Mutual Funds & ETF's

Due to the drop in the stock market, many investors decided to sell their holdings in mutual funds. Not having enough money in cash reserves, many mutual fund managers were forced to sell some of the stocks in the funds to generate cash to pay the redeeming investors. Many of these stocks had been held for a long time with low cost basis, thus generating long-term capital gains. Those phantom long-term capital gains are now being "distributed" to the remaining mutual fund owners.

In order to avoid the income tax on these capital gain distributions, an investor will need to sell the mutual funds before the distributions are made. Investors should find out how exposed they are to the capital gains by contacting the fund companies.

For investors who hold “short” exchange traded funds (ETF’s), these funds sell short in various indexes and industries. While the performance has been great in this bear market, the ETF’s are now distributing capital gain dividends – some as high as 40% of the net asset value. And because the funds hold short positions, the capital gains are almost entirely short-term capital gain dividends that fall under the same rules as a mutual fund – the short term capital gains are taxed as ordinary income. So, not only does this tax the dividend at ordinary income rates, but the investor has no opportunity to offset the short term capital gain dividend with capital losses.

Economic Stimulus Check

https://sa1.www4.irs.gov/irfof/IRServlet?app=IRACTC&selectLanguage=en

You are required to report the amount of the economic stimulus check you received in the summer on your 2008 income tax return, even though the check is not taxable. The link above may help you locate the amount you received, if any.

Microsoft patches IE, but Firefox is still safer

http://www.windowssecrets.com/2008/12/17/02-Microsoft-patches-IE-but-Firefox-is-still-safer
By Mark Joseph Edwards

Microsoft recently announced that a special, out-of-cycle patch would be released on Dec. 17 for Internet Explorer's latest security vulnerability, the so-called XML exploit.

The Redmond software giant acknowledged on Dec. 16 that more than two million Windows users had already become infected via the IE flaw, according to an article by the Press Association. How many more people will get hit before the patch is widely distributed is anyone's guess.

Microsoft published a security advisory on Dec. 10, listing nine potential workarounds, before the patch became available. Many people, myself included, felt that the explanation did a poor job of clarifying which combination of fixes a particular user should implement. The company's Security Vulnerability Research and Defense blog attempted to clarify matters on Dec. 12. But the information there still left most people wondering how to determine the best combination of workarounds for their systems.

IE zero-day flaws cry out for switch to Firefox

There's no easy way to secure IE against similar flaws that will inevitably be discovered and used by hackers to their advantage in the future. For this reason — and in response to pleas for help by many Windows Secrets readers — here's my recommendation on the best way to surf the Web more securely:

* Step 1: Switch to Firefox, Opera, Chrome, or another contender and configure it to be your default browser. Use IE only to visit sites that require Microsoft-specific technology — probably because they rely on ActiveX to function. (For example, you need to use IE to download patches at the Windows Update site.) I recommend Firefox because of the numerous add-ons available for that browser, some of which I describe in Steps 2 and 3.

* Step 2: Install the Firefox add-ons known as User Agent Switcher (see UAS's download page) and IE Tab (download page).

User Agent Switcher lets you change your browser's identity. If a Web site demands the use of IE but actually works fine with other browsers, you can change the name of the operating system and browser the site thinks you're using. Many "IE only" sites render perfectly well in Firefox and other browsers.

IE Tab lets you open a site in a new Firefox tab that's driven by IE's rendering engine. This allows sites requiring ActiveX or other IE-only components to work in the same way they do in IE itself.

Unfortunately, using the IE rendering engine in a Firefox tab leaves your PC just as susceptible as it would be if you'd opened an IE window in the first place. Use this technique with caution and only with sites you feel are very unlikely to be hacked, such as Microsoft.com.

* Step 3: For added security, install the NoScript plug-in, which disables JavaScript, Flash, Silverlight, and other "active content" (see NoScript's download page). Because most Web sites of any complexity use JavaScript for menus and other functions, place in the utility's "whitelists" sites such as Microsoft.com and WindowsSecrets.com that are unlikely to try to run malicious scripts on you.

WS associate editor Scott Dunn wrote more about NoScript and other Firefox security add-ons in his Apr. 17, 2008, lead story.

* Step 4: Open an Internet Explorer window and set the security level of IE's Internet zone to High. To do this, click Tools, Internet Options, Security. Choose the Internet zone in the box at the top of the dialog and move the slider control below it to High. Note that this setting will cause many sites you haven't added to IE's Trusted Sites zone to render incorrectly or display error messages.

* Step 5: If for some reason you can't install Microsoft's Dec. 17 IE patch, refer to Microsoft's Dec. 10 and Dec. 12 advisories for workarounds, as I mentioned above. The latter page, for example, describes how to adjust Access Control Lists by using Registry scripts in an oledb32.zip file you can download from Microsoft. (The download link is at the end of that page.)

Be aware that some of the workarounds Microsoft recommends can have unexpected side-effects. For example, a comment posted by the Internet Storm Center on Dec. 16 stated that Microsoft's "Disable XML Island" workaround prevents users from sending e-mail using Exchange 2003 and Outlook Web Access.

If you need any more evidence that weaknesses in IE can be rapidly used by hackers, take a look at a wiki page provided by the Shadowserver Foundation, a security group that lists sites known to be infecting unsuspecting visitors. IMPORTANT: Do not visit any of the sites on the list, even if you think your browser is secure — these sites are or were infectious.

The point is that thousands of sites became carriers within days. (The Press Association quotes Trend Micro as saying more than 10,000 sites were compromised by Dec. 16.) If you use a URL filtering system or block list, you should add the sites cited by Shadowserver to prevent access — at least until all your machines are patched or a specific site is proved to be clean.

Mark Joseph Edwards is a senior contributing editor of Windows IT Pro Magazine and regularly writes for its Security Matters blog. He's a network engineer, freelance writer, and the author of Internet Security with Windows NT.

IRS drops interest rate

IRS Drops Interest Rates
Washington, D.C. (December 15, 2008)
By WebCPA Staff

The Internal Revenue Service announced that the interest rates for the calendar quarter beginning January 1, 2009, will drop by one percentage point.

The new rates, as laid out in Revenue Ruling 2008-54 will be:

-- 5 percent for overpayments (4 percent in the case of a corporation);

-- 5 percent for underpayments;

-- 7 percent for large corporate underpayments; and,

-- 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, based on the federal short-term rate. The most recent rates were computed from the federal short-term rate during October 2008 to take effect November 1, 2008, based on daily compounding.

Social Security Podcast

The Social Security Administration has begun to produce podcasts. To listen, go to http://www.socialsecurity.gov/podcasts/.

Episode 1 is on Deciding When to Start Retirement Benefits. The direct link is at http://www.socialsecurity.gov/media/ocomm/podcasts/episode1.mp3.

Cash for your old electronic gadgets

http://gadgetress.freedomblogging.com/2008/12/02/e-recycling-another-way-to-get-deals-on-electronics/5350/
11 sites that pay for your old iPod, PC, other electronics
December 2nd, 2008, 5:56 am

Beyond digging for deals and finding the lowest price, there is another way to fund your next electronic purchase without opening up that wallet.

Several companies will pay you money for your old computer, iPod or other gadget. Some pay cash, others gift cards. Another company lets you lock in how much money you can get for a gadget after six months to two years of use.

As you may or may not know, such recycling efforts are part of the whole green tech trend. In California, it’s been illegal to dump a monitor or computer into the trash can for years. More recently, consumers here pay an ‘e-recycling’ fee when buying a new monitor, PC or other device with a screen.

While many computer sites now offer free recycling, I’ve honed in on the sites that give you a little something extra for your junk. Pretty much all offer free shipping — you just print out a label on your computer and ship the gadget.

Using my old 40 GB iPod Photo (in good condition, with minor scratches) as an example, here’s what I can get for it (from high to low):

$60 = Toshiba America - Uses eztradein.com to run its program. Gives gift cards and cash for old electronics. Read my past story on the program, “Toshiba’s PC recycling program now accepts all e-junk.”

$60 = BestBuy.com uses the same service as Toshiba. But instead of cash, you’ll get a gift card to Best Buy.

$60 = PayPal.com uses the same service as Toshiba. Pays with PayPal credit.

$56.70 = Amazon.com uses several companies including Gazelle (mentioned below). All pay with Amazon gift cards. In this case, NextWorth accepts old iPods and iPhones. Using FlipSwap.com, my iPod got me $35.29 in Amazon gift cards.

$56 = Costco.com uses GreenSight Technologies for its recycling program. Program pays in Costco gift cards.

$56 = SamsClub.com uses EcoNEWonline.com for its recycling program. Program pays in Sams Club gift cards.

$53 = TigerDirect.com uses GreenSight Technologies for its recycling program. Program pays in TigerDirect gift cards.

$36 = Crutchfield.com uses cexchange.com and pays in store gift cards.

$30.60 = RadioShack offers RadioShack gift cards. Read my past story on RadioShack’s program at “RadioShack offers gift cards for your old electronics.”

$25 = Gazelle.com accepts a wide variety of electronics and pays cash, PayPal credit, an Amazon gift card or donates to a variety of charities. It also promises to wipe out any data still on the gadget.

