The IRS has a problem if this 1099-MISC filing requirement under the Health Care Reform Act is not repealed because there is another requirement for credit card companies to report all charged sales to the IRS for each merchant. This will double up all credit card/PayPal type sales. The IRS commissioner recently announced that the IRS would use its power to exempt purchases using credit cards from 1099-MISC reporting. However, if businesses don't report credit card purchases on 1099-MISC, they would have the added burden to segregate cash purchases from credit card purchases. Most small businesses don't have that kind of capability. The result is all credit card sales to businesses will be reported twice.
If this filing requirement is repealed, then the cost of the health care reform will be bigger on paper, as the Obama administration claims this filing requirement would generate tax revenues.
http://www.webcpa.com/news/1099-Reporting-Changes-Provoke-Opposition-55300-1.html
By Roger Russell, Senior Editor, Accounting Today
My guess is that there’s at least a 50-50 chance that the new Form 1099 reporting mandate will be repealed or modified before they go into effect. On almost anyone’s benefit-burden scale, the burdens far outweigh the benefits.
While they don’t go into effect until 2012, they have created a firestorm of concern and criticism, and have been a frequent topic on editorial pages and Sunday talk shows. The requirements, included in the health care legislation passed in March, will require the tracking of payments for goods in addition to services, and for payments to corporations as well as individuals. All businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors
The AICPA was among the numerous organization responding to the requirements, saying it would be especially burdensome and costly for small businesses to compile the data and prepare the Form 1099-MISC return, and calling for outright repeal of the measure.
Moreover, the AICPA said, information provided by the forms will not be particularly helpful in collecting any unpaid taxes because it will be difficult to reconcile payments reported on the forms with the income reported by the vendor.
“This expansion of information reporting may prove to be so burdensome to small businesses that we believe it will significantly contribute to the hurdles to growth and formation that businesses face,” the AICPA stated. “When businesses start tax compliance planning for 2012, Section 9006 [of the Patient Protection and Affordable Care Act, the health care legislation that introduced the mandate] will impose a significant increase in costs on business with respect to the accumulation of relevant information and the preparation and mailing of Forms1099-MISC.”
In addition, many corporations operate on a fiscal year basis rather than on a calendar year, the Institute noted. “Receipt of Forms 1099-MISC by these fiscal year corporations would not provide useful information as the corporations would be receiving calendar year information, triggering a burdensome income reconciliation procedure for the taxpayer that would be necessary to interpret the data,” said the AICPA.
“We strongly support repeal of the requirement,” AICPA senior technical manager Benson Goldstein told me.
At the same time, he said, the Institute will participate in offering suggestions to the IRS to implement the legislation in a more reasonable manner.
“We will take the opportunity to offer comments to the IRS,” he said. “Our commenting is not to hedge our bets. It’s just that we are taking the opportunity that the IRS is offering because we don’t know how the legislative calendar will work out. But our strongly held view is that the better way is repeal.”
This week, the U. S. Chamber of Commerce sent its own letter to Congress calling for repeal. The letter included 1,100 signatures from local chambers of commerce, associations, and businesses of all sizes. The letter pointed out that the requirement would increase accounting costs, and expose businesses to costly and unjustified audits.
Moreover, it said the mandate could alter marketplace behavior to the detriment of small businesses and startups. Customers might consolidate their purchases by using several large vendors with broad geographic presence and more diverse product lines instead of a number of small vendors.
The logic of the requirement falls apart when you consider how the information will be used. For example, even if Home Depot received 1099s from all of its business customers, would the information be of any value? And if the information has no value, it shouldn’t be required.
Friday, August 20, 2010
8109 coupons to be discontinued
I have always advocated use of electronic payments. Using EFTPS (electronic federal tax payment system) is easy and convenient.
http://www.webcpa.com/news/IRS-Expands-Use-Electronic-Payments-55301-1.html
Washington, D.C. (August 19, 2010)
By WebCPA Staff
The Internal Revenue Service issued proposed regulations on Thursday to significantly increase the number of electronic transactions between taxpayers and the federal government.
In accordance with a Financial Management Service initiative announced in April of this year, the proposed regulations (REG 153340-09) would eliminate the rules for making federal tax deposits by paper coupon because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010. The proposed regulations generally maintain the existing rules for depositing federal taxes through the Electronic Federal Tax Payment System.
Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government, the IRS noted. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.
Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.
Information on EFTPS, including how to enroll, can be found at www.eftps.gov or by calling EFTPS Customer Service at (800) 555-4477.
Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are in the proposed regulations.
http://www.webcpa.com/news/IRS-Expands-Use-Electronic-Payments-55301-1.html
Washington, D.C. (August 19, 2010)
By WebCPA Staff
The Internal Revenue Service issued proposed regulations on Thursday to significantly increase the number of electronic transactions between taxpayers and the federal government.
