Common Tax Breaks for Families and Individuals

Who doesn’t love a tax deduction? Last year the average taxpayer claimed about $8,000 in tax deductions. WashingtonPost.com put together a list of the biggest, and most expensive tax breaks from 2009, check out their list below.

-34.6 million taxpayers cut their federal income taxes by a total of nearly $77 billion by deducting the interest they paid on their home mortgages.

-36 million families saved more than $54 billion from the $1,000 per-child tax credit.

-40.7 million taxpayers cut their federal income taxes by $40 billion by deducting state and local income, sales and personal property taxes.

-33.5 million households cut their taxes by $21 billion by deducting state and local real estate taxes.

-36 million families cut their taxes by nearly $35 billion by deducting charitable donations.

-28 million taxpayers saved a total of $24 billion because their income from Social Security and railroad pensions was untaxed.

-25.7 million low-income families got a total of $55 billion from the earned income tax credit.

Continue reading here

Tax Breaks for Bailout Recipients Stir Up Debate

From the Wall Street Journal:

Senate legislation unveiled Thursday has estate planners asking whether the window has closed for clients to make gifts to children and grandchildren at unusually low tax rates.

Wealth advisers have recently been touting the 35% gift-tax rate in effect in 2010, and the absence of a generation-skipping tax on gifts to grandchildren. Both taxes are scheduled to snap back to 55% on Jan. 1, creating a tax-saving opportunity for year-end gifts.

But the bill authored by Sen. Max Baucus (D., Mont.) would immediately re-impose the generation-skipping tax and raise the gift tax, both to 45% and retroactive to Thursday, Dec. 2.

Those provisions are part of broader legislation to extend expiring tax cuts, which isn't expected to pass the Senate in its current form. Ultimately it will have to be negotiated with Republicans, which could lead to changes on such items as effective dates.

Still, Mr. Baucus's choice to make the higher tax rates effective as of Thursday, instead of when final legislation actually passes, makes gifts in December a riskier proposition, wealth advisers say.

"There are some people who were thinking about making year-end gifts that would trigger a gift tax, who now will think twice about writing that check," said Anne Coventry, an estate planner at the Pasternak & Fidis law firm.

Why the Spending Stimulus Failed

Yesterday the CBO reported that tax breaks were the least effective portion of the stimulus plan. Now we’re being told that the stimulus failed because it needed more tax breaks? Here’s the thing, we’ll never be able to prove that an economic plan “worked” or didn’t, simply because we can’t know what would have happened had we acted differently. So, at the end of the day, it’s all just speculation, but enjoy some more:

From the Wall Street Journal:

President Obama and congressional leaders meeting yesterday confronted calls for four key fiscal decisions: short-run fiscal stimulus, medium-term fiscal consolidation, and long-run tax and entitlement reform. Mr. Obama wants more spending, especially on infrastructure, and higher tax rates on income, capital gains and dividends (by allowing the lower Bush rates to expire). The intellectual and political left argues that the failed $814 billion stimulus in 2009 wasn't big enough, and that spending control any time soon will derail the economy.

But economic theory, history and statistical studies reveal that more taxes and spending are more likely to harm than help the economy. Those who demand spending control and oppose tax hikes hold the intellectual high ground.

Writing during the Great Depression, John Maynard Keynes argued that "sticky" wages and prices would not fall to clear the market when demand declines, so high unemployment would persist. Government spending produced a "multiplier" to output and income; as each dollar is spent, the recipient spends most of it, and so on. Ditto tax cuts and transfers, but the multiplier is assumed smaller.

Continue reading at WSJ.com...

5 Ways Retirement Tax Breaks Will Change in 2011

Earlier in the week the IRS announced the adjustments to pension plan limitations in 2011, which will have an impact on a handful of retirement plans popular among American taxpayers. US News.com put together a list of the top five retirement tax breaks that will be affected by the IRS' recent announcement. You can find a few items from their list below, or the full text here.

401(k)s. The savings limits for employer-based retirement accounts are not increasing next year because inflation was too low to trigger an increase. The cost-of-living index used to calculate increases in 401(k) savings limits is currently greater than it was in 2009, but it is still less than the measurement for the third quarter of 2008. The maximum amount investors can contribute to 401(k)s will not be raised until the September inflation measurement climbs above where is was in 2008. Contribution limits cannot be reduced under current law.

