Need an "Election" to go your way? You control 100% of the votes in this one.

New IRS regulations provide a unique tax break for certain real estate owners. It's possible to sidestep the passive loss restrictions, if you qualify to make the following election with your return.

Election to Aggregate All Rental Real Estate Interests John C. Doe SSN 123-45-6789 Form 1040, Tax Year Ending 12/31/20XX

Taxpayer hereby elects pursuant to Code Sec. 469(c)(7)(A) to treat all of his interests in rental real estate as one activity. Taxpayer is eligible to make the election since he meets the requirement of Code Sec. 469(c)(7)(B) and thus is a qualifying taxpayer for the tax year.

Any of our clients who own business real estate should call us before filing the 2009 tax return to determine if you qualify for this election.

The 12 Days of a Congressional Christmas

We put it to music for you. It's the 12 days of Christmas a lawmaker's lounge as demonstrated by the Texas Legislature.

Sing along as they spent $140,000 on various items in their 900 square foot private lounge.

Click here to play the song.

Governmental Logic ??

Let me get this straight. Obamacare makes medical care cheaper by making medical equipment cost more??? Here's an excellent accounting of the subject by Wesley Smith. Click the picture to link to the article.

What tax rate would it take to balance the new budget?

The answer is more than you'd want to pay! The non-partisan Tax Foundation group has a detailed analysis here. Shockingly, it requires marginal rates of up to 95.2% to erase the deficit. (Click to enlarge the Chart)

What's the obvious message here? Hey Congress, spend a lot less!

Need tax reduction for 2009? Here are some tools.

Comparison of Qualified Plan Types for 2009

Feature	Profit-sharing	401(k)	SIMPLE IRA	SEP
Restrictions on adopting?	Generally, none.	Generally, none.	Limited to employers with 100 or fewer employees earning at least $5,000 in previous year.	Generally, none.
Can employer maintain other qualified plans?	Yes.	Yes.	No.	Yes, unless Form 5305-SEP is used to adopt the plan.
Minimum age/service requirement?	Age 21, up to two years service may be imposed.	Age 21. No more than one year of service may be required for employee deferrals.	All employees earning at least $5,000 in any two prior years and expected to receive at least $5,000 in current year.	Age 21, any service in last three out of five years, and compensation of $550 or more in current year.
Vesting?	Yes. Graduated or cliff vesting allowed.	Yes. Employer contributions; graduated or cliff vesting allowed. Employee contributions are 100% vested.	100% immediate vesting.	100% immediate vesting.
Annual employer contributions required?	No. Discretionary, unless set forth in plan.	No. Discretionary, unless set forth in plan or required by top-heavy rules.	Yes, but can limit to matching contributions.	No. Discretionary, unless set forth in plan.
Limit on deductible employer contributions?	Maximum 25% of all eligible employees’ compensation.	Generally, same as profit-sharing plan. Elective deferrals do not count toward deduction limit.	Generally 100% match of deferrals up to 3% of compensation or 2% nonelective contribution.	Maximum 25% of all eligible employees’ compensation.
Limit on employer contributions per participant (415 limit).	Maximum 100% of compensation, up to $49,000 per participant.	Maximum 100% of compensation, up to $49,000 per participant.	None.	Maximum 25% of compensation up to $49,000 per participant.
Top-heavy rules apply?	Yes.	Yes.	No.	Yes.
Nondiscrimination rules apply?	Yes.	Yes. Special rules apply to employee deferrals.	No.	No.
Employee deferrals allowed?	No.	Yes. Employee deferrals limited to $16,500; $22,000 if age 50 or over by December 31.	Yes. Employee deferrals limited to lesser of 100% of compensation or $11,500; $14,000 if age 50 or over by December 31.	Yes. Employee deferrals under SARSEPs (adopted prior to 1997) limited to $16,500; $22,000 if age 50 or over by December 31. a
Permitted disparity allowed?	Yes.	Yes.	No.	Yes, but only with nonmodel SEP.
Minimum coverage rules apply?	Yes.	Yes.	No, but all eligible employees must be allowed to participate.	No, but all eligible employees must be allowed to participate.
Annual additional limit of IRC Sec. 415 apply?	Yes.	Yes.	No.	Yes.
Participant loans allowed?	Yes, if specified in plan document. Subject to IRS limitations.	Yes, if specified in plan document. Subject to IRS limitations.	No.	No.
Rollovers to other plans allowed?	Yes, to another eligible retirement plan.	Yes, to another eligible retirement plan.	Yes, to SIMPLE IRAs or, after two years, to eligible retirement plan.	Yes, to eligible retirement plan.
Annual report (Form 5500) required?	Yes, unless one-participant/$250,000 exception is met. b	Yes, unless one-participant/$35,000 exception is met. b	No.	Generally no, unless the plan fails to meet the filing exception for SEPs.
When must the plan be established?	On or before the last day of the plan year.	On or before the last day of the plan year.	On or before October 1 or as soon as administratively feasible after the employer comes into existence.	Due date (including extensions) of the sponsor’s tax return.
Catch-up contributions allowed?	No.	Yes. $5,500 for 2009.	Yes. $2,500 for 2009.	Yes. $5,000 under SARSEPs (adopted prior to 1997).