$23 = Lenovo’s Eco Takeback program puts the cash on the Eco International pre-paid Visa card. It has no cash value.

Up to $40 = Apple recyles its own products for free but doesn’t pay cash. However, if you drop off your old iPod at an Apple Store, you can get a 10 percent discount on a new iPod (like, the $399 iPod Touch).

I guess after 3 years, you can’t expect much return on the $499 investment (did I really pay that much for an iPod Photo?)

There are other sites that pay money or credit for the recycling of their own electronics, like Sony. But I wanted to list sites that accept all brands of electronics.

One other possible option: Locking in the price at the time of purchase. TechForward offers a ‘guaranteed buy back’ program for electronics. You pay a one-time fee to lock in the ‘buy back’ rate.

The fee is anywhere from $20 (for an iPod or digital camera) to $150 (for big TVs). The buy back rate is the same for all products: 50 percent of the purchase price if returned in 6 months, 40 percent between 6 to 12 months, 30 percent between 12 to 18 months and 20 percent for up to 24 months.

I haven’t tried the program but there is not enough incentive for me. While getting 50 percent back is unheard of, you’ve got to return the product within six months to get that rate. Plus, it must be in good condition and there is the upfront fee. Right now, the service is only offered to TigerDirect.com, CompUSA and Amazon customers plus some local Los Angeles stores. Still, this could be an option for people who must have the latest and greatest gadget and know that within a few months after purchase, they’ll be upgrading again.

New CA tax law

SB 1389 (enacted September 30, 2008) added Section 19011.5 to the Revenue & Taxation Code, requiring some taxpayers to make their tax payments using an electronic method. See http://www.ftb.ca.gov/individuals/Mandatory_e-pay.shtml.

Beginning January 1, 2009 personal income taxpayers whose tax liability is greater than $80,000 or who make an estimated tax or extension payment that exceeds $20,000 for taxable years beginning on or after January 1, 2009, must send the payment electronically. Once either of these conditions is met, all payments regardless of type, amount, or tax year must be remitted electronically. Electronic payment methods include Electronic Funds Withdrawal (EFW), Web Pay, or Credit Card.

There is a one percent penalty of the amount paid unless the failure to pay electronically was for reasonable cause and not willful neglect.

Taxpayers whose tax thresholds fall below the mandatory e-pay amounts may request to discontinue making electronic payments. In March 2009, FTB will provide a waiver form for taxpayers to file.

On December 1, the Franchise Tax Board sent courtesy letters (http://www.ftb.ca.gov/forms/misc/4105MEO.pdf) to taxpayers who made a payment in 2008 that could qualify them for mandatory e-pay. The letter informed these taxpayers of the law change, and that they may meet the mandatory e-pay threshold in 2009.

AB 583 (Hancock, Stats. 2008, Ch. 735): Establishes the Fair Elections Fund and places the Voters Fair Elections Fund as a voluntary contribution designation on the personal income tax return beginning with the 2008 return.

AB 1452 (Committee on Budget, Stats. 2008, Ch. 763): Does the following:
* Suspends net operating loss (NOL) deductions for two years, makes the NOL carryover period 20 years, and allows taxpayers a two-year carryback for NOLs from 2011 and later.
* Authorizes FTB to conduct a tax amnesty for the 2003 through 2006 taxable years for corporation and personal income taxpayers. (Repealed by SBX1 28.)
* Requires a limited liability company (LLC) to estimate and pay its LLC fee by a specific date. (Clarified by SBX1 28.)
* Limits the amount of tax credits that may reduce tax for two years, and allows tax credits to be assigned among members of a combined reporting group under the Corporation Tax Law. (Clarified by SBX1 28.)

AB 2249 (Niello, Stats. 2008, Ch. 234): Allows a taxpayer to recover an income tax refund that they misdirected to the wrong bank account. Also allows FTB, where necessary, to use its assessment and collection powers to get a misdirected refund back from a third-party who is the unintended recipient of a misdirected refund.

AB 3078 (Assembly Revenue & Taxation Committee, Stats. 2008, Ch. 305): Does the following:
* Allows entities to file a tax return on behalf of certain nonresidents.
* Closes loopholes in current tax withholding on the payments that nonresident individuals and non-California businesses receive from the sale of California real property.
* Extends the statute of limitations for claiming the credit for taxes paid to another state.
* Gives discretionary authority to the Taxpayers' Rights Advocate to grant relief from penalties, fees, or interest imposed on a taxpayer because of erroneous actions of the department.
* Increases the Personal Income Tax estimated tax penalty threshold.
* Clarifies the rules for the elimination from income of certain dividends received.

SBX1 28 (Senate Budget Committee, Stats. 2008, First Ex. Sess. 2007-2008, Ch. 1): Does the following:
* Accelerates the amount of estimate tax payments required to be made for taxable years beginning on or after January 1, 2009, and eliminates the option for certain taxpayers to use last year’s income tax in calculating estimate payment requirements for current year.
* Repeals Tax Amnesty provisions and penalty, as enacted in AB 1452.
* Enacts a new corporation tax penalty for understatements of tax in excess of $1 million for taxable years beginning on or after January 1, 2003.
* Clarifies the operative date for the requirement to estimate and pay the limited liability company fee of taxable years beginning on or after January 1, 2009.
* Clarifies legislative intent on business tax credit assignment language in AB 1452 for purposes of proper implementation of that section.

SB 797 (Ridley-Thomas, Stats. 2008, Ch. 33): Requires income tax returns prepared by an employee of an exempt tax preparer to be signed by either of the following:
* An exempt tax preparer (Certified Public Accountant, Attorney, or Enrolled Agent).
* A tax preparer that is registered with the California Tax Education Counsel.

SB 1055 (Machado, Stats. 2008, Ch. 282): Allows taxpayers to exclude up to $250,000 of cancellation-of-debt income that results from a discharge of a loan that was used to acquire, construct, or substantially improve the principal residence of the taxpayer. The maximum amount of a loan eligible to be excluded is $800,000, and the exclusion is phased-out for discharged loans that exceed $800,000.

SB 1285 (Corbett, Stats. 2008, Ch. 711): Requires FTB to establish appraisal standards and requirements for the purpose of substantiating the amount of charitable contributions claimed by a seller for conservation land acquired using state funds".

Beginning January 1, 2009 personal income taxpayers whose tax liability is greater than $80,000 or who make an estimated tax or extension payment that exceeds $20,000 for taxable years beginning on or after January 1, 2009, must send the payment electronically. Once either of these conditions is met, all payments regardless of type, amount, or tax year must be remitted electronically. Electronic payment methods include Electronic Funds Withdrawal (EFW), Web Pay, or Credit Card.

There is a one percent penalty of the amount paid unless the failure to pay electronically was for reasonable cause and not willful neglect.

Taxpayers whose tax thresholds fall below the mandatory e-pay amounts may request to discontinue making electronic payments. In March 2009, FTB will provide a waiver form for taxpayers to file.

On December 1, we sent courtesy letters to taxpayers who made a payment in 2008 that could qualify them for mandatory e-pay. The letter informed these taxpayers of the law change, and that they may meet the mandatory e-pay threshold in 2009.

AB 583 (Hancock, Stats. 2008, Ch. 735): Establishes the Fair Elections Fund and places the Voters Fair Elections Fund as a voluntary contribution designation on the personal income tax return beginning with the 2008 return.

AB 1452 (Committee on Budget, Stats. 2008, Ch. 763): Does the following:
* Suspends net operating loss (NOL) deductions for two years, makes the NOL carryover period 20 years, and allows taxpayers a two-year carryback for NOLs from 2011 and later.
* Authorizes FTB to conduct a tax amnesty for the 2003 through 2006 taxable years for corporation and personal income taxpayers. (Repealed by SBX1 28.)
* Requires a limited liability company (LLC) to estimate and pay its LLC fee by a specific date. (Clarified by SBX1 28.)
* Limits the amount of tax credits that may reduce tax for two years, and allows tax credits to be assigned among members of a combined reporting group under the Corporation Tax Law. (Clarified by SBX1 28.)

AB 2249 (Niello, Stats. 2008, Ch. 234): Allows a taxpayer to recover an income tax refund that they misdirected to the wrong bank account. Also allows FTB, where necessary, to use its assessment and collection powers to get a misdirected refund back from a third-party who is the unintended recipient of a misdirected refund.

AB 3078 (Assembly Revenue & Taxation Committee, Stats. 2008, Ch. 305): Does the following:
* Allows entities to file a tax return on behalf of certain nonresidents.
* Closes loopholes in current tax withholding on the payments that nonresident individuals and non-California businesses receive from the sale of California real property.
* Extends the statute of limitations for claiming the credit for taxes paid to another state.
* Gives discretionary authority to the Taxpayers' Rights Advocate to grant relief from penalties, fees, or interest imposed on a taxpayer because of erroneous actions of the department.
* Increases the Personal Income Tax estimated tax penalty threshold.
* Clarifies the rules for the elimination from income of certain dividends received.

