Happy Veterans Day

Happy Veterans Day! In honor of the brave servicemen and women who have fought for our Country, the Roni Deutch Tax Help Blog has posted a new entry with 10 tax tips for Veterans. You can find a section of the advice article below, but be sure to check out the full version here.

1. Keep Records

To qualify and receive most Veterans’ tax benefits, you will need to verify your status as a U.S. Veteran. Therefore, it is important to keep your records in a safe place with your other financial documents. If you do lose any of these records, you will need to contact the Department of Veterans Affairs to obtain new ones.

2. Know About Property Tax Exemptions

There are a few types of property tax exemptions available to Veterans. The first is the Veterans' Real Property Tax Exemption that allows a qualifying Vet to take a partial exemption for property purchased with eligible funds. The second is the Cold War Veterans Exemption, which exempts those who fought in the cold war from paying property taxes. However, some counties and cities have opted out of this program so be sure to check with your local tax department.

Last but not least, the alternative Veterans exemption is available to Veterans with residential property that have served during wartime and/or received an expeditionary medal. Similar to the Cold War Veterans Exemption, some local governments may opt out of offering this exemption. With any property tax exemptions you should always speak with a local tax professional to make sure you do not pay any taxes that you are not required to.

3. Taxes on Income and Retirement

Unfortunately, any income you receive from the military that is based on age or length of service is taxable income and must be included on your tax return. However, you will usually not have the standard taxes withheld from your checks like you would with a standard paycheck.

4. American Recovery and Reinvestment Act

The American Recovery and Reinvestment Act of 2009 provided some assistance to struggling families and businesses through the making work pay tax credit. However, the credit unfortunately created problems for many veterans. After it was enacted, the new law reduced the amount of money being taken out of American worker’s paychecks. Although Veterans are not eligible for the credit, they will still have fewer taxes withheld as part of the new “one-size-fits-all” IRS guidelines. Therefore, you may be surprised to find you owe a significant tax liability in April.

Obama’s Non- Tax Reform Commission

From TaxVox:

In a month, if White House officials are to be believed, the Obama Administration will unveil the tax reform report of the President’s Economic Recovery Advisory Board. Despite once-high expectations, it is likely to be a waste of everyone’s time.

The Board (the PERAB in Washington-speak) is hardly a bunch of economic lightweights. Chaired by ex-Federal Reserve Chairman Paul Volcker, its members include economist Marty Feldstein, GE CEO Jeff Immelt, venture capitalist John Doerr, former CEA chair Laura Tyson, and other stars of Wall Street, Main Street, academia, and labor. Its chief economist is Austan Goolsbee, a top-notch researcher who has had close ties to President Obama for years.

Yet the reform panel—technically a PERAB subcommittee—is going to produce…a mouse. From its earliest days, the group was forced to work under impossible constraints. Chief among them: Obama’s insistence that no one earning less than $250,000 should pay higher taxes. Exempting more than 95 percent of families and individuals from tax hikes of any kind essentially shut the door on any serious discussion of reform, which inevitably creates winners and, yes, losers.

Once individual taxes were taken off the table, the panel was charged to look at corporate tax reform, enforcement issues, and simplification. But even on those limited topics, the panel will make no recommendations. A few months ago, we were told it would produce a document that looks something like CBO’s revenue options—listing a narrow range of ideas without actually endorsing any of them.

On Tackling Debt: Some Say 'Just Do It’

There is certainly no easy fix to the government’s massive debt. However, some Senators are saying that Congress is not making any progress in fixing the problem, and that “business as usual” is not working. Senator Evan Bayh (D-Indiana) has proposed that a special commission be created to force Congress to fix the budget deficit.

"Congress is not willing to take short-term pain for long-term pain," Sen. George Voinovich (R-Ohio) told a Senate Budget Committee hearing Tuesday.

"Pain" in this context is defined as Congress enacting spending cuts and tax increases across the board to rein in the nation's massive debt load.

And the country's long-term debt load is massive: The interest on it alone could total $4.8 trillion between 2010 and 2019.

The proposed solution: "Institutional insurrection," as Sen. Bayh put it. "Business as usual in Washington is not going to solve the problem."

Specifically, Bayh and others are proposing the creation of a bipartisan commission that would come up with ways to cut the deficit and then propose legislation on which lawmakers would vote "yes" or "no." Period.

Continue reading at CNN.com…

Play Your Cards Right

Entrepreneur.com posted a great article earlier this week explaining that although financing a business on credit may be risky, it can also be very rewarding. The author interviewed me a few months ago and I am even quoted in the beginning of the article. Check out the except with my quote below, or read the full article on Entrepreneur.com.

Many entrepreneurs are prepared to swap sweat equity and personal savings for a successful start. But what if all that is not quite enough

Shannon Cumberland ran out of options but still needed money to pour into her handmade botanical candles. "We all know it's very hard for a new business to get a loan," says Cumberland, who started Rosy Rings in her kitchen with financing that came from maxing out five personal credit cards. It was a risk that paid off. The company now manufactures approximately 250,000 candles per year with anticipated revenue of more than $2 million for 2009.

