http://news.yahoo.com/s/ap/20101211/ap_on_bi_ge/us_tax_cuts
By FREDERIC J. FROMMER and MARY CLARE JALONICK, Associated Press
WASHINGTON – In the spirit of the holiday season, President Barack Obama's tax-cut deal with Republicans is becoming a Christmas tree tinseled with gifts for lobbyists and lawmakers. But that hardly stopped the squabbling on Friday, with Bill Clinton even back at the White House pleading the president's case.
While Republicans sat back quietly, mostly pleased, Democrats and other liberals were going at each other ever so publicly. As Clinton lectured on Obama's behalf, Vermont independent Bernie Sanders castigated the agreement for the TV cameras in the mostly empty Senate chamber.
The tax deal, reached behind the scenes and still informal, now includes ethanol subsidies for rural folks, commuter tax breaks for their cousins in the cities and suburbs and wind and solar grants for the environmentalists — all aimed at winning votes, particularly from reluctant Democrats.
The holiday additions are being hung on the big bill that was Congress' main reason for spending December in Washington, long after the elections that will give Republicans new power in January. The measure will extend Bush-era tax cuts, averting big tax increases for nearly all Americans, and keep jobless benefits flowing.
Republicans generally liked that agreement, worked out by Obama and GOP leaders. Democrats generally didn't, hence the add-ons.
It's all expected to come to a decisive vote next week, total cost by the latest congressional estimate: $857.8 billion.
On Friday, there were contrasting events for public consumption.
On Capitol Hill, Sanders spoke vigorously for 8 1/2 hours in a virtually empty chamber, urging defeat of a measure he said would give "tax breaks to millionaires and billionaires who don't need it." He finally ended his speech, conceding "It has been a long day."
At the White House, Obama turned over the briefing room microphone to former President Clinton who declared, "I don't believe there is a better deal out there." All sides, he said, "are going to have to eat some things they don't like."
The add-ons were being attached behind the scenes.
Almost $5 billion in subsidies for corn-based ethanol and a continuing tariff to protect against ethanol imports were wrapped up and placed on the tree Thursday night for farm-state lawmakers and agribusiness lobbyists. Environmentalists won more grants for developers of renewable energy, like wind and solar.
For urban lawmakers, there's a continuation of about-to-expire tax breaks that could save commuters who use mass transit about $1,000 a year. Other popular tax provisions aimed at increasing production of hybrid automobiles, biodiesel fuel, coal and energy-efficient household appliances would be extended through the end of 2011 under the new add-ons.
The package also includes an extension of two Gulf Coast tax incentive programs enacted after Hurricane Katrina to spur economic development in Mississippi, Louisiana and Alabama.
The ethanol money was added despite a growing congressional opposition to subsidizing the fuel after decades of government support. Last month, 17 Republican and Democratic senators wrote to leaders calling the tax breaks "fiscally indefensible," since there's already a law in place that requires ethanol be blended into gasoline.
"Historically the government has helped a product compete in one of three ways: Subsidize it, protect it from competition or require its use. We understand that ethanol may be the only product receiving all three forms of support from the U.S. government at this time," the senators wrote.
But ethanol still has powerful supporters on Capitol Hill, including Iowa Sen. Charles Grassley, the top Republican on the Senate Finance Committee and a key negotiator on the Senate tax bill. Adding the ethanol tax breaks was designed to help shore up the votes of many rural Democratic as well as Republican senators.
But while the add-ons may have won more votes for the Obama-GOP deal the Senate, their potential impact is less clear in the House, where Democrats have criticized the package as a tax giveaway to the rich.
Minnesota Rep. Collin Peterson, a conservative Democrat who steps downs as chairman of the House Agriculture Committee in January, says he would have voted against the bill if it had contained some of the clean energy tax incentives and nothing for ethanol.
"I know this will help some members in the House, different parts of this will help different members," he said.
Still, Peterson said the credits for the corn-based fuel probably won't last forever. He said Rep. Jim Clyburn of South Carolina, the House's No. 3 Democrat, told the caucus it was important to include ethanol in the bill, and some members booed him. That wouldn't have happened a few years ago, Peterson said.
Rep. Earl Pomeroy, D-N.D., who lost re-election in November, sponsored the House version of legislation extending the ethanol tax breaks. But he says he still can't support the bill because of his opposition to provisions cutting estate taxes for the wealthiest Americans.
"There may be some that vote for the package that otherwise hate it because of the ethanol provision, but my sense is that ethanol alone isn't going to be something that puts us over the top," he said.
A spokesman for Rep. Earl Blumenauer, D-Ore., a leader in the effort to win tax credits for wind and solar energy, said his boss still hasn't been won over yet on the package. He said the extension was necessary but not sufficient for Blumenauer's support. "His vote will depend on what the final version looks like," said spokesman Derek Schlickeisen.
Rep. Jay Inslee, a Washington Democrat, also was not won over by the renewable energy extension, despite being a big supporter of the program.
"It's one of the best things we have in the federal government for job creation. It is incredibly important. And it's nuts not to finance it by simply letting the upper-income tax brackets expire," he said. "I think there's a better deal out there potentially available and we ought to fight for it."
And there's the possibility the added goodies will have opposite the intended effect for some lawmakers. Rep. Jeff Flake, R-Ariz., said the add-ons could turn his fiscally conservative colleagues against the bill.
"You don't want to be accused out there of supporting stimulus three," he said. "It will knock some votes off in the House, but more than anything it will show the voters out there that things haven't changed with Republicans."
Friday, December 10, 2010
Push for tax reform growing
All of a sudden, there is a push for tax reform. It would really be nice if some of the proposals made by the Deficit Commission could be made into law, streamlining the tax code, lowering tax rates and limiting deductions. I just hope this is not just another piece of social engineering legislation.
Here is what President Obama said on December 9, 2010,
Tax reform -- not just cuts -- needed
By Chris Isidore, senior writer, December 10, 2010: 10:58 AM ET
http://www.nytimes.com/2010/12/10/us/politics/10tax.htm
Obama Weighs a Broad Tax Overhaul
By JACKIE CALMES
Published: December 9, 2010
http://www.bloomberg.com/news/2010-12-10/obama-directs-his-staff-to-analyze-options-for-overhaul-of-u-s-tax-system.html
Obama Directs His Staff to Analyze Options for Overhaul of U.S. Tax System
By Nicholas Johnston - Dec 9, 2010 9:12 PM PT
Here is what President Obama said on December 9, 2010,
"I think we're going to have to have a conversation over the next year. And if you think about the last time we reformed our tax system back in 1986 -- it didn't happen right away, by the way. It required a lot of conversations among a lot of different parties. But people of good will came together and realized that if we eliminate what happens to the tax code every decade or so, loopholes get built in, special interest provisions get built in, the nominal rates end up high. But the actual tax rates that well-connected folks or people who have good accountants pay end up being a lot lower. Ordinary people end up getting squeezed."http://money.cnn.com/2010/12/10/news/economy/tax_reform/index.htm
"So typically, the idea is, simplifying the system, hopefully lowering rates, broadening the base -- that's something that I think most economists think would help us propel economic growth. But it's a very complicated conversation."
Tax reform -- not just cuts -- needed
By Chris Isidore, senior writer, December 10, 2010: 10:58 AM ET
http://www.nytimes.com/2010/12/10/us/politics/10tax.htm
Obama Weighs a Broad Tax Overhaul
By JACKIE CALMES
Published: December 9, 2010
http://www.bloomberg.com/news/2010-12-10/obama-directs-his-staff-to-analyze-options-for-overhaul-of-u-s-tax-system.html
Obama Directs His Staff to Analyze Options for Overhaul of U.S. Tax System
By Nicholas Johnston - Dec 9, 2010 9:12 PM PT
Wednesday, December 8, 2010
The Obama Tax Cuts: What They Mean For You
It's probably premature to say the Obama-GOP tax deal is a done deal as there are a lot of grumblings from Democratic lawmakers. But with President Obama apparently putting his foot down, it does appear the final outcome will most likely be something quite close to the deal.
http://finance.yahoo.com/taxes/article/111520/obama-tax-cuts-what-they-mean
by Carla Fried
Tuesday, December 7, 2010
We finally know what will happen to the expiring Bush tax cuts -- they won't expire for another two years. In a compromise announced by President Obama last night, the Bush tax rates become the Obama tax rates for 2011 and 2012. And for everyone, not just families making less than $250,000. The compromise? The Republicans will agree to extend unemployment benefits for another 13 months and won't demand that the $60 billion cost be offset by a cut in federal spending.
