Be Aware of Key Tax Law Changes

From SouthBendTribune.com:

Last week, we promised that we would mention a few of the more significant changes to the tax law that could affect your 2008 income taxes. Here are some that you might want to be aware of:

The capital gains rate for taxpayers in the 10 percent and 15 percent tax brackets is ZERO (zero percent) for this year and next. That means that folks in those lower two brackets will pay no tax at all on capital gains! Unfortunately, given the stock market and the economy, not many of us have had capital gains this year.

Here’s a caveat for readers with children who have investment income: This rate does not apply to anyone who is claimed as a dependent on another return, so your kids in high school and college won’t be able to enjoy the distinction of being in the zero tax bracket.

The limit on contributions to a traditional IRA has been raised to $5,000. This limit is $6,000 for those 50 and older. Remember, you can deposit money into an IRA until April 15, 2009, and still have it count as a 2008 contribution.

The mileage rate for automobiles used for business increased on July 1 from 50.5 cents per mile to 58.5 cents per mile. The bad news is that taxpayers will have to compute their mileage deduction making two separate computations for the year.

The ironically good news is that the IRS raised the rates when the cost of gas was over $4.00 per gallon and going up daily. But even though gas now costs less than $2.00 per gallon, the higher rate will apply until at least Jan. 1, 2009. The IRS has already announced lower rates for 2009.

The infamous “kiddie tax,” that special tax on investment income of children, also known as Uncle Sam’s version of Truth or Consequences, now includes all dependent children under the age of 24. What this means (and this is the short version) is that for dependent children under 24, investment income over $1,700 will be taxed at the parent’s rate.

If this is beginning to sound familiar, it should. The “kiddie tax” has been in effect since 1986, but this is the first year it has expanded to include college age dependent children. Congress decided that the government has to get some tax revenue somewhere!

In 2008, taxpayers who do not itemize their deductions will be entitled to a special deduction for property taxes paid, up to a maximum of $1,000 for married couples.

This is especially important for St. Joseph County residents who, because of the late mailing of the property tax bills, still haven’t paid their property taxes for 2008. The upshot: Be sure to pay your property taxes before Dec. 31!

There is a credit this year for first-time homebuyers equal to 10 percent of the cost of a personal residence up to a maximum credit of $7,500. The credit applies to homes purchased after April 8, 2008. Unlike most credits, however, this one has to be paid back to the government! (Barney Frank, call your office!)

Searching the Tax Code for Upsides to a Downturn

From NYTimes.com:

It’s the time of year when personal finance writers offer suggestions on end-of-the-year tax planning. The problem this year is that there are so many unknowns. Are tax increases in the works? Will you keep your job next year? Will your income drop? And what about all those terrible investment losses?

Even some tax experts are scratching their heads.

The biggest question is whether Barack Obama will go ahead with his plans to increase income and capital gains taxes on affluent families — those making $250,000 a year or more — soon after he becomes president. With the economy in such trouble, he may decide it’s better to delay any action.

“It is unlike any other year,” said Rich Kohan, a partner at PricewaterhouseCoopers. “Everything is a struggle this year because of the uncertainty of the economy and the uncertainty of tax rates.”

One thing is certain: It was a dreadful year for investors. And while this will probably come as cold comfort for most people, your investment losses will serve up certain tax benefits. It’s worth spending some time now, before the end of the year, to be sure you are maximizing any opportunities to trim your tax bill.

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For Tax Cheats, Meltdown Prompts Amnesty Offers

From the Associated Press:

Turns out it's a pretty good time to be a tax cheat.

Desperate to bring in revenue in the middle of a recession, states across the country are adopting tax amnesty programs, offering to let people pay their past-due tax bills with little or no penalties or interest.

"Something is better than nothing," said Dino DiCianno, executive director of the Nevada Taxation Department. DiCianno said Nevada gave up more than $14 million in penalties and interest to collect nearly $41 million between July and October.

Oklahoma, like Nevada, generated about twice as much as it expected from its offer of amnesty, raising $82 million through its 90-day Clean Slate program for businesses and individuals. New York has a program under way, and Connecticut and Massachusetts are drawing up theirs. California debated one before rejecting it in favor of stiffer penalties. Delaware's incoming governor campaigned on the idea. A similar program is being considered for Louisiana when its lawmakers return in April.

State after state is facing a disastrous drop-off in tax revenue because of the stock market collapse and the recession. Many states have already cut their budgets and started laying off employees.

"Anything you can do to speed up cash flow is cheaper than your alternatives, like borrowing," said Verenda Smith, spokeswoman for the Federation of Tax Administrators.

Many states are reluctant to offer amnesty, arguing that its rewards cheaters, discourages honest taxpayers and poaches revenue the states will collect in the future — especially as they improve the databases they use to catch delinquents. They worry, too, that people will hold back on their taxes and simply wait for the next amnesty.

"If the attitude is we're going to hand out get-out-of-jail-free cards, people's attitudes can change," said Paul Warren of the California Legislative Analyst's Office. "You can have a breakdown in compliance."

Progressive Says to Pay No '08 Dividend

From Reuters.com:

Progressive Corp, the No. 3 U.S. auto insurer, said on Monday it will not pay investors an annual dividend in 2008 because it is barred from doing so unless it meets financial targets.

Progressive said because it expects to have a 2008 after-tax comprehensive loss it will be precluded from paying a dividend. Under a variable dividend policy, the company cannot pay a dividend if after-tax comprehensive income is lower than after-tax underwriting income.

As of Nov. 30, Progressive's after-tax comprehensive loss totaled $860.8 million over the first 11 months of the year, the Mayfield Village, Ohio-based insurer said.