In accordance with a Financial Management Service initiative announced in April of this year, the proposed regulations (REG 153340-09) would eliminate the rules for making federal tax deposits by paper coupon because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010. The proposed regulations generally maintain the existing rules for depositing federal taxes through the Electronic Federal Tax Payment System.
Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government, the IRS noted. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.
Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.
Information on EFTPS, including how to enroll, can be found at www.eftps.gov or by calling EFTPS Customer Service at (800) 555-4477.
Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are in the proposed regulations.
Tuesday, August 17, 2010
New California tax rate and law
The FTB has announced changes in the 2010 tax rate schedules, return filing thresholds, standard deduction, phaseout of itemized deductions, personal exemptions, phaseout of personal exemptions, various credit changes and the AMT exemption. You can view all of these changes at http://www.ftb.ca.gov/forms/2010_California_Tax_Rates_and_Exemptions.shtml
On 8/13/2010, Governor Schwarzenegger signed AB 2177, effective 1/1/2011 through 12/31/2017. This bill authorizes the FTB to issue regulations authorizing electronic communications with taxpayers and representatives (both sending and receiving) for personal and corporation income tax matters after receiving the taxpayer's consent. This would include sending notices, statements, bills, protests, and other communications to a taxpayer's secure mailbox on the FTB's website. You can read the bill at http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_2151-2200/ab_2177_bill_20100813_chaptered.pdf
On 8/13/2010, Governor Schwarzenegger signed AB 2177, effective 1/1/2011 through 12/31/2017. This bill authorizes the FTB to issue regulations authorizing electronic communications with taxpayers and representatives (both sending and receiving) for personal and corporation income tax matters after receiving the taxpayer's consent. This would include sending notices, statements, bills, protests, and other communications to a taxpayer's secure mailbox on the FTB's website. You can read the bill at http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_2151-2200/ab_2177_bill_20100813_chaptered.pdf
Saturday, August 14, 2010
Monday, August 2, 2010
Congress and Estate-Tax Revisions
http://finance.yahoo.com/news/Congress-and-EstateTax-wallstreet-1603551094.html?x=0
Tom Herman, On Sunday August 1, 2010, 1:03 am EDT
Q: Who in Congress are the key leadership players on revising the estate tax? Is this a separate issue or part of overall tax reform? Is it possible they will deal with this prior to their August recess?
A: Among the major players are Senate Majority Leader Harry Reid, a Nevada Democrat, and Sen. Max Baucus (D., Mont.), who heads the Senate Finance Committee, which oversees tax legislation.
Others include Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee; Sen. Jon Kyl (R., Ariz.); and Sen. Blanche Lincoln (D., Ark.)
The main focus is on the Senate since the House already has approved estate-tax legislation. Among the key players in the House: Speaker Nancy Pelosi, a Democrat from California, and Democratic Rep. Sandy Levin of Michigan, chairman of the powerful Ways and Means Committee. Rep. Dave Camp of Michigan is the ranking Republican on the Ways and Means Committee.
On your question about timing: Nobody knows when Congress will act, or whether this tax will be dealt with as part of some wide-ranging legislation. It's possible that the Senate might reach agreement in coming weeks. But lawmakers might wait to tackle the issue until after the November elections.
Congress might be unable to reach any agreement this year, some analysts note. If Congress takes no action, the estate tax, which expired at the end of last year, will return next year with a basic exemption of $1 million and a top rate of 55% on the largest estates. (Transfers between spouses typically are tax-free.) For 2009, the basic exemption was $3.5 million, and the top rate was 45%.
Here's a recent development that bears watching: Sens. Kyl and Lincoln introduced a bill that would set the top estate-tax rate permanently at 35%. It also would set the exemption amount at $5 million, phased in over 10 years and indexed for inflation.
And it would restore what's known as "stepped-up basis" for inherited assets that have gone up in value. Essentially, it means stocks, bonds and other assets you inherit typically would be valued on the date of death of your benefactor, instead of what that person originally paid for them.
That's important for calculating capital-gains taxes when you eventually sell those assets.
Write to Tom Herman at tom.herman@wsj.com
Here is a link to Senator Kyl's web site on the proposed bill, http://kyl.senate.gov/record.cfm?id=326353
Senator Lincoln's press release is at http://lincoln.senate.gov/newsroom/2010-7-14-1.cfm
H.R. 5297 is at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h5297pcs.txt.pdf
CNN Money recently has an articled, titled "Estate tax in limbo". Read it at http://money.cnn.com/2010/06/18/pf/taxes/estate_tax/index.htm
Tom Herman, On Sunday August 1, 2010, 1:03 am EDT
Q: Who in Congress are the key leadership players on revising the estate tax? Is this a separate issue or part of overall tax reform? Is it possible they will deal with this prior to their August recess?
A: Among the major players are Senate Majority Leader Harry Reid, a Nevada Democrat, and Sen. Max Baucus (D., Mont.), who heads the Senate Finance Committee, which oversees tax legislation.
