Bill Seeks to End Some Furloughs for California Workers

From MercuryNews.com:

California would end three-day-a-month furloughs for tens of thousands of state employees under a jobs bill that is scheduled for its first committee hearing this week.

The targeted employees would be those who work for agencies that collect taxes or receive their revenue from sources other than the state's general fund, such as the Department of Motor Vehicles.

Republicans have been critical of the Democratic proposal, saying it does not go far enough to create private-sector jobs.

The bill's sponsor, Senate President Pro Tem Darrell Steinberg, D-Sacramento, said allowing certain workers to return to their jobs full-time will actually generate more revenue for the state and improve customer service.

He said furloughing workers at the Franchise Tax Board is costing the state more than $300 million a year in uncollected taxes. His bill would exempt the tax board and the Board of Equalization, which is fighting the furloughs in court.

The state loses $7 in tax board collections for every $1 it saves by furloughing workers there, the Senate Office of Oversight and Outcomes calculated in a report released Friday.

"All it's doing is keeping our economy down," Steinberg spokesman Nathan Barankin said.

Steinberg's bill also would exempt other agencies that receive at least 95 percent of their budgets from federal money or fees, which are not tied to the general fund.

Jobless Claims in U.S. Fall More Than Forecast to One-Month Low

According to new reports, the number of applications for unemployment benefits in the U.S. fell again last week, leading to a one-month low. There were 440,000 claims during the week that ended on February 6^th, which represented a 43,000 decrease from the week prior. The total number of people receiving extended benefits also decreased, according to the Labor Department. Economists point to these numbers as a sign that companies are firing fewer workers, and that business recovery is starting to take place.

The fastest pace of growth in six years last quarter means the economy may be poised to add jobs as companies restock shelves to keep pace with increased sales. The Obama administration today projected payrolls will grow by 95,000 a month on average this year, indicating it will take a long time to recover the 8.4 million jobs lost since the recession began.

“Healing is under way, but this process will take time,” said Raymond Stone, managing director of Stone & McCarthy Research Associates in Skillman, New Jersey, who correctly forecast the drop in claims. “We are moving in the right direction and I think we will see some job growth” in coming months.

Stocks fluctuated between gains and losses as disappointment that European leaders didn’t provide specific solutions to solve the Greece’s debt crisis offset the drop in claims. The Standard & Poor’s 500 Index rose 0.4 percent to 1,071.82 at 11:36 a.m. in New York. Treasury securities fell.

Continue reading at Bloomberg.com…

How The U.S. Can Avoid the Greek Problem

Greece’s economic troubles have sparked concern among the rest of the world, especially here in the U.S. Their huge debt, and inability to meet their debt payments has many European countries scrambling to help, since they have such strong financial ties to Greece.

In a new article on CNN Money titled “How the U.S. can avoid the Greek problem,” author Jeanne Sahadi urges the U.S. government to create a financial commission such as the bipartisan panel President Obama suggested to tackle the nation’s long term debt problems. Check out a snippet of Sahadi’s opinion piece below.

The delay in getting the commission up and running is due in great part to partisan jockeying from both sides of the aisle and continued uncertainty about whether current Republican lawmakers will agree to take part.

There's no guarantee that when it does materialize it will have the respect of many in Congress, which would have the final word on the commission's recommendations.

And the call for the commission has taken on greater urgency in light of the recent global volatility caused by the sovereign debt crisis in Greece, which threatens all of Europe.

"You need a fiscal commission. You need it now," Simon Johnson, senior fellow at the Peterson Institute for International Economics, told lawmakers this week.

The commission will be asked to figure out ways to get annual deficits down to 3% of gross domestic product by 2015 and thereafter put the country on a more sustainable fiscal track.

Continue reading at CNN.com…

Obama's Budget Would Redistribute $112 Billion From Top 1% of Taxpayers

From The Tax Prof Blog:

True to his campaign promise to "spread the wealth around," President Obama's recently released budget targets high-income earners for income redistribution to low- and middle-income families, according to a new Tax Foundation report. The president's policies would redistribute an additional $112 billion from the top 1% of taxpayers down the income scale in fiscal year 2012.

On average, the president's budget would redistribute another $101,314 from families in the top-earning 1% to the rest of the income spectrum, for a total redistribution of $509,257 per family. ...

Families in the bottom-earning 10 percent stand to benefit the most from the president's policies. As a group, they'll receive an additional $8.7 billion in federal spending benefits. On average, a family in the bottom 10 percent will receive an additional $494 in income redistribution for a total of $17,962.

