Foreign Income Taxes

My YouTube team uploaded another tax tips video yesterday. In this episode, host James Owens discusses foreign income taxes. Be sure to enjoy the embedded video below and check out my YouTube channel and subscribe to my future videos.

Medicare Tax Hikes: What The Rich Will Pay

There are plenty of tax changes in the new health care reform bill, but the group of taxpayers that will be hit hardest are families making $250,000 or more per year. As this CNN Money.com article explains, they will get hit with pretty significant Medicare tax increases.

Currently, the Medicare payroll tax is 2.9% on all wages -- with the worker and his employer each paying 1.45%.

Under the new law, starting in 2013, high-income individuals will pay another 0.9 percentage points -- so their share will total 2.35% of their wages.

A single person making $250,000 would pay an additional $450 a year into Medicare relative to what he pays today, according to calculations by Deloitte.

If he made $1 million, he would pay an additional $7,200.

Couples making $500,000 in wages would pay an additional $2,250. If they made $1 million, they would pay an additional $6,750.

How to Lower your Tax Liability Without Itemizing your Return

In preparing a tax return, you can choose to either itemize your deductions or claim the Standard Deduction. If you decide to itemize, you can use dozens of tax deductions such as the mortgage interest deduction and charitable contributions to reduce your adjusted gross income. However, if you do not qualify for many deductions then you should take advantage of the Standard Deduction, but do not stop there. There are plenty of tactics you can use to lower your tax liability without itemizing.

The Standard Deduction

If you do not itemize your return then you can take what is called “the Standard Deduction,” which is a dollar amount that non-itemizing taxpayers can subtract from their adjusted gross income. There is a set amount for individuals, married couples and taxpayers who claim the head of household filing status—this amount changes every tax year. There are also additional amounts available to persons who are blind and/or are 65 years or older. The standard deduction amounts for the three main filing statuses are listed below.

Single:

2009:$5,700; 2008: $5,450

Married Filing Separately:

2009: $5,700; 2008: $5,450

Married Filing Jointly:

2009: $11,400; 2008: $10,900

Head of household:

2009: $8,350; 2008: $8,000

Property Taxes

There are a handful of tax deductions that can be used to further reduce your adjusted gross income. These “above the line” deductions can be claimed even if you are taking the Standard Deduction. The first of which is the property tax deduction. If you own a house, and have to pay property taxes then you can either deduct the amount of real estate taxes paid during the year or a flat rate ($500 for single taxpayers and $1,000 for married couples filing a joint return). Usually if you owned a home then you would want to itemize since you could claim the home mortgage deduction, however if your deductions are still lower than the Standard Deduction you can still use your property taxes to lower your tax liability.

New Car Sales Tax

If you purchased a new car in 2009 then you can deduct all state and local excise taxes paid on the vehicle, up to $49,500. To qualify, the purchase must have taken placed between February 16^th and December 31^st in the year 2009. To claim the full credit your adjusted gross income also needs to be under $125,000 for single taxpayers and $250,000 for married couples filing a joint return.

Alimony Payments

If you have to make alimony payments as part of a divorce settlement then you can take advantage of the alimony payment deduction even if you do not itemize. The IRS considers alimony payments taxable income to the recipient in the year received, and allows the taxpayer making the payment to deduct the amount paid from their adjusted gross income. Unfortunately non-cash settlements such as property or voluntary payments do not qualify. For more information, including a list of IRS requirements check out this article on the alimony payment deduction at the RDTC Tax Help Blog.

Qualifying Relocation Expenses

If you had to move for a new job opportunity then a portion of the related expenses can be deducted from your income in addition to claiming the Standard Deduction. To qualify your new work location must be at least 50 miles further from your former home than your old job was. Additionally, you must work a full time schedule for at least 39 weeks during the first year after starting the new job.

According to the IRS the following moving related expenses 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 or relocating your car and pets to your new home.

On the other hand, the following expenses cannot 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

Timeline of Tax Provisions in the House Health Care Bill

As many of you have probably heard, yesterday the House of Representatives passed President Obama’s health care reform package in a 219 – 212 majority vote. It now heads to the Senate where it is widely expected to pass after the required 20 hours of debate time.

The complicated legislation includes dozens of tax provisions; some that will take effect immediately while others will not take effect until up to eight years from now. Listed below are all of the tax law changes included in the bill, organized by when they will go into effect courtesy of The Tax Foundation.

