Monday, December 27, 2010

New Tax Law Means Some Will Have To Wait Until At Least February To File 2010 Tax Returns

The IRS released an announcement on their website http://www.irs.gov/ December 23 that states that while many taxpayers will be able to file when they normally do, others will have to wait while the IRS reprograms its computers to allow for some of the provisions in the tax law signed by President Obama December 17.

The affected tax filers include those who wish to claim any of the following deductions on their tax returns:
  • The Higher Education Tuition and Fees Deduction covering up to $4,000 in tuition and fees paid to a post-secondary institution.  This is claimed using Form 8917 and can particularly help people who don't qualify for education credits or who live in a state where the deduction will reduce state tax as well as federal tax and may thus be worth more than the credit.  Those who claim the American Opportunity Tax Credit or the Lifetime Learning Credit are not impacted by the delay described here.
  • The Educator Expense Deduction, which allows kindergarten through 12th grade educators to deduct up to $250 in out of pocket expenses directly on Form 1040 or 1040A without itemizing deductions.
  • Everyone who files Form 1040 Schedule A to itemize deductions such as mortgage interest, state and local income, sales, and/or property taxes, charitable contributions, employee business expenses, and more.
More information is available in the IRS announcement available at http://www.irs.gov/newsroom/article/0,,id=233449,00.html?portlet=7

Monday, December 20, 2010

Sales Tax Deduction Reinstated in the Tax Law Passed Last Week

The big news of last week's tax law is that taxes are not going up January 1.  But there are other plot lines to the story, one of which is there are several tax deductions that previously expired at the end of 2009 that have now been extended for two years - 2010 and 2011.

This gives you some planning opportunities in the last few days of 2010 that weren't available a week ago.  One of these is the state and local sales tax deduction.  If you have been considering buying a "big ticket" item anyway, this might make it a little easier now.

Here are some of the choices you have with this deduction:
  • You can itemize deductions and include the sales tax you paid, if that is higher than the state income tax you paid.
  • If you live in a state that does not have sales tax, but charges fees based on the value of a vehicle purchased, you can claim those on the sales tax line as an itemized deduction.
  • If you don't itemize deductions, you can file Schedule L to get a larger standard deduction based on your purchase of a vehicle.
  • If you use the car for business you can include the sales tax and/or fees paid in the basis of the vehicle purchase price and depreciate it, including several possible provisions for accelerating much of the deductions into 2010.
There can be a big difference with each choice, especially if you factor in the possible effects on your state tax return and alternative minimum tax.  It is worth the time it takes to calculate it several ways to see which one is best for you.

Of Course, There Is Much More To Discuss

Come back often, I'll try to talk about it in plain English and give some planning ideas YOU can use!

Get Your Tax or Financial Questions Answered In A Future Blog Post 

I choose topics for my blog posts based on the questions I receive most frequently from you.  I appreciate your input!  Feel free to comment at http://www.dougbeecherstaxandmoneyblog.blogspot.com/

Important Note!   The information in this article is intended to inform you of some of the financial opportunities provided in the tax laws or elsewhere.  These laws are very complex and thus this article is not intended to give you specific advice for your personal situation.  If you need such advice, please contact a qualified professional.

© 2010, Doug Beecher, MBA, CPA all rights reserved. This article, either as a whole or in part, may not be reproduced or transmitted in any form without the prior written permission of the copyright holder. When such permission is granted, the user must state that the material was used by permission of the copyright holder.

Friday, December 17, 2010

The Long Awaited Tax Law Passed (14 Days Before Year-End!)

It's official.  Early this morning, the Congress approved the "Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010".  President Obama signed it into law later in the day.

It's been publicized as "extending the Bush tax cuts", like the Government is doing us some kind of huge favor.  Federal income taxes range from 10% to 35%.  Add in social security, medicare, and state taxes, and the range goes up to something more like 20% to 40%.  This law simply keeps those rates at those levels and didn't allow them to increase.  Thank goodness!  Most of us have a hard enough time making ends meet as it is without having even less left after taxes to do it with.

In Addition To Preserving Most 2010 Tax Rates There Is One Tax Reduction For 2011

For one year, 2011, it actually does cut taxes for most people -- those who are employed will see 2% less taken from whatever they earn (up to an income maximum of $106,800).  It will have the same effect as an immediate 2% raise beginning with your first paycheck in January, assuming the computers figuring your paychecks can be reprogrammed that quickly (Congress didn't leave much time for that, did they?).  I'm actually confident they'll still make it in time ...

