California Schools' Tough Choices

According to the Wall Street Journal cities across California have been approving parcel taxes to support local education. Schools in lower income areas have been suffering due to the poor economy and have been forced to make cuts left and right. Check out a snippet of the WSJ article discussing the issue below.

Residents of some affluent cities in this broke state are banding together to make up for cuts in public education, opening rifts between rich and poor school districts.

Key to the debate are parcel taxes, flat fees on property that are used by some cities to help fund public schools.

A handful of communities, such as the tony Bay Area enclave of Piedmont, Calif., have passed new parcel taxes to compensate for proposed state cutbacks, and others are considering them. Piedmont said the emergency measures would enable it to lay off only five of its 200 teachers, rather than nine.

"We're very, very fortunate that our community is supportive of our schools," said Ray Gadbois, vice president of Piedmont's school board.

In less-affluent communities where voters are loath to approve parcel taxes, the state's funding cuts are expected to hit harder.

One is Hayward, 15 miles south of Piedmont. At the city's Tyrrell Elementary School, Principal Rosanna Mucetti said she stands to lose nine of 30 teachers.

California requires any local tax increase for a specific purpose be approved by two-thirds of voters. Of the state's 1,042 school districts, only a small number have adopted parcel taxes. Since 1983, at least 245 such levies have been approved, including some that have been renewed, according to data from the lobbying group School Services of California.

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.

Paper or Plastic? D.C. Taxes on All Disposable Bags

Earlier this week Washington DC council members passed a new tax in the amount of 5 cents on all disposable grocery bags. The decision was unanimous and as the council claimed it would greatly help the environment. Check out an article on the new tax below, courtesy of Wilja.com.

Mike Carter says that's "a good idea, if it's going to help the environment."

The tax impacts both paper and plastic disposable bags.

"I think it's a good thing if people are taxed on their bags," said Raisa Stebbins. "They'll stop using using bags -- better for the environment, better for the people."

The bill prohibits businesses from paying the fee on behalf of customers. Establishments caught not taxing customers face a $100 fine for the first violation, $200 for the second and $500 for the third violation within one calendar year.

"I like the concept of what they are trying to accomplish but as a general rule, I don't like taxes," said Peter Brown.

Four of the 5 cents from the new tax will go to cleaning up the Anacostia River. The other cent will go to businesses to off set the cost of implementing the new tax.

"It's an incentive for people to bring their own bags, so it could have a good effect," added Felicia Sonmez.

And if you do bring your own reusable bag, you won't be hit by the nickel tax.

The Curious Firing of Gerald Walpin Gets … Curiouser

Questions arose immediately when news got out that Sacramento Inspector General Gerald Walpin had been abruptly fired from his position. After a few weeks went by, the story continued to unfold and now even more people are beginning to question the situation.

Walpin was fired in what he says is a direct response to an inspection of Sacramento Governor Kevin Johnsons funding for his St. Hope Academy program. Walpin says that he found a “gross misappropriation” of Americorps funding.

To make matters worse, Kevin Johnson was also a strong donor and supporter of president Barack Obama’s campaign. The former Inspector General is claiming that in releasing him from his position the Obama was directly contradicting a protection act that the President had personally supported back when he was a Senator.

To learn more details about the bubbling situation check out Hotair.com.

California Democrats Seek Tax Boost as Battle Looms

From Bloomberg.com:

Democrats who control California’s Legislature said tax increases are needed to help close a $24 billion deficit, setting up a battle with Republicans that may leave the state short of cash next month.

Speaker of the Assembly Karen Bass, a Los Angeles Democrat, said higher taxes and fees are needed instead of all $16 billion in cuts proposed by Republican Governor Arnold Schwarzenegger. His proposed reductions would eliminate entire welfare programs and leave 1 million children without health insurance. Democrats yesterday proposed a $15 automobile license fee and said they may consider a 9.9 percent per-barrel levy on oil produced in the state.

The Democrats’ stance sets the stage for a confrontation with Republican lawmakers because California law requires a two- thirds vote to approve tax increases. While Democrats control both chambers, they are six votes short of a supermajority. State Controller John Chiang has warned lawmakers since May that they had until June 15 to fill the gap or the state will find itself unable to pay all its July bills.

“The budget that we will be voting for on the floor will be a balanced approach and it will be a combination of cuts and new revenues,” Bass told reporters in her office yesterday.