Traditional IRAs. Certain income ceilings determine who is eligible for a tax break for contributing to an IRA. Individuals who have a retirement plan at work can contribute the full amount to an IRA until their modified adjusted gross income (AGI) reaches $56,000. The amount eligible for tax deferral is then gradually phased out until income reaches $66,000 in 2011, the same amount as this year. However, married couples filing jointly will get higher income limits next year. For a spouse who participates in a retirement plan at work the income phase-out range will be $90,000 to $110,000 in 2011, up from $89,000 to $109,000 this year. For IRA owners who do not have access to a retirement account at work, but are married to someone who does, the deduction will be phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000 this year.

Roth IRAs. More high income retirement savers will be eligible to make Roth IRA contributions next year. Married couples filing jointly can contribute to a Roth IRA until their AGI reaches between $169,000 and 179,000 next year, up from $167,000 to $177,000 in 2010. The AGI phase-out range for singles and heads of household will increase from $105,000 to $120,000 this year to between $107,000 and $122,000 in 2011.

Saver’s credit. The AGI limit to get the saver’s credit will be $56,500 for married couples filing jointly in 2011, up from $55,500 in 2010. For heads of household the income limit will increase from $41,625 this year to $42,375 in 2011. Single people and married individuals filing separately can earn up to $28,250 and still get the saver’s credit, up from $27,750 this year.

Continue reading at US News.com...

Key Tax Breaks at Risk as Panel Looks at Cuts

In just a few weeks a deficit commission is planning to submit recommendations for balancing the federal budget by 2015. Experts predict that they will recommend getting rid of a handful of popular tax breaks including the mortgage interest deduction. Although they are popular among American taxpayers, the tax incentives reportedly cost the government about $1 trillion a year.

The Wall Street Journal reports

At stake, in addition to the mortgage-interest deductions are child tax credits and the ability of employees to pay their portion of their health-insurance tab with pretax dollars. Commission officials are expected to look at preserving these breaks but at a lower level, according to people familiar with the matter.

The officials are also looking at potential cuts to defense spending and a freeze on domestic discretionary spending. It is unclear if the 18-member panel will be able to reach an agreement on any of the items by a Dec. 1 deadline.

Even if they do reach an agreement, any curbs on current tax breaks would likely face tough sledding in Congress. The banking and real-estate lobbies have fiercely rebuffed efforts to rescind the mortgage-interest deduction in the past.

Read more here

Obama Offers Another Hand To Businesses, More Tax Breaks

From NPR.com:

President Obama is proposing some new tax breaks he hopes will encourage businesses to expand and get the economy moving again. The President is set to unveil the tax breaks along with a plan for $50 billion worth of infrastructure investment in a speech about the economy on Wednesday, but some details about the tax breaks are already being reported.

One proposed tax break that's receiving a lot of attention, would allow business to write off 100 percent of new capital investments, money spent on plants and equipment, through 2011. Companies can already deduct these expenses, but currently they have to wait longer to do so. Allowing businesses to take the deduction upfront, will mean they have more cash on hand to spend or invest. Economists at the White House estimate that the plan would cut business taxes by around $200 billion over two years.

The President is also going to propose increasing and making permanent tax credits for research and development. The research tax credit is typically extended by Congress year after year, but some gaps have left business groups frustrated.

More States Woo Retirees With Tax Breaks

From Forbes.com:

Last month, even as they slapped a new tax on hospitals, raised dozens of user fees and eliminated a low-income tax credit, Georgia legislators passed income tax relief for one group: well-off retirees. For residents 62 or older, Georgia already exempts from its 6% tax all Social Security and $70,000 per couple of income from pensions, retirement accounts, annuities, interest, dividends, capital gains and rents. But in 2012, the exemption for couples 65 and older will rise to $130,000, and by 2016 all their retirement income will be exempt--a break Governor Sonny Perdue championed as a lure for well-heeled seniors.

If you're looking for a domestic retirement tax haven, Georgia is hardly the only place worth considering. Seven states--Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming--don't tax personal income at all. New Hampshire and Tennessee tax interest and dividends but not other income. The rest of the states have broad income taxes but give old taxpayers breaks, some quite generous. A recent study by Karen Smith Conway of the University of New Hampshire and Jonathan C. Rork of Georgia State calculates that retirees pay, on average, only half the state income tax of working folks with the same income.

That means the best tax locales aren't necessarily the same for retirees as they are for working stiffs. Some states, such as New Jersey, soak taxpayers of all ages (particularly affluent ones) with stiff income, real estate, sales and estate taxes. But others with a more moderate tax burden might compensate for having no income taxes with high real estate levies. New Hampshire, with no sales tax and a narrow income tax, has among the highest real estate burdens in the nation. Consider, too, the condition of local finances and prospects for tax hikes.