Severe Weather Won't Stall US Taxpayer Services, IRS Says

With the serious snowstorms crippling Washington and most of the Northeast over the past week, the IRS is reassuring taxpayers by asserting their ability to process tax returns and pay refunds in a timely manner will not be stopped by the weather. According to reports, dozens of Federal agencies including the IRS have been closed for three days this week as blizzard like conditions swept through Washington.

But with all individual return processing now performed outside of the northeast at centers in places like Fresno, Calif., Atlanta, and Kansas City, taxpayers need not fear that refund checks or answers to questions through IRS toll-free services will be delayed, said IRS spokeswoman Michelle Eldridge. "Now is a time when we are getting a high volume of calls and a lot of returns filed, especially from people who are owed refunds, and we're continuing to do that work," said Eldridge.

She said that due to weather-related closures this week, some calls to the IRS taxpayer hotline have been re-routed to call centers unaffected by storms. She said it isn't unusual for such calls to be re-routed when there are closures or staffing shortages.

The IRS might see a spike in telephone inquiries and returns filed because "people who are stuck home might decide they want to go ahead and do their taxes," said Colleen M. Kelley, president of the National Treasury Employees Union. "But there are so many call centers around the country, those adjustments should be invisible to the taxpayer," she said.

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Tax Deduction of the Week: Job Relocation Expenses

Earlier in the week, I posted a new entry on the RDTC Tax Help Blog deduction of the week series. The new article explains the job relocation expense deduction and you can find a section of the text below. Checkout the RDTC Tax Help Blog to see the full entry, as well as former deduction of the week articles.

Examples of Moving Expenses that can be Deducted:

• Packing and transportation costs for moving household goods
• The cost of shipping goods from a place other than your former home (such as a storage unit)
• Any storage bills or fees for disconnecting or reconnecting utilities
• All move-related travel expenses (such as mileage, tolls, lodging, parking fees, etc.)
• Expenses of shipping and relocating your car and/or pets to your new home.
  

Expenses that can NOT be Deducted:

• License plates and registration for your car
• Any part of the purchase of a new home or expenses of leasing a new apartment
• Real estate taxes or lost security deposits

Relocation Rules

According to the IRS, “you can generally consider moving expenses incurred within one year from the date you first reported to work at the new location as closely related in time to the start of work. It isn't necessary that you arrange to work before moving to a new location, as long as you actually do go to work.”

Time Test

To qualify for the deduction you must work full time for at least 39 weeks during the first year after starting the new job. You do not necessarily have to work for the same employer, and you do not need to work for 39 weeks consecutively. However, you will need to work full time within the same commuting area for 39 full weeks.

Continued at RDTC.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.

Jobs Bill Likely to Be Delayed in Senate

Although the Obama administration is hoping to sign the job create bill into law before the end of this week, yesterday Senate Republicans denounced the efforts of Democrats to pass the lengthy legislation in a hurry. It is now reported that the Senate will need to wait until at least the week of February 22^nd to vote on the $80 billion job creation package.

"It's a cake that isn't quite baked yet," said Senate Minority Whip Jon Kyl (R., Ariz.), following a Senate nominations vote.

"Not enough of our members have had an opportunity to review it, for a consensus that would permit us to move forward on it that quickly," he added.

Senate Majority Leader Harry Reid (D., Nev.), had announced earlier Tuesday that despite another snowstorm rolling through the Washington region, he hoped to bring the jobs-creation bill for a vote by the end of the week.

Both the Senate and the House are in recess the week of Feb. 15 due to the Presidents' Day holiday.

Democratic leaders were still weighing procedural options late Tuesday. But with 15 senators absent from Tuesday's vote because the weekend snowstorm impeded their travel, it didn't appear that Democrats had the numbers to limit debate and push the bill to a vote without Republicans on their side.

Continue reading at the Wall Street Journal…

Obama's Budget 'Cheats' (by $98 Billion) in Reporting Cost of Child Tax Credit & EITC Expansion

From the Committee for a Responsible Federal Budget via TaxProf:

A few months ago, we pointed out that the Administration was cheating in its Mid-Session Review budget baseline. Essentially it was taking policies which President Obama had signed into law as temporary, under the stimulus bill, and assuming them as permanent. The implication being that, if the policies were a part of the baseline, they wouldn't need to be paid for when enacted.

[T]he Administration says it should be able to measure its policies off of a "current policy" baseline. We disagree; if President Obama wants to extend the Bush tax cuts -- the same ones which he criticized the Bush Administration for not paying for -- he should have to offset them, or else fess up to using them to increase our debt. For the sake of argument, let's accept that the Administration should be allowed to budget from a current policy baseline. The result would remain the same—they are cheating.