The state’s projected cash shortage absent a fix to next year’s budget led Standard & Poor’s late yesterday to place California’s credit rating, already the lowest among U.S. states, under review for a possible cut.

“Although we continue to believe the state retains a fundamental capacity to meet its debt service, insufficient or untimely adoption of budget reforms serve to increase the risk of missed payments in our view,” S&P analysts led by Gabriel Petek in San Francisco said in a news release.

Fitch Ratings on May 29 revised California’s credit-rating outlook to negative, indicating a longer-term likelihood of reduction if lawmakers don’t act quickly to solve the latest budget problems. California’s full faith and credit pledge is rated A by S&P and Fitch and a comparable A2 by Moody’s Investors Service, five steps below the top investment grade.

California taxable 30-year Build America Bonds paying 7.55 percent traded at about 93 cents on the dollar today to yield 8.18 percent, down from 94.7 cents and 8.02 percent yesterday, according to Municipal Securities Rulemaking Board trade data.

The Democrats’ new $15 vehicle registration fee would raise about $300 million a year that would be used to finance the operation of California’s 275 state parks. Anyone driving a vehicle with California license plates would be allowed to enter state parks without paying an entrance fee. Schwarzenegger wants to eliminate all funding for parks.

The latest tax proposal comes after six Republicans broke ranks with their party in February and approved $14 billion in tax increases to end a four-month impasse over how to close what was then a record $42 billion deficit. To fill that gap, lawmakers also agreed to cut $15 billion in spending.

Lawmakers Want IRS To Suspend Tax Shelter Penalty

Lawmakers are asking the IRS to suspend tax shelter penalties, which are hitting some small businesses with fines as much as $300,000, while they work out ways to reduce them. The Associated Press recently published an interesting article on the story, check out a snippet of it below.

Some small businesses are being hit with big fines for not disclosing the use of questionable tax shelters to the IRS, an unintended consequence of a law aimed at corporations that use the shelters to avoid taxes.

The penalties, which can reach $300,000 a year, are automatic under the law. But a bipartisan group of lawmakers asked the IRS Monday to temporarily stop imposing them while they work on legislation to reduce them.

A 2004 law setting up the automatic penalties was designed to stop large corporations from exploiting tax shelters known to be illegal. But the lawmakers said some small businesses have been penalized for using the tax shelters to reap tax savings that are smaller than the penalties.

The lawmakers, led by Sen. Max Baucus, chairman of the Senate Finance Committee, said the penalties are excessive.

"We're asking the IRS to temporarily suspend the collection of certain penalties while we work on legislation," said Baucus, D-Mont. "I don't condone investments in tax shelters, but I also want to make sure our small businesses survive and thrive."

The lawmakers sent a letter Monday to IRS Commissioner Doug Shulman, asking him to temporarily suspend efforts to collect penalties that exceed the tax benefits achieved through the tax shelter.

The letter also was signed by Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee; Rep. John Lewis, D-Ga., chairman of the House Ways and Means Subcommittee on Oversight; and Rep. Charles Boustany of Louisiana, the top Republican on the subcommittee.

"When I advanced the legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent," Grassley said. "The penalty should be commensurate with the transgression."

Internal Revenue Service spokeswoman Michelle Eldridge said the agency was reviewing the lawmakers' request.

Do You Owe the IRS?

For those of you who do not know, I recently became a contributing author to WomenEntrepreneur.com. My first article on how to know if you owe the IRS was published on Friday, and you can check out some of the article below, with the remainder here.

Entrepreneurs have a lot in common: drive, ambition, creativity and--many times--tax debt. Tax laws are complicated for everyone, and doubly so for enterprising business owners. There are countless ways to get in trouble. But don't panic--there are also several ways to get out of trouble and resolve your tax debt.

The longer you wait to resolve a debt, the more interest and penalties the IRS will tack on. So even if you don't have the money to fully pay your tax bill, you need to take action. Call the IRS and find out the full extent of the debt. Don't be afraid to check the math and question the totals. Simple mistakes on a tax return can result in big tax bills.

Once you've verified that your tax debt is legitimate, and you agree on the amount owed, it's time to consider your options. The option you select depends on your financial situation.