Retroactive provisions:

• Exclusion for assistance provided to participants in State student loan repayment programs for certain health professionals (retroactive to January 1, 2009)
• Qualifying therapeutic discovery project credit (retroactive to January 1, 2009) – provision expires at end of 2010
• Modification of section 833 treatment of certain health organizations (retroactive to January 1, 2010)
• Make the adoption credit refundable; increase qualifying expenses threshold, and extend the adoption credit through 2011 (retroactive to January 1, 2010)
• Small Business Tax Credit for certain small businesses (those meeting certain criteria) providing health insurance to employees (retroactive to January 1, 2010). In 2013, restricted only to insurance purchased through an exchange and only available for two consecutive years
• Exclusion of unprocessed fuels from the cellulosic biofuel producer credit (retroactive to January 1, 2010)

Provisions that will go into effect on the date bill is signed into law:

• Additional requirements for section 501(c)(3) hospitals
• Study and report of effect on veterans’ health care
• Provide income exclusion for specified Indian tribe health benefits
• Codify economic substance doctrine and impose penalties for underpayments
• Provision specifying that subsidies or tax credits received through health care reform will not affect individual's qualifications for other federal programs
• Tax Exemption for Certain Member-Run Health Insurance Issuers
• Tax Exemption for Entities Established Pursuant to Transitional Reinsurance Program for Individual Market in Each State
• Rules pertaining to how the IRS is involved in income-verification and individual status for the purposes of participation in the exchanges and subsidies received

Other provisions going into effect before the end of 2010

• July 1, 2010: Impose 10% excise tax on indoor tanning services

Continue reading at Tax Foundation.org…

Questions for the Tax Lady: March 22nd, 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: My divorce was finalized in November of 2009. Since I was married for most of the year do my ex husband and I need to file a joint return?

No. As long as you were divorced before December 31^st, 2009 then the IRS considers you a single taxpayer for the whole year. You should therefore file an individual return.

Question #2: I have moved since I filed my last tax return. Is there a special form or something I should include with my new tax return to notify the IRS of the address change?

There is not really any need or specific protocol for notifying the IRS about a recent move. When you file your tax return just make sure you list your current address. The IRS will see the change, and automatically update their records.

IRS Seeks Volunteers for Taxpayer Advocacy Panel

According to their newest press release, the IRS is seeking “civic-minded volunteers to serve on the Taxpayer Advocacy Panel (TAP), a federal advisory committee that listens to taxpayers, identifies key issues and makes recommendations for improving IRS service.”

“The feedback and suggestions that the TAP provides us from the taxpayer’s point of view are important to sound tax administration,” said IRS Commissioner Doug Shulman.

The TAP provides a forum for taxpayers from all 50 states, the District of Columbia, and Puerto Rico to raise concerns about IRS service and offer suggestions for improvement. The TAP reports annually to the Secretary of the Treasury, the IRS Commissioner and the National Taxpayer Advocate. The Office of the Taxpayer Advocate, an independent organization within the IRS, provides oversight and funding for the TAP.

“In trying to comply with an increasingly complex tax system, taxpayers may find they need different services from the IRS,” said Nina E. Olson, National Taxpayer Advocate. “The TAP is vital because it provides the IRS with the taxpayer’s perspective and recommendations for improvements that will help the IRS to deliver the best possible service to assist taxpayers in meeting their tax obligations.”

To be a member of the TAP you must be a U.S. citizen, current with your federal tax obligations, able to commit 300 to 500 hours during the year, and able to pass an FBI criminal background check. New TAP members will serve a three-year term starting in December 2010. Anyone chosen as an alternate member will be considered to fill any vacancies that open in their area during the next two years.

Illinois Hospital Loses Tax-Exempt Status for Not Being Charitable Enough

From Law.com:

In a decision that could having a chilling effect on nonprofit hospitals, the Illinois Supreme Court on Thursday ruled that a Catholic hospital wasn't charitable enough, so it took away the hospital's tax-exempt status.

The ruling upheld a state tax review board's 2003 decision to end Provena Covenant Medical Center's tax-exempt status after the state learned that the center's charity care equaled less than 1 percent of revenue. Now, the hospital is liable for a multimillion-dollar property tax bill.

The Illinois decision comes as lawmakers in that state and in the nation's capital, as well as the Internal Revenue Service, are watching hospitals more closely with regard to their charitable giving. The IRS is scrutinizing hospitals' year-end tax filings, while lawmakers are talking about legislation to mandate a certain minimum level of charity care to justify tax-exempt status.

The Illinois ruling could bolster those efforts. "My biggest concern is that this will really drive more challenges to property tax exemption status for hospitals and other charities nationally at a time when they really can't afford it," said Elizabeth Mills, senior counsel to the Chicago office of Proskauer Rose.