Roni Deutch, better known as the "Tax Lady," took a similar gamble when she started her practice in the garage of her one-bedroom condo and maxed out all her credit cards for advertising on local television. "Spending money on marketing your business is not optional. The exponential growth my law firm experienced from using my credit cards to pay for advertising made it all well worth it," she says.

With 75,000 inquiries for service per year, Deutch's card-hopping bootstrapping days are long over, while Rosy Rings' success still depends--to some extent--on plastic. "We're a seasonal business, and given the current lending environment we're still utilizing credit cards to build inventory," Cumberland says.

Continued at Entrepreneur.com…

California Finances Plummet Less than Three Months after Budget Passage

From WSWS.org:

California finance officials have announced that the state has a current budget deficit of $1.1 billion. News of the shortfall comes less than 10 weeks after a balanced budget deal was reached by Republican Governor Arnold Schwarzenegger and the State Legislature.

An October report released by State Controller John Chiang announced that the latest budget deficit was mainly due to a large drop in third quarter income tax collection; revenues were 11 percent lower than initially projected.

The California Department of Finance is also expecting a deficit of $7.4 billion at the start of fiscal year 2010-2011, which begins next July. This could climb to as high as $20 billion by the start of fiscal year 2011-2012.

Loss of tax revenue due to the economic crisis and widespread unemployment and wage reductions is not the only component of the budget deficit. The state’s fiscal health is also largely dependent upon the willingness of outside investors to purchase its municipal bonds and other securities.

As recently as last summer, the state’s credit rating was lowered by all three of the largest agencies, Fitch, Moody’s and Standard & Poor’s, to the lowest in the nation. The state effectively became insolvent at that time and was reduced to handing out IOU’s instead of actual cash payments to vendors, tax refund recipients and others.

Ways to Resolve Your IRS Tax Debt

Just before the weekend, my YouTube team shot another new episode for our YouTube tax tips video series. In this episode, host Edward Lester discusses the different approaches to settling IRS back tax debts. You can watch the embedded video below but be check out my YouTube channel to subscribe to my videos.

U.S. Home Sales Rise to Two-Year High on Tax Credit

After struggling for the better part of the last two years, it looks like the real estate industry is finally rebounding as the third quarter of this year represented the largest increase of home sales in two years. Much of this increase can likely be attributed to the homebuyer’s credit, which was due to expire at the end of this month. However, other financial experts are asserting that many of the buyers who used the credit would have purchased a home anyways. Checkout the following story from Bloomberg.com on the new report.

U.S. home sales increased 11 percent to a two-year high in the third quarter as an $8,000 tax credit for first-time buyers boosted demand.

Sales of existing single-family homes and condominiums increased to 5.3 million at an annualized, seasonally adjusted rate from the previous quarter, the National Association of Realtors said today. The median price fell 11 percent from a year earlier to $177,900, the Chicago-based trade group said.

Distressed sales accounted for 30 percent of all transactions, down from 36 percent in the second quarter, the Realtors said. President Barack Obama signed legislation on Nov. 6 extending the housing credit that was set to expire at the end of this month. Demand from buyers seeking to use the benefit reduced the inventory of previously owned homes for sale to 3.63 million in September, the lowest since January, the group’s data show.

“What the tax credit did was make the housing market stronger by borrowing from future sales,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “There’s payback after it expires in 2010 -- we’ll see weaker demand.”

The sales gain to 5.3 million was the highest since the third quarter of 2007, when sales were 5.45 million.

Fewer Banks Tightened Lending Standards Last Quarter, Federal Reserve Says

From the Los Angeles Times:

Fewer U.S. banks tightened lending standards for companies and consumers in the third quarter as the economy grew for the first time in more than a year, a Federal Reserve survey showed.

Demand for most types of loans weakened at a smaller number of banks than in the second quarter, the Fed also said Monday in its quarterly Senior Loan Officer survey. For prime residential mortgages, a larger number of banks reported stronger demand, the central bank said.

The report helps explain why Fed policymakers last week said "tight credit" remains a drag on the economy and pledged to keep their benchmark interest rate near zero for an "extended period." JPMorgan Chase & Co. is among the banks that have reduced lending in response to stricter underwriting standards for consumer loans and lower demand from companies.

"It will be helpful if the banks were more prepared to lend, because there are creditworthy borrowers that are having difficulty getting credit," said Brian Bethune, chief financial economist at IHS Global Insight.

The survey of loan officers at 57 U.S. banks and 23 U.S. branches of foreign banks was conducted from about Oct. 6 to Oct. 20, the central bank said. The report doesn't identify respondents.

Loans and leases held by U.S. commercial banks have declined for 10 straight months, falling to $6.7 trillion as of Oct. 28 from $7.2 trillion at the end of 2008, according to a separate statistical release from the Fed.

Job Openings Rise, But Hiring Still Weak

Although the real estate industry is showing signs of improvement, high unemployment is still troubling this country. According to new reports, the number of job seekers outnumbers the number of job openings by six to one. These statistics come from the recent Job Openings and Labor Turnover survey from the Bureau of Labor Statistics. Their report also claims that layoffs were up by nearly 90% from the year prior in the month of September.

15.7 million people are out of work. The nation's unemployment rate rose above 10% for the first time since 1983 in October. And with fewer openings available, prospects for the unemployed are looking grim.