Not only did the wealthy get a two-year pass on their income tax rate, but they are also going to benefit from two other features of the compromise:
A one-year cut in the payroll tax: To make up for the loss of the expiring Making Work Pay tax credit -- the middle-class tax cut that no one really noticed -- the White House extracted a one-year reduction in the Social Security payroll tax paid by employees from 6.2 percent to 4.2 percent. What's interesting is that Make Work Pay had an income limit: it was completely phased out for individuals making $95,000 or more, and joint filers with income above $190,000. The proposed 2011 payroll tax reduction apparently applies to everyone, at a reported cost of $120 billion in foregone tax revenue. That means an extra $2,172 in the 2011 paychecks for all Americans making at least $108,600, the current maximum amount of income subject to the FICA tax. The goal of this tax break is to give a jolt to the anemic economic recovery on the assumption that everyone -- the middle class and the truly wealthy -- will go out and spend that money.
A big break in the estate tax. When we last left off with the estate tax in 2009, it was being levied on estates above $3.5 million ($7 million for married couples) at a top rate of 45 percent. The estate tax has been on hiatus in 2010 and was scheduled to come roaring back next year at its 2001 level: a 55 percent tax on estates above $1 million. No one really expected that to happen, but the deal announced by President Obama sure seems like a huge capitulation to the Republicans. In fact, the President went out of his way in the press conference announcing the deal to clarify that he wasn't too pleased with this outcome. The new estate tax rate will only be levied on estates over $5 million ($10 million for couples), and the 45 percent rate of 2009 dips to 35 percent for 2011 and 2012.
Assuming the framework of the deal announced Monday night makes its way through Congress, here's what you can look forward to in 2011 and 2012 and some tips on how you should respond:
Income tax rates: Nothing changes from today. The top two tax brackets, which President Obama had vowed to raise, will instead remain at 33 percent and 35 percent. Even the millionaires and billionaires will see their tax rate hold steady, not just the middle class.
[Tax-Cut Deal Poses New Challenges]
Strategy: As you would normally, if you have the option of deferring income (and thus, taxes) into next year, go for it. But pull as many deductions as possible into this year so you can benefit from those now. If you've converted a Roth retirement account this year, or plan to by year-end, it certainly makes sense to take advantage of the one-time tax deal being offered for 2010 conversions that allows you to spread the tax bill over the next two years.
Capital gains and dividend taxes: No change here, either. President Obama had wanted the current 15 percent rate to float up to 20 percent for wealthy Americans in the top two tax brackets. But the compromise keeps the rate at 15 percent for everyone.
Strategy: This increases the allure of dividend stocks even more for income-starved investors.
A "patch" for the Alternative Minimum Tax (AMT): A patch that will raise the AMT exemption to account for inflationhas been agreed to. According to the New York Times, the threshold for the AMT will be adjusted so that as many as 21 million households would not be subject to it.
Strategy: Relax.
[Why Obama Made the Tax Deal]
And what happens after 2012? Well, that's going to make for some interesting debates during the 2012 Presidential election cycle. In announcing the compromise, President Obama pushed the notion that leaving rates where they are for the next two years was a necessary interim step to help spur more economic growth, but that long-term we had to make "hard choices." If I were a federal employee, I'd be wondering why I was singled out as a sacrificial revenue lamb for 2011 and 2012. Last week the President announced a pay freeze for most federal employees. Yet today the word is that the rest of Americans, especially the uber-wealthy, won't be asked to make any such sacrifice in 2011 and 2012. But long-term, if we don't eventually bring in more revenues and start reining in the federal deficit, we are all going to be paying an enormous price.
http://finance.yahoo.com/taxes/article/111520/obama-tax-cuts-what-they-mean
by Carla Fried
Tuesday, December 7, 2010
We finally know what will happen to the expiring Bush tax cuts -- they won't expire for another two years. In a compromise announced by President Obama last night, the Bush tax rates become the Obama tax rates for 2011 and 2012. And for everyone, not just families making less than $250,000. The compromise? The Republicans will agree to extend unemployment benefits for another 13 months and won't demand that the $60 billion cost be offset by a cut in federal spending.
Not only did the wealthy get a two-year pass on their income tax rate, but they are also going to benefit from two other features of the compromise:
A one-year cut in the payroll tax: To make up for the loss of the expiring Making Work Pay tax credit -- the middle-class tax cut that no one really noticed -- the White House extracted a one-year reduction in the Social Security payroll tax paid by employees from 6.2 percent to 4.2 percent. What's interesting is that Make Work Pay had an income limit: it was completely phased out for individuals making $95,000 or more, and joint filers with income above $190,000. The proposed 2011 payroll tax reduction apparently applies to everyone, at a reported cost of $120 billion in foregone tax revenue. That means an extra $2,172 in the 2011 paychecks for all Americans making at least $108,600, the current maximum amount of income subject to the FICA tax. The goal of this tax break is to give a jolt to the anemic economic recovery on the assumption that everyone -- the middle class and the truly wealthy -- will go out and spend that money.
A big break in the estate tax. When we last left off with the estate tax in 2009, it was being levied on estates above $3.5 million ($7 million for married couples) at a top rate of 45 percent. The estate tax has been on hiatus in 2010 and was scheduled to come roaring back next year at its 2001 level: a 55 percent tax on estates above $1 million. No one really expected that to happen, but the deal announced by President Obama sure seems like a huge capitulation to the Republicans. In fact, the President went out of his way in the press conference announcing the deal to clarify that he wasn't too pleased with this outcome. The new estate tax rate will only be levied on estates over $5 million ($10 million for couples), and the 45 percent rate of 2009 dips to 35 percent for 2011 and 2012.
Assuming the framework of the deal announced Monday night makes its way through Congress, here's what you can look forward to in 2011 and 2012 and some tips on how you should respond:
Income tax rates: Nothing changes from today. The top two tax brackets, which President Obama had vowed to raise, will instead remain at 33 percent and 35 percent. Even the millionaires and billionaires will see their tax rate hold steady, not just the middle class.
[Tax-Cut Deal Poses New Challenges]
Strategy: As you would normally, if you have the option of deferring income (and thus, taxes) into next year, go for it. But pull as many deductions as possible into this year so you can benefit from those now. If you've converted a Roth retirement account this year, or plan to by year-end, it certainly makes sense to take advantage of the one-time tax deal being offered for 2010 conversions that allows you to spread the tax bill over the next two years.
Capital gains and dividend taxes: No change here, either. President Obama had wanted the current 15 percent rate to float up to 20 percent for wealthy Americans in the top two tax brackets. But the compromise keeps the rate at 15 percent for everyone.
Strategy: This increases the allure of dividend stocks even more for income-starved investors.
A "patch" for the Alternative Minimum Tax (AMT): A patch that will raise the AMT exemption to account for inflationhas been agreed to. According to the New York Times, the threshold for the AMT will be adjusted so that as many as 21 million households would not be subject to it.
Strategy: Relax.
[Why Obama Made the Tax Deal]
And what happens after 2012? Well, that's going to make for some interesting debates during the 2012 Presidential election cycle. In announcing the compromise, President Obama pushed the notion that leaving rates where they are for the next two years was a necessary interim step to help spur more economic growth, but that long-term we had to make "hard choices." If I were a federal employee, I'd be wondering why I was singled out as a sacrificial revenue lamb for 2011 and 2012. Last week the President announced a pay freeze for most federal employees. Yet today the word is that the rest of Americans, especially the uber-wealthy, won't be asked to make any such sacrifice in 2011 and 2012. But long-term, if we don't eventually bring in more revenues and start reining in the federal deficit, we are all going to be paying an enormous price.