Mills questioned the court's finding that the hospital wasn't charitable enough, noting that Illinois law sets no particular level of charity care linked to tax-exempt status.

In its decision, the high court concluded that Provena had failed to show "that it dispensed charity to all who needed it and applied for it." State lawyers had argued that only 302 patients at Provena received free or discounted care out of more than 100,000 admissions in 2002. Those patients cost the hospital a mere $831,724, or about 0.7 percent of its $113 million in revenue.

The Tax Advantages of Going Green in 2010

Last week the RDTC Tax Help Blog posted a new entry explaining the tax advantages of going “green” in 2010. As you can see from the text below, there are plenty of credits and tax breaks for both individuals and businesses that make energy efficient purchases. You can find a snippet of the original entry below, or checkout the full text at RDTC.com.

Driving Green

Unfortunately many taxpayers are under the impression that all of the tax incentives for buying a hybrid vehicle have expired. However, this is not true. There are plenty of popular vehicles that qualify for the tax credit. A few 2010 Ford Hybrids qualify for a couple of credits, including the Fusion, which can qualify for a credit of up to $3,400. Additionally, electric vehicles such as the Chevy Volt offer the best credits. If you decide to buy an electric vehicle in 2010 then you can claim a credit of up to $7,500.

Conscious Commuting

If you live close enough to your work to be able to ride your bicycle back and forth every day, then you might be eligible for tax-free reimbursement from your employer (if they participate in the program). New legislation allows employers to give employees up to $20 a month for riding a bike to work. Additionally, employers can reimburse up to $230 per month of an employee’s public transportation expenses. Be sure to talk to your employer or human resource department to see if they offer conscious commuting reimbursements.

Solar Savings

Homeowners and businesses have been able to take tax credits for installing solar panels for a while now, but many taxpayers are resistant due to the high expense. However, the prices of solar upgrades have gone down drastically over the past few years. Additionally, even less expensive solar products – such as solar powered water heathers – will qualify for a tax credit of up to 30% of the purchase price. This credit can even be claimed against the AMT.

Continue reading at RDTC.com…

Tax Refunds May be Up, but How are Your Withholdings?

Tax credits launched under the Obama administration's economic recovery bill have boosted the average 2009 refund by nearly 10% from the previous year according to White House representatives.

The average tax refund for 2009 has reached $3,036, according to early data from the Internal Revenue Service.

The Obama administration officials said the increase reflects a growing number of taxpayers taking advantage of the benefits available under the $787 billion American Recovery and Reinvestment Act.

Under the Recovery Act, which was implemented last year to combat the economic crisis, taxpayers can take advantage of over a dozen tax benefits such as the making work pay credit, worth up to $800 for married couples filing jointly, the $8,000 first-time home buyer credit, and sales tax deductions on new car purchases.

The benefits are aimed at helping middle class families recover from one of the worst recessions on record, administration officials said.

The administration states that the nearly $300 billion in tax benefits will help jumpstart the overall economy by encouraging Americans to spend, which ultimately stimulates job growth.
However, some critics argue that the bigger tax refunds could be due to factors other than the Recovery Act credits, including a larger number of Americans withholding more last year due to unemployment or other economic hardships.

Individuals who work into the year and get laid off typically over-withheld while they are working, said J.D. Foster, a senior fellow specializing in fiscal policy at the Heritage Foundation, a conservative research group. That over-withholding can lead to larger refunds.

While, the new tax credits are great, please be sure your deductions are correct so as not to pay the IRS too much during the year. See my tax help blog entry regarding adjusting your withholdings.

For more information and full article go to http://tinyurl.com/ybd3h9l.

Volunteer, Sacramento!

Mayor Kevin Johnson of Sacramento is asking YOU to be the change in your community and join the Mayor's Volunteer Challenge. Volunteer Sacramento is partnering with Hands On Sacramento and they have set a goal to make Sacramento the number one city in the state for volunteerism.

Getting involved is easy to do. Simply join the Mayor's Volunteering Team, and start volunteering your time! All they're asking is for you (us) to donate as little as 10 hours this year. That's less than an hour each month! Those 10 hours translate into an economic contribution of more than ten million dollars back into our city. Think about that... just a little of your time to give a lot back to your community.

Here at Roni Deutch, A Professional Tax Corporation we have our own Community Action Committee where we donate time, items, and money to local organizations each month. Last month we collected blankets and warm winter clothing for The Effort, A Family Resource Center here in North Highlands, California. We were able to donate seven large bags full of winter items valued at $1,000! You can see pictures of that day here on my Flickr account.