Notes: ^a SARSEPs cannot be adopted after 1996. SARSEPs adopted prior to 1997 may continue to operate under previous laws, and new employees hired after 1997 may participate in such existing plans. ^b Form 5500-EZ need not be filed for a one-participant plan that has $250,000 or less in assets at the end of each plan year beginning after 2006. An employer that has multiple plans that, in the aggregate, has $250,000 or less in assets at the end of each plan year beginning after 2006 need not file Form 5500-EZ.

Need help with your Vista upgrade? It's really simple!

Actually, it's not so simple. Here's the upgrade guide from Microsoft. (Click to enlarge)

Jim Phelps,Mission Impossible, and Health Care

Here's an interesting clip from a 30 year-old Mission Impossible. Even back then these writers knew what effect national health care has on the public. It's basic supply and demand. Throw 50 million more into the system with the same (or less) number of doctors and supply and demand will force the price up. If you cap the price via government control then you guarantee rationing! It really is a Mission Impossible. http://www.youtube.com/watch?v=OSZ6FQxePUk

Now this is a "public option" that I could support.

How to determine what your business is worth

Here are some of the most used methods of valuing a business. Remember that, in tax planning, one size does not fit all-so get the proper accounting and legal advice before proceeding.

Valuations are a place where business starts to blur the line between an art and a science. It is important to identify which method is best for your particular situation. Most appraisers will use one of the following methods:

• Book value.
• Multiple analysis.
• Discounted cash flows (DCF).
• Replacement value.
• Liquidation value.

Let's take a look at how each method works.

Book value. Book value is a simple, quick, and dirty method as it requires only taking book assets and subtracting out book liabilities. However, most financial statements run off of the historical costing principle, where the book value represents the cost of an asset when purchased rather than its current value. If the entity has experienced substantial appreciation, this value could be too low, especially if assets were purchased many decades ago.

Multiple analysis. Multiple analysis takes a predetermined value such as sales or earnings and multiplies this by a value (a multiple) to estimate the fair market value (FMV). One common method is using a multiple of earnings or of sales. This generally requires a survey of other entities in the industry with ascertainable values from recent ownership transfers or other methods. Then a multiple is obtained by, for instance with an earnings multiple, taking the average value of the competitor entities and dividing this by the earnings of those entities. This generates a rough number of how many times larger the value of entity is over earnings. Last, this multiple is applied to the entity's earnings to estimate a value.

There are, however, some pitfalls to this method:

(1) There may be no readily comparable entities from which to derive a multiple.

(2) Even if there are comparable entities, different entities have different accounting methods that could lead to a wide variation of multiples within the particular industry leading to potential inaccuracy.

(3) Even if a multiple is attainable, sales and earnings values are highly volatile and manipulable by seasonal and other factors.

DCF analysis. DCF is projecting future cash flows of the company out for a period of years, creating a residual value for all further cash flows, and then discounting these back to the present.

Then to project the future cash flows, it is necessary to find growth rates and apply them to the current cash flows. The growth rate can be calculated roughly by finding the overall cash trends or by accounting for trends in each sales and cost category. Last, a discount rate needs to be calculated either through readily available metrics or comparing the metrics of other entities within the industry in order to discount cash flows back to the present.