The Administration is taking two tax provisions from the 2009 stimulus bill -- expansions of the child tax credit and the EITC -- and claiming them as part of the "current policy" Bush tax cuts.

The Administration didn't inherit these policies, they created them. And worse, still, they created them as explicitly temporary, under a stimulus bill which they claimed was meant only to help bring us out of this recession.

Yet the White House wants to continue these policies, and they don't want to pay for them. So what do they do? They hide these policies in their baseline, in the hopes that they won't have to. For the tax cuts, as Bob Williams of TPC points out, they don't show this until "footnote 5 on page 170 of Analytical Perspectives."

So how much money is involved here? Well, putting these measures into the baseline makes the President's tax cuts for families appear to cost $143 billion over ten years, when they actually cost $241 (excluding the Bush tax cuts).

10 Smart Tax Planning Moves to Make in 2010

A lot is changing in the tax world. Many of the changes are intended to improve the state of the U.S economy. While next year’s tax return should not look very different from this year’s, there are a few changes in particular which taxpayers should be aware of and prepare for throughout the year. To help my readers looking for some tax planning tips for 2010, I have compiled the following list.

1. Stay Organized

Although being aware of tax changes will certainly serve you well, the information will do you little good without the receipts and documentation. Throughout 2010, keep a filing folder or cabinet neatly organized with important receipts, documents, and tax information, which will be needed, come tax time.

2. Childcare Tax Credit

The childcare tax credit is currently set to $1,000 for each qualifying child, provided guardians do not exceed the income limits. However, President Obama recently said, at his State if the Union address, that he was planned to double the childcare tax credit to make life easier on struggling parents given the rough economy. While it is too soon to tell when or if this proposal will go in to place, it is definitely a credit for parents to look out for.

3. Estate Tax Changes

If you had a loved one, who would normally be subject to estate taxes, pass away in 2010, it is important to know that these taxes will not apply this year. If you are the heir or one of the heirs, it will lie on you to make the proper tax moves with the inheritance. On the other hand, if you have a will, you may want to make temporary changes to your will for the year if you planned donate a larger portion to charity or avoid over taxation, which you would normally be subject to. Remember to reverse the changes next year, as the estate tax will be higher than ever when it returns. These changes are quite drastic and if you are confused, you may want to consider hiring an estate tax attorney to make sure you make the right choices.

4. Making Work Pay Errors

When the Obama administration instituted the making work pay credit last year, many working Americans were happy to receive an additional $400 by the end of 2009 on their pay stubs. However, a major error was overlooked in the distribution, and some taxpayers who had more than one job and received the $400 for each job. The credit is was intended to apply to only one job. Taxpayers who experienced this error will be required to fill out a schedule M form in 2010 to return any overages. The credit will also be given this year, but the error is unlikely to repeat itself. However, whereas last year’s credit was distributed over 9 months, this year’s credit will be distributed over 12 months, so expect a smaller bump to your paycheck.

5. Roth IRA Changes

With the income limits for converting an IRA to a Roth IRA eliminated for 2010, a great potential retirement saving move has been opened to many Americans who did not qualify for it before. However, be aware of conversion costs in the form of previously untaxed amounts. Luckily though, when the change was made, lawmakers put some thought into this and are allowing taxpayers to pay half of the conversion costs in 2011, and the other half in 2012.

6. Energy Efficient Upgrades

If you were planning on making energy efficient upgrades to your home, you may want to do so now, as the tax savings approved in last year’s stimulus bill are set to expire at the end of the year. The highly beneficial changes allow you to claim up to $1,500 in credits, and possibly even more if you plan to install solar panels to your home.

7. Health Care Changes

Although President Obama had hoped to have healthcare legislation passed last year, the bills are still on the table and no decisions have been made just yet. However, legislation is supposed to be passed in coming months, and some tax changes may come with it. While most changes effecting tax law will not be put in to affect until months or years later, a few tax changes could be streamlined and affect your next tax return. Be on the lookout for these changes, and make the appropriate tax moves to offset any big changes.

8. Homebuyers Tax Credits

The recently expanded homebuyer’s tax credit is still eligible for another few months. If you were hoping to buy your first home in 2010, entering in to a binding contract by or before April 30, 2010 will allow you to take the $8,000 tax credit on either your 2009 or 2010 tax return. The sale will need to be settled by June 30, 2010 in order to fully qualify for the tax credit. In addition to the first time homebuyer’s credit, a long-time resident credit was added, in the amount of $6,500 for taxpayers who purchased a second primary home. The requirements for the long-time resident credit are that the taxpayer must have owned and lived in the first home for five consecutive years out of the past eight years.