1. Fully pay. This may seem obvious, but the easiest way to resolve an IRS debt is simply to pay it in full. Consider selling a rarely used car or recreational vehicle in order to satisfy the IRS. While this is inconvenient and unpleasant, consider the alternative: IRS collections hounding you day and night, putting liens and levies on everything you own. Doing without a luxury item sounds a lot more appealing, don't you think?

2. Offer in compromise. If you can't pay off your entire tax debt, you might qualify for an offer in compromise (resolving the entire debt for less than is owed). Why would the IRS accept less than what is owed? Well, think of it the way a business owner might: Collection activities cost money. If you can get a lump-sum payment for as much as you can ever hope to collect, even if it's less than the total, there is a benefit in cutting your losses. While this is an excellent way to resolve a tax debt without destroying your finances, it is very difficult to qualify.

Raise My Taxes

From the NewYorkTimes.com:

We live in a country where the most visible support for raising taxes on the rich comes from … the rich. So much for the seeming dictates of economic rationality and the logic of class war.

The Wealth for the Common Good Web site features pictures of some of our most economically successful citizens calling for higher taxes on themselves.

Reed Hastings, chief executive of Netflix, published an commentary in this paper calling for an increase in the top federal marginal tax rate to 50 percent on all income over $1 million per year. He insisted it would not reduce his incentive to work.

At the opposite end of the income spectrum, passionate opposition to the estate tax is expressed by men and women who face no risk of ever paying it. The progressive group Citizens for Tax Justice observes that the percentage of households with income under $30,000 complaining that federal income taxes are too high exceeds the percentage even paying federal income taxes.

Such patterns could be explained by false consciousness (a misperception of one’s economic interests) or moral conscience (the fortitude to rise above such interests). Maybe the media just like man-bites-dog stories; maybe powerful political interests distort media coverage. None of these possible explanations is mutually exclusive.

The tax system in this country is pretty complicated, and nobody knows how well people understand their place in it. David Brooks once claimed that 19 percent of Americans thought they were in the top 1 percent of the income distribution in 2000.

A more accurate interpretation of the polling data he was referring to suggests that 19 percent thought they would benefit from tax cuts to the top 1 percent. This is almost equally implausible.

On the other hand, households with an income of $250,000 are sometimes described as having more in common with the poor than with the very rich even though they sit squarely in the top 5 percent of the income distribution.

Misreporting of tax issues is widespread. The watchdog group Media Matters documents a major error on ABC News last March, when commentators mistakenly implied that a proposed increase in marginal tax rates (applying only to income over $250,000) would apply to all income.

The Center on Budget and Policy Priorities points to superficial reporting on Tax Freedom Day, a term copyrighted by the Tax Foundation to describe the day by which the average taxpayer has earned enough money to cover his or her tax liability for the year. About 80 percent of Americans pay less than the average, which is pulled up by a relatively small number of very high payers. As a result Tax Freedom Day comes earlier in the year for most Americans than for the average.

Differences in federal income tax rates are greater in theory than in practice. Warren Buffett famously observed that he paid a lower percentage of his income in federal taxes than his office staff in 2007, largely because income from capital in the form of dividends and capital gains is taxed at a lower rate than income from labor in the form of earnings.

The highly educated as well as the highly rich can probably work the tax system better than others. Justin Wolfers, an economist at the University of Pennsylvania, reported in a Freakonomics post that he also paid proportionately less in taxes than his administrative staff.

Mr. Buffett offered to wager $1 million with anyone on the Forbes’ richest 400 individuals list that the average share of their income paid in taxes was lower than the average share paid by their receptionists and secretaries. He got no takers.

Mr. Buffett has peeved many of his fellow billionaires by giving much of his money away as well as advocating higher taxes for the rich. The man has so much class that he can talk about class war. (He explained, in 2006, that his class was winning).

But our tax system itself confounds class interests by its complexity as well as by taxing income from labor so much more heavily than income from capital. Maybe some rich people recognize a good deal when they see one.

A California Tax On Oil Drilling? Why Not?

Los Angeles Times writer Michael Hiltzik recently posted an interesting article on how taxing California oil drilling could be highly lucrative for the state’s struggling economy. You can find a clip of his story below, or check out the full post here.

The most persistent misconception about Californians is that we hate to raise taxes. The truth is that we adore raising taxes—as long as someone else is paying, that is.

So nonsmokers vote to raise cigarette taxes, teetotalers to raise liquor taxes. The middle and working classes want to hike taxes on the rich, who are happy to return the favor.