Job seekers now outnumber openings by more than six to one, the greatest discrepancy since the labor department began tracking job openings.

Job openings: There were fewer than 2.5 million job openings in September, down 35% from a year ago, according to the latest Job Openings and Labor Turnover survey from the Bureau of Labor Statistics.

The only bright spot, according to Bernard Baumohl, chief global economist for the Economic Outlook Group, is that the number of job openings rose slightly to 2.48 million in September from 2.42 million in August.

The uptick in job openings "could be the first break in the clouds," he said."If the economy continues to show strength, then the new job openings could very well result in an increase in employment later this year and into 2010."

Continue reading at CNN.com…

Paying for the Affordable Health Care for America Act

Over the weekend, the U.S. House of Representatives passed HR3962: the Affordable Health Care for America Act of 2009. The legislation is thousands of pages long, making it difficult for regular taxpayers to understand how the bill will affect them. To help all the readers of my blog, I have analyzed the bill and put together the following explanation of how it will be funded.

The Public Option

Although it was rumored that reform legislation would not include a public option, HR3962 does set the groundwork for a public option that will take full affect in 2013. Supporters of the legislation assert that it will target those who have been uninsured for several months or were denied because of pre-existing conditions. The Health Insurance Exchange will setup to offer four different plans (basic, enhanced, premium, and premium-plus), and will limit out of pocket spending to $5,000 for an individual and $10,000 for a family. This new program will not replace Medicare, which will still be available to those who qualify. Instead, the Health Insurance Exchange will aim to provide coverage to those caught in loopholes for insurance companies. Such as low waged workers employed by small businesses that cannot afford to provide benefits.

Tax Penalties

The new legislation is very expensive, and Congress has come up with a number of ways to pay for it. First of all, there will be a shared responsibility provision that basically forces taxpayers who cannot establish acceptable health care coverage to pay an additional 2.5% tax. There will be a hardship exception though, for taxpayers who cannot afford to pay the tax.

Payroll Penalty

In addition to a penalty on taxpayers who cannot afford coverage, the government will also assess an 8% payroll tax on businesses that do not offer health insurance to their employees. However, it is widely expected that the penalty will be reduced to 5% when the Senate revises the bill.

Millionaire Surtax

One of the largest sources of funding for the reform bill is a new surtax on individuals making more than $500,000 per year, of couples making over $1 million. In the House’s bill, beginning in 2010 all taxpayers making a qualifying amount will be subject to a massive 5.4% tax increase.

Inflation Increases

In addition to adding heft tax increases, the bill also partially repeals tax indexing for inflation. This will result in more money for the Federal government as the years go by. According to the Joint Tax Committee the surcharge is only expected to generate $30.9 billion in 2011, but nearly $70 billion in 2019.

Passage into Law?

The present version of this bill is not likely to get passed into law. Despite President Obama’s optimistic stance, some Senators are already pronouncing the bill dead on arrival. Although there has been a lot of discussion about this health care reform bill, it could be months before even a highly amended version of it becomes law. The Senate is not going to vote on the bill until at least 2010, and since they are expected to make numerous modifications it will likely need to return to the House for another vote. It could be six months from now before a health care bill goes to President Obama’s desk for a signature.

Ask the Tax Lady: November 9th, 2009

Check out the following new Ask 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: If my wife and I sell our house this year and buy a new one, can we claim the $8,000 extended homebuyers credit?

Answer: No, you will not be eligible for the $8,000 credit. However, when Congress extended the credit they also created a new $6,500 credit for property owners who have lived in their home for at least five consecutive years. Therefore if you and your wife have lived in your home for five years then you may be able to take advantage of the new, lesser credit.

Question #2: What are the new income limits for the first-time homebuyers credit?

Answer: In the new bill, the income limits for eligible homebuyers were expanded to $125,000 for single buyers and $225,000 for couples. The old credit had $75,000 and $150,000 limits.

President Obama Signs Worker, Homeownership, and Business Act

Last Friday, President Obama yesterday signed the Worker, Homeownership, and Business Act of 2009 (H.R. 3548) into law. According to the Tax Professor, this new law has seven major tax provisions, in addition to extending the homebuyers credit. All of the tax changes are listed below.

1. Extension and Modification of First-Time Homebuyer Credit

2. Five-Year Carryback of NOLs

3. Exclusion from Income of Qualified Military Base Realignment and Closure

4. Delay in Application of Worldwide Allocation of Interest

5. Modification of Penalty for Failure to File Partnership or S Corporation Returns

6. Expansion of Electronic Filing by Return Preparers

7. Time for Payment of Corporate Estimated Taxes

FAQs About IRS Offers in Compromise

My law firm’s Tax Relief Blog published a useful entry on the 10 most commonly asked questions about the IRS’ Offer in Compromise program. You can find a section of the article below, but be sure to read all 10 items at the Roni Deutch Tax Relief Blog.

1. What is an Offer in Compromise?

An OIC is an IRS tax resolution program that allows a taxpayer to settle their IRS back tax liability by paying less than they owe. The amount of a taxpayer’s needs to pay will vary depending on the taxpayer’s unique financial situation, as well as his or her original liability amount. However, it is usually significantly less than the tax debt owed. The IRS will only accept a taxpayer’s OIC if it is equal to or greater than the reasonable collection potential, which is the IRS’s measurement of the taxpayer’s ability to pay their debt. Most taxpayer’s will not qualify for this program.