SBX1 28 (Senate Budget Committee, Stats. 2008, First Ex. Sess. 2007-2008, Ch. 1): Does the following:
* Accelerates the amount of estimate tax payments required to be made for taxable years beginning on or after January 1, 2009, and eliminates the option for certain taxpayers to use last year’s income tax in calculating estimate payment requirements for current year.
* Repeals Tax Amnesty provisions and penalty, as enacted in AB 1452.
* Enacts a new corporation tax penalty for understatements of tax in excess of $1 million for taxable years beginning on or after January 1, 2003.
* Clarifies the operative date for the requirement to estimate and pay the limited liability company fee of taxable years beginning on or after January 1, 2009.
* Clarifies legislative intent on business tax credit assignment language in AB 1452 for purposes of proper implementation of that section.

SB 797 (Ridley-Thomas, Stats. 2008, Ch. 33): Requires income tax returns prepared by an employee of an exempt tax preparer to be signed by either of the following:
* An exempt tax preparer (Certified Public Accountant, Attorney, or Enrolled Agent).
* A tax preparer that is registered with the California Tax Education Counsel.

SB 1055 (Machado, Stats. 2008, Ch. 282): Allows taxpayers to exclude up to $250,000 of cancellation-of-debt income that results from a discharge of a loan that was used to acquire, construct, or substantially improve the principal residence of the taxpayer. The maximum amount of a loan eligible to be excluded is $800,000, and the exclusion is phased-out for discharged loans that exceed $800,000.

SB 1285 (Corbett, Stats. 2008, Ch. 711): Requires FTB to establish appraisal standards and requirements for the purpose of substantiating the amount of charitable contributions claimed by a seller for conservation land acquired using state funds

IRS Mileage Rate

http://www.webcpa.com/article.cfm?ARTICLEID=29962
IRS Lowers Deductible Mileage Rates
Washington, D.C. (Nov. 25, 2008)
By WebCPA staff

The Internal Revenue Service has reduced the 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile, citing lower gas prices.

Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car, van, pickup or panel truck will be 55 cents per mile for business miles driven, 24 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008.

The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.

The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously. Taxpayers also have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

For more, see http://www.irs.gov/newsroom/article/0,,id=200505,00.html.

Obama tax plan

http://public.deloitte.com/media/0163/us_tax_decisionsaheadobama110508.pdf

The international accounting firm of Deloitte and Touche predicts what Obama will do in terms of taxes, among other things.

Obama campaigned on promises to keep some tax cuts for married couples earning less than $250,000 and singles earning less than $200,000 which under the present law are set to expire at the end of 2010.

He has said he will:

* Reinstate the top two individual income tax rates (currently 33 and 35 percent) to their pre-2001 levels of 36 and 39.6 percent while maintaining the existing 10, 15, 25, and 28 percent tax brackets;

* Increase the capital gains rate to 20 percent for taxpayers in the top two tax brackets;

* Continue to apply the same tax rates to qualified dividends as capital gains; and

* Reinstate for high-income taxpayers the personal exemption phase-out and itemized deduction limitation, which are scheduled to be fully phased out starting in 2010.

In effect, the Obama plan would raise the top income tax rate, considering these phase-outs, to 40.79 percent from its 2008 level of 35.35 percent.

Alternative Minimum Tax

President-elect Obama has proposed extending and indexing the temporary increase in the AMT exemption amount enacted for 2008. This would prevent a dramatic increase in the number of AMT taxpayers. His increases in ordinary tax rates also would remove some high-income taxpayers from AMT by increasing the amount of their regular tax liability.

Estate tax

The estate tax, which is set to drop to zero for 2010 only, will be reinstated in 2011 at the significantly higher rates and significantly lower exemption amounts that were in effect in 2000. This will mean an increase in the exemption level to $3.5 million per person ($7 million per couple) and will increase the top rate to 45 percent.

Other individual tax proposals

Many of Obama's individual income tax proposals already exist in draft form in legislation that has been vetted by Congress. But new proposals would:

* Eliminate all income taxes for seniors (age 65 and over) earning under $50,000 a year.

* Create a refundable Making Work Pay Credit equal to 6.2 percent of up to $8,100 in earnings for those making less than $75,000 a year (maximum $500 credit per spouse).

* Create a refundable 10 percent Universal Mortgage Credit for nonitemizers (up to a maximum of $800).

* Replace existing Hope credit with a refundable American Opportunity Tax Credit, providing up to $4,000 per year for qualifying higher education expenses.

* Expand the earned income tax credit program.

* Mandate automatic employee enrollment in 401(k) plans where employers offer retirement plans. Require employers that don't offer retirement plans to provide employees with access to automatic IRAs.

* Expand Savers Credit and make it refundable. For working families earning under $75,000, government would match $500 of first $1,000 saved and deposit into account.
* Increase child care dependent maximum credit rate to 50 percent and increase phase-out threshold to $30,000.

Long term payroll tax increase

To address long-term problems with Social Security and Medicare, Obama has said that he would propose an additional payroll tax to take effect 10 years or more in the future. This tax would be at a rate of between 2 and 4 percent (split between employer and employee) and would apply to income above $250,000.

Economic recovery and timing of tax legislation

The authors of Tax policy decisions ahead say that they expect the new administration will adopt new tax policies as events unfold:

* First, some tax relief will be proposed early in the new administration as part of economic recovery legislation.

* Second, later in the year as Congress and the White House confront the need to extend a variety of expiring individual and business tax provisions as well as another year of AMT relief, the ballooning deficit projections that have accompanied the current economic crisis and recovery efforts will make Obama and Democratic lawmakers much less sympathetic to pleas that these provisions be extended without offsetting tax increases.

* Third, by 2011, Obama and the Democratic Congress are very likely to have succeeded in their desire to raise ordinary income tax rates, as well as capital gains and dividend rates on the highest income individuals.

Taxpayers will have some time to prepare for changes, because the introduction of new tax rates on both business and individuals will be affected both by the economic situation and the President-elect's strategy for governing.

Source: http://www.accountingweb.com/cgi-bin/item.cgi?id=106468&d=883&h=884&f=882&dateformat=%o%20%B%20%Y

Money managers prepare for Obama's tax policies

http://pittsburgh.bizjournals.com/pittsburgh/stories/2008/11/17/story1.html?b=1226898000^1732986
Friday, November 14, 2008 | Modified: Monday, November 17, 2008 - 6:00 AM

Money managers prepare for Obama's tax policies
Pittsburgh Business Times - by Patty Tascarella

President-elect Barack Obama vowed during the campaign that he would cut taxes for the middle class but raise them for the affluent.

With roughly six weeks left in the year to come up with strategies for clients’ 2008 tax filings, financial professionals are scrambling to guess what changes are likely to be enacted once Obama takes office in January.

They don’t doubt there will be changes. Obama outlined a comprehensive plan that raises capital gains and estate taxes, rewards corporate R&D and job creation efforts stateside, and repeals special breaks for oil and gas companies and those who create jobs overseas at the expense of employment in the United States.

But many believe the roller coaster spins and turns of the stock market over the past couple months will impact the new president’s agenda.

“The economy is the wild card,” said Douglas Kreps, managing director at Fort Pitt Capital Group, Green Tree. “It seems like the rhetoric coming out of the Obama transition team has softened on taxes. The economy is in a fragile state, and they don’t want to be seen as raising taxes and further damaging the economy.”

David B. Root Jr., CEO of Downtown-based D.B. Root & Co., isn’t sure “how much room (Obama) is going to have to increase marginal tax rates in the way he communicated during his campaign because we’re in a recession and have no idea” how long it will last.

“We’re encouraging our clients not to overreact,” Root said. “However, at the same time, we’re suggesting it makes sense to be aware that certain tax items or tax rates may and probably will go up, namely capital gains and possibly dividend rates.”

BEST GUESSES
Root believes it’s “more than likely” the new president will take “some steps” with capital gains, specifically raising the rates from the current 15 percent to 20 percent for those in the upper income brackets.

“In which case, from an investment standpoint, anything we can do to enable our clients’ portfolios to become more tax efficient going into next year will only help,” Root said. “That may mean possibly harvesting capital gains this year and offsetting those with losses that may have occurred over the past two or three months.”

He’ll make sure clients are “maxing out on retirement plans” and taking advantage of over-50 catchup contributions, which aren’t taxed until the investor cashes out.

“A lot of times, those get overlooked,” he said.

Smithfield Trust Co. CEO Robert Kopf is counseling clients to concentrate on their overall game plan.

“I have heard because of the problems in the economy that those tax increases in capital gains may be delayed or deferred, so we’re not getting too worked up,” Kopf said. “What we are doing is counseling customers to harvest losses they may have realized in this bear market and use those losses to offset earlier gains occurred in 2008. They can carry forward losses that would offset capital gain liability in 2009.”

Kreps pointed out that many investors’ gains “have evaporated” with the plummeting stock market.

“The tax planning needs to be revisited this quarter,” he said. “Investors need to come back to the fundamentals with the investments they own and worry a little less about taxes. If your portfolio makes sense long-term, let’s try not to make a short-term decision based on gambling with the tax system when we don’t know what will happen.”

Kreps said the capital gains tax increases likely won’t occur in the current year, but could be implemented in 2009 or 2010.