Yet this only compounds the mystery of why we're so resistant to raising taxes on perhaps the biggest, fattest target of all: the oil industry.

At least twice since 1981 Californians have considered proposals to impose a so-called severance tax on oil -- a levy on every barrel that drillers take out of the California ground. Both times they went down to defeat -- most recently in a $150-million initiative campaign that set a new standard for obscenity in campaign finance, thanks to Chevron and its fellow oil companies. The 2006 defeat of Proposition 87, which would have steered the tax proceeds to alternative fuel programs, preserved California's status as the only one of the 22 major oil states to give the industry a free ride. And we're the third-biggest producer in the country.

How embarrassing is it for California to be hanging out there alone? That outstanding anti-tax crusader, Alaska Gov. Sarah Palin, in 2007 raised her state’s tax to 25% of the value of extracted oil and gas. Proposition 87 would have capped California's levy at 6%. So even if it had passed, we'd still be suckers.

With the state's fiscal disaster having concentrated the minds of political leaders as never before, the oil severance tax is back on the table in Sacramento. We can expect the oil industry to trot out the same arguments it employed to defeat the tax the last time, so to save time it might be helpful to deflate them now.

At the current world benchmark price of about $70, the 6% tax contemplated by Proposition 87 would have generated more than $1 billion a year from that haul.

Consider some "what if" scenarios: At last year's peak benchmark price of $130 for California crude, the take would be nearly $2 billion. Palin's tax rate of 25% would generate $4 billion at a $70 price and nearly $8 billion at the top.

An important aspect of the severance tax is that we'd better collect it now, while there's still something to tax. California oil production has declined steadily from its 1985 peak of 424 million barrels. Since 2002, according to federal statistics, the state’s known reserves have been depleted to about 3.3 billion barrels from more than 3.6 billion.

The severance tax might be offset by reductions in property and corporate income taxes paid by oil companies. But an analysis of Proposition 87 prepared in 2006 by the nonpartisan Legislative Analyst's Office found that such offsets would amount to a mere fraction of the severance tax, so the state would still come out way ahead.

Let's be candid about the rationale for the severance tax. States levy it because they can: The oil's not going anywhere. Oil companies can't pack it up and move it to a state where rates are lower. It creates wealth -- enormous wealth at times of elevated market prices, like now -- and any jurisdiction in need of funds to cover services it provides to its residents has a perfect constitutional right to claim a piece of it, as it claims a percentage of the value of real estate and income (earned, unearned and inherited).

Swiss Seek U.S. Tax Deal Before UBS Case Continues

From Reuters.com:

A looming court case against Swiss bank UBS AG could prove a stumbling block to the United States and Switzerland clinching a tax agreement this week.

Switzerland, whose private banks manage around $2 trillion of foreign wealth, aims to secure 12 new bilateral tax deals by the end of 2009 which could allow it to be removed from an OECD "grey list" of states which need to improve tax cooperation and avoid possible sanctions from G20 nations.

It has already secured five agreements, with Denmark, Norway, France, Mexico and one other unnamed country, and plans to put the issue to a referendum. Talks between Swiss and U.S. officials restart in Washington on Tuesday.

Swiss President Hans-Rudolf Merz has asked U.S. Treasury Secretary Timothy Geithner to drop a tax evasion case against UBS in return for a new tax accord, which might struggle for ratification in Switzerland if the U.S. Internal Revenue Service (IRS) persists with its pursuit of the bank.

"We believe there has to be some kind of agreement before July 13 when the IRS and UBS are due to take part in a mini-trial," said analyst Teresa Nielsen at Vontobel, adding this could even come in an 11th hour deal on July 12.

The Truth About Estimated Quarterly Tax Payments

The June 15^th deadline for the second quarterly 2009 tax payment is only a few days away. If you are required to make a payment, and are looking to save money this year, then check out this entry from the Roni Deutch Tax Center – Tax Help Blog with details on how you can calculate your own payment.

Who needs to make estimated quarterly tax payments?

According to the IRS, “in most cases, you must make estimated tax payments if you expect

to owe at least $1,000 in tax for 2009 (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of:

90% of the tax to be shown on your current year’s tax return, or

100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)”

So basically, if you have any income over $1,000 that has not had federal taxes withheld then you will need to make quarterly payments. This applies to any source of revenue, from self-employment earnings to interest and dividend payments.

