Tax On Wrongful Imprisonment Needs Reform

From Forbes.com:

It is hard to imagine a more terrifying nightmare than being wrongfully convicted and imprisoned. It is comforting that there’s been a dramatic increase in wrongfully convicted persons gaining their freedom, often after a decade or more of wrongful imprisonment. Yet it is appalling that so many lives are destroyed. And more and more cases are being uncovered.

Exonerees may later seek redress from the cities, states and officials whose actions precipitated their wrongful conviction. They may receive payment under federal or state civil rights and compensation statutes or under the common law of false imprisonment. The biggest payouts usually involve prosecutors who have unlawfully buried witnesses and destroyed evidence. See $18 Million to Man Wrongly Imprisoned, Wrongly Convicted Man Gets $7.95, Million Settlement, and City to Pay $9.9 Million Over Man’s Imprisonment.

The changes in an exoneree’s life from this physical and mental ordeal are incalculable. But if an exoneree eventually recovers damages, are they taxable? The Internal Revenue Code exempts payments received on account of personal physical injuries and physical sickness. That means settlements for auto accidents are tax-free. Yet appallingly, some exonerees have been forced to pay taxes on their awards, ostensibly because there is nothing “physical” about being locked up.

Plainly, even if never beaten, assaulted or mistreated in prison, the victim suffers a deprivation of liberty that is manifestly physical. In the 1950s, the IRS issued a series of rulings according tax-free status for payments to survivors of Nazi persecution, U.S. prisoners of war, and Japanese-American internees. Then, in 2007 the Internal Revenue Service abruptly cancelled these rulings.

How Much Did Florida Tax Laws Factor Into LeBron James' Decision?

Although two-time MVP LeBron James has been praised by supporters for taking less money in pursuit of winning championships, as this article from AOL News explains, he actually stands to save money by moving to Florida. Why? Because the state of Florida does not have a personal income tax.

James looks to make an estimated $17 million next season by signing with the Miami Heat. Factor in endorsement deals with companies including Nike, Sprint and McDonald's totaling approximately $40 million, and James may find himself saving an estimated $25 million in state taxes over the next five years in Miami. Compare this with New York, where even if James signed a contract with the Knicks for an additional $1.5 million, he would be required to pay almost $1.7 million in state taxes, all on top of the additional income tax taken out of his endorsements.

Although the extra money alone was certainly not the only reason James is moving on from Cleveland -- he does have two friends named Bosh and Wade who will also live and work in the area -- public icons taking state income tax into account is actually nothing new to celebrity culture.

Retirement-Community Operator Battles IRS Over Entrance Fees

From the Wall Street Journal:

Classic Residence by Hyatt, a group of businesses that run upscale retirement communities, is battling the Internal Revenue Service over allegations it underpaid its taxes by more than $107 million, in a dispute over the tax treatment of entrance fees paid by incoming residents.

The issue boils down to whether the entrance fees qualify as taxable income, as the IRS asserts, or interest-free loans, as Classic Residence argues. Other retirement communities charge similar fees.

Classic Residence is chaired by 51-year-old Penny Pritzker, part of the Chicago-based Pritzker business dynasty, whose holdings range from Hyatt Hotels Corp. to TransUnion, the big credit-reporting company. She founded Classic Residence in 1987.

In 2008, Ms. Pritzker was national finance chairwoman of Barack Obama's presidential campaign, overseeing its fund-raising efforts, and now serves as a member of the president's Economic Recovery Advisory Board; a panel that helps set and evaluate the Obama administration's economic policy.

Ms. Pritzker was traveling Wednesday, and couldn't be reached for comment on the tax dispute.

Classic Residence communities are set up to provide their residents with increasing levels of care, including skilled nursing services, as they grow more infirm. Entrance fees can range from the low six figures to more than $2 million per person, depending on the size and amenities of the living unit involved.