Others include Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee; Sen. Jon Kyl (R., Ariz.); and Sen. Blanche Lincoln (D., Ark.)
The main focus is on the Senate since the House already has approved estate-tax legislation. Among the key players in the House: Speaker Nancy Pelosi, a Democrat from California, and Democratic Rep. Sandy Levin of Michigan, chairman of the powerful Ways and Means Committee. Rep. Dave Camp of Michigan is the ranking Republican on the Ways and Means Committee.
On your question about timing: Nobody knows when Congress will act, or whether this tax will be dealt with as part of some wide-ranging legislation. It's possible that the Senate might reach agreement in coming weeks. But lawmakers might wait to tackle the issue until after the November elections.
Congress might be unable to reach any agreement this year, some analysts note. If Congress takes no action, the estate tax, which expired at the end of last year, will return next year with a basic exemption of $1 million and a top rate of 55% on the largest estates. (Transfers between spouses typically are tax-free.) For 2009, the basic exemption was $3.5 million, and the top rate was 45%.
Here's a recent development that bears watching: Sens. Kyl and Lincoln introduced a bill that would set the top estate-tax rate permanently at 35%. It also would set the exemption amount at $5 million, phased in over 10 years and indexed for inflation.
And it would restore what's known as "stepped-up basis" for inherited assets that have gone up in value. Essentially, it means stocks, bonds and other assets you inherit typically would be valued on the date of death of your benefactor, instead of what that person originally paid for them.
That's important for calculating capital-gains taxes when you eventually sell those assets.
Write to Tom Herman at tom.herman@wsj.com
Here is a link to Senator Kyl's web site on the proposed bill, http://kyl.senate.gov/record.cfm?id=326353
Senator Lincoln's press release is at http://lincoln.senate.gov/newsroom/2010-7-14-1.cfm
H.R. 5297 is at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h5297pcs.txt.pdf
CNN Money recently has an articled, titled "Estate tax in limbo". Read it at http://money.cnn.com/2010/06/18/pf/taxes/estate_tax/index.htm
Thursday, July 29, 2010
guywong.com: When the Tax Hikes Are Coming
When the Tax Hikes Are Coming: "http://finance.yahoo.com/news/When-the-Tax-Hikes-Are-usnews-2864423913.html?x=0"
When the Tax Hikes Are Coming
http://finance.yahoo.com/news/When-the-Tax-Hikes-Are-usnews-2864423913.html?x=0
Rick Newman, On Wednesday July 28, 2010, 5:00 pm EDT
If you love class warfare, your moment has arrived. The next several weeks, leading up to the November elections, are sure to be filled with resounding political invective over who should pay for Washington's profligate spending over the last decade. Democrats will argue that the rich and near-rich should pony up, since they have the most money to start with. Republicans will point to the needy, arguing that they've been getting too much aid for too long. Tea Partiers will struggle to decide whose benefits should be cut in order to achieve the smaller government they envision. All around, livelihoods will be threatened. Instead of the "silly season," the midterm elections will feel like the angry season.
It sounds very entertaining. But if you'd rather stick your fingers in your ears until November 3, feel free: For all the shouting that's on the way, it's not hard to predict what's going to happen.
Tax policy over the last 20 years has swung left and right based on the ideology of the governing party. But America can no longer afford the luxury of a manic tax code driven by what the party in power thinks is fair. Instead, simple math is now taking over. Revenue from individual income taxes, for example, was relatively stable between 1970 and 2000, ranging from about 8 to 10 percent of GDP, according to the Congressional Budget Office. After the Bush tax cuts of 2001 and 2003, that figure fell to a record low of about 7 percent. The late, great recession drove it even lower.
If federal spending had fallen by a similar amount during the last decade, President Obama might be able to extend all those tax cuts once they expire at the end of this year, and declare America Low-Tax Nation. But of course government spending has gone up and up, thanks to two overseas wars, skyrocketing Medicare and Medicaid costs, and a brutal recession that drove tax revenue down at the same time the government spent more than $1 trillion in stimulus aid. The resulting federal debt, about $14 trillion, is now as big as the entire economy. If it continues to mushroom as forecast, the debt will eventually crush us all via rising interest rates, stagnant growth, and pure shame.
It's the job of Obama and his fellow politicians to make sure that doesn't happen, and they're thinking about getting around to it some day, maybe. Most economists feel the solution is a combination of tax increases and spending cuts, since doing one or the other alone would be too draconian to disguise with the usual opposite-speak out of Washington. The first real opportunity to do something arises this fall, since income taxes for most Americans will automatically go up unless Congress and Obama extend some of the Bush tax cuts. Here's what's likely to happen:
Wealthy taxpayers are going to pay more. Obama wants to raise the top two income brackets from the Bush-era levels, which means the top rate will rise from 35 to 39.6 percent and the rate in the next bracket will rise from 33 to 36 percent. That effectively means that taxes will rise for individuals with income over $200,000 and couples earning over $250,000 (after accounting for deductions). There will also be new limits (same as the old ones, before the Bush cuts were enacted) on the total amount of allowable deductions, which will bump a few additional people into these higher brackets. To enact these "tax hikes" on the wealthy, Congress doesn't need to do anything--it will happen automatically at the end of 2010, once the Bush tax cuts are over.