When are they due?

Some first-time quarterly taxpayers may get a little confused, because the "quarterly" payments are not divided in to exact quarters. While the reason for this is unclear, just be sure to put the exact dates in bold letters on your calendar. That way you can avoid being hit with a late penalty.

For income earned Jan. 1—March 31, due by April 15

For income earned April 1—May 31, due by June 15

For income earned June 1—August 31, due by September 15

For income earned Sept. 1—Dec. 31, due by January 15

These are the due dates for quarterly payments, but do not forget you also have the option of making monthly payments. Some prefer the monthly option because the payments are much smaller and more manageable.

How do I calculate an Estimated Tax Payment?

Although it seems complicated at first glance, estimated quarterly tax payments are not all that difficult to calculate, and the whole process should take no more than an hour or two. To complete the calculations, you will need: last year’s tax return, a calculator, a pen, and piece of paper. There are a couple of ways to calculate how much you owe, and for more details you can download IRS Form 1040-ES, but the details below explain one of the simplest methods.

Discover your average tax rate by pulling out last year’s tax return. To do so, divide your income tax from last year (should be line 43 on an average 1040) by your adjusted gross income from last year (line 37). You then multiply this number by your total income for this quarter. If you are a self-employed individual, you will need to add additional costs for Medicare and social security, usually about 15.5%. For more details on calculating your payment, we highly recommend you seek advice from a professional tax preparer.

How do I make the payments?

Estimated quarterly tax payments, once estimated, are very simple to make. One way is to write a check for the amount and send it to the IRS along with a 1040-ES voucher form. You also have the option to make payments quickly online through the electronic federal payment system. Check out https://www.eftps.gov/eftps/ for more information.

Almost Half of Top Unions Have Underfunded Pension Plans

From the Washington Examiner.com:

Almost half of the nation’s 20 largest unions have pension funds that federal law classifies as “endangered” or in “critical” condition due to being underfunded, an Examiner review of federal actuarial reports shows.

Pensions with less than 80 percent of the assets needed to cover present and projected liabilities are considered “endangered,” while those that fall below a 65 percent threshold are classified as “critical” under the Pension Protection Act of 2006.

Unions are required to file 5500 forms that record the financial health of their retirement plans, show that union pension funds have lost their financial footing over the past several years.

Eight of the largest unions have underfunded plans, according to the most recent 5500 reports, including the Service Employees International Union (SEIU), the United Food and Commercial Workers (UFCW), the International Brotherhood of Electrical Workers, the Laborers International Union of Northern America, the International Association of Machinists, the United Brotherhood of Carpenters, the International Union of Operating Engineers, and the National Plumbers Union.

The average union pension has resources to cover only 62 percent of what is owed to participants, according to the Pension Benefit Guarantee Corporation (PBGC). Less than one in every 160 workers is covered by a union pension with required assets.

These figures demonstrate that the liability challenge to the long term of health of union funds is systemic and across the board, said Brett McMahon, vice-president of Miller and Long, a Maryland-based concrete construction company.

Demographics figure prominently in the erosion of pension assets now that a smaller percentage of union workers are available to support an expanded group of retirees, McMahon said. Only 7.6 percent of private sector employees are members of a labor union, according to the Bureau of Labor Statistics.

The growing number of local and national union pensions that lack sufficient resources to cover their obligations could threaten the retirement security not just of union members, but also non-union employees if the proposed Employee Free Choice Act (Card Check) becomes law as currently written, McMahon said.

The Card Check legislation includes provisions both to abolish secret ballots in union representation elections in the workplace and to require a binding arbitration process that greatly favors unions, McMahon said.

“It’s like the Social Security problem on steroids,” McMahon said. “We are talking about a systemic, demographic problem where there are too few people paying in and the plans can’t earn enough returns to make up for the difference.”

McMahon believes “union members are not being told the truth about the condition of their retirement plans. The danger to non-union workers comes in with Card Check because there is nothing in it that prohibits an arbitrator from shoving companies and workers into these underfunded plans.”

Diana Furchtgott-Roth, a senior fellow with the Hudson Institute, is encouraging EFCA critics to focus more attention on the arbitration side of the bill in addition to “card check” for this same reason.