“Congress and the president-elect will have way more important issues to address with regard to the economy than trying to change the tax code right out of the gates,” Kreps said. “The guy’s boxed in.”

David Hunter, chairman of Hunter Associates Inc. and a former chairman of the National Association of Securities Dealers, is less concerned over the new administration’s potential tax changes than in nudging clients back into the stock market.

“We’ve been more conservative for over a year now than we normally would be, but we’ve got to buy stocks to restore the equity portion of (clients’) portfolios,” Hunter said. “The truth is, they don’t want us to at the moment, and we do this slowly, but stock prices are down a lot more than earnings will be down at many good companies. We’ve got to buy stocks when they’re at these levels if we’re going to be winners long-term.”

The Obama Plan
President-elect Barack Obama’s proposed tax changes include:
The creation of a new “Making Work Pay” tax credit of up to $500 per person or $1,000 per working family
No tax increases for any family making less than $250,000
Repealing a portion of the Bush tax cuts for families making more than $250,000
Returning the top two income tax brackets to their 1990s levels of 36 percent and 39.6 percent
Creating a new top capital gains rate of 20 percent for those in the top two income tax brackets.
Eliminating all capital gains taxes on startup and small businesses to encourage innovation and job creation
Cutting corporate taxes for firms that invest in jobs in the United States
Making the R&D tax credit permanent
Eliminating special tax breaks for oil and gas companies
Repealing tax loopholes that reward corporations that retain their earnings overseas
Source: www.BarackObama.com

ptascarella@bizjournals.com | (412) 208-3832

Worldwide corporate tax rate cut

http://www.webcpa.com/article.cfm?articleid=29805

Countries Worldwide are Cutting Corporate Tax Rates
Washington, D.C. (Nov. 11, 2008)
By WebCPA staff

Nations around the world are reducing corporate taxes, according to a report by PricewaterhouseCoopers.

The report found that 21 economies have cut their corporate income tax rates. Eight economies have reduced the number of taxes paid by businesses. Thirty-six economies have made it easier to pay taxes, with the Dominican Republic leading the way in this respect, followed by Malaysia. Twelve have improved their electronic filing and payments systems efficiency.

Among the 30 industrialized countries in the Organization for Economic Cooperation and Development, the U.S. has the second highest corporate tax rate. The U.S. has a combined federal, state and local corporate tax rate of approximately 39.3 percent, or 50 percent higher than the 26.2 percent average for the other 29 OECD member countries. However, this figure does not take into account the many deductions that corporations typically take. Other studies have found that many U.S. corporations pay no income taxes.

The PwC report noted that the high U.S. statutory corporate tax rate is partially offset by the 6 percent federal Domestic Production Activities Deduction, which reduces the effective federal corporate income tax rate on qualified income from 35 percent to 32.9 percent for qualified income.

The report also found that for small and midsized companies, the U.S. compares favorably with other countries in terms of ease of compliance. Widespread availability of electronic filing is an important factor in the favorable U.S. ranking in terms of the number of annual tax payments.

CA 2008 Tax Tables

California has released its 2008 income tax table:
http://www.ftb.ca.gov/professionals/taxnews/2008/1108/1108_9att.pdf

The standard deduction will increase for single or married filing separate taxpayers from $3,516 to $3,692. For joint, surviving spouse, or head of household taxpayers, the standard deduction increases from $7,032 to $7,384. The personal exemption credit amount for single, separate, and head of household taxpayers will increase from $94 to $99 and for joint or surviving spouse from $188 to $198. The dependent exemption credit increases from $294 to $309 for each dependent. Renter's credit is available for single filers with adjusted gross income of $34,936 or less and joint filers with adjusted gross income of $69,872 or less.

In addition, the Franchise Tax Board (FTB) provides minimum filing requirement thresholds to ensure that most people who will not owe taxes are not required to file a tax return. FTB adjusts these tables each year to include the added senior exemption and the dependent exemption credits. The tax threshold, the amount of income reached where a tax liability is incurred, has risen to an adjusted gross income of $12,226 for single or married filing separate taxpayers, and to $24,452 for joint, surviving spouse, and unmarried head of household filers.

For 2009, SDI will be withheld at 1.1%, up to $90,669, for a total of $997.36. The maximum 2008 SDI withholding was $693.58.

Tax Return Copy Rate Increased

http://www.webcpa.com/article.cfm?articleid=29719
Tax Return Copy Rate to Increase
Washington, D.C. (Oct. 31, 2008)
By WebCPA staff

The Internal Revenue Service plans to increase the fee for obtaining an exact copy of a previously filed and processed tax return with all the attachments.

Beginning Nov. 1, the fee will increase to $57 from $39 to reflect better the cost of processing the request. Taxpayers or their designated representatives must still complete and mail the Form 4506, Request for Copy of Tax Return to complete the request. Copies are generally available for returns filed in the current and past six years.

However, the IRS noted that it would still provide a tax return transcript for many returns free of charge. A transcript provides most of the information contained in a tax return and usually includes the information that mortgage companies and other lending institutions require for loan and employment verification purposes.

Taxpayers can obtain transcripts by completing and mailing a Form 4506-T, Request for Transcript of Tax Return, by calling the IRS at (800) 829-1040, visiting a local Taxpayer Assistance Center or going through a tax professional if that person or company prepared their prior-year return. Transcripts represent more than 93 percent of all requests for tax account information, the IRS noted.
_____

With a signed Power of Attorney, Form 2848, most tax preparers can obtain a transcript of a taxpayer instantly.

Official 2009 tax brackets

http://www.webcpa.com/article.cfm?ARTICLEID=29559
Inflation Adjustments Widen Tax Brackets
Washington, D.C. (Oct. 17, 2008)
By WebCPA staff

The Internal Revenue Service said personal exemptions and standard deductions would rise in 2009 to keep pace with inflation, providing more than three dozen tax benefits.

The inflation adjustments will affect 2009 tax returns, which most taxpayers will file in 2010. The value of each personal and dependency exemption is $3,650, up $150 from 2008. The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350).

Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes, the IRS noted.

Tax bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable income threshold separating the 15 percent bracket from the 25 percent bracket will be $67,900, up from $65,100 in 2008.

The maximum earned income tax credit for low- and moderate-income workers and working families with two or more children will be $5,028 in tax year 2009, up from $4,824 in 2008. The income limit for the credit for joint return filers with two or more children will be $43,415, up from $41,646. The annual gift exclusion is rising to $13,000, up from $12,000 in 2008.
______
The official IRS announcement,Rev. Proc. 2008-66, is at http://www.irs.gov/pub/irs-drop/rp-08-66.pdf.

Dealing with economic crisis

For whatever it's worth, here is a letter from the American Institute of CPA's on how to deal with the current financial crisis. Readers need to tailor the recommendations with their individual situation as it is just a form letter:
http://pcps.aicpa.org/NR/rdonlyres/D192EAFC-3DCB-484C-8DB4-E2AD9669E595/0/CreditCrisisCPALetter.pdf

Candidates' fix on economic crisis

For Obama to advocate letting people withdraw from their retirement account is simply misguided. We as a nation already do not save enough for our retirement. People could easily sell their stocks inside the retirement plan and invest in CD's or money market fund without withdrawing from the account. I can perhaps understand where he's coming from if he limits the withdrawals to people who have lost their jobs and are on unemployment. In my opinion, the last thing a person should do is to drain their retirement funds prematurely.

http://www.webcpa.com/article.cfm?ARTICLEID=29492
McCain, Obama Propose Measures for Economic Crisis
Washington, D.C. (Oct. 15, 2008)
By WebCPA staff

Presidential candidate Sen. John McCain, R-Ariz., and his rival Sen. Barack Obama, D-Ill., have proposed differing tax and retirement plan measures to deal with the economic downturn.

McCain proposed that the first $50,000 withdrawn from individual retirement accounts and 401(k) plans by people over the age of 60 should be taxed at the lowest rate, 10 percent, in 2008 and 2009. He also called for suspending the tax rules that require seniors to begin selling off equities from their IRA and 401(k) accounts when they reach age 70.5.

In addition, McCain proposed increasing the amount of capital losses that can be used in 2008 and 2009 to offset ordinary income, from $3,000 to $15,000. He also suggested cutting in half the maximum tax rate on long-term capital gains, from 15 to 7.5 percent, in 2009 and 2010.

McCain wants to eliminate taxes on unemployment benefits. He has also proposed buying failing mortgages that are putting homeowners in danger of foreclosure and substituting them with fixed-rate mortgages guaranteed by the Federal Housing Administration at terms that are manageable for homeowners.

"The moment requires that government act," McCain said at a Pennsylvania rally. "And as president I intend to act quickly and decisively."

Obama has proposed that every family be allowed to withdraw up to 15 percent from their IRA or 401(k), up to a maximum of $10,000, without any fine or penalty, through 2009. He is also proposing a three-month moratorium on foreclosures. In addition, Obama is proposing a Jobs and Growth Fund that would provide money to states and local communities for infrastructure projects such as rebuilding and repairing bridges, roads and schools.

"We need to pass an economic rescue plan for the middle class and we need to do it now," he said in a statement.