9. Required Minimum Distribution Returns

Taxpayers who are over the age of 70-1/2 and hold certain savings plans such as a traditional IRA caught a break in 2009, when the required minimum distribution (RMD) was dropped for the year. However, RMDs have been re-instituted for 2010, and taxpayers who are required to pay them will need to take out the minimum amount to avoid being penalized.

10. Stay Updated

As you can see, several potential tax changes will occur 2010. In order to avoid being left uninformed come tax time 2011, stay updated on tax changes throughout the year. Check the IRS newsroom occasionally to see if they have any tax announcements that pertain to you. Also check out my tax center’s Tax Help Blog as well as my personal blog for daily tax tips and news—I try my best to stay on top of the newest tax news and as soon as I know, I will post the information to my blogs.

7 Signs you may need a Tax Attorney

Last week, my YouTube team shot another new episode for our YouTube tax tips video series. In this episode, host James Owen discusses when you may need a tax attorney. You can watch the embedded video below but be sure to check out my YouTube channel to subscribe to my videos.

San Francisco Sets U.S. Example by Using Property Taxes to Finance Green Upgrades

San Francisco Mayor Gavin Newsom signed new legislation yesterday allowing homeowners and businesses to finance eco-friendly upgrades through their property taxes. It is reported that the program is the largest of its kind, and the Mayor hopes it will start a trend among local government agencies. Supporters of the program hope it will create jobs in the San Francisco area as well.

"This green financing program is going to create green jobs and prompt the next wave of energy and water efficiency as well as renewable energy development in San Francisco," Newsom said in a statement. "It helps home and property owners overcome the large up-front costs of major environmental improvements."

Beginning in March, San Franciscans will be able to seek financing from the Property Assessed Clean Energy (PACE) program, which will make $150 million in bonds available, according to Renewable Funding, a private group that will put up the capital and administer the program at no cost to the city.

"San Francisco is once again leading the way by establishing the largest PACE program in the nation to date," said Cisco DeVries, president of Renewable Funding, based in Oakland.

Studies show that up-front costs are often the main barrier that keeps property owners from making green upgrades. PACE programs aim to remove that barrier.

Continue reading at USA Today.com…

Jobs Legislation to Be Introduced in Senate Today

From Bloomberg.com:

Senate Democrats said they will push for passage this week of a U.S. job-creation plan that includes a $20 billion extension of the federal highway and transportation construction program.

Majority Leader Harry Reid said the package he plans to introduce today has “some good” bipartisan support. “I don’t know of any sticking points at this stage,” he said.

Reid spoke after Democratic and Republican congressional leaders met with President Barack Obama to discuss ways to move forward on a jobs bill and other priorities. Lawmakers in Washington are under growing pressure to boost the economy before this year’s midterm elections.

California Democratic Senator Barbara Boxer said the package to be introduced today will include the extension of the highway trust fund for bridge and road construction, which is financed by a federal gasoline excise tax. Extending the highway construction program until year’s end would create 1 million new jobs, she said.

Before the meeting with congressional leaders, Obama said a jobs package is “a good place to start” on bipartisan cooperation in Congress.

“My hope is that both in the House and the Senate we’ll see some packages moving over the next several weeks that can provide a jump-start to hiring and start lowering the unemployment rate,” the president said.

Senate Republican leader Mitch McConnell of Kentucky told reporters after the meeting, “There’s a chance the Senate could get there with a small package” for creating jobs.

Exotic ETFs May Hide an Unpleasant Tax Surprise

I was recently quoted in a DailyFinance.com piece discussing the hidden tax surprises in exchange-traded funds. You can find a segment of their article below, and I have bolded my quote in the story.

Index-based ETFs carry a big tax advantage for investors because there is very little turnover of the securities within the fund since the managers are simply matching investments to the actual index. Consequently, lower capital gains are passed onto the investor. By contrast, actively managed mutual funds can involve large turnover of the underlying assets and result in large capital gains realized by the investor. This is because the gains at the fund level must be passed on and taxed to the investor, explains Mike D'Avolio, Intuit's senior tax analyst. When an investor sells an ETF, a short or long term gain or loss is recognized and taxable just as it would be with the sale of an actual stock or bond. Investors in tax-deferred accounts such as IRAs don't need to worry about these tax advantages because they won't start paying taxes on those investments until they hit retirement age.

Such is the way of the world for "plain vanilla" ETFs. However, it's a bit more complex when it comes to exotic ETFs, those that trade in foreign currencies, highly leveraged securities, precious metals, commodities or clean technology, for example.