2. How do I submit an Offer in Compromise?

You will need to complete and submit an OIC to the IRS. The OIC package generally consists of the following documents:

• IRS Form 656 – Offer in Compromise Form
• IRS Form 656-A – Income Certification for Offer in Compromise, if you believe you are not required to submit an application fee or payments based on your family unit size and income.
• Form 433-A – Collection Information Statement for Wage Earners and Self-Employed Individuals
• Form 433-B – Collection Information Statement for Businesses (if applicable)
• $150.00 Application Fee
• 20% payment

3. Can I hire someone to help prepare an Offer in Compromise?

Yes, you can hire a tax lawyer or a tax resolution professional to prepare and submit an OIC for you. However, submitting an OIC does not guarantee that it will be accepted. You must meet certain financial and other criteria in order to qualify. Additionally, you will need to have filed all necessary tax returns for both yourself and any business you own, and you cannot be a debtor in bankruptcy proceedings. Thus, be wary of any company sales representative that tells you your OIC will be accepted.

The Return of the Inflation Tax

From the Wall Street Journal:

All of those twentysomethings who voted for Barack Obama last year are about to experience the change they haven't been waiting for: the return of income tax bracket creep. Buried in Nancy Pelosi's health-care bill is a provision that will partially repeal tax indexing for inflation, meaning that as their earnings rise over a lifetime these youngsters can look forward to paying higher rates even if their income gains aren't real.

In order to raise enough money to make their plan look like it won't add to the deficit, House Democrats have deliberately not indexed two main tax features of their plan: the $500,000 threshold for the 5.4-percentage-point income tax surcharge; and the payroll level at which small businesses must pay a new 8% tax penalty for not offering health insurance.

This is a sneaky way for politicians to pry more money out of workers every year without having to legislate tax increases. The negative effects of failing to index compound over time, yielding a revenue windfall for government as the years go on. The House tax surcharge is estimated to raise $460.5 billion over 10 years, but only $30.9 billion in 2011, rising to $68.4 billion in 2019, according to the Joint Tax Committee.

Americans of a certain age have seen this movie before. In 1960, only 3% of tax filers paid a 30% or higher marginal tax rate. By 1980, after the inflation of the 1970s, the share was closer to 33%, according to a Heritage Foundation analysis of tax returns.

These stealth tax increases—forcing ever more Americans to pay higher tax rates on phantom gains in income—were widely seen to be unjust. And in 1981 as part of the Reagan tax cuts, a bipartisan coalition voted to index the tax brackets for inflation.

Homebuyer Tax Credit Extended and Expanded

After weeks of uncertainty, the Senate and House of Representatives have both passed legislation to extend and expand the homebuyers credit. In addition to extending the deadline through April 30, 2010, it will also include a $6,500 credit to homebuyers who have lived in their current residence more than 5 years. According to the Associated Press, the White House even announced that Obama would promptly sign the bill into law.

Examiner.com publish an article with more details of the new credit. They also raise several valid questions as to whether this extension and expansion will actually help or hurt the ailing economy. You can read a segment of their post below, or find the full text here.

The National Association of Realtors had been pushing hard to extend the credit, as well as include non-first-time home buyers, saying the legislation has helped stabilize the housing market and increased home sales, projected at 5.1 million for the year.

Supporters of the tax credit say that it has helped to boost existing home sales in recent months and that the housing market, and broader economy, would suffer if it is allowed to expire. They contend that extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected increase in foreclosures next year, which is expected to put ongoing downward pressure on prices.

"Tax credits like this only work by creating the sense of urgency to take advantage of them," Sen. Johnny Isakson (R-GA), the measure's main sponsor, said in a statement. "This is the last extension of the home buyer tax credit, and I urge all Americans whether they're first-time buyers who've always dreamed of having a home of their own or someone who's been gridlocked in the failure of our move-up market to take advantage of this opportunity."

Hawaii Cuts Payments to the Temporarily Disabled

Like many other States in the country, Hawaii has been trying to make budget cuts where they can. However, their latest cut of payments to the temporarily disabled has thousands of Hawaiians in an outrage. Several prominent local authorities, such as Senator Suzanne Chun, are speaking out against the cuts saying they will leave many helpless, homeless, and hopeless. You can find the clip of an article discussing this recent development courtesy of the Associated Press below.

Right when more people need welfare, they're getting less from Hawaii's government.

Monthly payments to poor, temporarily disabled people fell by one-third this week, from $450 to $300, because more people are drawing benefits from the same pool of money.

State lawmakers met at the Hawaii Capitol on Wednesday to try and find more money for the program, and they questioned how government could shortchange these 5,055 people when they may have no other income.

"That money won't cover the rent anymore, so many of them will go homeless," said Sen. Suzanne Chun Oakland, D-Kalihi-Liliha.

This money, called general assistance, goes to people without dependent children who are unable to work because of a temporary disability. To qualify, they must have little or no income and can't get other federal assistance.

"What will happen in our aloha state to those who are most needy?" asked Alex Santiago, executive director of a group of nonprofits called PHOCUSED, which stands for Protecting Hawaii's Ohana, Children, Underserved, Elderly and Disabled. "This is their last hope. There has to be an alternative."