This method is ideal for large, stable low- or no-growth entities where discount rates can be readily attainable and cash flows are predictable. For smaller large-growth companies, it may not be worth the added complexity over another simpler method such as multiple analysis or book value.

Replacement value. Replacement value is valuing an entity at what it would cost to replace the assets of the company. The replacement value may be useful, for instance, if the entity is a company holding idle land for future appreciation or other such assets. Under DCF or multiples, there may be no ascertainable sales, earnings, or cash-flow figures that accurately represent the value of the land. Book value also may not be accurate, as the value may have appreciated already. The replacement cost may be the only way to accurately value the land.

However, this method may not be viable when there is no readily available market for the assets. Some assets may not be replaceable, whereas some assets may have arbitrary or highly variable replacement values.

Liquidation value. Liquidation value is the valuation of an interest as if the entity sells all its assets and divides the resulting proceeds between the owners. This value may be substantially lower than the paper value of the company and may more accurately reflect the value of the assets in a buyout or entity dissolution. This may be a beneficial method, especially when an entity does not have substantial cash on hand and may actually need to sell assets to buy out an owner.

What can a buy-sell agreement do for me?

The short answer is -- a lot. The following matrix shows some of the goals that can be accomplished with a properly drafted buy-sell agreement. Just insert an X in the areas that you'd like to learn more about and E-mail to us. (Click the image to enlarge)

Payroll theft by employees- Part II

The goal is not to teach people how to steal but to present the subtle ways it's done. If you own or manage a business see how you score on anti-fraud knowledge. To check your answer, place your mouse over the question mark. Payroll theft by employees

How do employees steal from a business?

The goal is not to teach people how to steal but to present the subtle ways it's done. If you own or manage a business see how you score on anti-fraud knowledge. To check your answer, place your mouse over the question mark.

What they say vs. the numbers

Thanks to Innocent Bystanders for the graphic data. Compare to Joe Biden's statement. "[The stimulus is] doing more, faster, more efficiently, and more effectively than most expected." Joe Biden, as reported by the Associated Press

CPAs get alarmed by inverted curves

Inverted curve charts indicate that a trend is developing even faster than the problem it represents. You can't strengthen the wage earner by weakening the wage payer. (click the chart to enlarge -source is the Bureau of economic analysis)

10 Tax Credits from the ARRA

The American Recovery and Reinvestment Act (aka no handout left behind law)has a little something for almost everyone. If you're productive in your business (income > than 76,000) look for most of the attached benefits to phase out.

Click to enlarge.

The crossover point to ?

Click to enlarge
I've often wondered what would happen when over 50% of voters realize that they could shift the balance of taxation and the 49% would be helpless to change it. This chart is where we currently are in the paradigm of power. It's much worse than the above example.

The Panel- From the Wall St Journal

Here's a chilling narrative from today's Wall Street Journal. [Note the last line-that's why it happens]

It is very difficult to imagine the country making those decisions just through the normal political channels. And that's part of why you have to have some independent group that can give you guidance. —President Barack Obama in a New York Times interview on how costly medical decisions should be made.

The people behind the long table do not know what they've become. The drug of power has been sugared over in their mouths with a flavoring of righteousness. Someone has to make these decisions, they tell their friends at dinner parties. It's all very difficult for us. But you can see it in their eyes: It isn't really difficult at all. It feels good to them to be the ones who decide.

"Well, we have your doctor's recommendation," says the chairwoman in a friendly tone. She peers over the top of her glasses as she pages through your file.

You have to clear your throat before you can answer. "He says the operation is my only chance."

"But not really very much of a chance, is it?" she says sympathetically. Over time, she's become expert at sounding sympathetic.

"Seventy percent!" you object.

"Seventy percent chance of survival for five years—five years at the outside—and even that only amounts to about 18 months in QALYs: quality-adjusted life years."

"But without this procedure, I'll be dead before Christmas."

You try to keep the anger out of your voice. The last thing you want to do is offend them. But the politicians promised you—they promised everyone—there would never be panels like this. They made fun of anyone who said there would. "What do they think we're going to do? Pull the plug on grandma?" they chuckled. The media ran news stories calling all rumors of such things "false" or "misleading." But of course by then the media had become apologists for the state rather than watchdogs for the people.

In fact, the logic of this moment was inevitable. Once government got its fingers on the health-care system, it was only a matter of time before it took it over completely. Now there's one limited pool of dollars while the costs are endless.