Multi-employer pension plans that are typically negotiated by unions should be of particular concern because they have less federal insurance than single-employer pension funds, McMahon pointed out. The PBGC only guarantees $12,870 in annual payments to a member of the multi-employer plan in contrast to $54,000 for members of a single-employer plan.

If anything, the current 5500 records vastly understate the deteriorating condition of union pensions because they do not include the stock market drop from last year, James Sherk a labor expert with the Heritage Foundation points out. Reports are typically not filed for more than 12 months after the end of a plan year.

“There are a lot of red zone notices going out now for funds that fell under the critical percentage for liabilities with the market meltdown,” he said. “This would not be evident under the most recent 5500s because they only cover through 2007.”

Get The Most Out of Your Homebuying Tax Credit

MSNBC.com recently posted a helpful article on how new homebuyers can get he most out of their home buying tax credit. You can find a segment of their article below, or check out the full story here.

When it comes to the $8,000 tax credit for first-time homebuyers, it seems there's a new program every week to help tap that money today.

The credit can be claimed on 2008 or 2009 tax returns. Homebuyers who get a loan backed by the Federal Housing Administration can use the money to cover closing costs and other fees, and at least 10 states offer ways to use the tax credit faster.

"There are some real neat tax planning strategies you can apply now," said Bob Meighan, vice president of TurboTax.

To be eligible, a buyer cannot have owned a home in the past three years. So if you're ready to buy, here are some tips:

INCOME CONSIDERATIONS: The tax credit, for home purchases made through end of November, comes with income thresholds, $75,000 for individuals and $150,000 for joint filers. After those limits, the credit begins to phase out. If you bought a home this year and expect your 2008 income to be lower than next year's, it makes sense to file for the credit this year using a 2008 amended return.

However, if you think your income will decrease, due to job loss, wage cuts or hour reductions, it makes more sense to file for the tax credit on your 2009 tax returns to get the most out of the credit, Meighan said.

TAX WITHHOLDING: Another benefit to waiting until 2009: You can increase your take-home pay. By taking the credit next year, you can change your tax withholding status with your employer now and get more on a paycheck-to-paycheck basis, Meighan said.

You'll be giving up a "fatter" tax refund next year, but each month you'll have more change in your pocket.

Also, don't forget to reduce your federal and state tax withholding to account for the tax deduction you can take on the mortgage interest and property taxes you pay.

Tax Preparation Licensing

What’s the difference between a hair stylist and a tax preparer? Every state requires hair stylists to be licensed, but most states let anyone call him or herself a tax preparer. Sound a little frightening? You bet it is. Because here’s the bottom line: taxpayers are ultimately responsible for their tax returns, not the person who prepared them.

Now, this is not the case in every state. California and Oregon have strict licensing requirements for anyone charging money for tax preparation. And you know what the IRS found? When people in Oregon are audited, their tax returns require far less adjustments than taxpayers in states without licensing requirements. Meaning, Oregonians’ tax returns are more accurate. The IRS attributes this to higher quality tax preparation.

If you are not 100% sure you can do your taxes correctly, finding a qualified professional is paramount to keeping compliant with tax laws. A simple mistake here and there can cause big trouble since the IRS heavily penalizes many “simple mistakes.” And unlike other service industries, if your tax preparer makes mistakes, or is downright dishonest on your return, they are not held accountable. Instead the taxpayer is on the hook for every penalty, fine, and any interest assessed.

Sounds a little ridiculous, right? Well, I agree. And so does the IRS, evidently. The IRS announced plans to introduce tax preparer regulations to President Obama. And I am thrilled the IRS is finally stepping up to help protect taxpayers from unlicensed preparers. While these new regulations are only in the planning stages right now, I would like to throw my unabashed support behind them.

Filing your taxes is probably the most important financial transaction you make every year. These new regulations would ensure every single taxpayer would receive competent tax preparation.

Apple Announces New iPhone; IRS to Let Your Employer Give You One Tax-Free

Yesterday after I blogged about financial issues early adopters of the new iPhone will encounter, I came across this entry from The Tax Professor Blog on another tax related iPhone issue. Check out the article below.

Apple yesterday announced its new iPhone 3G S. Also yesterday, the IRS announced that it was considering new rules that would allow your employer to give you one on a tax-free basis.

I previously blogged the draconian rule of § 280F that employers must include in an employee's W-2 income the value of employer-provided cell phones unless the employee satisfies onerous substantiation rules. Over the past few years, the IRS has increasingly raised this issue on audit, with the result that many employers, including universities, responded by no longer providing cell phones to employees (including professors).