Monday, December 6, 2010
Obama and GOP in Deal on Tax Cuts
http://www.nytimes.com/2010/12/07/us/politics/07cong.html
It would reduce the 6.2 percent Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers. For a family earning $50,000 a year, it would amount to a savings of $1,000.
For a worker slated to pay the maximum tax, $6,621.60 on income of $106,800 or more in 2011, the cut would mean a savings of $2,136. That tax cut would replace the central tax break for middle- and low-income Americans in last year’s economic stimulus measure, White House officials said.
The deal also includes continuation of a college-tuition tax credit for some families, an expansion of the earned-income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases. The top rate of 15 percent on capital gains and dividends would remain in place for two years, and the alternative minimum tax would be adjusted so that as many as 21 million households would not be hit by it.
In addition, the agreement provides for a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as seven million people would potentially lose assistance within the next year, officials said.
In addition to dropping his opposition to any extension of the current income tax rates on income above $250,000 for couples and $200,000 for individuals, he agreed to a deal on the federal estate tax that infuriated many members of his party. The deal would ultimately set an exemption of $5 million per person and a maximum rate of 35 percent — a higher exemption and far lower rate than many Democrats wanted.
__________
http://online.wsj.com/article/SB10001424052748704156304576003441518282986.html?mod=WSJ_hp_LEFTTopStories
Deal Struck on Tax Package
Grand Bargain Includes One-Year Drop in Wage Levy, Estate Tax of 35%
By JONATHAN WEISMAN, JOHN D. MCKINNON And JANET HOOK
WASHINGTON—President Barack Obama reached agreement Monday with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years, reduce worker payroll taxes for one year and give more favorable treatment to business investments.
Other elements of the deal include a temporary reinstatement of the estate tax at 35%—the level favored by most Republican lawmakers—as well as an extension of jobless benefits for the long-term unemployed.
"We have arrived at a framework for a bipartisan agreement,'' Mr. Obama said on Monday night, capping weeks of negotiations with leaders in Congress.
The outcome of the negotiations is vital, because the current tax levels signed into law by President George W. Bush expire on Dec. 31. Unless Congress acts, tax rates on virtually all Americans who pay income taxes will rise on Jan. 1. That could affect economic growth and even holiday sales.
In reaching the deal, Mr. Obama brushed past the demands of many in his own party to curb tax cuts for the wealthy. Some liberal lawmakers and activists were left seething, particularly over last-minute concessions to Republicans on the estate tax. Democratic leaders didn't agree to the deal during meetings on Monday with Mr. Obama and Vice President Joe Biden, according to a House aide.
"I can tell you with certainty that legislative blackmail of this kind by the Republicans will be vehemently opposed by many, if not most, Democrats," said Rep. John Conyers (D., Mich.).
In the Senate, Tom Harkin (D., Iowa) called it "an understatement'' to say he was disappointed.
White House officials will now try to persuade Democrats to back the agreement, but anger on the left suggests that Mr. Obama might need to rely heavily on Republican support to move legislation through Congress.
Republican leaders spoke highly of the agreement. In a statement, House Republican Whip Eric Cantor said, "No one gets everything they want in a deal, but our top priority is to restore certainty to the private sector so that businesses small and large can start hiring again."
Senate Republican Leader Mitch McConnell also praised the deal and asked that Democrats in Congress now "show the same openness to preventing tax hikes the administration has already shown.''
Mr. Obama acknowledged that the agreement marked a significant reversal for him, as he has long argued that income tax cuts for couples earning more than $250,000 should expire. If the political stalemate continued and led to a broad tax increase, Mr. Obama said, "that could cost our economy well over a million jobs.''
The deal would extend a raft of business tax breaks, including credit for spending on research. It would extend current tax rates on capital gains and dividends for two years, including for higher earners. It would also maintain protection for middle-class families from the alternative minimum tax.
As part of the deal, the White House is proposing a provision to encourage more investment in plant and equipment, by letting companies claim deductions on 100% of most kinds of investment.
Under the agreement between the White House and congressional Republicans, the estate tax rate would be set at 35% for two years and would apply only to estates over $5 million. Under current law, the estate tax has lapsed for 2010 and is set to spring next year to 55%.
A program of extended benefits for the long-term unemployed, which lapsed last month, would be revived for 13 months, the White House said. The jobless benefits would be financed by federal borrowing rather than by spending cuts.
For Mr. Obama, reaching a deal with the GOP on taxes could help him score points with moderates and independents, an increasingly important constituency, by underscoring his ability to work with newly empowered Republicans. But the discussions have angered some liberal groups, who say Democrats should engage the GOP in a showdown, even if that risks letting the tax cuts expire for all income levels. In an email to its members, the liberal Moveon.org said, "They've given up on this critical issue without a fight."
The payroll-tax reduction under discussion now would cut the 6.2% Social Security tax levied on a worker's wages to 4.2%. A worker making $40,000 a year would save $800, and some economists say that could help stimulate demand at a time when the economy remains relatively weak.
The employer's half of the tax—also 6.2%—wouldn't be affected under the White House proposal, and thus the cost of hiring new workers wouldn't be directly affected.
The payroll tax reduction would take the place of a $400-per-worker income-tax break that Mr. Obama included in the 2009 stimulus bill. That break, known as Making Work Pay, provides a tax credit of 6.2% on the first $6,450 of a worker's wages. It phases out for workers making more than $75,000.
Some Republicans prefer the payroll tax reduction to the Making Work Pay program because it goes to everyone who works, regardless of income. A senior administration official said that the payroll tax cut would cost $120 billion, twice that of Making Work Pay, and would give bigger benefits to some low-income workers.
Versions of a payroll tax cut have been considered before, and they enjoy a measure of support in Congress. But some Democrats are wary of any change to the payroll tax, which funds the Social Security program.
—Corey Boles and Martin Vaughan contributed to this article.
Write to Jonathan Weisman at jonathan.weisman@wsj.com and John D. McKinnon at john.mckinnon@wsj.com
For more, read http://voices.washingtonpost.com/ezra-klein/2010/12/an_imperfect_but_not-that-bad.html?sid=ST2010120606249
It would reduce the 6.2 percent Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers. For a family earning $50,000 a year, it would amount to a savings of $1,000.
For a worker slated to pay the maximum tax, $6,621.60 on income of $106,800 or more in 2011, the cut would mean a savings of $2,136. That tax cut would replace the central tax break for middle- and low-income Americans in last year’s economic stimulus measure, White House officials said.
The deal also includes continuation of a college-tuition tax credit for some families, an expansion of the earned-income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases. The top rate of 15 percent on capital gains and dividends would remain in place for two years, and the alternative minimum tax would be adjusted so that as many as 21 million households would not be hit by it.
In addition, the agreement provides for a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as seven million people would potentially lose assistance within the next year, officials said.
In addition to dropping his opposition to any extension of the current income tax rates on income above $250,000 for couples and $200,000 for individuals, he agreed to a deal on the federal estate tax that infuriated many members of his party. The deal would ultimately set an exemption of $5 million per person and a maximum rate of 35 percent — a higher exemption and far lower rate than many Democrats wanted.
__________
http://online.wsj.com/article/SB10001424052748704156304576003441518282986.html?mod=WSJ_hp_LEFTTopStories
Deal Struck on Tax Package
Grand Bargain Includes One-Year Drop in Wage Levy, Estate Tax of 35%
By JONATHAN WEISMAN, JOHN D. MCKINNON And JANET HOOK
WASHINGTON—President Barack Obama reached agreement Monday with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years, reduce worker payroll taxes for one year and give more favorable treatment to business investments.
Other elements of the deal include a temporary reinstatement of the estate tax at 35%—the level favored by most Republican lawmakers—as well as an extension of jobless benefits for the long-term unemployed.
"We have arrived at a framework for a bipartisan agreement,'' Mr. Obama said on Monday night, capping weeks of negotiations with leaders in Congress.
The outcome of the negotiations is vital, because the current tax levels signed into law by President George W. Bush expire on Dec. 31. Unless Congress acts, tax rates on virtually all Americans who pay income taxes will rise on Jan. 1. That could affect economic growth and even holiday sales.