Tax Related Holiday Presents

One of my favorite blogs, TaxProf Blog, has a holiday tradition of posting suggestions for gifts to give that “special tax person in your life.” This week’s suggestion is an exact reproduction of the original 1913 Form 1040. You can purchase it by clicking here, but here is the item’s description.

“Four pages long, including one page of instructions. Impressively framed in classic mahogany with beaded edge and segmented mat of ivory. Brass plate mounted on the mat states: "1913 Inaugural Form 1040." Framed dimensions are 30" by 24". Comes with Plexiglas and all accessories for hanging.”

Top 10 End of the Year Tax Tips

As the holidays approach and this long, but historical, year comes to a close, there is no better time to prepare early for next tax season. Our country’s economic outlook may seem dreary, but there are still plenty of ways to save money on your taxes. To help the readers of my blog better manage their bucks in both the present and the future, I have compiled the following list of the top 10 end of the year tax tips.

1. Charge It

Paying deductible expenses with a credit card before December 31st will allow you to claim the deduction this year. You can also wait until next year to pay off the charges. You also may qualify for credit card rewards.

2. DE-fer! DE-fer!

To keep your taxable income and liability down, try deferring some of your income until next year. This tip is easiest to for those of you who are self-employed, but many others can benefit from it as well.

3. Mortgage Payments

By making your next mortgage payment before the end of the year, you can take a higher interest deduction this year. However, remember that you will have one less mortgage payment to claim next year.

4. Get your Finances in Order

Conduct a thorough review of your income, expenses, deductions, and financial portfolio. You cannot reduce your income tax liability at all until you are crystal clear on just what your financial situation is. It can be helpful to get this done before the end of the year, that way you are not running around at the last minute looking for important financial documents.

5. Get Married, Already!

A lot of couples are planning on getting married in early 2009. However, if you decide to have the wedding in late 2008, you get to claim Married, Filing Jointly status on your 2008 return. This could lead to more favorable tax consequences (e.g. additional exemption, etc.)

6. Remember Retirement

Make “catch-up” 401(k) and IRA contributions if your contribution level is less than the maximum allowed (and if your plan will let you do it). This will not only benefit you in the long run with an ample retirement fund, but it will also lower your taxable income for this year.

7. The Season of Giving

Not only is it good for the heart to make charitable contributions, but it can also be good for your wallet! Make sure to collect all receipts for any charity contributions you have made this year, and if you have not made any yet then – well, ‘tis the season!

8. Prepay State and City Taxes

Remember, you can deduct all state and city taxes that you pay. So prepaying any state or local taxes you might owe before the end of the year means that you can deduct it from this year’s federal tax return.

9. Stock Up

If you own a business, or are self-employed, then now is the perfect time to stock up new supplies. You can deduct all of these expenses, plus at the time of the year many stores offer large holiday discounts. So by purchasing these items now you might be able to save a little money!

10. Check, Re-Check your Withholding

At the end of the year it’s a good idea to check, and double-check, your withholdings to assure that you are paying the exact amount you should be. It might not make an affect on your upcoming tax return, but it can get you on the right track for the next tax season.

Lightly Taxed Insurers Aim to Tap TARP

From the Wall Street Journal:

Several of the biggest U.S. life insurance companies are seeking a piece of the taxpayer-funded $700 billion federal bailout program, but pay little in income taxes themselves, securities filings show.

Consider Prudential Financial Inc., which last week announced that it is seeking an unspecified amount of aid through the federal Troubled Asset Relief Program, or TARP. Despite reporting pretax profits to shareholders of nearly $25 billion over the past decade, Prudential has paid just $1.3 billion in taxes to federal, state and foreign governments in that period, filings show, for an effective tax rate of 5.1%.

9 Hot Franchise Trends in 2009

WatchMeFranchise.com, a blog sponsored by Roni Deutch Tax Center™, recently posted an entry on 9 hot franchise trends to watch in the new year. Below is a quote from the entry, but you can read the full text by clicking here.

1. Woman-Focused Franchises

Franchises that focus on women and are run by women have grown a lot in popularity over the last year and are expended to continue to do so in 2009. These businesses can include anything from women’s health centers to women-targeted clothing stores.

2. Fun Food

Crazy food franchises have grown a lot trendier over the past year as well. By offering something different then the normal fast food like menu, these businesses can reach out to crowds that are tired of unhealthy, processed foods. Additionally, by letting consumers create their dishes, such as yogurt shops that let you create your own custom dessert, they can connect with customers of a more creative level.

3. Green Business

It is no surprise that green-thinking businesses made our list. Nowadays any business can be labeled “green” just by stating their cups are made of recycled materials or their food is organic. However, it is more than trendy, as green businesses often build very loyal customer bases that do not mind paying a “green” surcharge.

Continued at WatchMeFranchise.com…

Tax Consequences of e-Commerce

Trevor J. Mohr, an Associate at Wilbraham, Lawler & Buba in Philadelphia, has published this interesting paper titled “Note, From the Garage to the Internet Superhighway: Tax Consequences For Individual eBay Users and IRS Policy Towards the Online Marketplace.” Below is the conclusion thanks to the TaxProf blog.

Congress and the IRS need more insight into the use of e-commerce, and current tactics employed by the IRS should be updated to reflect the change in social norms and technological advancement. Failure to do so will only lead to an increased tax gap and a heavier burden on the majority of the tax base who honestly report income and pay the requisite taxes. E-commerce has emerged as an integral function of modern business practice, yet the Code has not been modified to reflect this change. Therefore, online businesses, as well as individual vendors and purchasers, are able to avoid most applicable regulations and federal income taxation requirements with little risk of getting caught.