Two Out of Three Individuals Now Using IRS e-File

From the IRS Newsroom:

Individuals e-filed a record 95 million federal income tax returns during 2009, up almost 6 percent from last year’s total of nearly 90 million. About two out of three taxpayers e-filed this year; out of the 141 million returns filed so far this year, over 67 percent were e-filed, compared to 59 percent last year.

Each year, more taxpayers chose to e-file their tax returns. While the total number of tax returns has increased 10 percent during the past decade, the number filed electronically has increased by 168 percent. Taxpayers who e-file from a home computer continue to be an increasingly significant segment of those who e-file.

Home Computer e-Filers

This year, for the first time, more than a third of e-filers are those doing it themselves from a home computer More than 32 million returns were e-filed from home computers, up almost 20 percent from last year’s record of 27 million. People filing from their home computers account for about 34 percent of all e-filed returns from individuals.

Direct Deposit Refunds

Almost 73 million refunds were electronically deposited into taxpayer’s accounts, saving the government mailing costs and saving taxpayers a trip to the bank. More importantly, these taxpayers received their refunds a week sooner than those receiving a paper check.

These direct deposit refunds accounted for 66 percent of all refunds, up from 62 percent of refunds last year. Overall, the IRS issued 110 million refunds, averaging $2,753 per refund; direct deposit refunds averaged $2,997 per refund.

Free File

More than 3 million taxpayers filed their tax returns for free through the IRS free file program. This year for the first time, taxpayers could also file directly to the IRS by completing a Form 1040 on IRS.gov; 273,000 taxpayers used this new way to file.

U.S. to Sell $81 Billion in Long-Term Debt Next Week

According to Bloomberg.com, the U.S Treasury Department plans to set a new record next week, by selling $81 billion in long-term debt, as part of their quarterly auctions. They plan to replace the inflation-protected 20-year bond with a reintroduced 30-year security. The move comes as an attempt to reduce the massive budget deficit of over $1 trillion.

The Treasury will auction $40 billion in three-year notes on Nov. 9, $25 billion in 10-year notes Nov. 10 and $16 billion in 30-year bonds Nov. 12. The amounts were in line with the median forecast of $80 billion in a Bloomberg News survey of nine analysts.

The U.S. is headed for a second straight year of budget deficits exceeding $1 trillion, and the country’s legal limit on debt may be reached next month. Treasury debt-management director Karthik Ramanathan told bond market participants this week to expect another year of government debt sales of $1.5 trillion to $2 trillion, minutes of the meeting showed today.

“Treasury debt managers will continue to remain aggressive in managing financing needs while minimizing potential market implications,” the Treasury said in a statement in Washington.

The government is on course to reach the debt limit, which currently stands at $12.1 trillion, by mid- to late-December, the department said. If the Treasury is forced to take evasive maneuvers to stay below the limit before Congress raises it, existing tools won’t create much extra room, officials said at a press conference.

Debt Limit

“Depending on the date that we hit the debt limit, they could last days or at most weeks,” compared with five or six months in previous debt-limit impasses, said Matthew Rutherford, deputy assistant Treasury secretary for federal finance.

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Buffett’s Wager on Economy May Give Boost for Obama Policies

For years famed investor Warren Buffet has been in the financial spotlight for his high-risk, and often rewarding financial decisions. Therefore, his recent move take over of Burlington Northern Santa Fe Corp., a railroad near his home, has gotten people talking. Buffet even called the decision “an all-in wager on the economic future of the United States.”

Bloomberg.com wrote an article on how Buffet’s very noticed move could give a boost to Obama’s economic policy. You can find a section of their story below, or read the full text here.

Warren Buffett’s takeover of Burlington Northern Santa Fe Corp. today is a $26 billion bet on President Barack Obama’s economic policies at a time when the administration may need the help.

Buffett called the purchase of the railroad by his Berkshire Hathaway Inc. “an all-in wager on the economic future of the United States.” He’s making it at a time when discontent has grown in the U.S. about jobs and growth.

Public approval of Obama’s handling of the economy has slipped to 46 percent in an Oct. 30-Nov. 1 CNN poll from 59 percent in March.

Buffett’s comment “does seem like an endorsement of the president’s policies,” Zelizer said. Still, “most voters who would be paying attention to this statement probably already have made their minds up so it is hard to see this having a major impact today.”

House Panel Votes to Give SEC More Money, Power

In the latest move to end corruption on Wall Street, the House of Representatives Financial Services Committee voted this morning to give more power and funding to Federal regulators. They hope the additional funds will help agents prevent future abuses, such as the high profile Bernie Madoff scandal. Check out the following coverage of the new legislation courtesy of the Associated Press.

The 41-28 vote was the panel's latest move to try to rein in abuses on Wall Street. It would give the Securities and Exchange Commission new enforcement powers, including the ability to offer bounty money to tipsters on fraud cases and the power to bar violators of the law from employment in any securities-related industry.

The bill also would double the SEC's budget in the next five years.

Rep. Paul Kanjorski sponsored the legislation after leading the panel's investigation into the government's failure to uncover Madoff's massive fraud scheme for nearly two decades. Madoff was sentenced in June to 150 years in prison.