Income Taxes

The most common exemption among states with an income tax is for Social Security benefits; 27 states and the District of Columbia don't tax them at all while the rest provide a partial exemption, according to tax publisher CCH. Three states--Illinois, Mississippi and Pennsylvania--also exempt all private and public pension payouts, including withdrawals from individual retirement accounts. Kentucky exempts up to $82,220 per couple in pension and IRA income.

Senate Plan For Oil Company Tax Has Sparks Flying

Yesterday, Democrats in the Senate unveiled legislation aiming to increase taxes on oil companies, and provide tax breaks for individuals, businesses, and the unemployed. The huge measure is already drawing criticism from conservative members of congress that do not approve of the $60 million tax increases included in the legislation.

The bill contains many long-pending provisions, including the renewal of dozens of popular tax breaks for individuals and businesses.

Many elements of the bill, like the tax cuts and further unemployment benefits for people out of a job for more than six months, enjoy broad support. But Republicans generally oppose the measure’s nearly $60 billion in tax increases.

Even with those levies — on investment fund managers, oil companies, and some international businesses, among others — the measure would add about $80 billion to the deficit over the next decade, congressional analysts said.

It closely resembles a bill the House passed last month, with a handful of exceptions.

Continue reading at Boston.com…

Obama Calls for Rolling Back Oil 'Tax Breaks'

As the now well-known BP leak continues to spew oil into the Gulf of Mexico, President Obama has announced that it is time to begin reducing tax breaks for oil companies. According to this Washington Post story, the White House hopes to use the funds to develop and research clean energy sources.

Obama made the comments Wednesday in prepared remarks for a speech at Carnegie Mellon University in Pittsburgh.

He said the catastrophic Gulf oil spill shows the country must move toward clean energy by embracing energy efficiency, tapping natural gas and nuclear power and eliminating tax breaks for big oil.

Obama said that the Gulf spill "may prove to be a result of human error - or corporations taking dangerous shortcuts that compromised safety" - but that deepwater drilling is inherently risky and America cannot rely solely on fossil fuels.

Small Firms May Claim Health Tax Credit For Dental, Vision

According to the Treasury Department, small businesses in the U.S will be able to take advantage of a new federal tax credit for dental and vision health benefits. To qualify the business must have less than 25 employees, have average wages less than $50,000 and must pay for at least 50% of employees’ premiums.

According to the Wall Street Journal, the credit will offset employer health-care premiums paid on and after Jan. 1, 2010, under health-care legislation signed in March by President Barack Obama.

Firms may claim state health tax credits and other subsidies without having their federal health-care tax credit reduced, said Treasury Assistant Secretary for Tax Policy Michael Mundaca in a conference call with reporters.

Some small-business advocates criticized the tax credit Monday as too limited in scope. Bill Rys, tax counsel for the National Federation of Independent Business, said more than two-thirds of small firms will be excluded because they are too large or don't currently offer health insurance.

Eligibility for the credit is limited to firms with fewer than 25 full-time workers, or the equivalent, and average wages of less than $50,000. To qualify, firms must pay at least 50% of worker health-insurance premiums.

Continue reading at WJS.com…

A Few Quirky Tax Breaks That Aren't Going Away

We have all heard about the tax increases scheduled to take affect over the next few years as a result of President Obama’s health care legislation, but you might be surprised to learn that Congress passed a series of tax cuts earlier last month. According to this article from the Wall Street Journal, the House of Representatives passed a series of tax law changes that will affect employer-provided cell phones, the gift-tax exclusion, and employee rewards. I have included a snippet of the WSJ article explaining these modifications to the tax code below, but be sure to check out the full article here.

The "Masters exemption"

Homeowners who rent out their property for 14 or fewer days a year may pocket the income tax-free. This break has given homeowners near the Augusta National Golf club a sweet deal on income over the years, in some cases up to $20,000, from short-term rentals during the Masters tournament each April.

The property doesn't have to be a first home, but the exemption can be taken only once a year, says CPA Douglas Stives of Monmouth University. It can be taken on more than one property, according to the IRS.

Employee awards

Employers can make awards to workers valued as much as $400 a year for good attendance, safe driving, years of service and so on. The criteria must be objective and fair, but the awards aren't taxable to the employee and are fully deductible by the employer.