There's a lot of "debate" about this, but for the Democrats who control Congress, the political calculus is irresistible. Those who would fall into the two higher brackets account for just 3.4 percent of all taxpayers, according to the Tax Policy Center, and those people tend to be Republicans anyway. So few Democratic votes would be at stake. And Republicans themselves have been bellyaching about how important it is to start attacking the debt. Republicans counter by arguing that enacting any tax increase in a weak economy is dangerous, because it could crimp spending just when it's needed most. There's truth to that, but the majority of evidence suggests that tax increases on the wealthy would cut into what they save, not what they spend. The media will treat this whole issue as a huge drama, but the fact that a Democratic Congress would have to pass a new law to prevent higher taxes on the wealthy weighs heavily in favor of a tax increase. Call your accountant.
The middle class will get a temporary pass, but it will only defer the inevitable pain. Obama has pledged no new taxes on the middle class, and no matter how implausible that is, it's hard to see him breaking that promise in his first term. Besides, raising the income tax rates on the majority of taxpayers would be risky in a lousy economy, so the odds are high that Congress will extend the Bush tax cuts for those who fall below the $200,000/$250,000 thresholds. The Senate, which moves slower than the House, may not get to that before the November elections, so the action may come in the lame-duck session that follows, leading to plenty of high-volume gamesmanship right up until the elections. But not much will change for the majority of taxpayers.
The respite, however, will be short-lived. One reasonable guess is that the Bush cuts will be extended by only two years, forcing Washington to deal with them again in 2012--when the economy, presumably, will be stronger. At that point or soon after, Congress will have to get serious about new taxes--and there aren't nearly enough wealthy Americans to finance a solution, at any tax rate. "We've been selling government services at 80 to 90 percent of their cost," says Clint Stretch, managing principal for tax policy at Deloitte Tax. "We're going to have to start selling them at a premium to pay for the discounts in the past."
Possibilities include not just higher tax rates on those who already pay, but a host of scaled-back deductions--including the mortgage-interest deduction for home purchases--and a new value-added tax that could raise the cost of most goods and services. Exemptions for lower-income workers could be narrowed as well, so more people pay taxes. The tumult will be fascinating, since voters are likely to revolt no matter how bankrupt American becomes or what is fiscally prudent. But for now, politicians are looking the other way.
The "making work pay" credit has a good chance of being extended for one more year, through 2011. This was part of the 2009 stimulus plan that reduced the tax burden for individuals by $400 and for couples by $800, up to income thresholds of $95,000 and $195,000. It was initially put into effect for 2009 and 2010; Obama wants to extend it through 2011, and he'll probably get his wish. The tax credit benefits about three-quarters of all taxpayers, and can plausibly be counted as additional "stimulus" that will help the economy recover. So it has popular appeal despite an estimated cost of about $60 billion in lost government revenue for each year it's in effect. It wouldn't be surprising if Obama pushed to extend this into 2012 as well, to claim credit for middle-class tax cuts in an election year.
Estate taxes have nowhere to go but up, especially since they were cut to nothing at all for 2010. There are two basic issues: What the tax rate should be, and what portion of an estate should be exempt from taxes before the government takes its share. Most proposals are coalescing around an exemption of between $3.5 million and $5 million, and tax rates that range from 35 to 50 percent after that. Conservatives loathe the "death" tax, complaining that it's a second levy on money's that already been taxed once. But unbeknownst to them, lean times have turned public opinion squarely against the super-rich, who are the only ones really affected by estate taxes. After the 2010 holiday, a reinstatement seems inevitable.
The real battle over higher taxes and lower spending will probably kick off following the 2012 elections. "The choices are all very, very ugly," says Stretch. The first part of any serious effort would probably be sharp spending cutbacks, which have to affect Social Security and Medicare recipients if they're going to be meaningful, since that's where much of the money goes. When that produces howls of outrage, lawmakers will turn to widespread tax hikes to spread the pain around. But new taxes are never popular, and the rancor could push a solution even further into the future. Compared with that, this year's elections might seem downright cheerful.
Rick Newman, On Wednesday July 28, 2010, 5:00 pm EDT
If you love class warfare, your moment has arrived. The next several weeks, leading up to the November elections, are sure to be filled with resounding political invective over who should pay for Washington's profligate spending over the last decade. Democrats will argue that the rich and near-rich should pony up, since they have the most money to start with. Republicans will point to the needy, arguing that they've been getting too much aid for too long. Tea Partiers will struggle to decide whose benefits should be cut in order to achieve the smaller government they envision. All around, livelihoods will be threatened. Instead of the "silly season," the midterm elections will feel like the angry season.