Besides the more than $107 million in alleged back taxes, the IRS is seeking more than $21 million in penalties from Classic Residence related to "negligence or intentional disregard of rules...or substantial understatement" of income, according to a Dec. 30, 2009, notice the agency sent to operators of the communities. The IRS contends that the venture under-reported income by more than $300 million in 2005 alone.

Candy Tax Takes Effect June 1 In Washington

Some kids in Washington may be asking for a raise on their allowance next month, because effective June 1^st a state sales tax will be levied on all gum, and most candies. There are nearly 3,000 sweet products on the states list to be taxed, and only 263 candies that are not.

As this article from SeattlePI.com explains, the products that are included in the list versus those that will not be taxed has already created confusion for local residents.

For example, Three Musketeers will be taxed but Milky Way will not.

Starburst, Gummi Bears and M&Ms? Yes. Nestle's Crunch and Twizzlers? No.

How will you and retailers know which is which?

The state Department of Revenue has posted a list online of nearly 3,000 items that will be subject to tax ranging from coffee flavored hard candies to Wrigley's Winterfresh chewing gum. You'll find another 263 items that are not.

What's the difference? Basically, flour. If the candy you like is prepared with flour it will not be subject to sales tax.

Candy subject to the tax can be made with "sugar, honey, or other natural or artificial sweeteners combined with chocolate, fruits, nuts, or other ingredients or flavorings and formed into bars, drops, or pieces," according to information from the Department of Revenue.

The Joy of Tax

As thousands of Americans across the country are spending hours working on their tax returns to meet the tax deadline, Nina Olson – the National Taxpayer Advocate – is once again calling on Congress to simplify the U.S. tax code. Although Olson makes this request every year, according to the Economist she has reportedly become fed up that her professional opinion is being ignored.

The federal tax code, which was 400 pages long in 1913, has swollen to about 70,000. Americans now spend 7.6 billion hours a year grappling with an incomprehensible tangle of deductions, loopholes and arcane reporting requirements. That is the equivalent of 3.8m skilled workers toiling full-time, year-round, just to handle the paperwork. By this measure, the tax-compliance industry is six times larger than car-making.

Every year, the national taxpayer advocate issues a report begging Congress to simplify the system. In her most recent one, published on December 31st, Ms Olson frets that she is repeating herself. She refers Congress to what she said the previous year. An incredible 82% of taxpayers are so flummoxed that they pay for help. Some 60% hire an accountant or tax preparer, while another 22% use tax software. She might have added that even the head of the Internal Revenue Service, Douglas Shulman, gets someone else to do his taxes.

President Barack Obama says he wants to simplify the tax code. But he has just added a ton of health-care-related provisions to the system. And even if he were zealous about simplification, he would find it hard.

IRS Debunks Frivolous Tax Arguments

According to their new press release, last week the IRS “released the 2010 version of its discussion and rebuttal of many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.”

Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 80-page document, The Truth about Frivolous Tax Arguments.

The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. It will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.

Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

IRS highlighted in the document about 40 new cases adjudicated in 2009. Highlights include cases involving injunctions against preparers and promoters of Form 1099-Original Issue Discount schemes and injunctions against preparers and promoters of false fuel tax credit schemes.

Banker Tax May Mean Less Money Available to Lend, Yingling Says

Americans everywhere cheered when Obama proposed a fee from the biggest banks who borrowed taxpayer money through the TARP program, but is the tax really such a good idea? Edward Yingling, CEO of the American Bankers Association has expressed concern that taxing the largest banks will stagnate their willingness to lend to customers, making economic recovery all the more difficult.

The $90 billion bank tax proposed by President Barack Obama may reduce the amount of money banks can lend by $63 billion a year, the president and chief executive officer of the American Bankers Association said.

The administration’s tax is expected to raise $9 billion a year over 10 years, said Edward Yingling, president and CEO of the ABA. Each dollar in bank capital supports $7 or more in lending, Yingling said in an interview. Some banks leverage money further, with each dollar supporting $9 or $10 in lending, he said.