In reaching the deal, Mr. Obama brushed past the demands of many in his own party to curb tax cuts for the wealthy. Some liberal lawmakers and activists were left seething, particularly over last-minute concessions to Republicans on the estate tax. Democratic leaders didn't agree to the deal during meetings on Monday with Mr. Obama and Vice President Joe Biden, according to a House aide.
"I can tell you with certainty that legislative blackmail of this kind by the Republicans will be vehemently opposed by many, if not most, Democrats," said Rep. John Conyers (D., Mich.).
In the Senate, Tom Harkin (D., Iowa) called it "an understatement'' to say he was disappointed.
White House officials will now try to persuade Democrats to back the agreement, but anger on the left suggests that Mr. Obama might need to rely heavily on Republican support to move legislation through Congress.
Republican leaders spoke highly of the agreement. In a statement, House Republican Whip Eric Cantor said, "No one gets everything they want in a deal, but our top priority is to restore certainty to the private sector so that businesses small and large can start hiring again."
Senate Republican Leader Mitch McConnell also praised the deal and asked that Democrats in Congress now "show the same openness to preventing tax hikes the administration has already shown.''
Mr. Obama acknowledged that the agreement marked a significant reversal for him, as he has long argued that income tax cuts for couples earning more than $250,000 should expire. If the political stalemate continued and led to a broad tax increase, Mr. Obama said, "that could cost our economy well over a million jobs.''
The deal would extend a raft of business tax breaks, including credit for spending on research. It would extend current tax rates on capital gains and dividends for two years, including for higher earners. It would also maintain protection for middle-class families from the alternative minimum tax.
As part of the deal, the White House is proposing a provision to encourage more investment in plant and equipment, by letting companies claim deductions on 100% of most kinds of investment.
Under the agreement between the White House and congressional Republicans, the estate tax rate would be set at 35% for two years and would apply only to estates over $5 million. Under current law, the estate tax has lapsed for 2010 and is set to spring next year to 55%.
A program of extended benefits for the long-term unemployed, which lapsed last month, would be revived for 13 months, the White House said. The jobless benefits would be financed by federal borrowing rather than by spending cuts.
For Mr. Obama, reaching a deal with the GOP on taxes could help him score points with moderates and independents, an increasingly important constituency, by underscoring his ability to work with newly empowered Republicans. But the discussions have angered some liberal groups, who say Democrats should engage the GOP in a showdown, even if that risks letting the tax cuts expire for all income levels. In an email to its members, the liberal Moveon.org said, "They've given up on this critical issue without a fight."
The payroll-tax reduction under discussion now would cut the 6.2% Social Security tax levied on a worker's wages to 4.2%. A worker making $40,000 a year would save $800, and some economists say that could help stimulate demand at a time when the economy remains relatively weak.
The employer's half of the tax—also 6.2%—wouldn't be affected under the White House proposal, and thus the cost of hiring new workers wouldn't be directly affected.
The payroll tax reduction would take the place of a $400-per-worker income-tax break that Mr. Obama included in the 2009 stimulus bill. That break, known as Making Work Pay, provides a tax credit of 6.2% on the first $6,450 of a worker's wages. It phases out for workers making more than $75,000.
Some Republicans prefer the payroll tax reduction to the Making Work Pay program because it goes to everyone who works, regardless of income. A senior administration official said that the payroll tax cut would cost $120 billion, twice that of Making Work Pay, and would give bigger benefits to some low-income workers.
Versions of a payroll tax cut have been considered before, and they enjoy a measure of support in Congress. But some Democrats are wary of any change to the payroll tax, which funds the Social Security program.
—Corey Boles and Martin Vaughan contributed to this article.
Write to Jonathan Weisman at jonathan.weisman@wsj.com and John D. McKinnon at john.mckinnon@wsj.com
For more, read http://voices.washingtonpost.com/ezra-klein/2010/12/an_imperfect_but_not-that-bad.html?sid=ST2010120606249
New Filing Thresholds for Nonprofits
http://institute.accountingtoday.com/news/IRS-Provides-New-Filing-Thresholds-Nonprofits-56532-1.html
WASHINGTON, D.C. (DECEMBER 3, 2010)
BY ACCOUNTING TODAY STAFF
The Internal Revenue Service has announced new filing thresholds for next year for tax-exempt organizations filing Form 990 series returns.
Organizations with gross receipts normally less than or equal to $50,000 must file Form 990-N (but may choose to file a complete Form 990 or Form 990-EZ). In prior years only organizations with gross receipts normally less than or equal to $25,000 could file the Form 990-N, also known as an "e-postcard."
Organizations with gross receipts greater than $50,000 and less than $200,000, and total assets less than $500,000, must file Form 990-EZ or a complete Form 990.
Organizations with gross receipts greater than or equal to $200,000, or total assets greater than or equal to $500,000, must file Form 990.
Private foundations must file Form 990-PF.
WASHINGTON, D.C. (DECEMBER 3, 2010)
BY ACCOUNTING TODAY STAFF
The Internal Revenue Service has announced new filing thresholds for next year for tax-exempt organizations filing Form 990 series returns.
Organizations with gross receipts normally less than or equal to $50,000 must file Form 990-N (but may choose to file a complete Form 990 or Form 990-EZ). In prior years only organizations with gross receipts normally less than or equal to $25,000 could file the Form 990-N, also known as an "e-postcard."
Organizations with gross receipts greater than $50,000 and less than $200,000, and total assets less than $500,000, must file Form 990-EZ or a complete Form 990.
Organizations with gross receipts greater than or equal to $200,000, or total assets greater than or equal to $500,000, must file Form 990.
Private foundations must file Form 990-PF.
Saying 'Yes' to a Prenup
http://online.wsj.com/article/SB10001424052748704767804575655223931267664.html
By EMILY GLAZER
When 24-year-old Desiree Burns got married in March, she and husband, Timothy, settled into his house in Raleigh, N.C. They vacation at his timeshare in Florida. And Mr. Burns, 28, is helping to cover tuition costs since Ms. Burns has gone back to school.
Thanks to a prenuptial agreement, if they ever get divorced, Mr. Burns keeps the home and vacation spot. She gets the pets.
"I don't feel that it's right to take part of something that I wasn't part of before," Ms. Burns says.
The Burnses aren't alone. Prenups are becoming more common among younger couples. And the contracts aren't just about protecting individual assets and divvying up property in case of a divorce. More young adults also are using prenups to shield themselves from a partner's debt and to even the field when one spouse shoulders the financial burden early in the marriage.
The contracts help young couples have a frank talk about their finances, which often aren't discussed before marriage, says Gabriel Cheong, a divorce attorney with Infinity Law Group in Quincy, Mass.
"You want to be secure in the idea that you did this so long ago that you planned for your future out of love, rather than out of hate when you're getting a divorce," he says.
The cost of setting up a prenuptial agreement varies by geographic location and a person's financial complexities. Prices typically range from $500 to $2,000 per person.
So when is a prenup worth the expense -- and the potentially awkward conversation?
Many young adults, unable to find a job after graduation or laid off because they were the last hired, are returning to school. And that usually means taking on more debt. Mr. Cheong says he often sees situations where one spouse works full-time -- and supports a young family -- while the other goes to school full-time.
In this case, a prenup could specify that the spouse who bankrolled the education would get reimbursed if a divorce occurred. In Ms. Burns' prenup, for example, if she gets divorced within five years of finishing her degree, she must pay back half of the money her husband contributed.
Prenups also can address who is responsible for paying debt a person has coming into a marital union, such as credit cards or a car loan, as well as debt incurred during the marriage. (Otherwise, courts might split debt equally.)
Tom Petrelli, managing director of Philadelphia-based Petrelli Law, says clients can stipulate what happens if a spouse decides to change careers, and alters a couple's financial situation.
With the job market still tight in many industries, more young adults are opting to start their own business -- often running it from home. And in some cases, a spouse unofficially helps the business get off the ground. A prenup, lawyers say, can spell out how home-business assets would be divided if a marriage goes south.
And some people want to protect assets they could inherit some day. Hunter Lowder, 30, got a prenup with her husband, now 34, when they married six years ago to outline her 100% ownership of a trust that includes her family's commercial real estate, home construction and insurance businesses.
