpayers, those making more than $200,000 ($250,000 for couples) a year will see the largest increase. For the first time, the Medicare payroll tax would be applied to investment income, beginning in 2013. A 3.8 percent tax will be imposed on interest, dividends, capital gains and other investment income for individuals making more than $200,000 a year. Read the full article here.

How to Tackle Your Tax Bill

I was recently quoted in a personal finance article in The Faster Times on how to “tackle your tax bill.” It explains every step you need to take to get your return filed, with strategic tax advice. You can check out an excerpt from their post below:

" 'Tis the season for all things taxes. You suspect you might have to pony up to Uncle Sam. Sorry about that. But the good news is: you still might be able to lessen the blow.

Be strategic

In light of the struggling economy, some families are choosing to live in multi-generational households. If you are supporting one of the ever emerging multi-generational households, you may be eligible to claim tax exemptions for the additional household members.

Exemptions reduce your taxable income, explains Roni Deutch, author of The Tax Lady’s guide To Beating the IRS.

Run the numbers

As part of last year’s stimulus package, many American’s received extra money in their paychecks. But approximately 15 million taxpayers will have to repay $250-$400 of the tax credit they received. To avoid getting a nasty surprise when you file, use the IRS Schedule M to determine whether or not you may have to repay Uncle Sam.

“Although this credit is meant for good, it may cause some harm to unsuspecting taxpayers because the credit was applied automatically to all tax withholdings whether the taxpayer qualified for it or not,” says Deutch. After you determine whether you have to pay this credit back for tax year 2009, you should get a head start and check your current withholdings because this credit extends to tax year 2010, she adds."

Read the full article at The Faster Times…

Unemployment Benefits, Canceled Debt Trigger Tax Bills

The last thing most of us want to think of in this economy is an unexpected tax bill. However, as Sandra Block of USA Today explains, financial hardships can often result in a tax bill instead of a refund. Block explained a few situations that can lead to owing taxes in this new article. You can find a few of her examples below.

Taxes on unemployment benefits. Millions of Americans who have been out of work for months are relying on unemployment benefits to put food on the table. In November, Congress extended benefits by up to 20 weeks for workers in states with high jobless rates.

But what many people may not realize is that some of those benefits are taxable. The economic stimulus package enacted last year excluded the first $2,400 of unemployment benefits from 2009 gross income. For unemployed married couples, each spouse is eligible to exclude up to $2,400 in benefits.

Taxpayers who receive unemployment benefits should receive Form 1099-G, which shows the amount of benefits you received for the year. You should report unemployment compensation that exceeds $2,400 on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.

Continue reading at USA Today.com…

As Home Values Fall, Your Property Tax Bill Probably Should Decline, Too

From Boston.com:

Why is it that so few taxpayers try to reduce their property taxes? As many as 60 percent of US homes may be overassessed, according to the National Taxpayers Union, but most homeowners don't know how the process works or that they can appeal.

You are likely to have more success this year, because in most areas there is a large disparity between assessed values from the boom years and depressed current market values.

Most likely your home's assessment is out of date since it is based on an average of local values that may go back three years. Since the height of the boom market, prices have declined by 20 to 50 percent.

Appealing your assessment is something anyone can do, yet it is important to do some preparation work. I have been able to lower or freeze my home's assessed value several times.

There's often little accountability in how assessors value your property. They make mistakes, and assessments may be wildly inconsistent in your community.

Check your home's legal description. Does it match precisely your house and lot characteristics? There may be errors in the records on the number of finished rooms, lot size, and interior square footage.

The second step is to determine whether you are fairly assessed. You will need to work out whether similar houses sold at lower prices than your home's current market value. Are there any local features that will reduce your property's value? Railroads, highways, landfills, easements, and rezonings (to commercial) count.

You can present these details to your assessor before you file a formal appeal, but don't expect him to give you a reduction. Most states have bodies that deal specifically with real-estate tax appeals at higher levels.

If you don't feel comfortable researching and filing your own appeal, you can hire an attorney. They are usually compensated by taking a percentage of your tax savings. Appeal boards tend to respect the opinion of a certified real-estate appraiser more than yours. Spend a few hundred dollars to present a recent certified appraisal.

Be professional and precisely document your case. Appeals boards are swamped right now. Ocean County, N.J., for example, is facing more than 14,000 appeals this year.

Typically, you will have just a few minutes to make your appeal. Keep in mind you have to meet strict filing deadlines. Don't expect an immediate reduction in property taxes. Taxing bodies still have the power to raise levies or float referendums if they need funds. Your taxes may rise - even in this market.

If the deadline for appeal has passed this year, start building your case for next year. Definitely mount a challenge if you are in the highest property-tax states - such as Massachusetts.

Senators Introduce Bill Banning Wireless Taxes

From Fierce Wireless.com:

Two senators have introduced legislation that would put a five-year moratorium on wireless and cell phone tax increases.

The Mobile Wireless Tax Fairness Act of 2009, introduced by Sen. Ron Wyden (D-Ore.) and Sen. Olympia Snowe (R-Me.), would prohibit federal, state and local tax increases on wireless services and infrastructure. The bill has drawn support from Sen. John McCain (R-Ariz.), who along with other supporters of the bill, contends that it will help consumers and that wireless companies have been hit unfairly with taxes.

The average tax rate for goods and services is 7.07 percent, but federal, state and local taxes make up 15.9 percent of the average wireless bill, according to figures from Phoenix Business Journal. Between January 2003 and January 2007, the effective tax rate on wireless services increased four times faster than the rate for other taxable goods.

"It is very troubling that wireless consumers have been taxed four times more than other taxable goods and services over an almost four-year period," CTIA President Steve Largent said in a statement. "The Wyden-Snowe bill will protect consumers from new discriminatory taxes and fees while preserving existing revenue for states and localities."

AIG Bonus Tax Bill May Be Delayed in U.S. Senate

From Bloomberg.com:

The U.S. Senate may wait until next month to vote on a proposed steep tax increase on employee bonuses at American International Group Inc. and other companies that got taxpayer bailouts.

Senate Majority Leader Harry Reid, a Democrat, said today that Republicans had asked for time to study a proposal to impose a 70 percent tax on bonuses like the $165 million paid out by AIG. The insurer received $182.5 billion in U.S. bailout funds, according to the Government Accountability Office.

“We will continue to work to right this egregious misuse of taxpayer dollars,” Reid, of Nevada, said on the Senate floor. “With Republican cooperation we can quickly and responsibly return these funds to the American people.”

This week and next week, Reid said, the Senate will work on a national-service bill and President Barack Obama’s budget proposal. Congress begins a two-week recess on April 6. Reid spokesman Jim Manley said the Senate would have to have unanimous agreement to proceed with the bonus tax legislation before the recess.

On March 19, the House voted overwhelmingly for a 90 percent tax on some bonuses paid by AIG and other companies that got bailouts. Later that day, four senators introduced a measure to impose a 70 percent tax on bonuses, split between the employee and company, in addition to existing income taxes. Reid sought immediate Senate passage, though Republicans objected.

‘Make Mistakes’

Arizona Republican Jon Kyl said today that lawmakers should hold hearings to consider options. “We can make mistakes” when lawmakers act too quickly, he said.

Mutual Fund Taxes To Break Records

According to CNN Money, major mutual fund companies have begun estimating this year’s taxable distributions and the taxes are set to break records yet again. Last year their tax bills totaled $23.8 billion, which was the largest since 2000, but this year’s total is expected to be over $24 billion. One reason for the ever-growing tax bill is the past years "wild market," with plunging stocks and a soft housing market.