There are several simple solutions to the current problem, but it appears that our elected officials and appointed members of the Treasury Department are not thinking ahead of the curve to combat the loopholes technology created for online transactions. IRS Forms W-9 and 1099 should be a standard requirement for those conducting activities for profit on sites like eBay. In addition, both eBay and its users should be held responsible for the current problem they created. Although the IRS should offer more assistance to users and eBay in carrying out their responsibilities, the agency can only be stretched so far. Online traders should be more aware of their legal responsibility to pay taxes on income derived from such sales, and eBay Inc. should uphold its corporate and social responsibilities by combating the problem. eBay claims it has no responsibility because it is merely the trading platform, but that does not negate the fact that it derives income from each and every transaction. For this reason, it should be regulated and forced to assist the IRS in combating the current tax gap arising from such unreported activity. Hopefully, the law will soon catch up with technology, but until such change occurs, eBay users will continue to sidestep federal income tax reporting requirements and benefit from the burden the rest of us share.

Court: No Tax Deductions for Religious School Fees

From MercuryNews.com:

A federal appeals court says a Jewish couple can't claim tuition paid to their children's religious schools as a tax deduction.

Michael and Marla Sklar of Los Angeles had attempted to claim the tuition payments for their five children as a charitable contribution to a religious organization.

But the 9th U.S. Circuit Court of Appeals upheld a lower court decision in rejecting that claim Friday. It ruled that the couple paid only for their children's education and had not shown that any of the tuition was used by the schools as a gift.

The Justice Department, which represented the IRS, says the ruling shows that religious schooling is not tax deductible.

Let's Cut Cap-Gains Taxes on Auto Investments

From the Wall Street Journal:

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

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

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

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

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Senate Tax Panel Proposal Targets Offshore Insurers

From CNN Money.com:

Senate Finance Committee staff Wednesday sought comment on draft legislation that would tax related-party transactions by Bermuda-based insurance companies.

U.S. insurers including W.R. Berkeley Corp. (WRB), the Chubb Corp. (CB), and the Travelers Companies (TRV) have long charged that the Bermuda firms avoid taxes on their U.S. business by reinsuring the risk to the Bermuda parent.

The U.S. subsidiaries of firms including the ACE Group (ACE) and XL Capital Ltd. (XL) can then deduct the reinsurance premiums, lowering their U.S. tax liability. The Bermuda affiliate doesn't pay U.S. tax on the premium, while earning investment income subject to little or no tax.

"Thus, it is an efficient way of significantly reducing U.S. tax without transferring risk," according to a Finance Committee statement accompanying the draft legislation.

The Senate proposal would affect only related-party reinsurance transactions. It would deny a deduction for premiums in excess of an industry average of reinsured policies.

Interest Rates Drop for the First Quarter of 2009

According to their newest press release, the IRS is announced earlier today that interest rates for the first quarter of 2009 (beginning January 1, 2009) will drop by one percentage.

The new rates will be:

• Five (5) percent for overpayments [four (4) percent in the case of a corporation];
• Five (5) percent for underpayments;
• Seven (7) percent for large corporate underpayments; and
• Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.

“Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.”

Transit Agencies May Get Help on Bad Tax Deals in Bailout

From the Wall Street Journal:

Public transit agencies may get relief from the federal government from soured tax shelter leasing deals, as part of the auto-industry bailout bill Congress is weighing this week.

A provision under discussion as part of the draft bill would spare transit agencies in major cities like Houston, Chicago and Los Angeles from having to pay millions in penalties to banks with whom they entered into the deals.

Under the tax shelter arrangements, transit agencies agreed to sell assets like train cars to financial institutions, and lease them back from the firms. The transit agencies received cash upfront, while the banks reaped tax depreciation benefits from owning the equipment.

However, many of the deals were insured by American International Group Inc. When AIG collapsed and its credit rating was downgraded, the transit agencies were in technical default of the leaseback agreements, triggering millions in penalties.

Washington's transit agency settled with Belgium's KBC Bank last month, in a case where the bank sought $43 million in penalties.

The final details of the auto bill were still under negotiation late Tuesday between congressional leaders and the White House. Senate Majority Leader Harry Reid (D., Nev.), said he hopes the Senate can vote on the package Wednesday.

A provision in a draft version of the bill obtained by Dow Jones Newswires would have the federal government guarantee the obligations of the transit authorities. Transit agencies had lobbied Congress for that guarantee, because it would remove them from default in their leaseback arrangements.

The Treasury Department had already rebuffed a request from the transit community that it step in and guarantee the deals, according to people familiar with the discussions.

Avvo’s Top Viewed Lawyers of 2008

I was very excited to learn that I was named as one of Avvo’s top viewed lawyers of 2008. Below is the list of the top 5 most viewed lawyers, with the links to their respective profiles on Avvo.com. As you can see I made number four, which is good, but I’m shooting for #1 next year!

1. William C. Head

2. Jon Michael Zimmerman

3. Okorie Okorocha

4. Roni Lynn Deutch

5. Thuong-Tri Nguyen

Ethics Panel Expands Rangel Investigation

From the Associated Press:

The House ethics committee is expanding an investigation of Rep. Charles Rangel, chairman of the tax-writing Ways and Means Committee. The ethics panel issued a statement Tuesday saying it had voted to expand an already far-ranging probe into the New York Democrat to examine whether he protected an oil drilling company from a big tax bill when the head of that company pledged a $1 million donation to a college center named after the congressman.

The move means the Rangel inquiry will likely stretch well past early January, when House Speaker Nancy Pelosi, D-Calif., had previously said she expected the matter to be resolved.

Republicans have called for Rangel to step down from his chairmanship of the powerful Ways and Means panel during the investigation. The expanding investigation means the ethics cloud hanging over Rangel is likely to follow him and Democratic leaders into the next Congress as they seek to pass major stimulus legislation and buoy the sinking economy.

The committee will now investigate contributions or pledges of money made to the Charles B. Rangel Center for Public Service at the City College of New York, particularly one made by Eugene M. Isenberg, CEO of Nabors Industries, Ltd.