Ms. Lowder, who lives in Carmel Valley, Calif., says her sisters and cousins will all sign prenups so the businesses are passed down to their generation.
"When it affects other people and their ownership in a company and their future and their finances," Ms. Lowder says, "you can't just say 'I'm in love.'"
—Email: emily.glazer@wsj.com
By EMILY GLAZER
When 24-year-old Desiree Burns got married in March, she and husband, Timothy, settled into his house in Raleigh, N.C. They vacation at his timeshare in Florida. And Mr. Burns, 28, is helping to cover tuition costs since Ms. Burns has gone back to school.
Thanks to a prenuptial agreement, if they ever get divorced, Mr. Burns keeps the home and vacation spot. She gets the pets.
"I don't feel that it's right to take part of something that I wasn't part of before," Ms. Burns says.
The Burnses aren't alone. Prenups are becoming more common among younger couples. And the contracts aren't just about protecting individual assets and divvying up property in case of a divorce. More young adults also are using prenups to shield themselves from a partner's debt and to even the field when one spouse shoulders the financial burden early in the marriage.
The contracts help young couples have a frank talk about their finances, which often aren't discussed before marriage, says Gabriel Cheong, a divorce attorney with Infinity Law Group in Quincy, Mass.
"You want to be secure in the idea that you did this so long ago that you planned for your future out of love, rather than out of hate when you're getting a divorce," he says.
The cost of setting up a prenuptial agreement varies by geographic location and a person's financial complexities. Prices typically range from $500 to $2,000 per person.
So when is a prenup worth the expense -- and the potentially awkward conversation?
Many young adults, unable to find a job after graduation or laid off because they were the last hired, are returning to school. And that usually means taking on more debt. Mr. Cheong says he often sees situations where one spouse works full-time -- and supports a young family -- while the other goes to school full-time.
In this case, a prenup could specify that the spouse who bankrolled the education would get reimbursed if a divorce occurred. In Ms. Burns' prenup, for example, if she gets divorced within five years of finishing her degree, she must pay back half of the money her husband contributed.
Prenups also can address who is responsible for paying debt a person has coming into a marital union, such as credit cards or a car loan, as well as debt incurred during the marriage. (Otherwise, courts might split debt equally.)
Tom Petrelli, managing director of Philadelphia-based Petrelli Law, says clients can stipulate what happens if a spouse decides to change careers, and alters a couple's financial situation.
With the job market still tight in many industries, more young adults are opting to start their own business -- often running it from home. And in some cases, a spouse unofficially helps the business get off the ground. A prenup, lawyers say, can spell out how home-business assets would be divided if a marriage goes south.
And some people want to protect assets they could inherit some day. Hunter Lowder, 30, got a prenup with her husband, now 34, when they married six years ago to outline her 100% ownership of a trust that includes her family's commercial real estate, home construction and insurance businesses.
Ms. Lowder, who lives in Carmel Valley, Calif., says her sisters and cousins will all sign prenups so the businesses are passed down to their generation.
"When it affects other people and their ownership in a company and their future and their finances," Ms. Lowder says, "you can't just say 'I'm in love.'"
—Email: emily.glazer@wsj.com
Thursday, December 2, 2010
Weighing a Custodial Account for Your Kid
I never like these UTMA/UGMA accounts for the reasons given below by the author, Bill Bischoff
http://www.smartmoney.com/personal-finance/taxes/custodial-accounts-for-your-kids-what-to-know/
Parents set up custodial accounts for their children for various reasons – but not always with the purest motives. Grandma gives $10,000 to little Freddie: Set up a custodial account. Parents want a tax shelter for little Jennifer’s college savings fund: Set up a custodial account. A single mom wants to hide cash so she can qualify for financial aid and go back to school: Move the money into her kid’s custodial account and take it back later. You get the idea. However, many parents fail to recognize that custodial accounts have significant legal and tax implications. Here are the five most important things to understand.
1. That Money Isn’t Yours Anymore
When funds are transferred into a minor child’s custodial account at a financial institution or brokerage firm, the funds now irrevocably belong to that child. Although the parent can, and usually does, function as the custodian (manager) of the account, the money can legally be used only for expenditures that benefit that child. In other words, parents are legally forbidden from using custodial account money for expenditures that benefit themselves (like a new car). And you can’t take money from one kid’s custodial account and use it to open up or supplement an account for another kid. Obviously, it can be a fine line between expenditures that benefit the child and those that benefit other family members. And I’ve never personally heard of a parent getting into legal hot water for raiding a custodial account. That said, staying on the right side of the law is the right thing to do.
2. Your Kid Will Gain Control at a Young Age
A minor child’s custodial account must be established under your state’s Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). Under applicable state law (most states have UTMA regimes these days), your child will gain full legal control over the account once he or she ceases to be a minor. This will happen somewhere between age 18 and 21 (in most states it’s 21). Remember: Nice little kids eventually turn into obnoxious teenagers, and young adults are not necessarily much better. So consider the possibility of future “UGMA or UTMA regret” before taking the irrevocable step of putting money into your child’s custodial account.
3. Your Kid May Have to File Tax Returns and Pay Taxes
Any income from your child’s custodial account belongs to the child. If that income exceeds $950, a separate federal income tax return generally must be filed for the child using Form 1040, 1040A, or 1040EZ. The child will probably owe some tax, and the kiddie tax rules may make it higher (see below). A state income tax return may be required too.
Exception: If all of your child’s income consists of interest, dividends and mutual-fund capital gains distributions, you may qualify to simply include the income on your Form 1040 and pay the resulting extra tax with your return. For details on this simplifying option, see IRS Form 8814 (Parents’ Election to Report Child’s Interest and Dividends).
4. The Kiddie Tax Might Bite
It would be swell if children with substantial custodial accounts were allowed to pay the same tax rates on investment income as other unmarried individuals. If that was allowed to happen, a child’s 2010 ordinary income would typically be taxed at a federal rate of only 10% or 15%, and a 0% rate would typically apply to long-term gains and dividends. Unfortunately, the so-called kiddie tax prevents such happy outcomes. Under the kiddie tax rules, a minor child’s investment income above $1,900 may be taxed at the parent’s higher rates. So the federal rate on a child’s interest income could be as high as 35%, and long-term gains and dividends could be taxed at 15%. The Kiddie Tax is calculated on IRS Form 8615 (Tax for Certain Children Who Have Investment Income of More Than $1,900) or on the aforementioned Form 8814 (when allowed).
Bottom Line: In the good old days, a custodial account could function as an efficient tax shelter because the income was taxed at the child’s low rates. These days, the kiddie tax rules make it difficult for custodial accounts to deliver meaningful tax savings.
5. There Could Be Gift Tax Consequences
This year, you can take advantage of the annual federal gift tax exclusion to move up to $13,000 into a custodial account for each of your children. So can your spouse. You can do the same thing next year, and the year after that, and so on. Gifts up to the $13,000 annual limit don’t reduce your lifetime $1 million federal gift tax exemption. However, if you transfer more than $13,000, you must file a gift tax return on IRS Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return). You probably won’t actually owe any gift tax (thanks to the $1 million exemption), but you still have to file.
The Last Word
Custodial accounts are not as simple as advertised, and there’s even more to the story than I’ve told you here. For example, a healthy custodial account balance can reduce college financial aid awards. Check out www.fairmark.com/custacct/ for additional info.
http://www.smartmoney.com/personal-finance/taxes/custodial-accounts-for-your-kids-what-to-know/
Parents set up custodial accounts for their children for various reasons – but not always with the purest motives. Grandma gives $10,000 to little Freddie: Set up a custodial account. Parents want a tax shelter for little Jennifer’s college savings fund: Set up a custodial account. A single mom wants to hide cash so she can qualify for financial aid and go back to school: Move the money into her kid’s custodial account and take it back later. You get the idea. However, many parents fail to recognize that custodial accounts have significant legal and tax implications. Here are the five most important things to understand.