Safe Investment

Here is a link to an article, entitled "3 safe places to stash your cash":
http://biz.yahoo.com/hmoney/081006/100608_safe_havens_moneymag.html?.&.pf=banking-budgeting

Emergency Economic Stabilization Act

President Bush signed the Emergency Economic Stabilization Act of 2008, H.R. 1424, on Friday, October 3, 2008, see http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.1424.eas:.

Some of the tax provisions included in the plan are:

►          One year of Alternative Minimum Tax (AMT) patch, setting 2008 exclusion of $46,200 for individuals and $69,950 for joint filers

►          Extensions of expiring provisions including:

            o          Teacher's above the line $250 expense deduction

            o          Deduction of qualified tuition through the end of 2009

            o          Choice of sales tax deduction or state income tax deduction, whichever is higher, as an itemized deduction

            o          Property tax deduction for non-itemizers

            o          Allow taxpayers over age 70½ to contribute an IRA distribution of up to $100,000 to charity and exclude the amount from income

            o          Relief for taxpayers whose mortgage debt has been reduced through foreclosure or reduced through a restructuring. This kind of reduction in debt traditionally counted as income under the tax code, but was made exempt in 2007. The new measure extends this protection from the end of 2009 through 2012.

            o          15-year cost recovery for qualified leasehold improvements and restaurant property, and new 15-year treatment for qualified retail improvement property

►          Changes to preparer penalty rules

►          Increase in the AMT refundable credit

►          Liberalization of the refundable child credit, lowering the “floor” for the refundability of the credit from approximately $12,050 to $8,500

Of course, California conforms to none of these changes. Click here for a PDF version of the Act.

For more details, click on this CCH link.

Caveat Emptor -- ING Direct

ING Direct – Let the Buyer Beware

Here is a my very unpleasant experience with ING Direct.

ING Direct, a U.S. branch of ING Group based in the Netherlands, advertises on its web site, http://farm4.static.flickr.com/3040/2904282333_d9550a396c_o.jpg, if a customer refers a friend to open an “Orange Savings Account” or an “Electric Orange” account with $250 or more, the friend would get $25 and the existing customer would get $10.

I referred someone to open an account at ING Direct but never received my $10. It is not the $10 that caused me to post this blog, it is the principle and the false advertisement on ING Direct part.

Here is the story:
When the referree got the invitation from me, she was ready to open an account. But the disclosure statement about the Savings Account mentions terms pertaining to an Orange CD account. Concerned that her money might actually end up in a CD, she called ING Direct. The ING agent told her the Orange Savings Account is not a CD and assured her her funds would be liquid. The ING agent proceeded to tell her that an Orange CD account pays at a higher interest rate. When tasked about the $25 bonus, the agent told the referree she wouldn’t get the $25 bonus unless she opens an Orange Savings Account. That was fine and dandy. But the agent continued to tell the referree she should open an Orange CD right away to lock in the interest rate and could open an Orange Savings Account afterwards and still get the bonus. She did.

She opened an Orange CD to lock in the interest rate and then tried to open an Orange savings account later that same day but could not. Another phone call ended with the assurance that only one account can be opened a day and that she should open the Savings after the CD is assured. In the meantime, she was assured there would be no problem about the bonuses if the agent gave the incorrect information as the research department would go over the phone calls to make the determination.

A few days later after the CD was established, the referree called back to open the Savings account and was given the $25 credit instantly but was told I had to call to receive my $10.

When I made the call, another ING Direct agent said the referree was not entitled to the $25 and I was I not entitled to the $10 bonus because she was an existing customer when she opened the Orange Savings Account. The agent threatened to remove the $25 from her account at which point the referree asked to speak to a supervisor and was transferred to Mark, the floor manager, employee #702144, located in Delaware. Mark was rude on the phone and asked many unnecessary personal questions. Those questions had nothing to do with $10 bonus and ING policy. I decided it’s not worth dealing with him or ING Direct anymore. I will be closing my account with them as soon as interest is posted this month.

Candidates' tax plan

http://www.webcpa.com/article.cfm?ARTICLEID=29350
Both Candidates' Plans Would Reduce Tax Liabilities
Washington, D.C. (Sept. 24, 2008)
By WebCPA staff

A study of both presidential candidates' tax plans finds that they will both reduce millions of taxpayers' liability to zero.

According to Internal Revenue Service statistics for 2006, 45.6 million tax filers, or about one-third of all filers, have no tax liability after taking credits and deductions. "For good or ill, this is a 57 percent increase since 2000 in the number of Americans who pay no personal income taxes," wrote Scott A. Hodge, in a study for the Tax Foundation. He estimates that there will be 47 million tax returns with zero income tax liability in 2009 under current law.

The foundation's estimates show that if all of the tax provisions proposed by Sen. Barack Obama, D-Ill, are adopted next year, the number of non-payers would rise by approximately 16 million, to a total of 63 million, or about 44 percent of all tax filers. If all the tax proposals of Sen. John McCain, R-Ariz., were enacted in 2009, the number of taxpayers with zero tax liability would increase a million less, by about 15 million to 62 million overall, or about 42 percent of all tax filers.

The Obama tax plan contains seven new tax provisions, including a Making Work Pay Credit, a Universal Mortgage Credit, and a plan to eliminate income taxes for seniors earning under $50,000, while McCain's health care credit offers incentives for people to buy their own health insurance.

"This tax provision has a bigger impact on cutting people's taxes than any single proposal from either party," wrote Hodge. "Obama uses a longer list of smaller tax credit ideas to reduce a similar number of taxpayers' liability to zero."
___

Here is a Wall Street Journal article on the two presidential candidates' tax plan:
http://online.wsj.com/article/SB122221857642269749.html

The article provided a couple of external links with overview of the two plans:
Grant Thornton has an overview chart.
Deloitte & Touche provides a detailed 14 page summary.

And here is the same WSJ article on Yahoo, http://biz.yahoo.com/wallstreet/080924/sb122221857642269749_id.html.

A friend, Jerry Gropp AIA, from Mercer Island sent me this link, which is excellent:
https://knol.google.com/k/jeffrey-gramlich/the-mccain-and-obama-tax-plans-for/2k7f943jjgete/3#

Tax Provisions in CA Budget

Here is a list of tax-related changes. Provisions that are different or not contained in the original set of budget bills say New.

▸ The LLC fee is accelerated, and calendar-year LLCs must pay their 2008 fee on April 15, 2009, and estimated 2009 fee on June 15, 2009.
▸ Business credits are limited to 50% of tax liability for 2008 and 2009, with an exception for small businesses.
▸ The 12-month rule for use tax on vehicles, vessels, and aircraft purchased outside of California is back, effective the date of enactment.
▸ The NOL deduction is suspended for 2008 and 2009, with an exception for small businesses. However, for taxable years beginning on or after January 1, 2008, NOLs may be carried forward for 20 years; NOLs may be carried back for two years for losses generated in taxable years beginning on or after January 1, 2011.
▸ New For taxable years beginning on or after July 1, 2008, affiliated corporations may share credits.
▸ Beginning January 1, 2009, the first two estimated payments for individuals and corporations are increased from 25% to 30%, and the last two are reduced to 20%.
▸ Individual taxpayers with income over $1 million may no longer use the 110% of prior-year tax as a safe harbor for years beginning in 2009.
▸ New The 1% mental health surcharge will be imposed on California-source taxable income for any electing nonresident partner or director of a corporation included in a group return if the total income is in excess of $1 million.
▸ New There will be a new corporate penalty equal to 20% of an understatement of tax for corporations with understated tax of more than $1 million.
▸ New Certain individuals are required to make tax payments electronically for payments made on or after January 1, 2009.

(Source: http://www.caltax.com/Flash%20E-Mail/Pages/Newbudgetsigned.aspx)

"First-time" Home Buyer Credits

The IRS has provided certain guidance on the so called "first-time" home buyer tax credit, see http://www.irs.gov/newsroom/article/0,,id=186831,00.html.

Record Retention

I often get inquiries on how long records should be kept. My normal answer is to keep tax returns, general ledgers, & financial statements permanently and supporting documents such as cancelled checks, paid invoices, billings, check registers, etc. for 7 years. Remember supporting documents on purchases of real estates, stocks, bonds, etc. should be kept for 7 years beyond the date the underlying assets are sold.

Here is link which includes additional information. While that site recommends a shorter period of some records, there may be other reasons for keeping some records a bit longer.

The IRS also has a page on recommended record retention, http://www.irs.gov/businesses/small/article/0,,id=98513,00.html. But my recommendation is to use the IRS recommendation as a reference only.

Estimated 2009 Tax Brackets

http://www.webcpa.com/article.cfm?articleid=29182&pg=ros
Analysts Forecast 2009 Tax Brackets and Deductions

New York (Sept. 18, 2008)
By WebCPA staff

CCH and Thomson Reuters' RIA unit have calculated the inflation-adjusted amounts for tax brackets, standard deductions and exemptions for next tax season.

RIA predicts that the basic standard deduction for 2009 for joint returns and surviving spouses will be $11,400, up from $10,900 in 2008. For single taxpayers, RIA forecasts the standard deduction will be $5,700, up from $5,450 in 2008. For head of household, the amount will be $8,350, up from $8,000.