It sounds very entertaining. But if you'd rather stick your fingers in your ears until November 3, feel free: For all the shouting that's on the way, it's not hard to predict what's going to happen.
Tax policy over the last 20 years has swung left and right based on the ideology of the governing party. But America can no longer afford the luxury of a manic tax code driven by what the party in power thinks is fair. Instead, simple math is now taking over. Revenue from individual income taxes, for example, was relatively stable between 1970 and 2000, ranging from about 8 to 10 percent of GDP, according to the Congressional Budget Office. After the Bush tax cuts of 2001 and 2003, that figure fell to a record low of about 7 percent. The late, great recession drove it even lower.
If federal spending had fallen by a similar amount during the last decade, President Obama might be able to extend all those tax cuts once they expire at the end of this year, and declare America Low-Tax Nation. But of course government spending has gone up and up, thanks to two overseas wars, skyrocketing Medicare and Medicaid costs, and a brutal recession that drove tax revenue down at the same time the government spent more than $1 trillion in stimulus aid. The resulting federal debt, about $14 trillion, is now as big as the entire economy. If it continues to mushroom as forecast, the debt will eventually crush us all via rising interest rates, stagnant growth, and pure shame.
It's the job of Obama and his fellow politicians to make sure that doesn't happen, and they're thinking about getting around to it some day, maybe. Most economists feel the solution is a combination of tax increases and spending cuts, since doing one or the other alone would be too draconian to disguise with the usual opposite-speak out of Washington. The first real opportunity to do something arises this fall, since income taxes for most Americans will automatically go up unless Congress and Obama extend some of the Bush tax cuts. Here's what's likely to happen:
Wealthy taxpayers are going to pay more. Obama wants to raise the top two income brackets from the Bush-era levels, which means the top rate will rise from 35 to 39.6 percent and the rate in the next bracket will rise from 33 to 36 percent. That effectively means that taxes will rise for individuals with income over $200,000 and couples earning over $250,000 (after accounting for deductions). There will also be new limits (same as the old ones, before the Bush cuts were enacted) on the total amount of allowable deductions, which will bump a few additional people into these higher brackets. To enact these "tax hikes" on the wealthy, Congress doesn't need to do anything--it will happen automatically at the end of 2010, once the Bush tax cuts are over.
There's a lot of "debate" about this, but for the Democrats who control Congress, the political calculus is irresistible. Those who would fall into the two higher brackets account for just 3.4 percent of all taxpayers, according to the Tax Policy Center, and those people tend to be Republicans anyway. So few Democratic votes would be at stake. And Republicans themselves have been bellyaching about how important it is to start attacking the debt. Republicans counter by arguing that enacting any tax increase in a weak economy is dangerous, because it could crimp spending just when it's needed most. There's truth to that, but the majority of evidence suggests that tax increases on the wealthy would cut into what they save, not what they spend. The media will treat this whole issue as a huge drama, but the fact that a Democratic Congress would have to pass a new law to prevent higher taxes on the wealthy weighs heavily in favor of a tax increase. Call your accountant.
The middle class will get a temporary pass, but it will only defer the inevitable pain. Obama has pledged no new taxes on the middle class, and no matter how implausible that is, it's hard to see him breaking that promise in his first term. Besides, raising the income tax rates on the majority of taxpayers would be risky in a lousy economy, so the odds are high that Congress will extend the Bush tax cuts for those who fall below the $200,000/$250,000 thresholds. The Senate, which moves slower than the House, may not get to that before the November elections, so the action may come in the lame-duck session that follows, leading to plenty of high-volume gamesmanship right up until the elections. But not much will change for the majority of taxpayers.
The respite, however, will be short-lived. One reasonable guess is that the Bush cuts will be extended by only two years, forcing Washington to deal with them again in 2012--when the economy, presumably, will be stronger. At that point or soon after, Congress will have to get serious about new taxes--and there aren't nearly enough wealthy Americans to finance a solution, at any tax rate. "We've been selling government services at 80 to 90 percent of their cost," says Clint Stretch, managing principal for tax policy at Deloitte Tax. "We're going to have to start selling them at a premium to pay for the discounts in the past."
Possibilities include not just higher tax rates on those who already pay, but a host of scaled-back deductions--including the mortgage-interest deduction for home purchases--and a new value-added tax that could raise the cost of most goods and services. Exemptions for lower-income workers could be narrowed as well, so more people pay taxes. The tumult will be fascinating, since voters are likely to revolt no matter how bankrupt American becomes or what is fiscally prudent. But for now, politicians are looking the other way.