2011 and 2012 Might Be A Good Time To Sell Assets To Generate Cash

For those in the 10 and 15% federal tax brackets (meaning less than $34,500 of taxable income (after deductions, so actual income can be somewhat higher) for single folks and $69,000 of taxable income for married couples filing a joint tax return), you could sell assets and get back your basis (generally what you paid for it) tax free plus any gain would also have zero federal income tax due, if you sold by December 31, 2010.  This deadline has been extended until December 31, 2012, and will be a real help to a lot of middle income people.

Lower (Or Zero) Qualified Dividend Tax Rate Extended

In addition, with interest rates on bank accounts so low, some people have been putting their savings into select stocks that pay good dividends.  Of course, that's the stock market, and you have to be careful with that, but there is also a tax benefit that has been extended here.  The same zero federal income tax on capital gains I just mentioned has been extended two years until the end of 2012 for qualified dividend income, but only for people in the lowest two tax brackets.  (Everyone else will pay 15% federal tax, and regardless of income, most states will add their tax to that)

Of Course, There Is Much More To Discuss

Come back often, I'll try to talk about it in plain English and give some planning ideas YOU can use!

Get Your Tax or Financial Questions Answered In A Future Blog Post 


I choose topics for my blog posts based on the questions I receive most frequently from you.  I appreciate your input!  Feel free to comment at http://www.dougbeecherstaxandmoneyblog.blogspot.com/

Important Note!   The information in this article is intended to inform you of some of the financial opportunities provided in the tax laws or elsewhere.  These laws are very complex and thus this article is not intended to give you specific advice for your personal situation.  If you need such advice, please contact a qualified professional.

© 2010, Doug Beecher, MBA, CPA all rights reserved. This article, either as a whole or in part, may not be reproduced or transmitted in any form without the prior written permission of the copyright holder. When such permission is granted, the user must state that the material was used by permission of the copyright holder.

Monday, December 13, 2010

Still Waiting For An Answer on 2011 Tax Rates … The Political Process of Today


By Joshua K. Beecher, Guest Blogger

I wish I could be describing for you some highlights of tax law changes for 2011 to help with your year-end planning.   As you undoubtedly know, this subject is still being argued strenuously by all concerned, in spite of the “Tax Deal” that President Obama made with Republican leaders on Capitol Hill this week to address the expiring tax cuts put into place when Bush was in office.  It matters not which side of the aisle you find yourself, and what your personal thoughts are on the “Tax Deal” itself. 

Rather than debate the merits of whether or not those tax cuts should have been extended or not, I wish to focus on the process itself and how truly counterproductive Washington has become.

First we have the Republicans who started playing the “game” a few weeks ago when they stated that they would no longer listen to, vote on, or conduct any business (regardless of its merits or whether or not it was of benefit to the nation) at all until the issue of the tax cuts was addressed and settled.  Continue that same sentiment into last week, and the Senate Republicans shot down a bill that would maintain the tax cuts for anyone making under $250,000 a year; not only were they not going to conduct any business until the issue was addressed, but they weren’t going to view anything acceptable unless it was just an overall extension of the cuts as is.

Now enter the Democrats, many of whom are on their way out the door come January, and in no mood to play the Republicans’ game.  They choose to ignore the Republicans’ threats and hope to strike a deal on their terms. 

Not wanting to be left out of the fun, President Obama and the White House enter the scene over the weekend.  During his campaign, Obama swore off all errant moves made by Bush, and promised to correct our course; many Democrats of course believing this was the death sentence to Bush’s tax cuts.  However, coming off humiliating losses last month on Election Day, Obama eyes his future, and attempts to seize control once again.  He sees the opportunity to cut a deal (to bolster his long-term prospects), and does so; with the caveat of extending out unemployment payments to the millions receiving them across the country.