"You have the luxury of thinking only of yourself, but we have to think about everyone," says the professor of ethics. He's a celebrity and waxes eloquent every Tuesday and Thursday on Bill Maher Tonight. "This isn't the free market, after all. We can't just leave fairness to chance. We have to use reason. Is it better for society as a whole that we allocate limited resources for your operation when we might use the same dollars to bring many more high quality years to someone, say, younger?"

"I'm only 62."

He smiles politely.

"Look, it's not just about me," you argue desperately. "My daughter's engaged to get married next year. She'll be heartbroken if I'm not there for it."

"Maybe you should have thought of that before you put on so much weight," says the medical officer. "I mean, you people have been told time and again . . ."

But the chairwoman is uncomfortable with his censorious tone and cuts him off, saying more gently, "Perhaps your daughter could move the wedding up a little."

The member in charge of "stakeholder" exceptions shakes her head sadly as she studies your file. "If only you could have checked off one of the boxes. It would be awful if you were penalized just because of a clerical oversight."

It begins to occur to you that this is how you are going to die: by the fiat of fatuous ideologues—that is to say, by the considered judgment of a government committee. They are going to snuff you out and never lose a minute's sleep over it, because it's only fair, after all.

That logic is implacable too. Free people can treat each other justly, but they can't make life fair. To get rid of the unfairness among individuals, you have to exercise power over them. The more fairness you want, the more power you need. Thus, all dreams of fairness become dreams of tyranny in the end.

You know you should keep your mouth shut. Be humble—they like that. But you speak before you can stop yourself.

"What you're doing here is evil," you cry out. "You're trying to take the place of God!"

"Sir, this is a government building!" says the chairwoman, shocked. "There's no God here."

Mr. Klavan is a contributing editor to City Journal. His latest novel is "Empire of Lies" (Harcourt, 2008).

Some of our favorite tax quotes

Need some humor in your week? Here's are some of our favorite tax quotes. When there’s a single thief, it’s robbery. When there are a thousand thieves, it’s taxation. ~Vanya Cohen

The nation should have a tax system that looks like someone designed it on purpose. ~William Simon

Be wary of strong drink. It can make you shoot at tax collectors… and miss. ~Robert Heinlein

We have long had death and taxes as the two standards of inevitability. But there are those who believe that death is the preferable of the two. “At least,” as one man said, “there’s one advantage about death; it doesn’t get worse every time Congress meets.” ~Erwin N. Griswold

What at first was plunder assumed the softer name of revenue. ~Thomas Paine

U.S. Internal Revenue Service: an agency modeled after the revenue raising concepts of the 19th century economist, Jesse James. ~Robert Brault,

The one time is pays to be average !

Normally, I hate the idea of being average. Some one has rightly said that average is "the best of the worst and the worst of the best." However, there is one time that it's helpful. (Click to enlarge) Above are newly released average deductions from tax year 2007. Some of these items you can't control but when possible it may pay to time your deductions to be in the average range.

The clock is ticking !

Are Roth withdraws taxable?

In these tough times, some clients need to withdraw Roth funds. Make sure you do it in a tax-advantaged way. Email us for help or more info.

Click the flowchart to enlarge.

A perfect time to increase govt health care costs?

Tax receipts are on pace to drop 18% this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion. Other figures in an Associated Press analysis underscore the recession's impact:

• Individual income tax receipts are down 22% from a year ago.
• Corporate income taxes are down 57%.
• Social Security tax receipts could drop for only the second time since 1940
• Medicare taxes are on pace to drop for only the third time ever.

5 Lies about the government health care

My thanks to Forbes for the story -5 Lies about Obama Health Care. Here's the link to the full article.

The lies are:

No one will be compelled to buy coverage.

No new taxes on employer benefits.

Government can control rising health care costs better than the private sector.

A public plan won't be a Trojan horse for a single-payer monopoly.

Patients don't have to fear rationing.

IRAs -Understanding how the funds flow

Confused about how you handle a parent's IRA? This chart can help.

Plenty of jobs available with this company!

Will Rogers once said - "Invest in inflation, it's the only thing that always goes up." Well, I guess under this Congress, the government sector will always be expanding and hiring. Here's one agency that's looking to hire hundreds of folks. Their website promises the following.