The "making work pay" credit has a good chance of being extended for one more year, through 2011. This was part of the 2009 stimulus plan that reduced the tax burden for individuals by $400 and for couples by $800, up to income thresholds of $95,000 and $195,000. It was initially put into effect for 2009 and 2010; Obama wants to extend it through 2011, and he'll probably get his wish. The tax credit benefits about three-quarters of all taxpayers, and can plausibly be counted as additional "stimulus" that will help the economy recover. So it has popular appeal despite an estimated cost of about $60 billion in lost government revenue for each year it's in effect. It wouldn't be surprising if Obama pushed to extend this into 2012 as well, to claim credit for middle-class tax cuts in an election year.
Estate taxes have nowhere to go but up, especially since they were cut to nothing at all for 2010. There are two basic issues: What the tax rate should be, and what portion of an estate should be exempt from taxes before the government takes its share. Most proposals are coalescing around an exemption of between $3.5 million and $5 million, and tax rates that range from 35 to 50 percent after that. Conservatives loathe the "death" tax, complaining that it's a second levy on money's that already been taxed once. But unbeknownst to them, lean times have turned public opinion squarely against the super-rich, who are the only ones really affected by estate taxes. After the 2010 holiday, a reinstatement seems inevitable.
The real battle over higher taxes and lower spending will probably kick off following the 2012 elections. "The choices are all very, very ugly," says Stretch. The first part of any serious effort would probably be sharp spending cutbacks, which have to affect Social Security and Medicare recipients if they're going to be meaningful, since that's where much of the money goes. When that produces howls of outrage, lawmakers will turn to widespread tax hikes to spread the pain around. But new taxes are never popular, and the rancor could push a solution even further into the future. Compared with that, this year's elections might seem downright cheerful.
Tuesday, July 27, 2010
Insurance for product or service often bad deal
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/07/27/BUCB1EK5FP.DTL
Kathleen Pender
Tuesday, July 27, 2010
It's hard to buy anything these days without being asked, "Would you like to purchase insurance with that?"
Earlier this month, I bought a new car and was offered an extended warranty and a separate policy that covered the paint job alone. (These sales pitches always get me wondering whether I should keep looking for a more reliable car.)
Last week, I got a story pitch on tuition insurance, which covers unreimbursed college expenses if a student has to drop out due to illness, injury, disability or death - but not if the student leaves voluntarily, graduates early, gets expelled or flees campus because of a contagious disease or epidemic.
You can buy insurance for vet bills, vacations, contact lenses and weddings.
This type of insurance is almost never necessary, and when it is, it's almost always cheaper if you buy it from someone not affiliated with the product or service being sold, says J. Robert Hunter, the Consumer Federation of America's insurance director.
That's because the sellers of these policies compete by offering the biggest kickbacks to retailers, travel providers or others involved in the sale, not the best deal to consumers.
When buying insurance, Hunter says to remember the two C's: It should protect you against a financial catastrophe (losing your contact lenses hardly qualifies). And it should be comprehensive. For example, "if you have a good term-life policy, you don't need" insurance that will pay your mortgage, auto loan or credit card if you die.
These types of credit insurance policies "usually pay very low benefits to people with claims, on average less than 40 cents of every premium dollar," Hunter says.
By comparison, auto and homeowners insurance pay out 70 to 80 cents of each premium dollar in claims.
Hunter says consumers should consider five types of insurance: health, auto, homeowners, life if you have dependents and long-term disability if you are single.
Norma Garcia, a senior attorney with Consumers Union, says she would also consider renters insurance if your landlord's policy does not cover your belongings. But she would see what an employer provides before buying disability insurance.
Hunter calls himself a dog lover but would never buy pet insurance. "I work with rescue animals, border collies. I know that there are a lot of young, healthy border collies being euthanized. If I have an old one, as much as I love it, I am not going to spend $25,000 (on vet bills) when I could get a young, healthy one."
Pet insurance might make sense if you treat your pets like children, but these policies typically have many exclusions.
They might not cover conditions that are pre-existing, preventable, hereditary, common in a certain breed, that occur in the first month of coverage or after the pet reaches a certain age.
"Frankly, there are so many exclusions, you could end up paying more than it's worth," says Garcia.
Hunter and Garcia say they would generally avoid travel insurance sold when making travel plans.
"Travel agents receive a commission on this sale, which often drives the payout ratio below 50 percent of premium," Hunter says.
Also check to see if some of your travel fears - such as fear of death or lost luggage - are covered by existing insurance such as life or homeowners. He adds that many travel policies have significant exclusions and complicated procedures for getting your money back.
Hunter says travel insurance might make sense for an older couple that have spent their life savings on a trip and are so worried they might get sick and have to cancel that they can't sleep.
If you do buy it, Garcia also advises going through a third party. "If you go through the tour operator or cruise line and they go bankrupt, you will not be protected," she says.
Before you rent a car and pay for a collision damage waiver, check to see if your auto insurance policy will cover damage to the vehicle. Most will, although you usually have to pay the deductible.