So, in summary, where does that leave us today?  Well, today Obama is attempting to sell the bill to his very own party members in Congress stating that it would be foolhardy and “borderline immoral” to allow benefits to run out for the long-term jobless.  This is supposed to be a deal in regards to the tax cuts, yet all the White House wants to discuss is the victory in protecting unemployment benefits for the “long-term” jobless.  In addition, he does toss in the fact that raising taxes on the middle class would be foolish at this time as well, but the Republicans are of course to blame for the fact that the “rich” are once again off the hook.  House Democrats are now saying they want to shoot the bill down for the fact that the President gave up too much; that while there should be compromise this is not a good representation of it.  And finally the trusty Republicans were so desirous to show their constituents that they protected these most cherished tax cuts that were set to expire that they agreed to some truly steep concessions on the side of unemployment benefits and social security cuts.  Everyone has their good news to spin in their favor, and everyone has their ability to demonize and place blame on the other. 

No longer do we discuss what’s truly good for the nation in Washington, we rather attempt to ensure political careers, and make sure the other guy looks bad (trying to make themselves look good by comparison.)

One side note to further illustrate the point.  Back in the stimulus package of 2009, the Federal Government changed a tax credit of up to 30% on the construction of commercial renewable energy projects to a grant which could be paid in cash 2 months after the completion of the project.  You have probably never heard of this seemingly meaningless piece of legislation, and you are further probably not aware that this grant program is set to expire at the end of the year along with the much touted Bush tax cuts.  Why does this have anything to do with our current discussion you might ask?  Well, everything really.  According to research and reports put out by the Solar Energy Industries Association (SEIA) that grant has been enormously successful in creating jobs, not to mention in furthering our independence in the energy sector. 

Many companies attempting to gain financing for these types of projects are non-profit entities, and as such must come to the table with what’s called “tax equity”.  Another major fallout in Wall Street’s collapse was financing for these projects due to the lack of a market for “tax equity”; however, these grants close that gap, and have been the main driver for the growth experienced in the sector since being put into place in February 2009.  Since their inception, the program has provided $1.3 billion to 1,170 solar projects across 42 states, as well as providing $15 billion to 211 wind-power developments in 38 states.  SEIA’s research shows that with solar jobs alone this growth as increased jobs (across the nation) by over 100% from 46,000 workers in 2009 to 93,000 in 2010.  (No data is provided on wind-power related jobs created over the same time period, but one can assume that the results would be similar.)

This is just one of many examples demonstrating how Washington continues to miss the mark on truly discussing and enacting real legislation to assist the American people.  Here is something that supports the private sector and private development, that doesn’t require a public subsidy once in place, is creating jobs at a huge growth rate and increasing our ability as a nation to cut ties to our dependence on foreign oil supplies for our energy needs; however, it’s something that no one wants to discuss in Washington (even though it’s supposed to be an important initiative of the President.)  Over this past weekend, Senate Finance Committee Chairman Max Baucus proposed a one-year extension to the program, and was shot down.

Again, I do not wish to say that the tax cuts were not something important to discuss and extend (I’m of the belief that they are a good thing and that ending them now would also end whatever fragile economic recovery is underway).   However, what cost did we pay to maintain those tax cuts, and was the cost truly worth it? 


·         Report from SEIA on the job growth creating by the Fed’s Grant Program: http://www.seia.org/galleries/FactSheets/Factsheet_TGP.pdf

·         SEIA report showing the widespread benefits to many states of the Fed’s Grant Program: http://www.seia.org/galleries/pdf/TGP_Awards_12.7.10.pdf

·         Discussion of Obama’s uphill battle he faces in selling the Democrats on the “Tax Deal”: http://news.yahoo.com/s/ap/us_tax_cuts

·         Lastly, very interesting op-ed piece on the long-term (macro view if you will) effects that social networking is having, and will continue to have, on our society.  Would love your thoughts and feedback on what you think of what they label the “Zuckerberg Revolution”: http://www.latimes.com/news/opinion/commentary/la-oe-gabler-zuckerberg-20101128,0,7889675.story

Get Your Tax or Financial Questions Answered In A Future Blog Post
 

I choose topics for my blog posts based on the questions I receive most frequently from you.  I appreciate your input!  Feel free to comment at http://www.dougbeecherstaxandmoneyblog.blogspot.com/

Important Note!   The information in this article is intended to inform you of some of the financial opportunities provided in the tax laws or elsewhere.  These laws are very complex and thus this article is not intended to give you specific advice for your personal situation.  If you need such advice, please contact a qualified professional.

© 2010, Joshua K. Beecher, all rights reserved. This article, either as a whole or in part, may not be reproduced or transmitted in any form without the prior written permission of the copyright holder. When such permission is granted, the user must state that the material was used by permission of the copyright holder.