In Notice 2009-46, the IRS requested comments on three alternative methods to simplify the substantiation rules for employer-provided cell phones:

Minimal Personal Use Method

• The entire amount of an employee’s use of an employer-provided cell phone would be deemed to be for business purposes if the employee can account to his or her employer with sufficient records to establish that the employee maintains and uses a personal (non-employer-provided) cell phone for personal purposes during the employee’s work hours.

• Alternatively, the second proposal would define a specified amount or type of “minimal” personal use that would be disregarded in determining the amount of personal use of an employer-provided cell phone. For example, “minimal” could be defined by reference to a particular number of minutes of use or for certain personal purposes.

Safe Harbor Substantiation Method

The IRS and Treasury Department are considering a safe harbor method under which an employer would treat a certain percentage of each employee’s use of an employer-provided cell phone as business usage. The remaining percentage of use would be deemed to be for personal purposes. For this proposal, the IRS and Treasury Department propose a business use percentage of 75 percent.

Statistical Sampling Method

The IRS and Treasury Department are considering a proposal that would allow employers to use statistical sampling techniques to measure an employee’s personal use of an employer-provided cell phone. In general, an employer could use an approved statistical sampling methodology similar to that provided in Rev. Proc. 2004–29, 2004–1 C.B. 918, to determine the percentage of personal use of employer-provided cell phones. The employer would multiply that percentage times the value of each employee’s total usage to determine the value of personal usage. The remaining portion of the employee’s usage would be deemed to be for business purposes.

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.

Calif. Mayors Urge Schwarzenegger To Spare Cities

According to BusinessWeek.com, California mayors are urging Governor Arnold Schwarzenegger to consider local governments when making plans to close the budget deficit. Check out a portion of their article below.

The mayors of some of California's largest cities on Tuesday asked Gov. Arnold Schwarzenegger to avoid undermining local governments as he and lawmakers seek to close the state's $24.3 billion budget deficit.

Los Angeles Mayor Antonio Villaraigosa led a group of mayors from San Diego, Sacramento and Fresno who came to the Capitol to meet with the governor. They said the state should repay cities if it takes any of their tax revenue.

Schwarzenegger later said nobody is pleased with the state's fiscal condition but that tough decisions have to be made.

In another development Tuesday, the state Senate leader said Democrats were beginning to form their own plan to address the deficit, including fewer cuts than Schwarzenegger has proposed and closing some corporate tax loopholes.

Part of the governor's proposal to eliminate the shortfall calls for the state to borrow $1.9 billion from property tax collections and reduce the local share of the gas tax by $744 million.

The mayors said taking gas-tax money would be worse than borrowing from property taxes because the state would not be obligated to repay it. The state must repay local governments within three years, with interest, if it borrows local property taxes.

"One of our core principles is that any plan that pulls tax revenues from cities must be accompanied by a plan to get that money back into the coffers of local governments," Villaraigosa said during a news conference.

In addition to taking the gas tax from local governments, the Legislature's budget analyst has recommended siphoning even more local money from gasoline sales. It is unclear whether that proposal will be adopted by lawmakers.

San Diego Mayor Jerry Sanders said his city already has cut 18 percent from its $1 billion general fund. The state is threatening to take revenue worth another 7.5 percent.

He said the loss of the gas tax alone would mean 120 fewer police officers and 120 fewer firefighters for San Diego.

"We're here to call on the legislators and to call on the governor to balance the budget without balancing it on the backs of cites, counties and school districts," Sanders said.

Schwarzenegger disputed the claim that public safety would have to be cut if the state reduced gas tax revenue to cities and counties because that money is dedicated for transportation projects.

"One has nothing to do with the other," the governor said.

Michael Cohen, an analyst in the Legislative Analyst's Office, said cities that can defer road maintenance might not be hurt by the state's actions. Others may have to take money away from police or fire services to pay for emergency transportation projects, he said.

Cohen noted that cities still will receive federal money.

Senate Democratic Leader Darrell Steinberg said Tuesday that lawmakers were working on a budget plan that would not require local borrowing.

He said Democrats are working on their own budget plan that closely follows the proposed budget Schwarzenegger introduced earlier this month.