Also, many credit cards will pay for a collision if you rent with that card. Again, check to see if there is a deductible or any limitation.
Hunter's group encourages consumers to ask three questions: Do I really need this insurance? If so, do I already have coverage through my life, health, disability, homeowners or auto insurance? If not, are there less expensive options?
If you are thinking of buying insurance with a product or service, you don't have to buy it on the spot. And the price might be negotiable.
When I bought my car, after rejecting the salesman's offer for the extended warranty, the finance person offered it at half the price. I'm taking my chances.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/pender.
Kathleen Pender
Tuesday, July 27, 2010
It's hard to buy anything these days without being asked, "Would you like to purchase insurance with that?"
Earlier this month, I bought a new car and was offered an extended warranty and a separate policy that covered the paint job alone. (These sales pitches always get me wondering whether I should keep looking for a more reliable car.)
Last week, I got a story pitch on tuition insurance, which covers unreimbursed college expenses if a student has to drop out due to illness, injury, disability or death - but not if the student leaves voluntarily, graduates early, gets expelled or flees campus because of a contagious disease or epidemic.
You can buy insurance for vet bills, vacations, contact lenses and weddings.
This type of insurance is almost never necessary, and when it is, it's almost always cheaper if you buy it from someone not affiliated with the product or service being sold, says J. Robert Hunter, the Consumer Federation of America's insurance director.
That's because the sellers of these policies compete by offering the biggest kickbacks to retailers, travel providers or others involved in the sale, not the best deal to consumers.
When buying insurance, Hunter says to remember the two C's: It should protect you against a financial catastrophe (losing your contact lenses hardly qualifies). And it should be comprehensive. For example, "if you have a good term-life policy, you don't need" insurance that will pay your mortgage, auto loan or credit card if you die.
These types of credit insurance policies "usually pay very low benefits to people with claims, on average less than 40 cents of every premium dollar," Hunter says.
By comparison, auto and homeowners insurance pay out 70 to 80 cents of each premium dollar in claims.
Hunter says consumers should consider five types of insurance: health, auto, homeowners, life if you have dependents and long-term disability if you are single.
Norma Garcia, a senior attorney with Consumers Union, says she would also consider renters insurance if your landlord's policy does not cover your belongings. But she would see what an employer provides before buying disability insurance.
Hunter calls himself a dog lover but would never buy pet insurance. "I work with rescue animals, border collies. I know that there are a lot of young, healthy border collies being euthanized. If I have an old one, as much as I love it, I am not going to spend $25,000 (on vet bills) when I could get a young, healthy one."
Pet insurance might make sense if you treat your pets like children, but these policies typically have many exclusions.
They might not cover conditions that are pre-existing, preventable, hereditary, common in a certain breed, that occur in the first month of coverage or after the pet reaches a certain age.
"Frankly, there are so many exclusions, you could end up paying more than it's worth," says Garcia.
Hunter and Garcia say they would generally avoid travel insurance sold when making travel plans.
"Travel agents receive a commission on this sale, which often drives the payout ratio below 50 percent of premium," Hunter says.
Also check to see if some of your travel fears - such as fear of death or lost luggage - are covered by existing insurance such as life or homeowners. He adds that many travel policies have significant exclusions and complicated procedures for getting your money back.
Hunter says travel insurance might make sense for an older couple that have spent their life savings on a trip and are so worried they might get sick and have to cancel that they can't sleep.
If you do buy it, Garcia also advises going through a third party. "If you go through the tour operator or cruise line and they go bankrupt, you will not be protected," she says.
Before you rent a car and pay for a collision damage waiver, check to see if your auto insurance policy will cover damage to the vehicle. Most will, although you usually have to pay the deductible.
Also, many credit cards will pay for a collision if you rent with that card. Again, check to see if there is a deductible or any limitation.
Hunter's group encourages consumers to ask three questions: Do I really need this insurance? If so, do I already have coverage through my life, health, disability, homeowners or auto insurance? If not, are there less expensive options?
If you are thinking of buying insurance with a product or service, you don't have to buy it on the spot. And the price might be negotiable.
When I bought my car, after rejecting the salesman's offer for the extended warranty, the finance person offered it at half the price. I'm taking my chances.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/pender.
Monday, July 26, 2010
IRS relief for small nonprofits (7-26-2010)
IRS Commissioner Doug Shulman announced that the IRS is providing relief for small nonprofit organizations that are at risk of losing their tax-exempt status because they have missed, or are about to miss, the deadline for filing Form 990-N or Form 990-EZ.
The program offers two types of relief:
For more information on this program and a list of organizations at risk of losing their tax-exempt status, go to http://www.irs.gov/charities/article/0,,id=225889,00.html.
The program offers two types of relief:
- They are extending the filing deadline to October 15 for organizations with gross receipts of $25,000 or less. These are the groups that have to file the Form 990-N, the e-postcard.