1. That Money Isn’t Yours Anymore
When funds are transferred into a minor child’s custodial account at a financial institution or brokerage firm, the funds now irrevocably belong to that child. Although the parent can, and usually does, function as the custodian (manager) of the account, the money can legally be used only for expenditures that benefit that child. In other words, parents are legally forbidden from using custodial account money for expenditures that benefit themselves (like a new car). And you can’t take money from one kid’s custodial account and use it to open up or supplement an account for another kid. Obviously, it can be a fine line between expenditures that benefit the child and those that benefit other family members. And I’ve never personally heard of a parent getting into legal hot water for raiding a custodial account. That said, staying on the right side of the law is the right thing to do.
2. Your Kid Will Gain Control at a Young Age
A minor child’s custodial account must be established under your state’s Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). Under applicable state law (most states have UTMA regimes these days), your child will gain full legal control over the account once he or she ceases to be a minor. This will happen somewhere between age 18 and 21 (in most states it’s 21). Remember: Nice little kids eventually turn into obnoxious teenagers, and young adults are not necessarily much better. So consider the possibility of future “UGMA or UTMA regret” before taking the irrevocable step of putting money into your child’s custodial account.
3. Your Kid May Have to File Tax Returns and Pay Taxes
Any income from your child’s custodial account belongs to the child. If that income exceeds $950, a separate federal income tax return generally must be filed for the child using Form 1040, 1040A, or 1040EZ. The child will probably owe some tax, and the kiddie tax rules may make it higher (see below). A state income tax return may be required too.
Exception: If all of your child’s income consists of interest, dividends and mutual-fund capital gains distributions, you may qualify to simply include the income on your Form 1040 and pay the resulting extra tax with your return. For details on this simplifying option, see IRS Form 8814 (Parents’ Election to Report Child’s Interest and Dividends).
4. The Kiddie Tax Might Bite
It would be swell if children with substantial custodial accounts were allowed to pay the same tax rates on investment income as other unmarried individuals. If that was allowed to happen, a child’s 2010 ordinary income would typically be taxed at a federal rate of only 10% or 15%, and a 0% rate would typically apply to long-term gains and dividends. Unfortunately, the so-called kiddie tax prevents such happy outcomes. Under the kiddie tax rules, a minor child’s investment income above $1,900 may be taxed at the parent’s higher rates. So the federal rate on a child’s interest income could be as high as 35%, and long-term gains and dividends could be taxed at 15%. The Kiddie Tax is calculated on IRS Form 8615 (Tax for Certain Children Who Have Investment Income of More Than $1,900) or on the aforementioned Form 8814 (when allowed).
Bottom Line: In the good old days, a custodial account could function as an efficient tax shelter because the income was taxed at the child’s low rates. These days, the kiddie tax rules make it difficult for custodial accounts to deliver meaningful tax savings.
5. There Could Be Gift Tax Consequences
This year, you can take advantage of the annual federal gift tax exclusion to move up to $13,000 into a custodial account for each of your children. So can your spouse. You can do the same thing next year, and the year after that, and so on. Gifts up to the $13,000 annual limit don’t reduce your lifetime $1 million federal gift tax exemption. However, if you transfer more than $13,000, you must file a gift tax return on IRS Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return). You probably won’t actually owe any gift tax (thanks to the $1 million exemption), but you still have to file.
The Last Word
Custodial accounts are not as simple as advertised, and there’s even more to the story than I’ve told you here. For example, a healthy custodial account balance can reduce college financial aid awards. Check out www.fairmark.com/custacct/ for additional info.
Wednesday, December 1, 2010
California conformity
http://www.ftb.ca.gov/professionals/taxnews/2010/December/Article_3.shtml
On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010.
Conformity provisions
The following is a list of the most important areas of conformity provisions.
Extension of Exclusion of Income from Discharge of Qualified Principal Residence
The Act allows taxpayers that had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013.
Federal energy grants provided in lieu of federal energy credits are excluded from California gross income and alternative minimum taxable income of individuals and business. The income exclusion is retroactive and applies to any taxable year.
Allow Surviving Spouse to Exclude Gain from Sale of Residence
The new law allows a surviving spouse to exclude from gross income up to $500,000 of the gain from the sale or exchange of a principal residence owned jointly with a deceased spouse if the sale or exchange occurs within two years of the death of the spouse.
Increase in Age of Minor Children Whose Unearned Income is Taxed as if Parent’s Income
For taxable years beginning on or after January 1, 2010, California conforms to the provision in the Small Business and Work Opportunity Tax Act of 2007 that increased the age of minor children whose unearned income is taxed as if it were the parent’s income to apply to children who are under 18 years of age or who are full-time students who over age 18, but under age 24.
Early Distributions Not Subject to Additional Tax
California now conforms to the exceptions from the penalty on early withdrawals from retirement plans for qualified distributions made after September 11, 2001, to reservists while serving on active duty for at least 179 days and for qualified distributions made after August 17, 2006, to public safety employees after separation from service after reaching age 50. If you received one or more of these distributions and were assessed a penalty you may amend your returns to claim a refund. If the normal statute of limitations for claiming a refund would otherwise prevent the allowance of a refund, you may still file a claim for refund by December 31, 2011.
New Reporting Requirements for Smaller Tax-exempt Organization
Starting January 1, 2011, California requires smaller tax-exempt organizations with normal gross receipts of $25,000 or less, to electronically file an annual informational notice, FTB Form 199N, Annual Electronic Filing Requirement for Small Tax-Exempt Organization (California e-postcard). This filing requirement applies to account periods beginning on or after January 1, 2010, and does not include churches and church-related organizations. The due date for filing Form FTB 199N is the 15th day of the 5th month after an organization’s tax year ends.
Penalties
Impose a Penalty for Failure to File S Corporation Returns
For S corporation returns required to be filed on or after January 1, 2011, a failure to file penalty will be assessed in addition to the existing failure to file a timely return penalty. The amount of the penalty for each month, or part of a month (for a maximum of 12 months) that the failure continues, is $18 multiplied by the total number of shareholders in the S corporation during any part of the taxable year for which the return is due.
Increased Penalty for Failure to File Partnership or an LLC Returns
For returns required to be filed after January 1, 2011, the penalty for failure to file a partnership return or an LLC return is increased from $10 to $18 multiplied by the number of partners or members for each month (or fraction of the month) that the failure continues. Under the new law, the maximum number of months is changed from five months to 12 months.
Increase in Penalty for Bad Checks and Money Orders
For all payments received after January 1, 2011, we impose a penalty if your financial institution does not honor a payment you make to us by your check, money order, or electronic funds transfer. For a payment of $1,250 or more, the penalty is two percent of the payment amount. For a payment less than $1,250, the penalty is $25 or the payment amount, whichever is less.
Increase in Minimum Penalty on Failure to File a Tax Return
An individual or fiduciary that fails to file a tax return within 60 days of its due date (including extensions) is subject to a penalty of the lesser of $100 or 100 percent of the amount of tax required to be shown on the return. For taxable year beginning January 1, 2011, the penalty increases from $100 to $135.
On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010.
Conformity provisions
The following is a list of the most important areas of conformity provisions.
Extension of Exclusion of Income from Discharge of Qualified Principal Residence
The Act allows taxpayers that had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013.
- The new law limits the amount of qualified principal residence indebtedness to $800,000 for taxpayers who file as married/registered domestic partners (RDP) filing jointly, single, head of household, or widow/widower, and to $400,000 for taxpayers who file as married/RDP filing separately.
- Limits debt relief to $500,000 for taxpayers who file as married/RDP filing jointly, single, head of household, or widow/widower, and to $250,000 for taxpayers who file as married/RDP filing separately.
Federal energy grants provided in lieu of federal energy credits are excluded from California gross income and alternative minimum taxable income of individuals and business. The income exclusion is retroactive and applies to any taxable year.
Allow Surviving Spouse to Exclude Gain from Sale of Residence
The new law allows a surviving spouse to exclude from gross income up to $500,000 of the gain from the sale or exchange of a principal residence owned jointly with a deceased spouse if the sale or exchange occurs within two years of the death of the spouse.