“It’s a concern,” Yingling said. “Nine billion dollars could actually mean $63 billion less in lending.”

The administration is sending a “mixed message” about banks needing to lend while setting requirements that make lending harder to do, Yingling said.

Continue reading at Business Week…

The Home Office Deduction

Yesterday’s Tax Deduction of the Week blog (Roni Deutch Tax Help Blog) explained the home office deduction. Over the past few weeks, topics have included alimony payment deductions, traditional IRA contributions, and the 2009 vehicle sales tax deduction. I have included a snippet of the home office deduction entry below, but you can find the full text – as well as dozens of informative articles – at the Roni Deutch Tax Help Blog.

Designated Room or Space

In order to qualify as a home office – in the eyes of the IRS – you need to have a separate room or designated space that is used exclusively for business purposes. If it is not a room, 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.

Principal Place of Business

According to the IRS, your office must either be the principal location of that business, or a space where you meet with clients regularly. If you work exclusively from home then you can easily prove that the office is your principal place of business. However, if you have an office away from home, you will need to show that you regularly meet with clients from your home office.

Calculating the Deduction

In calculating your home office deduction you need to know both the total square footage of both your home and your designated home office. This is because your home office deduction will be based off of the percentage of your house used for business. For example, if your home is 1500 square feet and your office is 150 square feet then your deduction would be calculated using 10%. Meaning, you can deduct 10% of your rent and indirect expenses.

Sarkozy Proposes Ad Tax on Google

Although not related to American tax changes, I was surprised when I ran across this article on FT.com about the French government’s proposal to levy a tax on the advertising revenues of Google and other Internet portals. According to FT.com, this is the latest sign of a European backlash against the U.S. owner search giant.

President Nicolas Sarkozy instructed his finance ministry to examine the merits of a tax in response to complaints from the French media that Google and other sites are generating advertising income using their news and other content. He also called for an inquiry by French competition authorities into a possible “abuse of dominant position” in the advertising business of big internet sites.

Mr. Sarkozy commented after the publication of an independent report for the French culture ministry that proposed a tax on Google, Yahoo, Facebook and other sites, to help fund initiatives for writers, musicians and publishers to make money from the web.

The report recommended issuing music cards to young people with €25 ($36) in credit provided by the government as a way of encouraging legal downloading of cultural works.

Google said that it opposed any such tax. “We don’t think introducing an additional tax on internet advertising is the right way forward as it could slow down innovation,” said Olivier Esper, senior policy manager of Google France.

Amid growing global scrutiny, the French government, in particular, has gone after Google on a number of fronts.

Continued at FT.com…

The Latest Tax Changes in the Senate's Health Care Bill

The Senate is expected to vote on their health care bill (the Patient Protection and Affordable Care Act) this Christmas Eve. They are also going to vote on legislation that will raise the federal government’s debt limit. Since no Republican Senators are likely to vote in favor of either measure, Congress is attempting to use the holiday vote to help avoid negative publicity. However, in order to get the sixty votes needed to pass the measure, Democratic leaders have made quite a few changes to the legislation. To help my readers stay updated on the massive health care overhaul, I have put together this article explaining the tax changes in the Senate’s bill.

No Public Option

First of all, I think it is important to note that the most recent legislation – which will be voted on tomorrow – does not contain a public option. Although President Obama had pushed for a government run health insurance option, in order to get the necessary votes it was removed. Instead the federal government will contract with insurers for two national health plans that will be offered through a new insurance exchange. The plan will be handled by the U.S. Office of Personnel Management, which already oversees the health policies of over eight million federal government employees.

The Costs

After all the recent changes, the Congressional Budget Office estimates that the legislation would cost $871 billion over the next ten years. It is reported that the plan will be paid for by $483 billion in spending cuts, as well as $498 billion in new revenue. The budget office asserts that it will reduce the federal deficit by around $130 billion over the next decade.