- Larger organizations, which are eligible to file the Form 990-EZ, may file their three delinquent returns and pay a small fee ($100 - $500). As long as they file by October 15, they won’t lose their tax exemption.
For more information on this program and a list of organizations at risk of losing their tax-exempt status, go to http://www.irs.gov/charities/article/0,,id=225889,00.html.
Tax Foundation Offers Bush Tax Cuts Calculator
http://www.webcpa.com/news/Tax-Foundation-Offers-Bush-Tax-Cuts-Calculator-55031-1.html
Washington, D.C. (July 23, 2010)
By WebCPA Staff
The nonprofit Tax Foundation has introduced an online calculator that allows taxpayers to compare how they would fare if all the Bush tax cuts expired as scheduled at the end of this year.
The calculator, at www.MyTaxBurden.org, also allows taxpayers to try out two other possible scenarios: what would happen if the Bush tax cuts of 2001 and 2003 were extended into 2011 or made permanent, or what would happen if President Obama’s budget is adopted, which includes a combination of expirations and extensions.
Taxpayers can type in basic information (such as their filing status, wage income and number of dependents), along with optional more detailed information (such as capital gains and dividend income, state and local taxes paid, and other itemized deductions), and determine what their federal income tax burden would be in 2011.
“The fate of the 2001 and 2003 tax cuts remains uncertain, and congressional leaders seem poised to leave things that way through the August recess — and perhaps through the November elections,” said Tax Foundation president Scott Hodge in a statement. “Regardless of what happens, our tax calculator at MyTaxBurden.org can help give taxpayers a better sense of how these policies will affect them — whether all the Bush tax cuts are extended or just those affecting families earning less than $250,000 a year, or if all the tax cuts expire.”
For example, if Congress fails to act to extend the Bush tax cuts, the federal income tax burden for a married couple filing jointly making $80,000 with two children would be $2,137 higher in 2011 than if all the tax cuts were extended.
The calculator also allows for more detailed tax information. For example, consider a married couple making $500,000 with two children; long-term capital gains of $50,000; dividend income of $5,000; other income of $10,000; a state and local income tax deduction of $30,000; $10,000 in real estate taxes paid; and $40,000 in other itemized deductions. Their federal income tax bill would be $22,782 higher in 2011 if all the Bush tax cuts expire.
On the calculator page, fields left blank will automatically be counted as zero. Users may hover the mouse cursor over an item to get a more detailed description of each field. For more information, they can see a short video explanation of how the calculator works,
The calculator at www.MyTaxBurden.org is part of a series answering frequently asked questions about the expiration of the Bush tax cuts, available online at www.taxfoundation.org/publications/show/26135.html.
Washington, D.C. (July 23, 2010)
By WebCPA Staff
The nonprofit Tax Foundation has introduced an online calculator that allows taxpayers to compare how they would fare if all the Bush tax cuts expired as scheduled at the end of this year.
The calculator, at www.MyTaxBurden.org, also allows taxpayers to try out two other possible scenarios: what would happen if the Bush tax cuts of 2001 and 2003 were extended into 2011 or made permanent, or what would happen if President Obama’s budget is adopted, which includes a combination of expirations and extensions.
Taxpayers can type in basic information (such as their filing status, wage income and number of dependents), along with optional more detailed information (such as capital gains and dividend income, state and local taxes paid, and other itemized deductions), and determine what their federal income tax burden would be in 2011.
“The fate of the 2001 and 2003 tax cuts remains uncertain, and congressional leaders seem poised to leave things that way through the August recess — and perhaps through the November elections,” said Tax Foundation president Scott Hodge in a statement. “Regardless of what happens, our tax calculator at MyTaxBurden.org can help give taxpayers a better sense of how these policies will affect them — whether all the Bush tax cuts are extended or just those affecting families earning less than $250,000 a year, or if all the tax cuts expire.”
For example, if Congress fails to act to extend the Bush tax cuts, the federal income tax burden for a married couple filing jointly making $80,000 with two children would be $2,137 higher in 2011 than if all the tax cuts were extended.
The calculator also allows for more detailed tax information. For example, consider a married couple making $500,000 with two children; long-term capital gains of $50,000; dividend income of $5,000; other income of $10,000; a state and local income tax deduction of $30,000; $10,000 in real estate taxes paid; and $40,000 in other itemized deductions. Their federal income tax bill would be $22,782 higher in 2011 if all the Bush tax cuts expire.
On the calculator page, fields left blank will automatically be counted as zero. Users may hover the mouse cursor over an item to get a more detailed description of each field. For more information, they can see a short video explanation of how the calculator works,
The calculator at www.MyTaxBurden.org is part of a series answering frequently asked questions about the expiration of the Bush tax cuts, available online at www.taxfoundation.org/publications/show/26135.html.
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