You are currently browsing the category archive for the ‘Taxes’ category.

Obama is going to use “sin taxes” (as stated by Kay of Don’t Mess With Taxes) to pay for health care reform.  The Senators call these lines of revenue “lifestyle” taxes instead, namely alcohol and soda.

I love Mountain Dew, so I guess I’ll help institute national health care reform.  Good for me (… or not).

The most recent American Recovery and Reinvestment Act of 2009 provides some choices for the American taxpayer to choose certain education credits as compared to education deductions.

You can not take both, but you can take the best one for your tax situation.  The Hope Scholarship Credit is available for the first two years of educational expenses, while the Lifetime Learning Credit is available for all years of school.  The former allows for up to $1,800 per student, while the latter provides up to $2,000 per student.

The comparison of which one to take is found in the (1) amount of your income for 2008, (2) what type of student you are claiming the credit for, and (3) when you take the credit or deduction:

(1)  The above-mentioned credits phase out at relatively low income levels.  They phase out at $58K per year for Single taxpayers, and at $116k for Married taxpayers.  But the $4,000 deduction (different from the Hope and Lifetime credits) totally phases out at $80K for Single taxpayers, and at $160k for Married taxpayers.  So if you phase out for the credit, don’t forget about the deduction,

(2)  The Hope credit is available to students in their first two years of post-secondary school, while the Lifetime credit is available for any year the student is in school.  Make sure you apply the correct credit to the correct student in the correct year.  For example, to take both credits in the same year (maybe where the kid and the parent are both going to school), use one credit for the student in their first two years of undergraduate work (the Hope), and use the other credit for the student going back to school to enhance their career (the Lifetime).

(3)  If you know you have a payment coming up in January, you may consider making that payment early in December to take the credit or deduction in the year you pay the tuition, and then take another deduction or credit the next year for the same school year (when you make next semester’s payment).  Stick it to the government, is my motto.  Spreading tax deductions and credits across multiple years is a tax savings that few take advantage of… it takes some planning but can be very profitable.

Any other ideas on how to apply these tricks for the most benefit to the hard working American taxpayers?  Leave it in the comments.

Thanks, Jason M. Blumer

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

from-alwaystiltingblogspotcomI thought it necessary to detail for our clients and readers the highly anticipated stimulus bill flying through the House and Senate just a few days after our new President’s inauguration.  This is the new New Deal.  We are about to chunk down a bill for our grandchildren to pay that will keep our country talking for many years to come (adding an estimated $347 Billion in interest costs alone to the national debt over 10 years).  The bipartisan “love” promised by our new President is being watched closely under the initial negotiations of this bill.

The stimulus bill has passed the Democratically-controlled House (cited as the American Recovery and Reinvestment Act of 2009), and has just passed the Democratically-controlled Senate 61 to 36.  Over $838 Billion is included in this Senate version of the bill, with supposed tax cuts for individuals who work, and the unemployed needing health coverage to the largest overhaul of our out-dated energy grid to stabilizing state and local governments operating in the red.  Only a third is for tax cuts while a whopping two-thirds, or $550 Billion, is for new spending.

Now it’s time for the House and Senate to come together and negotiate the details before ‘Bama receives the final bill to sign (hopefully, by mid to late February). 

Here are some things the individual may expect.  Tax benefits for the businesses will be the focus of next week’s Tuesday Tax Time post.

FOR THE INDIVIDUAL…

  1. Protection From The AMT (Alternative Minimum Tax).  The Senate version of the stimulus package increased the minimum exemption (which keeps individuals from paying the AMT) to $70,950 for those filing joint tax returns, and $46,700 for those filing single.  Before this measure, you could expect to be hit by the AMT (an alternate “tax code” for the rich, so to speak) if you were married and only made $45,000.
  2. Home Buyer Tax Breaks.  This one is really cool.  The first time home buyers credit is getting pumped with some serious cash… payable to you (potentially).  If you buy a home within 12 months after the signing of the bill (and hold and occupy the home for 2 years), you could receive up to 10% of the purchase price on the home you purchase (with a $15k cap on that amount) in a refund at tax time next year.  And you don’t have to pay it back, as the current home buyers credit stipulates, and it’s not just for first time home buyers anymore!  If the President signs the bill as written currently, you can expect a lot of people to be buying and selling homes, as this will become a very profitable endeavor for the year 2009.  Hello real estate market – hang on to your britches.
  3. Payments to Individuals.  There is a new “Making Work Pay” Credit included in both the House and Senate versions of this stimulus bill, where if you work, you’ll get up to $500 of earnings at tax time (up to $1,000 if a married couple both work).  This credit is actually 6.2% of your earned income, so it will apply to those receiving W-2s and the self-employed.  Another payment to individuals is the additional child tax credit, which is being beefed up in this proposed legislation (this is the credit you normally get if you don’t have immediate tax liability to warrant the regular child tax credit).  And the limits on receiving the Earned Income Credit are being raised to get those with lower incomes (and kids, bless their hearts!) more cash in their pocket come tax time.     