This month (March, 2010) we are organizing an Easter Egg Drive to benefit the Ronald McDonald House Charities. Your volunteer act doesn’t have to be on a grand scale. Sacramento is full of organizations and non-profits that you could help for one hour a month! Some on-going volunteer opportunities are located at the Hands On Sacramento website.

Go Kings!

Last Tuesday, I was at the Kings vs. Lakers game – along with representatives from the Roni Deutch Tax Center – for Another Tax Night. A local radio station captured the following video featuring me and a handful of local Roni Deutch Tax Center tax professionals. Checkout the embedded video below, or visit RDTC.com to find a tax preparer near you.

Family Finance: Credit Cards Part of College Plans

Credit cards are often essential for college students struggling to pay for food and lodging, in addition to huge tuition fees. However, a new law is going to make it harder for students to get credit cards, and many families are being forced to reevaluate their finances to provide for students in college. The New York Times posted a new article explaining the new law and how it will affect students across the country. You can find a section of the post below, or read the full text at NY Times.com.

Choosing what kind of plastic a college-bound student should carry may seem like an easy decision to make after all the work it takes to pick a school. But a new law making it harder for students to get their own credit cards means most parents now have to choose whether to help their kids get one, or send them off with less flexible choices like debit or prepaid cards.

The right choice could help a graduate enter the working world with a strong understanding of how credit works and a solid credit rating. The wrong choice could be costly, not only in terms of how much debt gets charged up, but also in the potential damage to the credit histories of both parents and student.

One part of the new credit card law says applicants under 21 must prove they can pay the bill, or have a co-signer to open an account. But most parents want their kids to have some card available, at least for emergencies.

That leaves parents to debate whether they should co-sign, or get their child a card linked to their own account? They might also ask if a debit card or prepaid card would be a better option.

The answers depend upon several factors, including the student's spending habits, whether they have any income, and the strength of the parent's own credit history.

''This whole situation with college students and credit is starting to turn into a thorny issue,'' said Bruce McClary of Clearpoint Credit Counseling Solutions. ''A parent really has to gauge their comfort level, in how they observe their child as someone who manages money responsibly.''

Continue reading at NY Times.com…

Greenspan Says Fed, Regulators ‘Failed’ During Financial Crisis

From Business Week.com:

Former Federal Reserve Chairman Alan Greenspan said the central bank and other U.S. regulators “failed” during the financial crisis because they became too complacent about risks.

“Even with the breakdown of private risk-management, the financial system would have held together had the second bulwark against crisis -- our regulatory system -- functioned effectively,” Greenspan said in the text of a speech at a Brookings Institution conference today. “But, under crisis pressure, it too failed.”

Greenspan echoed comments he made in a paper released yesterday citing the central bank’s failures to rein in the housing bubble and growth of the largest U.S. banks. Greenspan, 84, who ran the central bank from 1987 to 2006, said low interest rates weren’t to blame for inflating the bubble, placing the blame instead on regulators.

“Even though for years our largest 10 to 15 banking institutions have had permanently assigned on-site examiners to oversee daily operations, many of these banks still were able to take on toxic assets that brought them to their knees,” Greenspan said.

The former central bank chief said he and others at the Fed didn’t fully understand the extent of the housing bubble and its ramifications for the economy. In October 2008 testimony before Congress, he said free-market ideology may be flawed in the wake of a “once-in-a-century credit tsunami.”

Federal Workers Owe $1B in Back Taxes

According to an ABC News report, about 100,000 federal employees owe an estimated $1 million in unpaid back taxes. In an effort to recoup some of this revenue, Rep. Jason Chaffetz of Utah introduced a new bill that would require those federal workers to pay off their tax debts or lose their jobs.

"If you get to the point where the government is putting a lien on their property and they've exhausted their appeals ... the right thing to do is fire them as a federal worker," he told ABC. "If you're going to take federal tax dollars, you should be paying your federal taxes."

Of the 2.8 million federal employees throughout the country, more than 3 percent owed unpaid taxes in 2008, according to the IRS. And that's not including retired workers or military service members. Factor them in and the numbers spike to around 276,000 current or former workers owing roughly $3 billion, according to the report.

Chaffetz says his bill mirrors efforts by the Obama administration to end federal contracts with companies that owe taxes, which the president directed federal agencies to do in January.

Continue reading at ABC News.com…

Five Things to Look for in a Tax Resolution Company

My law firm’s blog recently posted a new article explaining five essential things to look for in a tax resolution company. You can read a snippet of the post below, or read the full entry at the RoniDeutch.com Tax Relief Blog.