Expanded Coverage

Current estimates show that 83 percent of Americans under the age of 65 have health insurance coverage. If enacted, the Senate’s plan would expand coverage to an estimated 94 percent of Americans under the age of 65. This would leave about 24 million people in this country without insurance, a third of which are thought to be immigrants living in the country without proper documentation.

Individual Mandate Tax

One of the first tactics the Senate is using to fund the legislation is through an individual mandate tax. Beginning in 2014, anyone who does not have a “qualifying” health insurance plan must pay an income surtax. The tax is expected to generate over $15 billion in federal revenue, and will begin as a 0.5% tax in 2014. However, it will increase to 1% in 2015, then 2% in 2016.

Employer Mandate Tax

In addition to levying taxes on individuals, the new bill will create an employer mandate tax that is expected to generate $28 billion over the next decade. It will force all employers with 50 or more employees to either provide health care coverage, or pay a non-deductible tax of $750 for each full time employee.

Cadillac Health Care Plans

Just like the initial bill the Senate proposed, the final legislation will include a new 40% tax on “Cadillac” health insurance plans beginning in 2013. According to the legislation, this will include plans valued at $8,500 for individuals, and $23,000 for families. However, there are a few exceptions, such as Longshoremen who lobbied heavily to have members of their union excluded from this new tax.

Cosmetic Tax No, Tanning Tax Yes

After immense pressure from the cosmetic surgery industry, the 5% tax on elective cosmetic procedures was removed from the Senate’s bill. However, in its place Democratic leaders added a 10% tax on tanning salons.

Small Business Credits

Starting in 2010 – a year sooner than originally proposed – tax credits will become available to small businesses with less than 25 employees, and an average salary of $50,000 to encourage them to offer health insurance benefits. Businesses with 10 or less employees and an average wage of $25,000 will be able to take advantage of an even larger federal credit.

Increased Medicare Payroll Tax

The original Senate bill had called for a 0.5% Medicare payroll tax increase for individuals earning more than $200,000 and married couples earning over $250,000. However, the recent amendments have raised the tax to 0.9%.

Taxes on Insurers and Medical Device Manufacturers

A whole new set of taxes will get levied on health insurance companies and medical device manufacturers. The federal government is expecting to generate over $60 billion in additional revenue over the next decade by imposing taxes on firms with $50 million or more in profit. Additionally, they also plan to levy a $2 billion per year tax on the medical device industry starting in 2011 that will increase to $3 billion in 2017.

Increased Medical Deduction Limit

Currently, if a taxpayer spends more than 7.5% of their adjusted gross income on medical expenses they can deduct the amount from their taxable income. However, the Senate’s bill will raise this to 10% but provide an exception for taxpayers over the age of 65 until the year 2016.

Funny Gift for the Tax Pro in your Life!

The holiday season is almost over, but if you are looking for a funny gift to give your accountant or tax preparer then head on over to PrankPlace.com. For only $3.49 you can get a roll of IRS Form 1040 toilet paper. Here is the description:

Does it pain you to fill out a tax form each year? Does knowing that the IRS takes a large chunk of your salary give you the runs? 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!

Health Reform: Is Tax on 'Cadillac' Plans Fair?

From the Associated Press:

Schoolteacher Kinzi Blair makes only $46,000 a year, but she has what many would consider a "Cadillac" health plan, now targeted for a big tax increase by health reformers.

She has $10 co-pays and no deductible. She gets generic prescription drugs for $10. Her plan covers mental health counseling, organ transplants, acupuncture. It covers speech therapy for preschoolers and in vitro fertilization.

Sound pretty good?

It surely must to millions of Americans who pay high deductibles, hundreds of dollars for prescription drugs or who have no insurance at all. Blair's circumstance illustrates the debate over taxes and fairness when it comes to health reform.

"For me, it's security," Blair says. "I'm thankful I'm in a job where there is health insurance."