Rangel, 78, reportedly helped preserve a tax loophole that saved the company tens of millions of dollars a year.

The congressman, who has been in office for 40 years, maintains he has done nothing improper, and he says he has always opposed the kind of change to tax law that would have cost Nabors dearly.

The ethics committee said it was expanding the probe after Rangel asked them to do so.

The committee has already been probing Rangel's failure to pay taxes on about $75,000 in rental income from a beach house he owns in the Dominican Republic. They are also eyeing his use of three rent-stabilized apartments in Harlem, including one for a campaign office. Also under scrutiny are letters Rangel wrote on congressional stationery looking to drum up donors for the college center.

College officials have refused to say who donated to the Rangel center, citing the ongoing investigation.

Rangel has insisted that whatever he did wrong, they were honest mistakes, not intentional deceptions.

Chicago Franchisee Featured in Ind US Business Journal

Molly Kumar, a Roni Deutch Tax Center® franchisee in Chicago, IL, was recently featured in this article in the Ind US Business Journal. Below is a quote from the article, but you can read the full version by clicking here.

Molly Kumar is a franchisee with Roni Deutch Tax Center in Chicago. In January, along with her husband, Bruce, and business partner, Sohan Joshi, Kumar opened one of the first Roni Deutch locations. As such, they are members of the chain’s Founders Club, which features the first 50 franchisees and has a special lead generation program. Chain founder Roni Deutch made her name running a California-based tax resolution law firm for close to two decades before opening the first Roni Deutch Tax Center herself in Fair Oaks, Calif., in June 2006.

The concept was launched as a tax preparation chain in 2007 with the first franchise location. According to the company, licenses for close to 300 locations have been sold. Deutch says her chain has a “double-pronged mission” – to eliminate the need for tax resolution by providing Americans with professional tax return preparation, and to provide a recession-proof business opportunity for entrepreneurs seeking a piece of the booming tax preparation industry.

“This young lady, Roni Deutch, she is absolutely phenomenal,” said Kumar. “She wants to be the best of the best. … She gives so much of herself and the loyalty is automatically given back to her.

“She makes you feel part of a family. She is someone who will not only be there for my successes, but also if I fail,” she added. “Because of this we want not only our success we want RDTC success.”

In their first tax season this year Kumar and her husband have already found this success, handling more than 700 clients and ranking as the third best franchise in the chain.

In the cluttered landscape of the tax preparation industry – the Kumars estimate there are approximately 25 such businesses in their region – they believe Roni Deutch sets itself apart.

Roni Deutch Tax Centers, in addition to tax preparation services also offers debt resolution, payroll, bookkeeping and identity theft protection.

The Kumars aim to firmly establish their Roni Deutch Tax Center business through their first location, but preliminary plans are to open three or four more locations by 2010.

Molly Kumar is a native of Mumbai and has spent the last three decades working in the retail industry with companies such as Nike, The Limited and The Container Store. She currently works for Macy’s furniture division.

10 Tips to Save Money this Holiday Season

Holiday spending can snowball into quite an expense if you do not keep good track of your funds. However, there are plenty of ways to save extra cash and stay out of the red this season. To help the readers of my blog learn some seasonal frugality and still have a great holiday, I have compiled this list of 10 tips to save money this holiday season.

1. Re-Use Decor

It is okay to buy a few new decorations, but why re-buy everything when you can simply re-use last year’s decor? The great thing about decorating is you can always make something old look new by presenting it in a new way. You could use some of last year’s ornaments as a table centerpiece with some new holiday ribbon around it. Or, you could use garland and decorations to create a festive wreath. There are thousands of ideas on recycling holiday decor online, easily accessible by a quick Google search.

2. Know What to Buy

By now it is probably a good idea to have a gift list made so that you know exactly who to buy for. Try listing multiple gifts possibilities for each person, so you more to choose from and more flex on your budget. This will give you extra time to sniff out the best deals, and you will have the hardest part done: choosing what to get everyone!

3. Shop Online

Shopping online has it is ups and downs, but if done right it can save you lots of money. If you buy multiple items on one site, you can receive discounts or free shipping. Also, shopping online has the benefit of being able to compare prices with other stores (PriceGrabber.com) almost instantly, guaranteeing you the best price.

4. Clip Coupons

Do not be afraid to take advantage of every discount you can get. Taking the time to get a few newspapers and coupon magazines will pay off big time in the end. Some new businesses even put out coupons for 25% off your purchase and other amazing deals that are perfect for holiday shopping. You can even find coupons online to print, and discount codes for online purchases at many stores, on sites like FatWallet.com

5. Make Gifts

Buying something special for close friends and family is fine, but for coworkers and friends you hardly see, try making gifts. There are thousands of ideas online for gift "projects" you can do that are very affordable and easy to complete. Additionally, if you make the same gift for everyone you can buy the supplies at once for bulk savings.

6. Plan Travel

One of the biggest expenses for the holidays can end up being travel costs for flying out to see family or friends. If you are going to be flying or riding a train this holiday season, look into tickets ASAP, as they are not likely to get any cheaper from here on. Compare prices at multiple sites to make sure you're getting the best price, and if you are planning to stay at a hotel then you might want to consider a travel package, which is often much cheaper then purchasing everything separate.

7. Make Gift Wrap

Although it’s pretty, wrapping paper has gotten so expensive these days. To save some cash on this front, try making your own gift-wrap! One way is to buy a large roll of regular brown package paper and use holiday stencils or stamps to decorate it. Top it off with a ribbon and a hand-made gift tag, and you have a beautifully wrapped present for a fraction of the cost.

8. Frugal Food Shopping

Throwing a dinner party? Plan ahead and think about what you will be serving and how much. When throwing a holiday party for friends it is easy to get carried away with food and décor, so by making a concise list and budgeting well you can stay on track. Another great way to save on holiday parties is to make them a potluck, so that you do not have to purchase all the food yourself!