"When you join the __ family, you can enjoy federal health benefits, job-skills training and flexible work schedules. You also get the satisfaction of serving your country. Because the ___ is a large agency – with more than 100,000 across the nation -- there are many opportunities for career growth. "

Do you really need this link to figure out who this is?

Tough Times = Borrowing from your pension?

In these hard economic times, clients are often tempted to borrow from their pension plans. This option isn't available for SEP,Simple IRAs, or for certain S-Corp owners;however, for others it may have some advantages. The arguments for this strategy include:

1. Interest rates below what a bank would offer
2. Repayment of P&I go back to the owner's retirement account vs. a bank, broker, etc.

You might have noticed that I didn't list the deductible interest as a factor. That's because it can be highly restricted and possibly not currently deductible at all. If you are considering this as a cash flow tool, make sure you meet the following requirements for a loan.
Documentation requirement-The loan agreement must be in writing, as required by applicable regulations and plan documents.
Limits on amount- The loan amount can't exceed the lesser of (1) $50,000, or (2) 1/2 of the present value of the employee's nonforfeitable accrued benefit under the plan. But a loan up to $10,000 is allowed, even if it's more than half the employee's accrued benefit.
Term of Loan-Generally, the plan loan must be repaid within five years in substantially level payments, made not less frequently than quarterly, over the term of the loan. Special rules apply as to the repayment term for loans to buy a qualified dwelling unit.
Repayment or termination- If the participant does not repay the loan in time (or leaves the company), it will be treated as a taxable distribution.
As with any tax-related transactions, clients should check with us before implementing.

And you thought Nevada corporations were a good idea?

I don't recommend Nevada corporations for tax planning. They tend to work about as good as this idea.

22 Tax Breaks that expire in 2009

22 Tax Breaks that will expire in 2009!

Here they are:

1. Income. Up to $2,400 of unemployment compensation benefits are excluded from gross income by the recipient. However, the exclusion is not available for benefits received in tax years beginning after 2009 [IRC Sec. 85(c)].

2. Personal deductions. Clients can claim a deduction (whether they itemize or claim the standard deduction) for sales or excises taxes paid on the purchase of a new vehicle. The deduction (phased out at higher income levels) does not apply to purchases after December 31, 2009 [IRC Sec. 164(b)(6)(G)].

3. Personal deductions. Clients who claim the standard deduction can take an additional deduction for state and local property taxes, up to a maximum of $500 ($1,000 for joint return filers). The deduction is not available for tax years beginning after 2009 [IRC Sec. 63(c)(7)].

4. Personal deductions. A client can elect to take an itemized deduction for state and local general sales taxes instead of an itemized deduction for state and local income taxes, but the election is available only for tax years beginning before Jan. 1, 2010 [IRC Sec. 164(b)(5)(I)].

5. Personal deductions. A client may claim an above-the-line deduction for “qualified tuition and related expenses” paid for the enrollment or attendance of the client, the client’s spouse, or a dependent at an eligible institution of higher education. The deduction cannot exceed $4,000 (phased out at higher income levels) and applies only to tax years beginning before January 1, 2010 [IRC Sec. 222(e)].

6. Personal deductions. The maximum deduction allowed annually for charitable donations is increased in the case of “qualified conservation contributions.” The increased deduction is not available for donations after December 31, 2009 [IRC Sec. 170(b)(1)(E)].

7. Business deductions. For tax years beginning before 2010, teachers in grades K-12 and other eligible educators can claim an above-the-line deduction for up to $250 of their out-of-pocket expenses for books and supplies used in the classroom [IRC Sec. 62(d)(1)].

8. Business deductions. A client can claim an additional 50% depreciation allowance for qualifying business machinery and equipment placed in service before January 1, 2010 [IRC Sec. 168(k)(2)(A)].

9. Business deductions. A client can claim a Section 179 expensing deduction for the first $250,000 of qualifying equipment and machinery placed in service during the year, subject to a phase out if more than $800,000 of eligible property is placed in service during the year. For tax years beginning after December 31, 2009, the maximum Section 179 deduction drops to $125,000 (adjusted for inflation) with the phase-out starting at the $500,000 level [IRC Sec. 179(b)(7)].