Taxing plans like hers is unfair, says Blair, a kindergarten teacher in San Jose, Calif. Like 57 percent of Americans surveyed in a recent Associated Press poll, she favors a new income tax on wealthy Americans, which the House would impose in its bill to pay for expanding insurance coverage to millions.

But the Senate takes a different approach, including an unprecedented tax on the health insurance of people like Blair. The Senate plan would also increase the Medicare payroll tax for high-income Americans and tax elective cosmetic surgery.

Continue Reading…

The Return of the Inflation Tax

From the Wall Street Journal:

All of those twentysomethings who voted for Barack Obama last year are about to experience the change they haven't been waiting for: the return of income tax bracket creep. Buried in Nancy Pelosi's health-care bill is a provision that will partially repeal tax indexing for inflation, meaning that as their earnings rise over a lifetime these youngsters can look forward to paying higher rates even if their income gains aren't real.

In order to raise enough money to make their plan look like it won't add to the deficit, House Democrats have deliberately not indexed two main tax features of their plan: the $500,000 threshold for the 5.4-percentage-point income tax surcharge; and the payroll level at which small businesses must pay a new 8% tax penalty for not offering health insurance.

This is a sneaky way for politicians to pry more money out of workers every year without having to legislate tax increases. The negative effects of failing to index compound over time, yielding a revenue windfall for government as the years go on. The House tax surcharge is estimated to raise $460.5 billion over 10 years, but only $30.9 billion in 2011, rising to $68.4 billion in 2019, according to the Joint Tax Committee.

Americans of a certain age have seen this movie before. In 1960, only 3% of tax filers paid a 30% or higher marginal tax rate. By 1980, after the inflation of the 1970s, the share was closer to 33%, according to a Heritage Foundation analysis of tax returns.

These stealth tax increases—forcing ever more Americans to pay higher tax rates on phantom gains in income—were widely seen to be unjust. And in 1981 as part of the Reagan tax cuts, a bipartisan coalition voted to index the tax brackets for inflation.

Fight Obesity? Add Sales Tax to Soda Tab

From the Associated Press:

In a bid to ramp up the public health battle against obesity, a group of nutrition and economics experts are pushing for a tax of 1 cent on every of ounce of sodas and other sweetened beverages.

Proposals for a hefty soda tax though have repeatedly fallen flat. The idea was even floated as a way to help pay for health care reform, but government officials on Wednesday said that's not likely to happen.

The experts' plan was released by the influential New England Journal of Medicine, in a health policy article by Arkansas' surgeon general, New York City's health commissioner and five national experts on health and economics.

A soda tax would generate tax revenue while discouraging people from consuming extra calories, the authors contend. They cited a series of studies that showed higher rates of obesity and diabetes among women who drank more sugar-sweetened beverages. They argue that a steeper soda tax would borrow the same strategy that helped drive down cigarette smoking while bolstering government revenues.

But a golden opportunity for enacting a national soda tax apparently slipped away Wednesday, when the Senate Finance Committee released its health reform proposal without a previously considered soda tax provision.

Obama: Explore soda tax

From the Times Union.com:

In an interview with Men’s Health Magazine, President Barack Obama says that the government ought to explore the idea of taxing soda or other sugary drinks, using essentially the same arguments that Gov. David Paterson used when he was pushing for the soda tax — that soda contributes to obesity.

In the end, the public didn’t like the idea of the tax and Paterson took it off the table early on in the budget process.

Obama also acknowledges the political difficulty of passing such a tax.

From the story:

“I actually think it’s an idea that we should be exploring,” the president says. “There’s no doubt that our kids drink way too much soda. And every study that’s been done about obesity shows that there is as high a correlation between increased soda consumption and obesity as just about anything else. Obviously it’s not the only factor, but it is a major factor.”