"In the last five years, there's been a significant change and a greater sophistication in the financial service industry than has ever happened in the history of mankind," said Kanjorski, a Pennsylvania Democrat. "So we're going to have to change fast."

The proposal was part of a broader effort by the committee to tighten rules governing financial institutions after last year's market crisis. The full House was expected to vote on the bill and related proposals in early December.

Schwarzenegger's Budget Boss to Step Down

From the LA Times:

Gov. Arnold Schwarzenegger's budget director is departing after nearly four years in one of the most influential posts in Sacramento.

Budget czar Mike Genest announced his departure Monday, as a financial crisis continued to grip the state. His Department of Finance has predicted a $7.4-billion deficit for the fiscal year that begins next summer.

The figure is expected to balloon -- perhaps tripling -- as a result of sagging revenues, court rulings blocking recent budget cuts and overly optimistic savings projections by the Legislature and governor.

Genest said in an interview that he would leave by year's end, or sooner if a replacement is found earlier.

"It feels like a good time for me to step back from the day-to-day fray of things," he said.

Red ink has plagued Sacramento during much of Genest's tenure, the second-longest for a budget director since Ronald Reagan was governor.

There have been deep cuts to education, and social services for the needy have been slashed.

Continue reading at LA Times.com…

Property Buyers in US Rush to Beat Deadline for First Time Tax Credit

Realtors and buyers are in a dead rush to meet the deadline for the homebuyers tax credit at the end of this month. Since there has not yet been a final decision about extending the credit, thousands across the country are trying desperately to close escrow before the looming deadline. However, as PropertyWire.com reports, many of them are finding out that they are simply too late.

The latest figures from the National Association of Realtors (NAR) show that its Pending Home Sales Index rose to 110.1 in September, its eight consecutive monthly rise.

The index now stands at the highest level since December 2006 when it was 112.8 and is 21.2% higher than September last year, marking the largest annual gain on record.

But it could be a short-lived blip as many analysts believe that the recovery in the US housing market is being propped up by the first time buyer tax credit that was introduced by the Government to boost demand for houses.

‘What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,’ said Lawrence Yun, NAR chief economist.

Meanwhile, the foreclosure crisis is moving into small towns and suburbs which have previously been untouched by the economic downturn, according to new research.

Bio-fuel in the Health Care Bill?

Many of us in the tax industry are confused this morning, because of a $24 billion bio-fuel tax credit that was added to a health care bill making it’s way through Congress. The modification was made recently, but there already dozens of bloggers who have spoken out about this fishy addition to the health care reform bill. You can read coverage on this developing story from The New York Times here and here, or checkout a segment below.

A measure that could save the federal government $24 billion in bio-fuel tax credits over 10 years by restricting the eligibility of a controversial fuel was attached last night to health care reform legislation making its way to the House floor this week.

Language included in the manager's amendment would restrict the paper industry from claiming a lucrative incentive for use of a fuel known as "black liquor."

Rep. Chris Van Hollen (D-Md.), a member of the House Democratic leadership, introduced the measure as a stand-alone bill (H.R. 3985) this week that would formally restrict the paper industry from eligibility for the $1.01-per-gallon cellulosic bio-fuel tax credit included in the 2008 farm bill.

The estimated $24 billion in tax credit savings could be used to offset costs of the health care bill, Van Hollen said.

"In addition to supporting homegrown renewable energy, it is my hope that this legislation will be added to the manager's amendment for the House health care reform package making its way to the floor this week so that the savings generated by these improvements can help pay for health care for all Americans," Van Hollen said in a statement yesterday before the amendment was released.

Obama: More Job Losses to Come

In a meeting with economic advisers on Monday, President Barack Obama stated that there would indeed be more job losses in the next few months. However, he claimed that this does not mean the economy is not recovering. There is “always a lag of several months between businesses starting to make profits again and investing again and them actually rehiring again,” he asserted.

Obama also said he's confident "that having moved the economy on the right track ... there's no reason why we're not going to be able to not only create jobs, but the kind of sustainable economic growth that everybody's looking for."

The White House has highlighted several indicators of economic stabilization over the past week. Among other things, administration officials have argued that the Democrats' controversial $787 billion economic stimulus program helped stave off a depression and spark 3.5% growth in the third quarter.

On Friday, the administration released a report claiming the program helped create or saved over 640,000 jobs.

Republicans questioned the validity of the White House report, saying it exaggerated the program's effectiveness. Each new job, critics charged, cost $248,000 to create.

The Commerce Department said construction spending rose unexpectedly in October by almost 1%. Economists surveyed by Briefing.com were anticipating a 0.5% decline.

Continue reading at CNN.com…

California Boosts Income Tax Collection by 10 Percent

From the Associated Press:

California wage earners will soon notice a little less money in their paychecks.

Starting Monday, employers in the cash-strapped state are required to withhold 10 percent more in state income taxes to help ease the budget problems.

It's part of a plan to artificially inflate state revenue by $1.7 billion through next June.

Brenda Voet, a spokeswoman for the state Franchise Tax Board, says it's technically not a tax increase since workers will get their money back after April 15.

A single wage earner making $51,000 a year with no dependents will get about $4 less a week.