9. Save on Crafts

It is a great idea to make holiday crafts with your family, but there is no need to run to a craft store and buy expensive products. There are plenty of crafts you can do with things you already have, or sheets you can print offline. Kids will love making snowmen out of marshmallows, creating their own gingerbread house out of graham crackers, or just coloring in some free printable holiday coloring sheets.

10. Keep Track!

Create a holiday budget, citing expenses for your Christmas tree, gifts, food, decor, and any travel or other expenses. Then, while you are doing the actual shopping, write every expense down, including online purchases. This way you know you will not go overboard and can start the New Year without any post-holiday spending blues.

Will Obama Raise Fuel Taxes?

From the Guardian:

China's decision on Friday to link domestic fuel prices to the international price of crude oil, but increase consumption taxes on gasoline and diesel sharply to spur more efficient use of energy in the medium term, raises the question whether the incoming Obama administration might be tempted to do the same.

China is taking advantage of a cyclical pull back in energy to push through a permanent structural increase in taxes and prices. The aim is to combine a short-term boost to the economy with longer-term and more consistent incentives for improving energy efficiency.

By consolidating a series of tolls and administrative charges into a single, easy to collect consumption tax, the government is simplifying the tax system, creating a new source of revenue, and ensuring the change will have no impact on the politically sensitive inflation rate.

More importantly, it creates a fairly simple mechanism for raising energy costs further in future to spur additional efficiency gains, irrespective of cyclical changes in the crude oil price.

Once short-term economic weakness is past, the government can easily raise the consumption tax progressively over the next few years.

In effect, the tax breaks the link between the government's energy efficiency program and short-term oil-market movements.

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Obama's Oil Company Windfall Profits Tax and the Wall Street Journal's Celebration

From HuffingtonPost.com:

Friday's Wall Street Journal editorial, "Barack's Windfall Reversal," in barely contained gleeful terms crowed that a transition spokesman "explained this week that that the drop in oil prices to $50 barrel has made the windfall tax a dead letter." The editorial goes on to point out with degree of "I told you so" smugness, "left unexplained was why the oil companies suddenly decided to stop profiteering, or manipulating commodity prices."

Exactly the point. The oil companies were not manipulating commodity prices. Their role was limited to cheering on OPEC and lobbying our government to remain dangerously benign, playing ostrich to OPEC's manipulation of the oil market.

You see, cartels are most effective in rising markets where supply is relatively balanced or there is perceived shortage of supply, thereby causing the cartel's manipulations to be supportive toward ever-increasing prices. Discipline among cartel members is readily maintained in that revenue from lower production is made up from higher prices.

And as the oil hedge fund speculators got blown away this year and as the world's need for oil began to recede in the face of economic crisis, OPEC's control of the market began to fade in classic cartel tradition. As supply moves from shortage to balance and oversupply, control of the market begins to slip away from the cartel. Revenues from reduced production can no longer be made up from higher prices and the discipline of the cartel begins to collapse. The OPEC cartel has no enforcement capability in place to police production quotas of its members, and the propensity for cartel producers in analogous situations has most always been to "cheat" around the edges.

More than anything, the march to $147/bbl this year was in large measure due to the OPEC cartels success in manipulating the supply of oil on the world market. Its success was tantamount to a cartel imposed tax on consumers here and throughout the world. It had nothing to do with the free functioning of the marketplace. At this very moment OPEC is plotting to curtail production again at its scheduled December meeting in the hope of changing the free market dynamics of the market from current price softness (at the beginning of the Bush presidency the price was closer to $20/bbl so even here "softness" is relative) toward programming tighter supply and higher prices.

Should OPEC be successful in any way in regaining their hegemony over the market the new Obama administration should make it clear that the imposition of the oil windfall profit's tax will be applied forthwith, in that higher oil prices under these circumstances and in turn higher oil company profits have nothing to do with the workings of a free market.

American Bar Association to Host Free Tax Workshop

According to their website, the American Bar Association (ABA) will present a free workshop in Washington, DC later today. The workshop is designed for low income taxpayers who are struggling to pay their taxes in today’s tough economy. According to the ABA’s announcement, the “workshop will cover all aspects of representing individual taxpayers in IRS examinations, and it will include a discussion of all recent legislation regarding debt relief as well as the Service’s new identity theft program… It will be held at the Doubletree Hotel Crystal City at National Airport, immediately prior to the IRS’s LITC Grantee Conference. Attendance is not restricted to LITC employees. All are welcome.”

Tax Attorney Pans IRS OIC Program

A few weeks ago I sent an open letter to the IRS regarding their Offer in Compromise (OIC) program. It recently came to my attention that WebCPA, a site with tools and news for accountants, had posted an article about my open letter. Below is the text from their article.

Tax attorney Roni Deutch has written an open letter to the Internal Revenue Service criticizing the agency's offer in compromise program, which is supposed to help taxpayers settle their debts.

The letter came in response to a recent questionnaire from the IRS asking recipients how satisfied they were with the program. Deutch described several objections that she and other attorneys at her firm share. The firm has been helping taxpayers settle their debts with the IRS for 17 years.

Deutch noted that she had sent a similar list of suggested improvements in December 2005, the last time the IRS sent out a questionnaire to taxpayers and tax professionals about the OIC program, but the IRS essentially ignored them.

"In those three years, the IRS has done nothing to act upon our requests," wrote Deutch. "Thus, I resubmit these requests to you for consideration and action."

One of her criticisms is that the IRS is not doing an adequate review of its Effective Tax Administration offers in compromise. "There are not enough sufficiently trained employees at the IRS to review and accept ETA OICs," she wrote. "When an ETA OIC is filed, the taxpayer states that 'I owe this amount and have sufficient assets to pay the full amount, but due to my exceptional circumstances, requiring full payment would cause an economic hardship or would be unfair and inequitable.'"