But even the most powerful man on the planet needs to keep an eye on what’s politically feasible: “Obviously there is resistance on Capitol Hill to those kinds of sin taxes,” he says. “Legislators from certain states that produce sugar or corn syrup are sensitive to anything that might reduce demand for those products. And look, people’s attitude is that they don’t necessarily want Big Brother telling them what to eat or drink, and I understand that. It is true, though, that if you wanted to make a big impact on people’s health in this country, reducing things like soda consumption would be helpful.”

Wireless Group Wants Repeal of Cell Phone Tax Law

Wireless association CTIA is the latest group to support new legislation attempting to repeal the 20 year old cell phone tax. It is supposed to be levied on the personal use of employer provided cell phones, but there is a lot of confusion about how these taxes should be calculated. As such, several groups have spoken out against the law, including the IRS Commissioner.

"The alternatives [to legislation] proposed by the IRS are either incomplete or inadequate solutions that would continue to subject employees and employers to onerous call log requirements," CTIA President Steve Largent said.

CTIA counts among its members the country's largest wireless companies – Verizon Wireless, AT&T Inc., Sprint Nextel Corp., and T-Mobile USA. Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone PLC. T-Mobile is a unit of Deutsche Telekom.

The IRS is collecting comments on the cell phone-tax law. In June, IRS Commissioner Doug Shulman asked Congress to repeal it, calling it "obsolete."

Mr. Shulman's statement signaled a quick turnabout for the IRS, which had earlier proposed that employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax.

Continued at the Wall Street Journal…

Some Early iPhone 3G S Adopters Subject To $200 "Apple Tax"

From Cnet.com:

Since last year's announcement of the iPhone 3G, customers have grown accustomed to a price tag heavily subsidized by AT&T. Similarly, the just-announced iPhone 3G S will be offered in a 16GB model for $199 and a 32GB model for $299--but only if you are adding a line to your AT&T service or you are a new AT&T subscriber. Early iPhone 3G adopters seeking to upgrade will face serious sticker shock.

If you purchased an iPhone 3G on or after July 11, 2008, you will not be able to purchase an iPhone 3G S at a reduced price until you reach your one-year anniversary. (We've determined this cutoff by checking a sampling of existing AT&T accounts via AT&T's myWireless Account Web site.) If you want the new iPhone 3G S early, you will have to pay an additional $200 for the hardware, raising the cost of a new iPhone to $399 and $499 respectively. The only alternative to this price increase is to wait for your first iPhone anniversary before buying. On top of the price increase, you will--as expected--have to sign another two-year service agreement.

The pricing history of the iPhone has been tumultuous from the beginning, hitting its pinnacle quickly: $599 for an original 8GB iPhone. Apple and AT&T significantly reduced its price shortly thereafter, angering enough iPhone buyers that Apple gave away $100 rebates to the angry hordes.

Is Apple and AT&T trying to take advantage of loyal customers by releasing the new iPhone 3G S nearly a month before existing customers--many who are loyal and anxious to upgrade--are eligible for reduced pricing?

Congratulations! Tax Season is OVER!

Whew! You made it past April 15. Time to relax and ignore your taxes until next year, right? WRONG!

Tax planning is a year round endeavor, at least it should be. Here are just a few things you should be doing now to help you keep more money in your pocket, and less in the IRS coffers.

Get Organized!

While all your tax files are still handy, take the time to organize them. Create files for: Income, Medical, Donations, Real Estate, Child Care, Tax Correspondence, Student Loans, Miscellaneous Receipts, Tax Payments, and Archived Tax Documents. And keep the files handy. If it is easier to put receipts and documents in files as throwing them in a pile on the kitchen counter, you might actually still have that receipt next year. Another helpful tip: write down what the expenditure was for, the dates and who was involved, and attach it to the actual receipt. You probably won’t remember every single deductible expense a year from now, so make a note and ensure you get every deduction you’ve got coming to you.
Change Withholdings

Did you get a fat refund this year? Then you may want to adjust your withholdings. I know getting a big check from the government feels good, but wouldn’t that money be more useful to you all year long? With the average refund running around $2,500 that’s $200 a month you could keep in your pocket! Stop giving the government an interest free loan while you struggle to make ends meet. On the other hand, if you found yourself with a big tax bill, consider increasing the amount withheld from your paychecks. Remember that we’re aiming for the “Goldilocks” principal: not too much, not too little, but just right.
Get Educated!