CCH predicts that a married couple filing jointly with total taxable income of $100,000 will pay $312.50 less in income taxes in 2009 compared to 2008. A single filer with taxable income of $50,000 will save $156.25 next year.

CCH predicted that single taxpayers and married taxpayers filing separately could see a $250 increase over 2008 in their standard deduction, to $5,700, while the standard deduction for joint filers will increase by $500 to $11,400. Heads of households will see an increase in their standard deduction of $350, to $8,350.

The additional standard deduction for those age 65 or older or who are blind, will rise $50 to $1,100 in 2009 for married individuals and surviving spouses, and $50 to $1,400 for single filers. The personal exemption amount will go up in 2009 by $150 to $3,650.

For an individual who can be claimed as a dependent on another's return, RIA predicts that the basic standard deduction for 2009 will be $950, up from $900 in 2008, or $300 (same as in 2008), plus the individual's earned income, whichever is greater. For 2009, the additional standard deduction for married taxpayers 65 or over or blind will be $1,100, up from $1,050 in 2008. For a single taxpayer or head of household who is 65 or over or blind, the additional standard deduction for 2009 will be $1,400, up from $1,350 in 2008.

The personal exemption amount for 2009 will rise to $3,650, up from $3,500 in 2008, according to RIA. The exemption from the kiddie tax for 2009 will be $1,900, up from $1,800 in 2008. A parent will be able to elect to include a child's income on the parent's return for 2009 if the child's income is more than $950 and less than $9,500, up from $900 and $9,000 in 2008. For 2009, CCH predicts the kiddie tax standard deduction will rise to $950.

CCH's projected tax brackets are available here.

RIA's projected tax brackets are below:

FOR MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES, THE 2009 RATE BRACKETS ARE:

Not over $16,700 - 10% of taxable income

Over $16,700 but not over $67,900 - $1,670.00 plus 15% of the excess over $16,700

Over $67,900 but not over $137,050 - $9,350.00 plus 25% of the excess over $67,900

Over $137,050 but not over $208,850 - $26,637.50 plus 28% of the excess over $137,050

Over $208,850 but not over $372,950 - $46,741.50 plus 33% of the excess over $208,850

Over $372,950 $100,894.50 plus 35% of the excess over $372,950


FOR SINGLE INDIVIDUALS (OTHER THAN HEADS OF HOUSEHOLDS AND SURVIVING SPOUSES), THE 2009 RATE BRACKETS ARE:

Not over $8,350 - 10% of taxable income

Over $8,350 but not over $33,950 - $835.00 plus 15% of the excess over $8,350

Over $33,950 but not over $82,250 - $4,675.00 plus 25% of the excess over $33,950

Over $82,250 but not over $171,550 - $16,750.00 plus 28% of the excess over $82,250

Over $171,550 but not over $372,950 - $41,754.00 plus 33% of the excess over $171,550

Over $372,950 $108,216.00 plus 35% of the excess over $372,950


FOR HEADS OF HOUSEHOLDS, THE 2009 RATE BRACKETS ARE:

Not over $11,950 - 10% of taxable income

Over $11,950 but not over $45,500 - $1,195.00 plus 15% of the excess over $11,950

Over $45,500 but not over $117,450 - $6,227.50 plus 25% of the excess over $45,500

Over $117,450 but not over $190,200 - $24,215.00 plus 28% of the excess over $117,450

Over $190,200 but not over $372,950 - $44,585.00 plus 33% of the excess over $190,200

Over $372,950 $104,892.50 plus 35% of the excess over $372,950



FOR MARRIEDS FILING SEPARATE RETURNS, THE 2009 RATE BRACKETS ARE:

Not over $8,350 - 10% of taxable income

Over $8,350 but not over $33,950 - $835.00 plus 15% of the excess over $8,350

Over $33,950 but not over $68,525 - $4,675.00 plus 25% of the excess over $33,950

Over $68,525 but not over $104,425 - $13,318.75 plus 28% of the excess over $68,525

Over $104,425 but not over $186,475 - $23,370.75 plus 33% of the excess over $104,425

Over $186,475 $50,447.25 plus 35% of the excess over $186,475


FOR ESTATES AND TRUSTS, THE 2009 RATE BRACKETS ARE:

Not over $2,300 15% of taxable income

Over $2,300 but not over $5,350 - $345.00 plus 25% of the excess over $2,300

Over $5,350 but not over $8,200 - $1,107.50 plus 28% of the excess over $5,350

Over $8,200 but not over $11,150 - $1,905.50 plus 33% of the excess over $8,200

Over $11,150 - $2,879.00 plus 35% of the excess over $11,150


For subscribers of the Wall Street Journal, here is an article on the same subject:
http://online.wsj.com/article/SB122161922104346467.html

Kristof on Social Security

http://www.latimes.com/business/la-fi-perfin17-2008aug17,0,6092439.column
More and more articles now suggest folks to delay collecting Social Security because of the longer life expectancy, for average people anyway.

H.R. 3221

H.R. 3221 would:

►          Give the Federal Deposit Insurance Corporation the authority to create so-called bridge institutions for failing savings associations, mirroring a capability that has existed since 1991 for failed banks.

►          Give the Federal Housing Administration $300 billion in new lending authority and relax standards to provide affordable, fixed-rate mortgages to an estimated 400,000 debt-ridden homeowners. Any losses would be covered by an affordable housing fund financed by Fannie Mae and Freddie Mac, the government-sponsored companies that finance mortgages.

►          Allow the Treasury Department temporary authority to lend money to Fannie and Freddie or buy their stock to avert a collapse of one or both of the mortgage giants. The authority would expire on Dec. 31, 2009.

►          Create a new regulator and tighten controls on Fannie and Freddie, including power for the regulator to approve pay packages for company executives. Create a new affordable housing fund drawn from their profits. Permanently raise the limit on the loans they may buy to $625,000 in the highest-cost areas. Allow them to buy loans 15 percent higher than the median home price in certain cities.

►          Provide $3.9 billion in grants to the hardest-hit communities for buying and fixing up foreclosed property.

►          Modernize the FHA and allow it to back loans for riskier borrowers. Permanently increase the size of loans the agency may insure - currently set to revert to $362,790 by the end of the year - to $625,000 in the highest-cost areas. The agency could insure loans 15 percent higher than the median home price in certain cities.

►          Forbid the FHA from insuring mortgages in which the borrower's down payment is paid by the seller, beginning on Oct. 1, 2008. Place a one-year moratorium forbidding the agency from charging premiums based on the riskiness of the homeowner, until Oct. 1, 2009.

►          Provide $15 billion in housing tax breaks, including for low-income housing. Give a credit of up to $7,500 for first-time home buyers who purchase residences between April 9, 2008, and July 1, 2009. Allow people who don't itemize their taxes to claim a $500-$1,000 deduction on their 2008 property taxes. (NOTE: The credit is 10 percent of the purchase price or $7,500, whichever is less -- but for married people filing separately, the $7,500 limit becomes $3,500. Unmarried people who jointly purchase a home can divide the $7,500 credit, but how the division is to take place is left to IRS regulation-writers. The credit begins to phase out at the $150,000 income level for joint filers ($75,000 for other filers) and is not available for joint filers with income above $170,000 ($95,000 for other filers). It's also not available to nonresident aliens, those who qualify for a similar District of Columbia credit or those whose financing comes from tax-exempt mortgage revenue bonds. The credit is more of an interest-free loan than a complete giveaway; taxpayers will have to pay back the credit they claim over 15 years.)

►          Give states an additional $11 billion in tax-free municipal bond authority for low-interest loans to first-time home buyers, construction of low-income rental housing and refinancing subprime mortgages.

►          Offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in default or about to default.

►          Provide $180 million for pre-foreclosure counseling and legal services for distressed
borrowers.

►          Provide Chrysler a corporate tax incentive even though the company is now structured as a partnership not a corporation. The bill does not name Chrysler but rather describes an unnamed automobile manufacturer “that will produce in excess of 675,000 automobiles” between Jan. 1 and June 30, 2008.

Some people may be adversely affected by the bill, including those who buy a vacation home, or who rent out a home while planning to make it their main residence at a later time. Currently, if a second home becomes a principal residence, after two years the owner can sell it and exclude up to $250,000 in gain from their income -- or up to $500,000 for couples filing jointly.

But the bill pro-rates the exclusion between the time that a home is used as a principal residence and the total length of ownership, which includes any "non-qualifying" use as a rental or vacation property. Non-qualifying use before the January 1, 2009, effective date of the provision, isn't used in the calculation, however. Nor are periods after a qualified use of the property or temporary absences of less than two years.

Read the Bill by clicking The American Housing Rescue & Foreclosure Prevention Act link.

VSP appeal

http://www.webcpa.com/article.cfm?ARTICLEID=28453
Ken Starr to Appeal Tax-Exempt Case to Supreme Court

Rancho Cordova, Calif. (July 17, 2008)
By WebCPA staff

VSP Vision Care has hired former U.S. Solicitor General Ken Starr to represent the eye care insurance provider in an appeal to the U.S. Supreme Court on its tax-exempt status.