1. Professional and Useful Website

You would be surprised how much you can learn about a business using the Internet. Before hiring a tax resolution company, you should always spend a few minutes reviewing their website. Look for informative testimonials and information about any chambers of commerce, or professional organizations the company is aligned with.

In addition to information about the business on their website, you should also see if they offer information on topics related to tax debt resolution. If the company employs experts knowledgeable about the various IRS tax resolution programs, then the company should have useful information such as informative articles, a glossary of tax related keywords, newsletters and a blog (that is updated regularly) for you to review.

2. Successful Track Record

A quality tax resolution company will be able to provide evidence of a successful track record of resolving delinquent accounts with the IRS. If you cannot find information on a company’s website about recent resolutions that is has achieved for its clients, then you should consider asking a representative of the company for this information. If you do speak with a tax resolution company, you should also inquire as to whether the company has experience in resolving cases similar to yours.

Get Money Out of Your IRA Early. No Penalty. No Problem.

From MoneyWatch.com:

As April 15th approaches, CBS MoneyWatch is publishing daily tax tips. See the full list here, and be sure to check back frequently for the latest advice from our experts.

When it’s time to take money out of your 401(k) or IRA, the magic number is 59 ½. That’s the age at which you can withdraw money from a retirement plan without handing the IRS a 10% bonus on top of the regular taxes you will owe. Everyone knows that, right?

Judging from the mail I get, everyone does indeed. But what not everyone knows is that the age 59 ½ rule has more loopholes than Tiger Woods’ marriage contract. For most practical purposes, the penalty-free retirement age in a 401(k) is 55, and it can be lower still for an IRA. Early retirement, medical emergencies, job loss, early retirement, college education, a home purchase-all qualify as exceptions that can make your retirement money more available than you thought.

Here’s how it works:

Separation from service after age 55 (401(k) only) your 401(k) money becomes yours without a penalty if you leave your job after age 55. It doesn’t matter whether the departure was your idea or your employers’, or whether you permanently go fishing at that point or find another job the next day. You just need to “separate” from your employer.

Yes, you still have to pay regular income taxes on the money you pull out, but you’d owe those no matter when you took the money. Just be careful not to roll the money over into the 401(k) at your next job (if there is one) or into an IRA. Either move would put you back on the penalty track.

Obama Signs Jobs Bill, Says More Must Be Done

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

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

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

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

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

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

Continue reading at Google News.com…

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Senate OKs Jobs Bill for Obama's Signature

As many had expected, the new legislation providing employers that hire unemployed workers a tax break has passed the Senate with a 68-29 majority vote. The legislation will now go to President Obama’s desk to get signed into law. You can learn more about this new law in the following story from the Associated Press.

It will be the first of several election-year jobs bills promised by Democrats to be enacted into law, though there's plenty of skepticism that the measure will do much to actually create jobs. Optimistic estimates predict the tax break could generate perhaps 250,000 jobs through the end of the year, but that would be just a tiny fraction of the 8.4 million jobs lost since the start of the recession.

The measure is part of a campaign by Democrats to show that they are addressing the nation's unemployment problem, but that message was overshadowed by Congress' feverish final push to pass health care overhaul legislation by this weekend.

The bill which passed Wednesday contains about $18 billion in tax breaks and a $20 billion infusion of cash into highway and transit programs. Among other things, it exempts businesses that hire the unemployed from paying the 6.2 percent Social Security payroll tax through December and gives employers an additional $1,000 credit if new workers stay on the job a full year. Taxpayers will have to reimburse Social Security for the lost revenue.

Continue reading at Google News…

Mcdonald's Co-Owner Admits Cheating IRS Out of More than $600k

Yesterday a McDonald’s franchise owner in Minnesota plead guilty to charges of IRS tax evasion. The husband and wife cheated the IRS out of more than $600,000 in payroll taxes, and could face up to five years in prison as a result.

According to the Star Tribune post below, the couple cheated the IRS by failing to turn over the employment taxes that were collected.

Stephen J. Kopel, 62, of Rosemount, pleaded guilty Tuesday in federal court in Minneapolis to willful failure to account for and pay taxes.

Kopel, whose S&P Foods Inc. operates a McDonald's near 150th Street and Robert Trail, failed to pay over employment taxes to the IRS from 2003-2006. The total in unpaid taxes from those years was $627,437.41.

Kopel faces a potential maximum penalty of five years in prison. Sentencing has yet to be scheduled.