For starters, Uncle Sam looks at the underlying investment held by the exotic ETF to determine the tax consequences of the income earned. "Although this may sound basic, it's often the simplest information that gets overlooked. The way ETFs are taxed is dependent upon the underlying assets within the ETF," says Roni Deutch, CEO and founder of the Roni Deutch Tax Center.

For example, if ETF "A" holds stocks, bonds or mutual funds, any gain realized on the sale of ETF "A" would be taxed using the rates for capital gains (maximum of 15% for long-term gains). If ETF "B" holds precious metals, any gain realized on the sale of ETF "B" would be taxed using the rates for the sale of collectibles. Sales of collectibles are taxed as ordinary income for short-term gains (assets held less than a year) and 28% for long-term gains. That means that the income from the sale of ETF "A" is going to be taxed less than the income from the sale of ETF "B". "This higher tax rate may come as a shock to inventors in funds that buy and sell bullion, such as the IShares Silver Trust (SLV) and SPDR Gold (GLD)." Gains from most currency funds, are also taxed at ordinary income-tax rates.

Continue reading at Daily Finance.com…

Questions for the Tax Lady: February 8th, 2010

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

Question #1: When is the deadline for making donation’s to Haiti relief funds that can be included as charitable contributions on my 2009 return?

According to the IRS contributions of cash made after January 11, 2010 and before March 1, 2010, can be treated as contributions made on December 31, 2009 if such contributions were for the purpose of providing relief to victims in areas affected by the earthquake in Haiti that occurred on January 12, 2010. To be safe, you should try to make any donations that you plan to include on your tax return as soon as possible.

Question #2: What items should I bring with me when I take my tax return in to have it prepared?

I actually posted a blog entry on this very topic a few weeks ago. You can find the detailed list here, but essentially you will want at least the following items:

1. Identification

2. Last Years Tax Return

3. Documentation from ALL Sources of Income

4. Self Employment Documents

5. Financial Gain or Loss Statements

6. Mortgage and Real Estate Taxes

7. Automobile and DMV Documents

8. Deductible Expenses Receipts

9. Additional Deduction Documentation

10. Anything Else your Tax Professional Wants

IRS Silent So Far On New US Tax Rules For Inherited Wealth

From TradeSignalOnline.com:

The U.S. Internal Revenue Service is taking a wait-and-see approach on issuing guidance dealing with taxes on inherited wealth, unsure whether Congress will act in the next several months to change the rules again.

Advisers to the wealthy say they are left without a roadmap on a number of issues related to the disposition of assets left behind by those who have died since Jan. 1. In particular, they are looking to IRS for rules on how a new capital gains-tax regime that took effect this year will apply to estates.

"There are no forms that give us any idea how or what we are supposed to report," said Stephen Litman, an estate planner at the Minneapolis law firm of Leonard, Street and Deinard. "This leads to significant administrative challenges for families."

Congress is weighing whether to set permanent rules for taxing estates, and whether to make those rules retroactive to the beginning of this year, but such action is weeks, and maybe even months, away.

The 2001 tax-cut law was aimed at gradually eliminating estate taxes, but repeal proponents at the time lacked the congressional majorities needed to do so permanently.

Hiring Tax Credit Will Not Create Long-Term Jobs

According to this new report from the Heritage Foundation, the temporary tax credit President Obama proposed will not create sustainable jobs needed for long-term recovery. They commend Congress and Obama for trying to help workers who have lost their job, but suggest extending the 2001 and 2003 tax credits instead.

The credit proposed by President Obama pays $5,000 for each new hire a business makes in 2010. Businesses would also get refunds on their Social Security taxes if they increase wages or expand hours for existing-workers. The credit would be capped at $500,000 per business.

Congress tried a similar credit in the 1970s. It failed to create jobs, however, because much like today, policymakers ignored the jobs the credit would destroy since it had to be funded by government borrowing. Therefore, the current proposal must be evaluated by its net job creation--a standard that requires looking at the jobs created by the credit and the jobs lost because the government has to finance the proposal.

On the positive side, according to the Congressional Budget Office (CBO), the credit would create five to nine years of full time employment for every million dollars of credits businesses take. The White House estimates that the credit will reduce tax revenue by $33 billion. Combining these two estimates shows that before offsetting effects, the credit might create between 165,000 and 297,000 jobs in 2010. This works out to a cost of $111,000 to $200,000 per job created.

Continued at Heritage.org…

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.

Home Shopping Reminder!

Like I mentioned yesterday, I am going to appear on the Home Shopping Network tomorrow to debut my new financial planning program, Win Back Your American Dream. Tune in at 7 AM EST to watch my segment!
For more information on my program, or to purchase one online, head over to the Home Shopping Network’s website. You can also checkout a picture of the program below.