The Differences Between Tax Liens and Levies

Last week, my amazing team shot another new episode for our tax tips video series. In this episode, host James Owens explains the differences between tax liens and levies. You can watch the embedded video below but be check out my YouTube channel to subscribe to my videos.

Increased Rental Car Taxes

If you travel and rent vehicles often then you may have noticed that you are paying more for your car then you did last year. This is because many struggling local governments have increased the taxes levied on rental cars in attempt to fix budget problems. According to Gary Stoller of the Washington Post, legislators have been able to pass these increases since they can be sold as 'out-of-towners' taxes.

Anyone renting a car in Maine would be paying the state 12.5% of their bill in excise taxes starting last month if the legislature there had its way.

But residents blocked the state's new tax-reform law — which included a tax increase from 10% to 12.5% on rental car bills — by signing petitions in opposition. If the signatures on the petitions turn out to be valid, the increase will be put to a vote in June, says Sara Lewis, a Maine taxation official.

The action in Maine represents something of a victory for business travelers, corporate travel departments and rental-car companies who are increasingly upset over what's been an explosion in taxes imposed on renting a car.

Airline fees "are bad, but the worst are car-rental taxes," says frequent business traveler Tony Harrison, who has rented cars 75 days so far this year and paid upwards of 20% of his bill in taxes in some cities.

Top 10 End of the Year Tax Planning Tips

Although you may be used to waiting until April to worry about your taxes, this could be a big mistake. Many tax breaks are secured through actions taken before January 1. And guess what – it is already November and the holidays are just a few weeks away! So, you need to take advantage of the pre-Thanksgiving lull to get your tax situation in order to maximize your tax savings come next April. And as you can see from the following paragraphs, there are plenty of things you can do now to make the upcoming tax season a little less stressful—and a finacially successful one.

1. Make Upgrades

If you were thinking about making energy efficient upgrades to your home, you may want to do so before the New Year. The deductions and credits available for energy efficient home upgrades are larger this year than they were in 2008, and it is unknown if Congress will extend or decrease those credits for 2010. For more information on this year’s “Green” tax incentives, check out this entry I posted earlier in the year.

2. Give Now

During the holiday season, most of us feel more charitable then usual, with toy drives for underprivileged children and Santa Clauses asking for donations on every street corner. However, this time of the year is also the last time you can make a charitable donation and deduct the amount from your 2009 taxable income. Be sure to take a minute to look over your donation receipts from this year so far to see if you making a few extra donations will significantly reduce your tax liability or not.

3. Make 529 Contributions

If you have children, then you might want to consider opening a 529 plan, or if you already have one setup then you could max out your contributions. There are two different types of 529 plans, but both have significant tax benefits. Using any extra funds you have at the end of the year to help pay for future college bills is a great, and tax friendly way to prepare for the future. To learn more about the different 529 plans check out this RDTC Tax Help Blog entry on tax friendly ways to save for your children’s education.

4. Offset Large Capital Gains

If you had a high amount of capital gains related income, then you may want to offset your profits by selling off a few bad investments or stocks. You can then claim a capital loss and reduce your taxable income. However, keep in mind there is a $3,000 limit—but the rest can be carried forward into future tax years. Alternatively, you can offset your losers by selling off some winners. If you are not experienced with capital gains and losses, then I highly recommend seeking the help of a qualified professional.

5. Non-Charitable Gifts

It is the season of giving, right? In addition to charitable contributions you can also give up to $12,000 ($24,000 for a married couple) to as many individuals as you wish without incurring a gift tax penalty.

6. Get in Order

With the New Year just around the corner, it is never too early to begin getting your financial records organized for next tax season. By knowing exactly how much money you have made this year, and projecting your total taxable income for the end of the year, you can decide if you need to take any actions concerning income and expenses to further lower your tax liability or not. You can also throw away any files that are old or unnecessary, and create a new folder in your filing cabinet for 2010.

7. Adjust Withholdings

If after reviewing your taxable income, you realize that your tax bill will be higher than you had expected, now is your last chance to have your employer adjust your withholdings. It will mean less cash in your remaining paychecks for the year, but at least you will not be hit with a massive tax bill come April. On the other hand, if you have overpaid your taxes throughout the year then you could lower your withholdings and get a little extra holiday cash.

8. Prepay Mortgage and Taxes

If you are looking for ways to increase deductions and lower your taxable income, then you can always prepay your next mortgage payment, or pay your property taxes early. Just remember though that this means you will have one less mortgage payment to make next year, which will result in a higher tax bill in April 2011.

9. Retirement Payments

If you have not contributed the maximum to your 401(k) or another tax friendly retirement account, then you want to do so before the years end. This will help lower your taxable income, and is also a good investment in your future.

10. Deferred Income

Deferring income is one of the most popular end of the year tax planning tips, and it is actually pretty easy. If you are retired then you could postpone an IRA withdrawal, or if you are self-employed then you can easily defer a payment from a client. However, before you defer any income you want to be absolutely sure that you will be in a lower tax bracket next year. Otherwise you could just be postponing a large tax bill.

Ask the Tax Lady: November 2nd, 2009

Check out the following new Ask 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: If the expiring homebuyers credit is extended, will it be modified to include non first-time homebuyers?