Increase in Age of Minor Children Whose Unearned Income is Taxed as if Parent’s Income
For taxable years beginning on or after January 1, 2010, California conforms to the provision in the Small Business and Work Opportunity Tax Act of 2007 that increased the age of minor children whose unearned income is taxed as if it were the parent’s income to apply to children who are under 18 years of age or who are full-time students who over age 18, but under age 24.
Early Distributions Not Subject to Additional Tax
California now conforms to the exceptions from the penalty on early withdrawals from retirement plans for qualified distributions made after September 11, 2001, to reservists while serving on active duty for at least 179 days and for qualified distributions made after August 17, 2006, to public safety employees after separation from service after reaching age 50. If you received one or more of these distributions and were assessed a penalty you may amend your returns to claim a refund. If the normal statute of limitations for claiming a refund would otherwise prevent the allowance of a refund, you may still file a claim for refund by December 31, 2011.
New Reporting Requirements for Smaller Tax-exempt Organization
Starting January 1, 2011, California requires smaller tax-exempt organizations with normal gross receipts of $25,000 or less, to electronically file an annual informational notice, FTB Form 199N, Annual Electronic Filing Requirement for Small Tax-Exempt Organization (California e-postcard). This filing requirement applies to account periods beginning on or after January 1, 2010, and does not include churches and church-related organizations. The due date for filing Form FTB 199N is the 15th day of the 5th month after an organization’s tax year ends.
Penalties
Impose a Penalty for Failure to File S Corporation Returns
For S corporation returns required to be filed on or after January 1, 2011, a failure to file penalty will be assessed in addition to the existing failure to file a timely return penalty. The amount of the penalty for each month, or part of a month (for a maximum of 12 months) that the failure continues, is $18 multiplied by the total number of shareholders in the S corporation during any part of the taxable year for which the return is due.
Increased Penalty for Failure to File Partnership or an LLC Returns
For returns required to be filed after January 1, 2011, the penalty for failure to file a partnership return or an LLC return is increased from $10 to $18 multiplied by the number of partners or members for each month (or fraction of the month) that the failure continues. Under the new law, the maximum number of months is changed from five months to 12 months.
Increase in Penalty for Bad Checks and Money Orders
For all payments received after January 1, 2011, we impose a penalty if your financial institution does not honor a payment you make to us by your check, money order, or electronic funds transfer. For a payment of $1,250 or more, the penalty is two percent of the payment amount. For a payment less than $1,250, the penalty is $25 or the payment amount, whichever is less.
Increase in Minimum Penalty on Failure to File a Tax Return
An individual or fiduciary that fails to file a tax return within 60 days of its due date (including extensions) is subject to a penalty of the lesser of $100 or 100 percent of the amount of tax required to be shown on the return. For taxable year beginning January 1, 2011, the penalty increases from $100 to $135.
Capitalization vs Repairs
The IRS recently issued an audit guide on capitalization vs repairs
http://www.irs.gov/businesses/article/0,,id=231440,00.html
From KBKG, Inc:
Author: Gian Pazzia, CCSP - Principal
The IRS recently released its Audit Techniques Guide related to issue of Capitalization vs. Repairs. This issue has received a significant amount of attention by the IRS over the last couple of years as many taxpayers have filed for Changes in Accounting Method to take advantage of missed deductions. Because the amount of deductions can be significant and because the determination of appropriate treatment involves intense evaluation of facts and circumstances, the IRS raised this to a "Tier 1" audit issue.
The current IRS proposed regulations have broadened and clarified the definition of "repair and maintenance" costs. Application of the existing law requires an in-depth understanding of the various tax cases and "tests" that must be met. Thorough documentation is necessary to sustain audit and must show the application of existing law for each asset reclassified.
Currently, this opportunity relates to all prior, current, and future tax years. However, in order to take advantage of the tax laws for prior years, taxpayers should act quickly as the IRS is considering rules that would limit the opportunity for prior years.
Taxpayers utilizing the book method of accounting - with respect to (Repair and Maintenance) R&M - should consider the potential to accelerate cash flow by 1) changing their method of accounting and 2) engaging in an R&M study. By using the book method, taxpayers miss out on the opportunity to accelerate cash flow through the current-year deduction for R&M expense.
It is important to note that under Rev. Proc. 2009-39, the change in accounting method of reclassifying previously capitalized repair and maintenance expenses as deductions is now considered automatic. In order to implement the automatic method, a section 481(a) adjustment is needed, along with specific representations in an attachment to Form 3115. This change in accounting method can be filed any time before the extended tax return due date in the year of change.
http://www.irs.gov/businesses/article/0,,id=231440,00.html
From KBKG, Inc:
Author: Gian Pazzia, CCSP - Principal
The IRS recently released its Audit Techniques Guide related to issue of Capitalization vs. Repairs. This issue has received a significant amount of attention by the IRS over the last couple of years as many taxpayers have filed for Changes in Accounting Method to take advantage of missed deductions. Because the amount of deductions can be significant and because the determination of appropriate treatment involves intense evaluation of facts and circumstances, the IRS raised this to a "Tier 1" audit issue.
The current IRS proposed regulations have broadened and clarified the definition of "repair and maintenance" costs. Application of the existing law requires an in-depth understanding of the various tax cases and "tests" that must be met. Thorough documentation is necessary to sustain audit and must show the application of existing law for each asset reclassified.
Currently, this opportunity relates to all prior, current, and future tax years. However, in order to take advantage of the tax laws for prior years, taxpayers should act quickly as the IRS is considering rules that would limit the opportunity for prior years.
Taxpayers utilizing the book method of accounting - with respect to (Repair and Maintenance) R&M - should consider the potential to accelerate cash flow by 1) changing their method of accounting and 2) engaging in an R&M study. By using the book method, taxpayers miss out on the opportunity to accelerate cash flow through the current-year deduction for R&M expense.
It is important to note that under Rev. Proc. 2009-39, the change in accounting method of reclassifying previously capitalized repair and maintenance expenses as deductions is now considered automatic. In order to implement the automatic method, a section 481(a) adjustment is needed, along with specific representations in an attachment to Form 3115. This change in accounting method can be filed any time before the extended tax return due date in the year of change.
In Tax Cuts, the Options Run Short
http://www.nytimes.com/2010/12/01/business/economy/01leonhardt.html
By DAVID LEONHARDT
Published: November 30, 2010
Democrats have left themselves in a tough spot on the Bush tax cuts. After delaying the issue until after the election and then being trounced in that election, they find themselves with little leverage.
If they cannot come up with a plan that can win 60 votes in the Senate, which means at least two Republican votes, Republicans can filibuster any bill. All of the tax cuts would then expire on Dec. 31. When the new Republican House majority arrives in January, it will be able to make its first order of business a retroactive tax cut — forcing President Obama and Senate Democrats to choose between a purely Republican plan and an across-the-board tax increase.
So the big question is whether Democratic leaders can come up with any compromise that centrist Democrats and a couple of Republican senators — Scott Brown, who represents liberal Massachusetts? George Voinovich of Ohio, who is retiring? — are willing to accept.
Much of the recent commentary about the tax cuts has skipped over this political reality. It’s instead focused on how tough the Democrats should be and whether they should insist on the expiration of all the Bush tax cuts on income above $250,000 a year. But that’s no longer one of their options. Unless they believe they will benefit more than Republicans from a standoff in which taxes go up, which is hard to believe with a Democrat in the White House, their only choice now is among various versions of retreat.
A small group of Obama administration officials and lawmakers from each party will be negotiating over the next few days, and two possibilities are getting the most attention.
The first is a millionaire’s tax, in which the Bush tax cuts would be extended only on income below $1 million. This would raise only half as much as Mr. Obama’s proposal — allowing the cuts to expire on all income above $250,000 — but it would still eliminate roughly 8 percent of the medium-term budget deficit. A millionaire’s tax would also mean that the tax code would again begin to distinguish between the merely affluent and the truly wealthy, as was the case decades ago.
The second, more likely option is to extend all the tax cuts — and to package them with other tax cuts and spending likely to do more to help the economy than the Bush tax cuts. (Remember, after President George W. Bush signed the cuts in 2001, the economy lost jobs for the next two years, and economic growth during his presidency was mediocre.) These other measures could include a tax cut for businesses that added workers, an across-the-board payroll tax cut and an extension of unemployment benefits.