Gift-tax exclusion

One of the best estate-planning options remains the $13,000 annual gift-tax exclusion. Anyone may give anyone else up to that amount per year in cash or property, free of gift tax. One partner of a married couple can double the gift and the exemption. So a couple with three married children and six grandchildren could give away over $300,000 a year, tax-free.

10 Tax Breaks for the Home, Room by Room

There are a lot of tax breaks out there for home owners, but it can be difficult trying to figure out which you qualify for. AOL.com put together a new piece on tax breaks for the home, room-by-room, and interviewed me regarding home-related tax benefits for business owners. You can find a section of their article – including my quote – or head on RealEstate.AOL.com for the rest

If you primarily work from home, you should be able to deduct a percentage of your mortgage interest, real estate taxes, casualty losses, home repairs and maintenance, utilities, house insurance, security system and even garbage removal based on the square footage of your home office space compared to the overall square footage of your home.

"In order to qualify as a home office in the eyes of the IRS," says tax attorney Roni Deutch, CEO of the Roni Deutch Tax Center," you need to have a separate room or designated space that is used exclusively for business purposes. If it is not a room, then the space needs to be separated by a room divider of some sort. Additionally, the IRS is very strict about the exclusive use rule, so if your children play in the office or your spouse uses the room as a home gym then it will not qualify."

Use IRS Form 8829 if you are self-employed. Download Publication 587 for IRS rules. And if turned an old bedroom into an office space using California Closets or other remodeling project, you should be able to deduct that expense too for work, if you itemize.

Obama Signs Jobs Bill, Says More Must Be Done

After signing the jobs bill in to law this morning, President Obama stressed that there was still a lot more to be done to stimulate job growth in the country. The bill – which includes $18 billion in tax breaks and $20 billion to fund highway and transit programs – has been the center of debate since it was first unveiled, with many critics claiming that it will do little to help the unemployment problem. The Associated Press published a story on the new bill’s passage into law this morning, checkout a section of their article below.

President Barack Obama on Thursday signed into law a package of tax breaks and spending designed to give the nation a jobs boost by encouraging the private sector to start hiring again.

It's the first of several such measures Democrats have promised this election year to address the public's top worry: jobs. The measure includes about $18 billion in tax breaks and pumps $20 billion into highway and transit programs.

At a ceremony in the sunny White House Rose Garden, Obama said the bill is necessary "but by no means enough."

"There is a lot more we need to do to spur hiring in the private sector and bring about full economic recovery," he said.

There is plenty of skepticism that the new law will do much to foster hiring. Optimistic estimates are that the tax break could generate perhaps 250,000 jobs through the end of the year; some 8.4 million jobs have been lost since the start of the recession.

Continue reading at Google News.com…

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Senate Approves Tax Breaks for New Hires

The Senate approved Obama’s job creation bill this morning with a 70-28 vote. The legislation includes tax breaks for businesses that hire previously unemployed workers. It will need to get passed by the House of Representatives before going to Obama’s desk for a signature, but many experts predict it will have no problem getting enough votes in the House. Democrats hope that this will be the first of many bills that will help encourage job creation.

According to Yahoo, it's the first major bill to pass the Senate since the Christmas Eve passage of a deeply controversial health care bill and the subsequent election of Massachusetts Republican Scott Brown, which rocked Democrats by demonstrating their falling standing even among heavily Democratic voters.

The bill contains two major provisions. First, it would exempt businesses hiring the unemployed from the 6.2 percent Social Security payroll tax through December and give them an additional $1,000 credit if new workers stay on the job a full year. The Social Security trust funds would be reimbursed for the lost revenue.

Second, it would extend highway and mass transit programs through the end of the year and pump $20 billion into them in time for the spring construction season. The money would make up for lower than expected gasoline tax revenues.

Continue reading at Yahoo.com…

'Cash For Appliances' Coming to a State Near You

The Government’s $300 million ‘Cash for Appliances’ program first introduced through the American Recovery and Reinvestment Act has started to go into effect in some states. According to CNN Money.com, it will allow taxpayers to receive rebates for purchasing qualifying energy efficient appliances. The program was designed to act similarly to the recently successful Cash for Caulkers and Cash for Clunkers incentives from last year.

Under the program, consumers are eligible to receive rebates on new, energy-efficient appliances such as refrigerators or washing machines. The rebates vary by state, type of appliance, and level of efficiency.

Rebates are only available on appliances with the Energy Star logo, which meet the energy efficiency guidelines set by the Environmental Protection Agency and Department of Energy.

The goal of Cash for Appliances is to help American's conserve energy, while also boosting retail sales and ultimately helping spur the economic recovery.

