Monday, June 23, 2008

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.

Wednesday, June 18, 2008

McCain v Obama on taxes
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

Tuesday, June 17, 2008

IRS Seizures not Always Legal
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.

Monday, June 16, 2008

Buy & Hold, Sleeping Well at Night
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
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

Thursday, June 12, 2008

Presidential candidates' tax plan
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

Tuesday, June 3, 2008

IRS interest rate drop,,id=183496,00.html
IR-2008-76, June 2, 2008

Washington — The Internal Revenue Service today announced that interest rates for the calendar quarter beginning July 1, 2008, will drop by one percentage point. The new rates will be:

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

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

The interest rates announced today are computed from the federal short-term rate based on daily compounding determined during April 2008.

Revenue Ruling 2008-27, announcing the new rates of interest, will appear in Internal Revenue Bulletin No. 2008-26, dated June 30, 2008.

Interest rates for the 2nd quarter of 2008 were:
• six (6) percent for overpayments [five (5) percent in the case of a corporation];
• six (6) percent for underpayments;
• eight (8) percent for large corporate underpayments; and
• three and one-half (3.5) percent for the portion of a corporate overpayment exceeding $10,000.

Interest rates for the 1st quarter of 2008 were:
* seven (7) percent for overpayments [six (6) percent in the case of a corporation];
* seven (7) percent for underpayments;
* nine (9) percent for large corporate underpayments; and
* four and one-half (4.5) percent for the portion of a corporate overpayment exceeding $10,000.

For more historical interest rates, see