Most people are missing out on deductions and credits they are entitled to, all because they don’t know any better. Americans are so terrified of taxes because they don’t actually know that much about them. Pick up a book, peruse the IRS website, or take a class. By taking some initiative, and learning more you are becoming a better steward of your family’s finances. If that’s not enough to convince you remember, increasing your tax knowledge can save you money!

I promise next tax season will be much easier if you do just these few simple things.

Are You Required to Make Estimated Tax Payments?

Few things are more confounding to taxpayers than estimated tax payments. Moreover, few things get taxpayers into more trouble.

Estimated tax payments are supposed to be made quarterly by any taxpayer whose taxes aren’t withheld from their income. If you work for a company and they withhold taxes for you, including Medicare and Social Security, then you probably don’t have to make quarterly payments. But, if you also do some other work on the side, like selling Avon or doing freelance work, you are required to pay taxes on that income.

If you are an independently contracted worker, or self-employed, then you need to pay income and Social Security taxes on your income. How much you will pay depends on how much you make and your general tax situation. A good estimation is to take a look at your most recent tax return. Take your total tax liability and add 15% to account for Social Security and Medicare taxes. If you predict having similar income and deductions this year, then you can take the total tax liability, divide it by four, and that’s your estimated quarterly payment.

Making these payments may seem like a hassle, but as I mentioned, not making these payments gets so many taxpayers in trouble with the IRS. If you don’t make them, the IRS may penalize you at tax time, or you might be saddled with more tax liability than you have the ability to pay. Just think about it, if your total tax liability for a year is $5,000, paying it all at once is probably going to hurt. But planning ahead and paying $1,250 every quarter is probably more manageable. Alternatively, you can make monthly payments, if that is easier for you. Simply divide your total tax liability by 12.

Small business owners have historically failed to make accurate and timely tax payments. The IRS figured this out and now heavily scrutinizes any self-employed people and small-business owner tax returns. This can lead to audits, penalties and enormous tax debts. From my experience, this is one of the top reasons people get in debt to the IRS. And in this case, an ounce of prevention is worth a pound of cure.

Let's Cut Cap-Gains Taxes on Auto Investments

From the Wall Street Journal:

The din of clattering metal echoes through the halls of our capital: panhandlers! Erstwhile captains of the automobile industry, having foregone their Learjets, now don the tattered rags of beggars as they seek congressional approval for a $34 billion bailout of the Big Three automobile companies.

Our United States Congress of lawyers, doctors, diplomats, retired military officers and career politicians -- along with their staffs of intelligent young political science majors and MBAs -- now finds itself poring over "business plans" submitted this week by Ford, GM and Chrysler. People who have never before in their lives seen -- no less implemented -- a business plan are now trying to decide if these companies will succeed by means of a "capital infusion" with various imposed preconditions and negotiate what we taxpayers (investors) should be getting for our money. Something is wrong with this picture.

If we as a society place a public premium on "saving" the automobile industry from its default reorganization under Chapter 7 or Chapter 11 bankruptcy -- which has been good enough for the steel and airline industries, among others -- then a better manner in which to express that premium might be to establish special tax consideration for those who are willing to take on the risk. One way of doing that is to provide an exemption from capital-gains taxation on all debt or equity instruments used in the next six months to invest in the troubled auto makers.

By waiving the future capital-gains tax on all investments in the automobile industry, we enhance the projected return models and therefore the likely occurrence of a privately funded "bailout." There are turnaround firms and funds, and they are experts at what needs to be done. Tax exemption for gains would certainly get their attention. It also wouldn't cost taxpayers anything because it only forgoes future government revenues that wouldn't exist absent this incentive.