10. Business deductions. The cost of qualified leasehold improvement property, restaurant property, and retail space improvement property can be written off over 15 years. The 15-year write-off period is not available for property placed in service after December 31, 2009 [IRC Sec. 168(e)(3)(E)].

11. Business deductions. Business clients may claim enhanced deductions for donations of food inventory to a charitable organization if the organization uses the property solely for the care of the ill, the needy, or infants. The enhanced deduction does not apply to donations after December 31, 2009 [IRC Sec. 170(e)(3)(C)].

12. Business deductions. The maximum first-year depreciation deduction for passenger automobiles used for business purposes is increased by $8,000 for automobiles placed in service before 2010 [IRC Sec. 68(e)(3)(B)].

13. Business deductions. Certain qualifying machinery and equipment used in a farming business may be written off over a five-year cost recovery period. The original use of the property must begin with the taxpayer and the property must be placed in service before January 1, 2010 [IRC Sec. 168(e)(3)(B)].

14. Personal tax credits. A client who hasn’t owned a home during the previous three years can claim a first-time homebuyer credit of up to $8,000 (phased out at higher income levels) for the purchase of a principal residence. The credit can be claimed only for homes purchased before December 1, 2009 [IRC Sec. 36].

15. Business credits. Employers may claim a 20% income tax credit for qualifying differential pay paid to employees on active military duty. The credit expires for payments made after December 31, 2009 [IRC Sec. 45P].

16. Business credits. An eligible contractor may claim a credit of up to $2,000 for each qualified new energy efficient home that the contractor constructs and that is acquired from the contractor for use as a residence. The credit does not apply to homes acquired after December 31, 2009 [IRC Sec. 45L].

17. Alternative minimum tax. Clients can offset nonrefundable personal tax credits, such as the child and dependent care credit and the Lifetime Learning credit, against their alternative minimum liability. The offset will not be available for tax years beginning after 2009 [IRC Sec. 26(a)(2)].

18. Alternative minimum tax. For tax years beginning in 2009, the exemption amounts used in calculating a client’s alternative minimum taxable income of $70,950 for married couples filing a joint return and $46,700 for singles and heads of households. For tax years beginning after 2009, these amounts are scheduled to drop to $45,000 and $33,750, respectively [IRC Sec. 55(d)(1)].

19. Estimated taxes. For small business owners with adjusted gross income of $500,000 or less, the “required annual payment” of 2009 estimated taxes is the lesser of (1) 90% of the current year’s tax or (2) 90% of the prior year’s tax. For 2010, the prior-year’s-tax threshold rises to 100% (or 110% for clients with adjusted gross income of $150,000 or more) [IRC Sec. 6654(d)(1)].

20. Retirement plans. The requirement that an IRA owner age 70 ½ or over must receive a minimum distribution annually is suspended for 2009, but is reinstated in 2010 [IRC Sec. 401(a)(9)(H)].

21. Retirement plans. An IRA may exclude from income distributions of up to $100,000 annually if paid directly by the IRA trustee to charitable organization. The exclusion expires in tax years beginning after 2009 [IRC Sec. 408(d)(8)].

22. Employee benefits. Clients who are covered by employer-sponsored health plans and are laid off before January 1, 2010 can qualify for subsidized plan continuation (COBRA) coverage for up to nine months. Employers can claim a credit against employment taxes for the subsidies provided to employees [IRC Sec. 6432].

A thinking exercise for Congress

According to the Wall Street Journal, Congress is now considering a new tax on sweet drinks. Under the guise of using the tax money for health care (the current code phrase to justify increasing taxes), we're told that this tax will discourage the practice of consuming sugared drinks, and thus, convey long-term health benefits upon us. Ok, let's see if we can put this logic to the test. Taxing something makes it more expensive and thus discourages the behavior. If they are right, then the logical effect of raising rates on successful business owners who create jobs and wealth for many Americans should [circle the correct answer] encourage/discourage their behavior? Wouldn't it be nice if our Congress could think with this much logic?

D-Day for airline employees is June 22, 2009

On June 22, 2009, a unique tax break for certain airline employees will expire. That break is the ability to roll certain retirement plan assets to a Roth. Qualified individuals should have received IRS Form 8935 with details. If you have questions, contact us for more information. Latest newsletter update.