In New York, where the program went into effect Friday, rebates range from $75 to $105 on refrigerators, freezers and clothes washers. The rebates can be as high as $555 for bundled purchases of all three appliances.

Continue reading at CNN Money.com…

Senate Democrats Unveil Jobs Package with Tax Breaks to Entice GOP

According to the Boston Globe, Democratic leaders in the Senate are hoping to round up support from Republican Senators for their job bill by including a series of tax breaks. Congress is hoping to get a final bill to the President’s desk before Congress breaks for the holiday weekend. However, since the 350+ page bill has not been officially released, many conservative Senators are waiting to announce their support for the legislation.

The draft has very few new ideas for creating jobs, other than a $10 billion plan to exempt companies from paying their share of Social Security payroll taxes for new hires who had been unemployed for at least 60 days this year.

The idea, by Senator Chuck Schumer, Democrat of New York, and Senator Orrin G. Hatch, Republican of Utah, is regarded as more workable than Obama’s plan for tax credits of up to $5,000 for new hires because it is simpler and gets the tax breaks to businesses faster.

The rest of the measure contains mostly last year’s unfinished business, including renewal of business tax breaks that have expired, an extension of unemployment benefits and health insurance subsidies, and a delay in a cut in Medicare payments for doctors.

House Votes for Faster Tax Breaks for Haiti Gifts

Yesterday, the U.S. House of Representatives voted unanimously to approve a bill allowing taxpayers to write-off donations made to Haitian relief efforts on their 2009 tax returns. According to this article from the Washington Post, the Senate is expected to act quickly on the popular legislation.

Under current law, donors would have to wait until they file their 2010 returns next year to take the deductions. But the newly advanced bill would allow donations made by the end of February to be deducted from 2009 returns.

The bill passed on a voice vote with no opposition. Quick Senate action is expected. A similar law was enacted in 2005 for donations to victims of the Indian Ocean Tsunami in December 2004.

"It's a simple gesture but it will encourage giving in this challenging economy," said Rep. Earl Blumenauer, D-Ore.

Last week's quake killed an estimated 200,000 people in Haiti, left 250,000 injured and made 1.5 million homeless, according to the European Union Commission. A powerful aftershock caused even more damage Wednesday.

Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status?

Last week, Gina M. Lavarda of Iowa published a new report titled “Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status?” Check out the following clip of her abstract courtesy of the Tax Prof. Alternatively, you can download a PDF of the full report by clicking here.

In 2004, the IRS studied 110 § 501(c)(3) organizations and found that seventy-five percent of them had violated federal tax law by engaging in political-campaign activities during the 2004 campaign period. The IRS learned that many of these organizations did not understand the broad scope of the political-campaign prohibition and that organizations’ leaders mistakenly spoke on behalf of their organizations rather than in their personal capacities separate from their organizations. Following the study, the IRS stated that any § 501(c)(3) organization that did not comply with federal tax law’s statutory requirements and restrictions risked losing its tax-exempt status.

As the 2008 campaign was in full swing, the IRS promised to step up its enforcement of § 501(c)(3) requirements. As a result, courts likely will face increased litigation related to § 501(c)(3) organization violations. This Note reviews the requirements and restrictions that are placed on § 501(c)(3) organizations, including the political-campaign prohibition. In addition, this Note proposes a test to assist courts, § 501(c)(3) organizations, and leaders of § 501(c)(3) organizations in determining when organizations’ leaders are acting or speaking on behalf of their organizations and when they are speaking in their personal capacities, exercising their First Amendment free-speech rights.

Obama Says ‘Robust’ Growth Will Prevent Tax Increases

From Bloomberg.com:

President Barack Obama said he is “confident” that he won’t have to raise taxes on most Americans to close the budget deficit as long as the economy picks up steam.

“One of the biggest variables in this whole thing is economic growth,” the president said in an interview with Bloomberg News at the White House. “If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes.”

Obama has repeatedly said he would keep his campaign pledge to cut taxes for 95 percent of working Americans while rolling back tax breaks for households making more than $250,000 a year.

“I’m confident that we don’t have to raise taxes on ordinary working families,” he said.

The U.S. economy shrank at a 5.7 percent annual pace in the first quarter, reflecting declines in housing, inventories and business investment. Growth is expected to turn positive in the second half of the year, accelerating 0.5 percent from July through September and 1.9 percent in the final three months of this year, according to the median estimate in a Bloomberg survey of 62 economists. The median forecast for growth next year is 1.8 percent, according to the survey.