Obama Drops Big Oil Tax as Prices Plunge

From Business Week.com:

President-elect Barack Obama won't pursue a windfall-profit tax on oil companies because crude prices have dropped below $80 a barrel. The pledge to pursue taxes on Big Oil—a key constituency and benefactor of the Bush Administration—was a potent campaign issue for many left-leaning Obama supporters and a key point of populist rhetoric as gasoline prices surged above $4 per gallon this summer. But that was then. Oil has since sunk below $50 per barrel, and with the country facing a deep recession, the incoming Administration has put new taxes on the back burner.

The Obama camp won't discuss the issue directly, with an aide on the transition team acknowledging the adjustment on Dec. 3, but speaking only on the condition of anonymity. Some liberal publications have already begun criticizing Obama for false advertising during the campaign. On Dec. 2, Mother Jones posted an online blog entry: "Obama's First Policy Retreat?" And The Huffington Post ran "Mandate Watch: Obama Backs Off Promise to Pass Windfall Profits Tax on Big Oil,", arguing that Obama is giving the industry a free pass on profiteering.

IRS Announces Two New Appeals Programs

According to their newest press release, the IRS is announcing “a two-year test of two programs: the post-Appeals mediation and arbitration procedures for Offer in Compromise (OIC) and Trust Fund Recovery Penalty (TFRP).

Beginning Dec. 1, 2008, for a two-year test period, Appeals will offer post-Appeals mediation and arbitration for OIC and TFRP cases for taxpayers whose appeals are considered at the Appeals office in Atlanta, Chicago, Cincinnati, Houston, Indianapolis, Louisville, Phoenix, and San Francisco.

Under these two alternative dispute resolution programs, the taxpayer or Appeals may request nonbinding mediation. The taxpayer may decline Appeals’ request for mediation. Appeals will evaluate a taxpayer’s request for mediation based on the criteria detailed in Revenue Procedure 2002-44 and Announcement 2008-111. A request for binding arbitration must be made jointly by the taxpayer and Appeals. The mediation and arbitration procedures do not create any additional authority for settlement by Appeals.

During the test period, Appeals employees will advise the taxpayer of the availability of these alternative dispute strategies and the deadline for timely requesting such strategies when a rejection of an OIC is sustained or a proposed TFRP assessment is sustained. An OIC submitted during Collection Due Process (CDP) as an alternative to a Collection action is not eligible for these alternative dispute resolution strategies during the test period.”

Property-Tax Collections Climb as Home Prices Fall

From USA Today.com:

Property taxes are rising across the USA despite the steepest drop in home values since the Great Depression.

Home values dropped 17% in the third quarter compared with the same period in 2007, reports the S&P/Case-Shiller Home Price Index. At the same time, property tax collections across the USA rose 3.1%, according to the U.S. Bureau of Economic Analysis.

State and local governments are on track to collect more than $400 billion in property taxes this year, the most ever. One reason: Laws in most states that prevent big tax hikes when property values soar also block big tax drops when values sink.

The housing market collapse has caused a recession that's hurt sales and income tax collections.

But property taxes — collected mostly for public schools — have escaped serious damage. As a result, public education is one of the few sectors of the economy still adding jobs.

Government Throws in the Towel on KPMG

From the Wall Street Journal:

It’s over. The Justice Department declined to ask the Supreme Court to review the 2nd Circuit’s ruling in U.S. v Stein. That’s the case, once billed by the government as the largest tax-fraud prosecution in history, in which U.S. District Judge Lewis Kaplan of Manhattan (pictured, left) dismissed the indictments of 13 former KPMG executives because prosecutors violated their rights. The violation? Pressuring KPMG not to pay the defendants’ legal fees.

More than three months ago, the 2nd Circuit affirmed Kaplan’s decision. The deadline to file a petition for writ of certiorari with The Supremes was last week. “All indications were that they would not [petition the Supreme Court], but we were not taking anything for granted,” says David Spears, who represents defendant Jeffrey Stein.

Meanwhile, a watered down version of the original case is underway before Judge Kaplan. Three former KPMG executives and an ex-partner at Sidley Austin are facing charges that they sold bogus tax shelters.

A spokeswoman for the Southern District of New York, which brought the case, declined to comment.

5 Ways to Change the IRS

Independent journalist David Cay Johnston recently published an article titled Change and the IRS, which you can download via TaxProf blog by clicking here. In the paper Johnston acknowledges that the federal government needs revenue, and suggests 5 ways to change the IRS to benefit both taxpayers and the government.

1. Make English, and not bureaucratese, the first language of the IRS? Taxpayers are the users, and IRS forms should be friendly. Period.

2. Hire Stanford's Joseph Bankman to make real a brilliant idea he proposed in Tax Notes -- letting most people pay their income tax without filing.

3. Stop the consumer fraud inherent in letting anyone prepare a tax return for a fee.

4, With the right technology, the IRS will be able to do something much more important than process tax returns. It will, like Oracle, be able to analyze data to detect patterns and identify not just blatant cheats, but chiselers.

5. Hire tens of thousands of auditors. Last year the audit odds were 1 in 263, down a third from the peak year of 1998, both much too low to deter anyone but a Casper Milquetoast.

Ditch Charlie

From NY Post.com:

Are congressional Democrats truly committed to dealing with the economic and fiscal policy challenges they face next year?

The answer will be seen in how they address their increasingly problematic Charlie Rangel situation.

Scarcely a day goes by without yet another ethical impropriety coming to light regarding the chairman of the House Ways & Means Committee.