Other due dates in April

Clients always focus on the April 15 date, but here are some other important tax due dates that occur in April as well. April 1- Required Minimum Distributions for 2008. 50% Penalty for non-compliance! April 1-New Withholding required for employees due to the Making Work Pay Credit tax legislation. Our "Cliff Notes" summary of the significance of these dates follows: 1- Although the required distributions for an IRA or pension account were suspended for 2009, if you reached the age of 701/2 in 2008, you are required to draw an2008 distribution by April 1, 2009, or face the above mentioned penalty! If you believe you have a problem in this area, see us for help in requesting a waiver on the penalty. 2- A more technically correct title would be Making Gov't Pay. This act (at a 115 billion dollar cost) is one of the largest components of Washington's latest spending spree. It's an attempt to give tax refunds on the first $12,902 of wages on a joint return. An obvious problem arises with this strategy. The aforementioned couple wouldn't owe any income taxes on that amount; however, our government is nothing if not creative in spreading the wealth around. The maximum credit of $800 is derived from rebating the FICA (Social Security) tax ($12,902 x 6.2%). Our first question came from a retired client on a fixed pension who found his withholding reduced by this credit even though they had no wages.Full details on the limits, problems, and allowances for retirees, check our website via this link.

Who pays the most tax? The answer is surprising.

Who pays the most tax? The answer is surprising!

A friend of mine recently wrote a letter to the editor of our local newspaper. In the letter, he commented on the various income tax rates in prior years. It got me thinking about who really carries the tax burden (regardless of current or past tax rates) in recent years. The CBO (Congressional Budget Office) just released the data for 2006. Here's the data in chart form. What it reveals is that almost 73% of all income tax is paid by the top 10% of income earners. To the "more government at any cost" crowd, we'd like to ask -"Just how much higher would you like this rate to be?"

Tax version of the new Pixlar movie.

Sometimes you have to get your mind off taxes by taking in a movie. Here's the political incorrect version of the new Pixlar film.

Twice the profit - but less for the owner?

If your sales (and profit double) how could you take home less? The answer is found in understanding how "working capital" really works.

Life Insurance on Employees - watch out for this hidden catch.

A couple of years ago section 101 of the tax code was changed in the way it treated life insurance on key employees.

Life insurance proceeds received by the beneficiary (due to the insured's death) are not taxable income. But, as with most tax law, there are exceptions.

If your insured employee is:

• Not aware of the insurance
• Has not consented to the coverage

then the tax-exempt treatment of the death benefit may be in question.

The rules are complex and may apply even if you make a change in existing coverage.

Be sure to "play safe" with key-man insurance or you could get an unwelcome surprise.

How to persuade your Congressman . . .

that you really don't like trillion dollar spending bills.

This business needs to cut expenses!

Sounds like it's time for this business to cut overhead - but don't hold your breath.

How most folks are feeling right now

Practice these lines for an IRS audit!

Disagreement is ok? Dishonesty is not ok!

Author Carl Hiaason certainly has a way with words. The problem is that it's a dishonest way. He commented on the proposed tax plan to limit the charitable contribution deduction. Can you pick up on the flaw(s) in logic when he makes the following argument in his newspaper column? "The way it stands now is stacked in my favor. If Mom and I each donated $100 to the United Way, I’d get a better tax break for the contribution just because I’m in a higher bracket. The same is true for mortgage-interest deductions." Oh brother! Carl, let's at least argue consistently. The reason some folks benefit more from a deduction is that their income is taxed at a higher bracket. Do you really want to make sure everyone gets the same benefit from their charitable giving? That's easy. Just have one flat bracket for everyone. Opps, I forgot. That violates his cardinal rule -"From each according to his ability, to each according to his need."

A simple math test for Congress is 165 > 210?

With all the ire shown by Congress over 165 million in AIG bonuses, it will be interesting to see if there is any outcry about the much higher bonuses by the Congressionally-controlled Fannie and Freddie.

Kudos to Sen. Charles Grassley for taking a stand on this.

From The Washington Times

The federal regulator of bailed-out mortgage giants Fannie Mae and Freddie Mac defended plans Friday to give $210 million in retention bonuses to employees he said had lost years of savings when the companies' stock collapsed in 2008.