Here’s a pretty cool table showing you how much cash you might expect (from The Tax Foundation post):

Table 1: Tax Savings in 2009 Under House and Senate Stimulus Packages

 

Current Income Tax

 

House Bill (H.R.598)

Senate Bill

(S.350)

Tax

Savings

Tax

Savings

Couple with two children earning: (a)

         

$40,000

($1,721)

($4,115)

$2,394

($3,865)

$2,144

           

$60,000

$2,900

$900

$2,000

($233)

$3,133

           

$80,000

$5,604

$3,604

$2,000

$2,318

$3,287

           

$100,000

$10,180

$8,180

$2,000

$4,778

$5,403

       

$200,000

$35,750

$35,750

$0

$30,191

$5,559

Single parent with two children earning: (a)

         

$20,000

($5,274)

($6,774)

$1,500

($6,524)

$1,250

           

$40,000

$0

($1,200)

$1,200

($1,200)

$1,200

           

$60,000

$4,753

$2,453

$2,300

$1,753

$3,000

           

$80,000

$9,103

$7,379

$1,724

$6,303

$2,800

           

$100,000

$14,105

$14,105

$0

$13,953

$153

       

$200,000

$41,113

$41,113

$0

$37,746

$3,367

(a) The couple is assumed to be a two-earner couple with equal earnings and income from no other source. One child is assumed to be under age 17 and the other child of college age with college expense of $4,000. Itemized deductions are assumed to be 18 percent of earnings. It is assumed that the taxpayer does not purchase a home in 2009. The same assumptions apply for the single parent.Note: Calculations in italics indicate that the taxpayer is subject to the alternative minimum tax (AMT),

Tune in next week for the update on how this stimulus will help businesses. Woot, woot! 

 

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

Last minute tax updates for this year – get ’em while they’re hot:

1.  The bailout law enacted the above-the-line deduction for higher education costs.  Take up to $4,000 in deductions this year because of this new law – a direct reduction to your taxable income. THRIVEAL TAX IDEA: pay January 2009 tuition early in 2008 to get the deduction.  But make sure you compare the education credit to this deduction to see which one would benefit you the most.  Credits and deductions are different.

2.  Deduct property tax payments even if you don’t itemize.  Normally, only if you itemize can you deduct your vehicle and home’s property tax payments.  If you use the standard deduction, you don’t get to take advantage of these large deductions.  But for 2008 and 2009 only, individuals can take the standard deduction AND deduct state and local property taxes on their tax returns.  THRIVEAL TAX IDEA: let your grandmother know about this law, because low-income elderly are usually the ones subject to the limitation of having to take the standard deduction without the benefit of deducting their property taxes.

3.  You get to take bonus depreciation in 2008 only.  Bonus depreciation is equal to 50% of property placed in service in the calendar year 2008.  This is above your normal depreciation and in addition to section 179 right off!  Pretty sweet.  As long as you got the equipment in 2008 or “place it in service” in 2008, then you can write off 50% of it before applying other depreciation.  THRIVEAL TAX IDEA: this write off is for the calendaryear 2008, so if your business year end is September 30th (as an example), then you can take this 50% write off twice.  Take it in one fiscal year (after January 1 but before September 30th) and then take it again the next fiscal year (after September 30th but before December 31st).  Stick it to Uncy Sam.

4.  You can write off your building improvements over 15 years instead of 39 years.  The bailout law extended this provision through 2009, but you can take it in 2008 as well.  Its intended for leasehold improvements and qualified restaurant property.  THRIVEAL TAX IDEA: cautions – (1) make sure these upfits are made according to a lease agreement to get the accelerated write off, (2) the building needs to be in use for three years before applying this, and (3) the lease can NOT be between related parties to take advantage of this provision (i.e. between you and yourself). 

Thanks, Jason M. Blumer, CPA

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

Last week during Tuesday Tax Time, thriveal posted a primer on the problems behind the current economic crisis.  This week we’ll look at the main provisions behind the Emergency Economic Stabilization Act of 2008, the latest government answer to our economic woes.  Bless them.

Here goes:

1.  This bill creates the Troubled Assets Relief Program (TARP), where the Secretary of the Treasury will have the ability to use Federal funds to purchase up to $700 Billion of private company financial instruments.  Currently, the financial instruments of focus would be the junk commercial and residential mortgage assets (i.e. Troubled Assets) held by many of the nation’s largest banks.  This part of the Act is initially set to expire on December 31, 2009, but could be extended for two years if needed.  Secretary Paulson has mentioned stepping down as the Secretary after the elections, so the next President will have a lot of control over this area and it’s continued use.  Essentially, a new market for these assets will be created.  The Secretary could buy and sell these assets on some type of market and incur gains and losses as a result.  Should the government incur losses due to these purchases (duh), TARP allows the government to recoup these losses from the companies petitioning the government to buy their junk assets. 

2.  From all of the recent turmoil in the economy, it has become apparent that the chief executives and management team of some of the largest Wall Street investment firms have continued to receive unusually large bonuses and pay while their company was going down the toilet.  This Act would restrict the executive pay (that is, the top 5 executives) of those companies that petition the federal government to purchase their troubled assets.  The restrictions are lifted again when the federal government no longer holds troubled assets of a particular company. 

3.  Though set to expire December 31, 2009, the FDIC deposit insurance limits have been raised from $100,000 to $250,000 on all depository accounts.

4.  This Act requires the President of the United States to submit to Congress (within 5 years) a plan to recoup any losses to the taxpayer due to the institution of TARP.

5.  The AMT has been indexed again for inflation, thereby helping millions of middle-income taxpayers avoid this “tax on the rich.”

That sums up most of the relevant provisions.  There are a lot of ambiguities in this act, and many experts don’t actually know how a lot of this Act will be implemented.  Our economy didn’t necessarily react with great joy (the Dow is still going up and down) when the Act was passed.  I think the market still needs to “correct” itself from prior poor decisions by big companies, so we are yet to see if all is well. 

Let’s hang in there and do good business for the next year or year and a half, and see who’s standing after the smoke clears.

Thanks, Jason M. Blumer

Just Tweeted by @JasonBlumer…

Sitemeter

August 2017
S M T W T F S
« Jun    
 12345
6789101112
13141516171819
20212223242526
2728293031