Last Wednesday, the DC-based National Legal and Policy Center urged the House Ethics Committee to expand its ongoing Rangel probe to include the recent revelation that he took a "homestead" tax deduction meant for year-round DC residents - though he legally resides in New York.

Tuesday, The New York Times delved into the relationship between Rangel and oil-drilling businessman Eugene Isenberg - who made a $1 million pledge toward building Rangel's school for public service at City College of New York. Rangel later preserved a controversial offshore tax loophole that saved Isenberg's company, Nabors, millions.

Rangel's previous ethical woes, though troubling, were largely personal: not paying taxes on property in the Caribbean; using one of four rent-stabilized apartments as a campaign office; improperly storing a car in a House parking garage.

The Isenberg-Nabors deal is, potentially, far more serious: It reeks of a quid pro quo between Rangel's official duties and fund-raising for his personal project.

The Times reported that Rangel held meetings the same day, at the same hotel, with Isenberg to discuss the CCNY project and then with Nabors' chief lobbyist on the tax loophole.

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New York Runs Sting To Nab Crooked Tax Preparers

Over the weekend, I came across this article on Ailbaba.com about crooked tax preparers in New York, and I wanted to make sure post about it here on my blog. It is very important to have strict laws and regulations in place so that everyone in the tax preparation industry is properly trained and in full compliance of all tax laws. I am glad to see New York is taking action to help ensure compliance. Below is a snippet from the article, but you can read the full version by clicking here.

New York State tax officials say they have uncovered evidence of significant fraud among professional tax-return preparers in a statewide sting operation in which undercover agents posed as clients.

Officials say they're startled not only by the unexpectedly large amounts of tax evasion they witnessed -- such as hiding taxable income and inflating deductions -- but also by the brazen nature of the cheating, which was caught on secret recordings. In one case, for example, a preparer told an undercover investigator: "I did not declare your full gross income from your business because you will pay a lot of taxes," according to a criminal complaint filed recently against a Queens, N.Y., preparer.

In another case, a tax preparer said he is going to report only $13,188 as taxable income, instead of the $131,884 the undercover agent had said was the correct amount, says an official at the New York Department of Taxation and Finance. Another preparer, referring to records given to him by the undercover agent, said: "This one and this one, I never saw this. It's going into the shredder."

Officials have already begun prosecuting some preparers on criminal charges, and they expect additional criminal prosecutions against other preparers -- as well as some clients, says William Comiskey, the tax department's deputy commissioner, office of tax enforcement. Officials will also be seeking civil fraud penalties against preparers. Mr. Comiskey says some preparers have agreed to cooperate and go undercover to show that their clients knew of the fraud and build evidence against those clients -- and, in some instances, against other preparers.

"They are cooperating against their former clients in other ways as well," such as sharing client lists and identifying fraudulent returns, Mr. Comiskey says. He says the state hasn't yet investigated tax-preparation chains, and that most of the preparers "were sole practitioners or were in small group practices."

Officials say they found evidence of fraud among about 40% of the 85 professional tax-return preparers they visited. If all the phony returns that were prepared had actually been filed, "it would have cost the federal, state and local governments approximately $4 million" in taxes, says Mr. Comiskey.

U.S. In Recession That Began Last December

From Washington Post.com:

It is official: The United States is in a recession—and it started a year ago.

The nation's economy peaked, and the recession began, in December 2007, the National Bureau of Economic Research announced today.

The group's Business Cycle Dating Committee, the semi-official arbiter of these things, defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."

While analysts have been all but certain that a recession has been underway for months, there has been some debate over exactly when it began. Last winter, employers started cutting jobs and growth slowed significantly, but the decline appears to have accelerated over the summer.

The committee concluded that the start of the recession was December 2007 -- due in large part, it said in a statement, to the decline in jobs that began that month. But it noted that many other data points confirm the diagnosis.

"The committee determined that the decline in economic activity in 2008 met the standard for a recession," the group said in its statement. "Evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months."

The NBER committee could eventually conclude that the recession has already ended. However, economists outside the group think that is unlikely, given that most economic data released in recent weeks have been getting worse, not better.

The NBER is a private, nonprofit group based in Cambridge, Mass. Its Business Cycle Dating Committee currently includes seven leading macroeconomists, and they made the recession call in a conference call Friday night, according to the group's statement.

An eighth member of the committee, Christina Romer, an economist at the University of California at Berkeley, resigned last week; she has been named chairman of the Council of Economic Advisers in the Obama administration. Her husband, fellow Berkeley economist David Romer, remained on the committee.

Why Is OfficeMax Paying Taxes Despite Tax Credits in Excess of Tax Liabilities?

Robert Willens of Columbia University has published a new research paper analyzing OfficeMax's Tax Profile. Below is the abstract from the paper, but you can download the full PDF by clicking here, thanks to Tax Prof Blog.

OfficeMax Inc. (OMX) is paying cash taxes each year yet at the same time is reporting a substantial amount of credit forwards that seemingly should operate to offset any tax liability that it might incur. However, that OMX is paying taxes while concurrently possessing tax credits well in excess of its tax liabilities can be explained by the fact that the credits are not the type that can be used to offset the particular tax liabilities it is generating. In short, the anomaly of a corporation paying taxes despite the existence of substantial tax credits can be explained by examining the nature of the credits that it has amassed.

Autoworkers Making $70 An Hour? Not Really

From CBS News.com:

If you've been following the auto industry's crisis, then you've probably read or heard a lot about overpaid American autoworkers--in particular, the fact that the average hourly employee of the Big Three makes $70 per hour.

That's an awful lot of money. Seventy dollars an hour in wages works out to almost $150,000 a year in gross income, if you assume a forty-hour work week. Is it any wonder the Big Three are in trouble? And with autoworkers making so much, why should taxpayers--many of which make far less--finance a plan to bail them out?