Combining the two ideas — using the revenue from the millionaire’s tax to pay for job creation programs — may also be possible. Senator Mark Warner, a moderate Virginia Democrat, has been pushing a somewhat similar idea.
The safer strategy is focusing on job creation, without involving the millionaire’s tax. Republicans would then be forced to accept additional tax cuts, some of which were originally Republican ideas, or to stand in the way of extending the Bush cuts. Democrats, for their part, could avoid repeating their mistake of early this year, when they assumed a recovery was under way and failed to do enough to help the economy.
Today, the economy looks strikingly similar to the way it did at the start of the year, with the latest numbers again pointing to a recovery. Retail sales over Thanksgiving weekend were strong. The last jobs report showed more hiring than expected. Yet the outlook remains highly uncertain, partly because of the debt troubles in Europe.
The great historical lesson of financial crises is they tend to have bigger, longer-lasting effects than policy makers think. Congress and the White House now have a chance to take out an insurance policy against the risk that the recovery will fade in coming months, just as it did over the summer. Because the Bush tax cuts will expire unless new legislation is enacted, they offer a chance to get that insurance policy through Congress.
The political argument for taking a risk and trying to pass the millionaire’s tax is that it will allow the Democrats to cast themselves as friends of the middle class. The economic argument is that such a tax would probably do more long-term good than any of the other remaining options.
The country, as you’ve no doubt heard, is facing a huge budget deficit. To reduce the deficit to a level economists consider sustainable, Washington needs to find about $400 billion in annual tax revenue and spending cuts by 2015. A millionaire’s tax would be a good start, producing about $30 billion a year. By comparison, Mr. Obama’s plan to freeze federal workers’ pay would save about $5 billion a year.
A millionaire’s tax would also fall on an income group that, by almost any definition, can best handle a tax increase. Since 1980, pretax income for households making at least $1 million has more than tripled, after adjusting for inflation. Pretax income for households in the dead middle of the income distribution, making roughly $50,000, has risen just 13 percent.
At the same time, the wealthy have received a much bigger tax cut over the last three decades than any other group. The total federal tax rate on households making more than $1 million — including the income tax, the payroll tax and others — was above 50 percent in 1980. In recent years, it has been about 33 percent.
Finally, a millionaire’s tax would make a distinction between the 400,000th dollar of income and the 40 millionth dollar. Today, the government taxes those dollars at the same rate, which is hard to justify in a country with a progressive tax system and high inequality. Until the 1970s, the highest tax bracket began at more than $1 million a year in today’s dollars.
So which route should Democrats take? It depends on whether they think they have any chance of persuading a couple of Republicans to vote for a millionaire’s tax. If the Democrats fail and don’t leave themselves enough time to pass a bill with job creation measures, they will be facing total capitulation — an extension of the high-end Bush tax cuts with nothing in return.
And what should the Republicans do? Perhaps, when faced with the final choice, a few of them will be willing to vote for either reducing the deficit or helping the economy.
E-mail: leonhardt@nytimes.com
By DAVID LEONHARDT
Published: November 30, 2010
Democrats have left themselves in a tough spot on the Bush tax cuts. After delaying the issue until after the election and then being trounced in that election, they find themselves with little leverage.
If they cannot come up with a plan that can win 60 votes in the Senate, which means at least two Republican votes, Republicans can filibuster any bill. All of the tax cuts would then expire on Dec. 31. When the new Republican House majority arrives in January, it will be able to make its first order of business a retroactive tax cut — forcing President Obama and Senate Democrats to choose between a purely Republican plan and an across-the-board tax increase.
So the big question is whether Democratic leaders can come up with any compromise that centrist Democrats and a couple of Republican senators — Scott Brown, who represents liberal Massachusetts? George Voinovich of Ohio, who is retiring? — are willing to accept.
Much of the recent commentary about the tax cuts has skipped over this political reality. It’s instead focused on how tough the Democrats should be and whether they should insist on the expiration of all the Bush tax cuts on income above $250,000 a year. But that’s no longer one of their options. Unless they believe they will benefit more than Republicans from a standoff in which taxes go up, which is hard to believe with a Democrat in the White House, their only choice now is among various versions of retreat.
A small group of Obama administration officials and lawmakers from each party will be negotiating over the next few days, and two possibilities are getting the most attention.
The first is a millionaire’s tax, in which the Bush tax cuts would be extended only on income below $1 million. This would raise only half as much as Mr. Obama’s proposal — allowing the cuts to expire on all income above $250,000 — but it would still eliminate roughly 8 percent of the medium-term budget deficit. A millionaire’s tax would also mean that the tax code would again begin to distinguish between the merely affluent and the truly wealthy, as was the case decades ago.
The second, more likely option is to extend all the tax cuts — and to package them with other tax cuts and spending likely to do more to help the economy than the Bush tax cuts. (Remember, after President George W. Bush signed the cuts in 2001, the economy lost jobs for the next two years, and economic growth during his presidency was mediocre.) These other measures could include a tax cut for businesses that added workers, an across-the-board payroll tax cut and an extension of unemployment benefits.
Combining the two ideas — using the revenue from the millionaire’s tax to pay for job creation programs — may also be possible. Senator Mark Warner, a moderate Virginia Democrat, has been pushing a somewhat similar idea.
The safer strategy is focusing on job creation, without involving the millionaire’s tax. Republicans would then be forced to accept additional tax cuts, some of which were originally Republican ideas, or to stand in the way of extending the Bush cuts. Democrats, for their part, could avoid repeating their mistake of early this year, when they assumed a recovery was under way and failed to do enough to help the economy.
Today, the economy looks strikingly similar to the way it did at the start of the year, with the latest numbers again pointing to a recovery. Retail sales over Thanksgiving weekend were strong. The last jobs report showed more hiring than expected. Yet the outlook remains highly uncertain, partly because of the debt troubles in Europe.
The great historical lesson of financial crises is they tend to have bigger, longer-lasting effects than policy makers think. Congress and the White House now have a chance to take out an insurance policy against the risk that the recovery will fade in coming months, just as it did over the summer. Because the Bush tax cuts will expire unless new legislation is enacted, they offer a chance to get that insurance policy through Congress.
The political argument for taking a risk and trying to pass the millionaire’s tax is that it will allow the Democrats to cast themselves as friends of the middle class. The economic argument is that such a tax would probably do more long-term good than any of the other remaining options.
The country, as you’ve no doubt heard, is facing a huge budget deficit. To reduce the deficit to a level economists consider sustainable, Washington needs to find about $400 billion in annual tax revenue and spending cuts by 2015. A millionaire’s tax would be a good start, producing about $30 billion a year. By comparison, Mr. Obama’s plan to freeze federal workers’ pay would save about $5 billion a year.
A millionaire’s tax would also fall on an income group that, by almost any definition, can best handle a tax increase. Since 1980, pretax income for households making at least $1 million has more than tripled, after adjusting for inflation. Pretax income for households in the dead middle of the income distribution, making roughly $50,000, has risen just 13 percent.
At the same time, the wealthy have received a much bigger tax cut over the last three decades than any other group. The total federal tax rate on households making more than $1 million — including the income tax, the payroll tax and others — was above 50 percent in 1980. In recent years, it has been about 33 percent.
Finally, a millionaire’s tax would make a distinction between the 400,000th dollar of income and the 40 millionth dollar. Today, the government taxes those dollars at the same rate, which is hard to justify in a country with a progressive tax system and high inequality. Until the 1970s, the highest tax bracket began at more than $1 million a year in today’s dollars.
So which route should Democrats take? It depends on whether they think they have any chance of persuading a couple of Republicans to vote for a millionaire’s tax. If the Democrats fail and don’t leave themselves enough time to pass a bill with job creation measures, they will be facing total capitulation — an extension of the high-end Bush tax cuts with nothing in return.
And what should the Republicans do? Perhaps, when faced with the final choice, a few of them will be willing to vote for either reducing the deficit or helping the economy.
E-mail: leonhardt@nytimes.com
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