Answer: It is still a little too early to tell. Congress has not yet passed a bill to extend the credit, although there are several bills going around aimed at doing so. It will probably be a few more weeks before they take any action, but it is rumored that when they do pass the legislation it will include a $6,500 credit for non first-time homebuyers.

Question #2: How can I get a wage garnishment removed?

In order to get an IRS wage garnishment removed, you are going to need to resolve your account with the IRS. Typically, that involves filing all past due tax returns and paying all past due amounts and assessed penatlies and interest.

If you cannot afford to pay the full amount due to the IRS, then you typically can negotiate a tax debt resolution. This can be either a full settlement through an Offer in Compromise, a monthly payment plan through an Installment Agreement, or temporary protection against IRS collection through Currently Not Collectible status. Click here to learn more about the tax debt settlement services offered by my law firm.

USA Tops International Tax Haven List, Thanks To Delaware

Although the Federal government is going to great lengths to take action against taxpayers using Swiss bank accounts to avoid paying taxes, according to the U.K. based Tax Justice Network, Delaware is the biggest tax haven on the planet. Their report claims the state is "the most secretive financial jurisdiction in the world," based off an analysis “60 financial jurisdictions according to level of secrecy and cooperation with foreign tax authorities.”

Delaware even beat out Luxembourg, Switzerland, and the Cayman Islands who came in 2^nd, 3^rd, and 4^th place respectively. Check out the following facts about Delaware from the Tax Justice Network’s press release, thanks to Huffington Post.

• According to the Delaware Secretary of State's office, their operating budget was $12 million in 2007 and they made $24 million in the fees for expedited incorporation filings alone.
• There are currently some 695,000 active entities registered in Delaware, including 50 percent of the corporations publically traded on the U.S. stock exchange.
• New business formations in Delaware are currently running at about 130,000 per annum.
• The growth of private individual deposits by non-residents was most robust in the United States outranking other popular financial jurisdictions such as the Cayman Islands, United Kingdom, and Luxembourg with total non-resident deposits equalling $2.6 trillion in 2007.

The IRS Needs to Better Manage the Tax Debt Collection Process

Last week, the Government Accountability Office published a report asserting that the IRS needs to do a better job of managing the tax debt collection process. I have included a segment of their report below, but you can download the full PDF at “Tax Debt Collection: IRS Needs to Better Manage the Collection Notices Sent to Individuals.”

According to the IRS, $23 billion in unpaid individual income tax debt existed in 2001, its most recent estimate. The notice phase is the first of IRS’s three-phase process to collect unpaid debt. IRS annually sends notices to millions of individual taxpayers about billions of dollars of unpaid tax debt.

Congress and others have questioned IRS’s collection process’s effectiveness. As requested, GAO is reporting on (1) how well IRS has established objectives, performance measures, and responsibility for reviewing notice-phase performance, and (2) how well IRS’s business rules for sending notices to individuals help assure that the collection notice phase is achieving desired results at the lowest costs. To address these objectives, GAO compared the evidence obtained from IRS documents and responsible IRS collection officials to applicable guidance for internal control standards.

Although the notice phase is a key part of IRS’s approach and strategy for resolving billions of dollars of individuals’ unpaid tax debt, IRS lacks certain internal controls to assure that notices to individuals are achieving the most benefits—such as debt collected or unpaid debt cases otherwise resolved—with the resources being used. Management controls like clearly defined objectives, performance measures, and clear responsibility for reviewing program performance help provide reasonable assurance that the objectives of an agency are being achieved effectively and efficiently. However, IRS has no documented objectives for the notice phase and no performance measures to indicate how well the phase is performing in resolving debt cases or achieving other potential desired results. Further, IRS has not established responsibility for reviewing the performance of the complete notice phase.

IRS lacks documentation for and evaluations of its business rules for notices to individuals to assure that the collection notice phase is achieving desired results. According to IRS officials, to make the best use of collection resources, IRS uses its business rules to—based on certain dollar thresholds and individual tax debt case characteristics—vary the number and types of notices sent to taxpayers and determine whether unresolved cases will be sent for further collection action or further action will be deferred. However, as shown in the table, in almost all cases, for the five business rules that IRS identified as affecting the most taxpayers, IRS did not have information on the date the rules were established, the rationale for the rule, or data supporting the rationale. IRS collection officials also lacked documentation describing the business rules and how they operate. Further, even though IRS officials estimated that the business rules had been established for years, IRS had documentation for an evaluation of only one of the five business rules. Without relevant evaluations IRS lacks assurance that the notice phase achieves desired collection results at the least cost.

California to Withhold a Bigger Chunk of Paychecks

From LA Times.com:

Reporting from Los Angeles and Sacramento - Starting Sunday, cash-strapped California will dig deeper into the pocketbooks of wage earners -- holding back 10% more than it already does in state income taxes just as the biggest shopping season of the year kicks into gear.

Technically, it's not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers' annual tax bills won't change.

Think of it as a forced, interest-free loan: You'll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.

But with rising gas costs, depressed home prices and double-digit unemployment, the state's added reach into residents' regular paycheck isn't sitting well with many.

"The state's suddenly slapping people upside the head," said Mack Reed, 50, of Silver Lake. "It's appalling how brash that is."