Americans' Net Worth Shrinks $1.33 Trillion In 1Q

From BreitBart.com:

American households lost $1.33 trillion of their wealth in the first three months of the year as the recession took a bite out of stock portfolios and dragged down home prices.

The Federal Reserve reported Thursday that household net worth fell to $50.38 trillion in the January-March quarter, the lowest level since the third quarter of 2004. The first-quarter figure marked a decline of 2.6 percent, or $1.33 trillion, from the final quarter of 2008.

Net worth represents total assets such as homes and checking accounts, minus liabilities like mortgages and credit card debt.

The damage to wealth in the first quarter came from the sinking stock market. The value of Americans' stock holdings dropped 5.8 percent from the final quarter of last year.

Another hit came from falling house prices. The value of household real-estate holdings fell 2.4 percent. Collectively, homeowners had 41.4 percent equity in their homes in the first quarter. That was down from 42.9 percent in the fourth quarter.

The latest snapshot of Americans' balance sheets was contained in the Fed's quarterly report called the flow of funds.

Despite the drop, the speed at which net worth shrunk slowed to start the year. During the recession's deepest point in the October-December period, Americans' net worth fell 8.6 percent, according to revised figures.

With wealth declining and unemployment rising, there are questions about how consumers—the lifeblood of the economy—will behave in the coming months.

If they continue to spend, even at a subdued pace, the recession likely will end this year as predicted by Fed Chairman Ben Bernanke and other economists. However, if consumers hunker down and cut spending again, that could delay any recovery. In the final quarter of last year, Americans slashed spending at an annualized rate of 4.3 percent, the most in 28 years.

Still, there was some encouraging news on consumer spending Thursday.

Retail sales rose 0.5 percent in May, following two straight monthly declines, the Commerce Department reported. Meanwhile, the number of newly laid-off workers filing for unemployment benefits fell last week by 24,000 to 601,000, the lowest level since late January.

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Tax Tips for Recent College Graduates

It’s June again, and that means thousands of students will be graduating college and entering the job market. Now that the stress of school and finals is over, these graduates will now have to take on the stress of real life finances, and taxes. However, with the right information and guidance tax planning can be surprisingly easy. To help any of my readers who have either recently graduated themselves, or know someone who will be soon, I have put together the following list of tax tips for college graduates.

Job Related Relocation

Everyone knows that the job market is not as good as it once was, and this can be frightening for a new graduate entering the workforce. Fortunately, there is a helpful tax deduction that can be very helpful if you are required to relocate to a job 50 miles or more away. However, the rules are somewhat complicated and you might want to speak with a tax professional to make sure your expenses qualify. For example, gasoline and hotel expenses can be claimed, while food cannot.

Avoid Credit Predators

Although this is not technically tax advice, it is a good idea to beware of creditors that prey on recent college graduates. Credit card companies aggressively target college students with on campus promoters, and will continue to do so after graduation. If you avoid opening too many accounts, then you will have extra money to make sure you can pay your full tax liabilities.

Student Loan Interest

If you took out any student loans to help you pay for college then you can now take advantage of the student loan interest deduction. It allows you to subtract the interest paid on your loans, which can be quite a chunk of change for many recent graduates. However this deduction does begin to phase out once your income reaches a yearly total of $65,000. For more information, check out page 28 of this IRS publication.

Standard Deduction vs. Itemizing

Most college graduates will want to take the deduction of $5,450. If you are a married graduate, you can take the joint deduction of $10,900, and a heads of household can claim $8,000. Taking the standard deduction will make preparing your return considerably easier, but you should also consider the benefits of iteming your return. If you think your total number of deductions and credits will exceed your standard deduction, then you might want to itemize for maximum savings. This may seem difficult, but most tax professionals – and even tax preparation programs – can easily tell you if taking the standard deduction would benefit you or not.

Charitable Donations

While any taxpayer can claim this credit, the charitable contributions deduction can be especially useful to many college graduates. If you donated a lot of your old books, or had to downsize to relocate for a new job, then be sure to keep track of all the items you donate. You can deduct the value of all items you donate, as long as you itemize your return and have proof of your donation.

Self-Employment

This year more than ever, college graduates – especially those majoring in a technology related field – are considering self-employment. Luckily for them, there are dozens of tax credits and deductions out there for self-employed individuals. For more information, check out 10 Tax Tips for Self-Employed Individuals on the Roni Deutch Tax Center Tax Help Blog.