Starr became famous as an independent counsel investigating Whitewater and other scandals during the Clinton administration and the author of the Starr Report detailing Monica Lewinski's involvement with President Clinton. VSP has added him to its legal team as it files a writ of certiorari to the Supreme Court for a final hearing on its tax-exempt status.

"They take a small number of cases, but we think it's an important case," said spokesman Pat McNeil. "We feel that having a not-for-profit model for health care, along with a for-profit model, is important."

VSP plans to file with the Supreme Court by August 7 and expects to hear in the fall on whether the high court will take the case. McNeil believes the case could set a precedent.

Starr joins an appellate legal team that already includes senior litigation partner Douglas C. Ross of Davis Wright Tremaine LLP, who has represented VSP in the tax matter since 2003, and Thomas A. Fessler, VSP's vice president and general counsel.

"This case is really about determining what guidelines the IRS uses to define what constitutes a tax-exempt not-for-profit organization," said Starr in a statement. "VSP had a tax-exemption for more than 40 years, has not changed their business philosophy or focus on the community, and yet lost their tax-exempt status. In the end, we are simply asking the Supreme Court to recognize the significant community benefit VSP offers to more than 55 million Americans."

In 1960, VSP was granted an exemption from its obligation to pay federal income taxes. In 2003, based on an examination conducted in 1999, the IRS issued a final adverse determination letter, revoking tax-exempt status for VSP's California corporation effective Jan. 1, 2003. VSP has been paying taxes since then while pursuing its so-far unsuccessful appeals.

Car donation drops

http://accounting.smartpros.com/x62523.xml
New Tax Laws Dry up Car Donations

July 15, 2008 (Business Wire) -- Car donations have plummeted since Congress in 2004 tightened the tax rules for claiming charitable deductions, according to a Grant Thornton analysis of new IRS data.

Before 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value. Tax legislation enacted in 2004 changed the rules to generally limit vehicle donation deductions of over $500 to either the actual proceeds from a vehicle's sale or the vehicle's fair market value -- whichever is less.

Recently released IRS statistics reveal the 2004 law had an immediate and drastic affect on car donations. An analysis of the new numbers by Grant Thornton's National Tax Office shows that between tax year 2004 and 2005, car donations of over $500 dropped by two-thirds.

Over 900,000 tax returns claimed deductions for donated automobiles in 2004. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims.. The total amount deducted for all car donations declined from $2.4 billion in 2004 to just a half a billion dollars the following year, a decrease of over 80 percent.

"Congress was concerned that people were inflating the value of donated cars under the old system, claiming full blue book value for vehicles that had been turned down by the local junk yard," said Mel Schwarz of Grant Thornton's National Tax Office in Washington, D.C. "The hope was that charities would still get the same number of cars they could auction for the same amount of money, and the only change would be the elimination of excess charitable deductions. That hope was clearly not recognized."

It is worth noting that the although the total number of car donations fell by 67 percent, and the amount of deductions claimed as a result of such donations fell by over 80 percent, the deduction claimed per car donated only declined by 41 percent. "This suggests a generous tax deduction was not the only thing lost with this change," noted Schwarz.

Donations of vehicles besides automobiles also declined. The number of returns claiming non-car vehicle donations dropped over 25 percent from 2004 to 2005, and the amount claimed in deductions fell from $205 million to $140 million.

The new restrictions on car donations have not dampened Americans' overall generosity. The total amount of deductions claimed for charitable deductions increased from $156 billion in 2004 to $172 billion in 2005. In 2006, the number increased again to $173 billion.

Tax Court not a Real Court

http://www.webcpa.com/article.cfm?ARTICLEID=28426
Appeals Court Says Tax Court Is Not a Real Court

Cincinnati (July 11, 2008)
By WebCPA staff

The U.S. Court of Appeals for the Sixth Circuit issued an opinion in a tax dispute that found the U.S. Tax Court is not a court as defined by law.

The case, Mobley v. Commissioner of Internal Revenue, involved an IRS audit of a couple's 2000 tax return in which the IRS increased their tax liability by $32,554. The Mobleys consented to the increased assessment and collection, then filed an amended tax return for 2000, claiming a refund of $27,715. The IRS audited that return as well and disallowed the claim because the couple failed to respond to requests for evidence supporting their claim.

The couple filed a petition with the Tax Court, seeking a redetermination of their income tax for 2000 and asking for the audit to be reopened so they could produce supporting evidence. After changing residence several times, the Mobleys said they had never received actual notice of an audit and never had an opportunity to produce evidence supporting their claims. The Tax Court dismissed the petition, concluding that it lacked jurisdiction because "no notice of deficiency had been issued to petitioners for their taxable year 2000."

The Tax Court also rejected the Mobleys' request to transfer the case to the U.S. District Court for the Eastern District of Kentucky pursuant to 28 U.S.C. Section 1631. It agreed with the appeals court, reasoning that the section "by its terms applies only to a 'court' as defined in 28 U.S.C. Section 610" and that the "Tax Court is not included among the courts listed in 28 U.S.C. Sec. 610."

At stake is whether the Tax Court has authority to transfer a case over which it lacks jurisdiction to a federal district court that otherwise would have jurisdiction over the dispute. The Tax Court was originally known as the Board of Tax Appeals, and was within the Bureau of Internal Revenue, before it became known as a court.

"No one disputes that the Mobleys established at least three of the requirements for a transfer," wrote the appeals court. "The Tax Court lacked jurisdiction over the dispute; a transfer would serve the interest of justice; and the court to which the Mobleys want the case transferred is a court as defined in Section 610-namely, a 'district court of the United States.' The question is whether they satisfied the fourth element: Is the Tax Court, where the claimants initially filed the action, a court as defined in Section 610?... To our knowledge (and counsel's knowledge), every other court to address the issue has agreed that the Tax Court is not a 'court as defined in Section 610.'"

The appeals court ended up agreeing with the Tax Court on the jurisdictional question, saying, "Because the Mobleys do not challenge the Tax Court's jurisdictional ruling and because the Tax Court correctly concluded that it lacked authority to transfer the case under Section 1631, we affirm."

Mileage rate

Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile. See news release IR-2008-82 and Announcement 2008-63.

McCain v Obama on taxes

http://online.wsj.com/article/SB121374794468982701.html?mod=hps_us_inside_today
Your Tax Bill:
How McCain, Obama Differ

Capital-Gains Rates Are Likely
To Rise, No Matter Who Wins;
Far Apart on Estate Taxes
June 18, 2008; Page D1

Get ready for higher capital-gains taxes.

As the presidential campaign heats up, investment and tax advisers are issuing that warning to upper-income clients. Underpinning this view is Sen. Barack Obama's early lead in the polls, as well as speculation that Democrats will increase their majority in Congress.

Today's capital-gains tax rates "are probably the lowest we'll see" for decades to come, says Nadine Gordon Lee, president of Prosper Advisors LLC, a wealth-management firm in Armonk, N.Y.

So should you be rushing to sell your investment winners now to take advantage of today's historically low tax rates? While some investors say they are considering it, very few say they are doing anything different right now. Election Day still is more than four months away, an eternity in American politics -- and even if lawmakers do enact higher taxes next year, nobody knows how much higher they will be or what the effective dates will be. Moreover, investors seem far more worried about the economy and the slumping stock market than about tax rates.

"There's no question in my mind the next president will raise the capital-gains rate. It's just a question of when," says David Anderson, a retired banker living in Darien, Conn. But Mr. Anderson sees "no rush" to sell investments immediately, especially in view of the stock market's sinking spell this year. He also notes the adage that you shouldn't make investment moves solely for tax reasons and says there still appears to be "plenty of time" to take action before any capital-gains tax-rate changes become effective.

Sen. Obama is calling for higher taxes on families making more than $250,000 a year. That includes increased taxes not only on ordinary income such as salary but also on capital gains and most corporate dividends. The Illinois senator also is calling for higher Social Security taxes on many upper-income workers.

Sen. John McCain has staked out a strong antitax stance. That includes extending President Bush's income-tax cuts and enacting new breaks, such as raising the exemption for dependents.

Here is a look at the still-evolving plans of Sens. Obama and McCain, as well as thoughts from financial advisers and tax lawyers on what, if anything, to consider doing this year.

Income taxes. Sen. Obama is calling for higher taxes on the wealthiest Americans but lower taxes on lower- and middle-income households. "It's time for folks like me who make over $250,000 to pay our fair share," Sen. Obama said in a speech last week. "If you are a family making less than $250,000, my plan will not raise your taxes -- not your income taxes, not your payroll taxes, not your capital-gains taxes, not any of your taxes. In fact, chances are you will get a tax cut."

For example, the Illinois senator wants to raise the top ordinary income-tax rate, now 35%, to 39.6%. For 2008, the top federal rate of 35% in most cases applies to taxable income of more than $357,700. (The 2009 income threshold won't be announced until later this year.)

The Obama plan also includes imposing higher Social Security taxes on workers making over $250,000. However, the senator hasn't given precise details, such as how much more those people would pay. Under current law, the maximum amount of earnings subject to the Social Security tax for 2008 is $102,000.