Well, here's one reason: The figure is wildly misleading.

Let's start with the fact that it's not $70 per hour in wages. According to Kristin Dziczek of the Center for Automative Research--who was my primary source for the figures you are about to read--average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income--hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers.

More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.

So the "wage gap," per se, has been a lot smaller than you've heard. And this is no accident. If the transplants paid their employees far less than what the Big Three pay their unionized workers, the United Auto Workers would have a much better shot of organizing the transplants' factories. Those factories remain non-unionized and management very much wants to keep it that way.

But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $28 per hour--and you get the $70 figure. Voila.

Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted Friday, the claim that workers are getting $70 an hour in compensation is just "not true."

Of course, the cost of benefits for those retirees--you may have heard people refer to them as "legacy costs"--do represent an extra cost burden that only the Big Three shoulder. And, yes, it makes it difficult for the Big Three to compete with foreign-owned automakers that don't have to pay the same costs. But don't forget why those costs are so high. While the transplants don't offer the same kind of benefits that the Big Three do, the main reason for their present cost advantage is that they just don't have many retirees.

The first foreign-owned plants didn't start up here until the 1980s; many of the existing ones came well after that. As of a year ago, Toyota's entire U.S. operation had less than 1,000 retirees. Compare that to a company like General Motors, which has been around for more than a century and which supports literally hundreds of thousands of former workers and spouses. As you might expect, many of these have the sorts of advanced medical problems you expect from people to develop in old age. And, it should go without saying, those conditions cost a ton of money to treat.

New Law Encourages Cash Donations for Midwest Disaster Relief

According to their newest press release, the IRS is encouraging “Taxpayers who make qualifying cash contributions for disaster relief efforts in the Midwest could benefit from a recently passed law that suspends the percentage-of-income limits that would normally apply when taxpayers deduct the contributions on their 2008 federal tax returns.

Under the Heartland Disaster Tax Relief Act, an individual taxpayer who itemizes deductions may choose to deduct qualifying cash contributions up to 100 percent of his or her adjusted gross income, reduced by deductions for other charitable contributions. Similarly, an electing corporation may deduct qualifying cash contributions up to 100 percent of its taxable income, reduced by deductions for other charitable contributions.

Cash contributions qualify for this special treatment if they are made to a public charity for disaster relief efforts related to certain areas in Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska or Wisconsin. The areas must have been declared federal disaster areas on or after May 20 and before Aug. 1 of this year as a result of severe storms, tornados or flooding, and the areas must have been designated to receive individual assistance from the federal government because of the damage resulting from the disasters.

The contributions must be made no later than Dec. 31, 2008. “Cash” includes payments made by check or credit card. Qualifying cash contributions do not include payments to a supporting organization as described in section 509(a)(3) or for the establishment of a new, or maintenance of an existing, donor-advised fund.

Qualifying cash contributions of more than the amount allowed as a deduction can be carried over and deducted in succeeding tax years, subject to the normal limits. To substantiate the deduction, a taxpayer must obtain from the charity a written acknowledgment that the contribution was or will be used for relief efforts related to one or more of the Midwestern disaster areas.

In addition, deductions by individuals for qualifying contributions are not treated as itemized deductions for purposes of the overall limitation on itemized deductions. This means that, for taxpayers with higher adjusted gross incomes, the deduction for these qualifying contributions is not limited the way other itemized deductions are limited.”

Despite Charlie Rangel's Tax Problems, He Might Help Republicans Keep Bush's Tax Cuts

From US News.com:

It's looking like House Ways and Means Chairman Charles Rangel is going to face an ethics committee investigation for, among other things, failing to report income on rental properties and supporting a tax law change favoring a big donor to an institute named after Rangel. I'm sorry to see this. I like Charlie Rangel, I think he's a decent person and a charming pol, and I'm inclined to cut him some slack because he served in the Korean War and survived some of the most horrific fighting that American men in arms have ever faced. I think it would be sad to see him lose the chairmanship of Ways and Means for sins which are more venial than mortal, just as I thought it was sad that his predecessor as chairman, Dan Rostenkowski, lost not only his chairmanship but also his seat in Congress and, for a while, his freedom for some small bits of chicanery that were dwarfed by his public policy achievements, notably in the enactment of the tax reform bill of 1986.

The more so, because I think that the tax bill Rangel brought forward in the outgoing Congress showed he was open to major changes in tax law along the lines of the 1986 bill—a lowering of rates combined with a reduction in tax preferences that have accumulated, like barnacles on the ship of state, over the intervening two decades. Rangel's bill would have cut the corporate tax rate, which is far higher than in almost any other advanced country, at least a little bit, and was intended to get rid of the Alternative Minimum Tax which, because it's not indexed to inflation, threatens to cover hugely larger percentages of taxpayers every year. Taxpayers, as I have noted several times, who are concentrated in high-nominal-income, high-state-and-local-tax, heavily Democratic states like Massachusetts, Connecticut, New York, New Jersey, Maryland, and California.

The obvious deal goes something like this. Democrats get repeal of the AMT and perhaps some increase in refundable tax credits (the latter being part of Barack Obama's tax platform). Republicans get a retention of the Bush tax cut rates on higher earners and lower corporate rates. All this is "paid for" by eliminating tax preferences. It is something that is feasible only if done on a bipartisan basis, which is possible here because Democrats do not look likely to have the 60 votes to cut off a filibuster on a major tax bill in the Senate and because there is an ongoing practice of bipartisan deals between Senate Finance Chairman Max Baucus and ranking minority member Charles Grassley. Rangel's bill is an indication that he is interested in acting on a bipartisan basis in the House and would not (as his predecessor Bill Thomas did on the 2003 Medicare prescription drug bill) exclude the minority party (in that case Charlie Rangel himself) from participation in drawing up the legislation.