In contrast, Sen. McCain wants to make permanent the current federal income-tax rates. He also opposes Sen. Obama's plan to lift the earnings cap on the Social Security payroll tax. Such a move would be bad news for the economy, says Douglas Holtz-Eakin, senior policy adviser to Sen. McCain and a former Congressional Budget Office director.

If the Obama plan becomes law, investment advisers agree that among the biggest winners could be tax-exempt municipal bonds, which are issued by state and local governments. Tax-exempt bonds typically benefit when ordinary income-tax rates rise. But be careful before you jump into the muni market: Even though these bonds typically are known as tax-exempts, some pay interest subject to the alternative minimum tax, which ensnared about four million investors last year. If that includes you, be sure to check with your broker whether the bonds you're considering are "AMT bonds."

One New Jersey investor says she recently purchased her first muni bond -- $5,000 of hospital bonds. She says part of the reason was her expectation of higher tax rates in 2009.

Even though investment advisers say most clients aren't doing anything different, some should be thinking about making changes. "For an investor with a low-basis, large concentration in a publicly traded company, a family business or some other illiquid asset, taking steps to diversify in 2008, before a potential capital-gains rate increase, could result in significant tax savings," says Dan Schrauth, wealth adviser with JPMorgan Private Bank in San Francisco. Many clients are taking "a serious look" at the potential for higher capital-gains rates as a relevant factor in determining when to diversify out of a concentrated position, he says.

But Michael Holland, who heads a New York-based investment firm bearing his name, says: "I don't hear anyone talking about doing anything" right now in anticipation of higher capital-gains taxes. "If we had a huge run-up [in stock prices] between now and December, I think you'd then begin to hear" talk about selling this year, he says. "I don't hear any of that right now."

Investment income. Under current law, the top long-term capital-gains rate on stocks, bonds, mutual-fund shares and other securities typically is 15%. ("Long term" means investments held more than one year.) If you make a profit by selling stocks or other securities you've owned for a year or less, that's considered a "short-term" gain and is subject to tax as ordinary income.

Sen. Obama wants to raise the long-term capital-gains rate for families making more than $250,000 to around 20% or somewhat higher -- but not above the 28% level it reached during the Reagan presidency, an Obama economic adviser says. The same rate would apply to most dividend income for these investors.

Sen. McCain wants to keep the current structure of tax rates on capital gains and dividends. But many wealth advisers believe that if he won the presidency, he would be forced to compromise with the Democrats in control of Congress and eventually would agree to a capital-gains rate increase.

Capital-gains rates are likely to "go up by more -- and possibly earlier" if Sen. Obama wins, says Thomas D. Gallagher of International Strategy and Investment Group. But rates "still probably go up under McCain," he says, noting that the 15% rate is set to rise automatically after 2010 if Congress takes no action.

Bob Willens, president of a tax-advisory firm in New York bearing his name, agrees the capital-gains rate is going up next year. "It's something you need to resign yourself to," he warns. But he says there's no reason to rush to sell today, since lawmakers aren't likely to make tax-rate increases retroactive to the start of next year. He sees the effective date more likely as sometime around mid-2009.

Estate taxes. Neither candidate wants to kill the estate tax permanently, as President Bush has proposed. Instead, both favor a compromise, but Sen. McCain's plan would be far more beneficial for wealthy heirs than the Obama plan.

Under current law, the federal estate-tax exemption this year is $2 million, and the top rate is 45%. (Transfers from one spouse to the other typically are tax-free.) Next year, that exclusion is set to rise to $3.5 million, with the rate remaining at 45%. In 2010, the federal estate tax is scheduled to disappear completely, only to return again in 2011 with an exclusion of $1 million.

Sen. McCain proposes raising the exclusion to $5 million and cutting the tax rate to 15%. Sen. Obama proposes a $3.5 million exclusion while keeping the top rate at 45%. In either case, the basic strategy is the same: If you're wealthy and care about how much your heirs get, make sure to keep breathing at least through the end of this year to take advantage of 2009's higher exclusion.

Write to Tom Herman at tom.herman@wsj.com

IRS Seizures not Always Legal

http://www.webcpa.com/article.cfm?articleid=28124&pg=ros
Washington, D.C. (June 17, 2008)
By WebCPA staff

The Internal Revenue Service violated some of its own legal requirements in some of the seizures of taxpayer property it conducted in the past two years, according to a new report.

The Treasury Inspector General for Tax Administration identified 25 instances in 19 of the 50 seizures it studied in which the IRS did not comply with a particular Tax Code requirement. TIGTA studied a random sample of 50 of the 683 seizures the IRS conducted between July 1, 2006, and June 30, 2007. Although the rate of violations seems high, TIGTA noted that it actually represents only about 1 percent, as there could have been numerous statutory violations in each case. Still, the instances may have resulted in violations of taxpayers' rights.

The 25 instances included 10 in which expenses and proceeds resulting from the seizures were not properly applied to the taxpayers' accounts, five instances in which the sales of seized properties were not properly advertised, and five instances in which the correct amounts of the liabilities for which the seizures were made were not provided on the notices of seizures sent to the taxpayers.

IRS seizures were on the wane for several years, but have increased recently. After the passage of the IRS Restructuring and Reform Act of 1998, IRS seizures decreased from 10,090 in fiscal year 1997 to 74 in fiscal year 2000. Seizures have climbed steadily since 2000, but remain less than 7 percent of the amount reported in fiscal year 1997.

TIGTA recommended that IRS agents routinely fill out a Seized Property Sale Report (Form 2436) for all seizure expenses and proceeds transactions, which seems to help curb some of the violations. The IRS agreed to create a new form for posting seizure expenses for releases and redemptions.

Buy & Hold, Sleeping Well at Night

http://online.wsj.com/article/SB121347710385475213.html
According to this Wall Street Journal article, the three requirements are:
A. a well-diversified investment plan,
B. invested in low-cost index funds,
C. with a long-term outlook.

I totally concur.

Debit cards for Social Security

http://accounting.smartpros.com/x62214.xml
The Direct Express Debit MasterCard card, designed as a safe, convenient alternative to paper checks that people without bank accounts may choose, is currently being introduced in 10 states, and will be rolled out nationwide this summer.

According to the Treasury, about 4 million Social Security and SSI recipients do not have bank accounts, and have had to depend on paper checks for their monthly payments.

"People without bank accounts now have a user-friendly, practical alternative to paper checks for their monthly federal benefit payments," said FMS Commissioner Judith Tillman.

The Direct Express card offers cardholders free access to their money. There is no sign-up fee, and no bank account or credit check is required to enroll. Cardholders can make purchases, pay bills and get cash at thousands of ATMs and retail locations.

An education campaign will accompany the launch of the card and will promote debit card literacy among likely users, reaching them through print and Web materials, public service announcements, direct mail and partner organizations.

Treasury has engaged a financial agent, Dallas-based Comerica Bank, to issue this nationally available card exclusively for payment of federal benefits. People currently receiving Social Security or Supplemental Security Income (SSI) checks in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina and Texas have received information about the card. People may sign up for the card by calling toll-free 1-877-212-9991 or visiting www.USDirectExpress.com.

Presidential candidates' tax plan

http://www.webcpa.com/article.cfm?ARTICLEID=28102
Presidential hopefuls Sen. Barack Obama, D-Ill., and Sen. John McCain, R-Ariz., clashed over their tax plans, trading accusations of hikes in capital gains and Social Security taxes.

"There will be change in Washington," said McCain, speaking to a group of small business leaders on Tuesday at a forum sponsored by the National Federation of Independent Businesses and eBay. "The only question is what kind of change. Will we enact the single largest tax increase since the Second World War, as my opponent proposes?"

Obama accused McCain of trying to outdo President Bush's tax policies. "I've said that McCain is running to serve out a third Bush term," he said. "But the truth is, when it comes to taxes, that's not being fair to George Bush. McCain wants to add $300 billion more in tax breaks and loopholes for big corporations and the wealthy, and he hasn't even explained how to pay for it."

Obama said his plan would raise capital gains taxes to 20 percent from the current 15 percent level, not the 28 percent that Republicans have predicted. "My discussions with Warren Buffett indicate that it will probably not have any significant impact in terms of investment," he said.

Obama wants to exempt small businesses and start-ups from capital gains taxes. He has called for letting the Bush tax cuts expire, raising taxes on those making over $250,000. His plan for payroll taxes would raise the cap on income subject to Social Security withholding, which is currently set at $102,000. Obama would allow income above the $200,000 level to be subject to Social Security taxes. Obama also called for cutting taxes for people making less than $75,000 a year and eliminating taxes on senior citizens who make less than $50,000 per year.

McCain has called for elimination of the alternative minimum tax and an extension of the Bush tax cuts. He told small business leaders that Obama's tax plan would harm them. "Under Senator Obama's tax plan, Americans of every background would see their taxes rise - seniors, parents, small business owners, and just about everyone else who has even a modest investment in the market," he said.

According to a June 12th article in the Wall Street Journal, the top 20% of taxpayers, those whose income exceeds $111,646, their after tax income would increase by 3% under McCain's plan and decrease by 2% under Obama's plan. For more, read
http://online.wsj.com/article/SB121319990210164643.html