Bonuses, some as high as $1.5 million, will go to 7,600 employees at the two federally established home mortgage companies that lost more than $100 billion last year. They are needed to restrain the best talent from leaving in the midst of the economic crisis spawned when the housing bubble burst, said James B. Lockhart III of the Federal Housing Finance Agency in a letter to Sen. Charles E. Grassley of Iowa, the Senate Finance Committee's ranking Republican.

<Read More>

Like a little credit on your tax bill?

How to itemize when you can't itemize

These items are new for 2008 and will let some folks reap the benefits of iteming even if they use the standard deduction.

Don't overlook the basics

Funding your IRA (if applicable) is Tax Planning 101, yet it is often overlooked. Don't let April 15 come and go without doing this simple technique.

The many benefits of honesty

How much has the deficit grown in 2007-2009?

Nothing says love like . . .

What not to do on Valentine's Day 

Humor in the Tax Court transcripts?

Hard to believe, but it's true. Consider the case of Yang vs. IRS .  After their engagement fell apart, Mr. Yang sent a 1099 to his ex-girlfriend (in the amount of $10,500) for the value of the engagement ring he purchased. The full blow- by- blow account can be read by using this link.The conclusion? The courts ruled it was a non-taxable (and non-returnable) gift.

In light of the above, please check with us before any major tax move so that you can avoid results like these!

A different look at conservative and liberal spending

It appears that our new Congress and President have broken some unspoken (but observed nonetheless) spending caps that date back to 1970.  My thanks to Jonathan Rauch of the National Journal for this information.

"Conservatives and liberals have spent the past 40 years arguing about the size of government. But the size of government has not, so to speak, been arguing about them. As a share of the economy (gross domestic product), federal spending has remained curiously stable. Wars ended and began, double-digit inflation came and went, defense was cut, entitlements swelled, and outlays fluctuated as a share of GDP. Yet, as the chart shows, spending always returned to about 21%, almost as if regulated by an internal thermostat."

"Over the same period, meanwhile, revenues had a comparably strong homing instinct, but the set point was lower: a little above 18%. ... For decades, everyone pretended to have a profound ideological disagreement about the size of government, but the reality was a comfortable standoff between 21% liberalism and 18% conservatism. In the end, both sides got what they most wanted: 21% spending for liberals, 18% revenues for conservatives -- at the politically tolerable cost of a deficit averaging 2 to 3 % of GDP. "

Here's the government's investment record!

I'm glad this group is not managing our retirement funds - oh wait a minute - they are if . . .

you're counting on Social Security. This graph is from a story in  Ethisphere on how companies that received Tarp money are performing.  Given our government's ability to pick the right places to invest bailout money (the initial investment of $195 billion is down to a market value of $109 billion at present count),  any fears of a similar performance with the social security trust fund may be justified. To be fair, the article does point out that:

• Certain banks that refused "bailout" money but took funds from the capital purchase program (such as BB&T,Southern Bank Corp,et al.) have done extremely well (see the article's TARP index).
• Morgan Stanley leads the positive returns in the stockbroker arena.
• The totals are skewed down significantly by certain actions by AIG and others (see link for this story).

Where is the stimulus money going?

More details on where your money is going 

For those who want to see exactly where your money is going -here's a link to an analysis by Casey Reseach. Each category of expense is shown by department. And for those truly analytical  types, here's a link to the new record-setting, barrier breaking (see story above) budget by our friends in Washington. Click here for Part I and here for Part II. [Editor's note]-- At this point you may need to watch the Senatorial video above one more time to set your mood for the next election day.

2008 Business mileage rate? It depends . . .

A reminder to our clients about business mileage

The rate for business mileage for 2008 changed in mid-year. We'll need you to give us your business miles in a January-June and July-December format in order to maximize your 2008 deduction. 2008 Rates for Business, Medical, and Charitable mileage

Purpose	Rate Per Mile 1/1 through 6/30/08	Rate Per Mile 7/1 through 12/31/08
Business	50.5¢	58.5¢
Medical/Moving	19¢	27¢
Charitable	14¢	14¢ (no change)

CNN Money test

Test your tax knowledge and win a prize.

The CNNMoney.com site offers a free test entitled, "How tax smart are you?"  These are non-technical questions that indicate how well you understand the rules of the tax  game. You can take the test by clicking the image below. For any client who scores at least 30 out of the 60 points, we'll send you a free book!

Another Senator fails the test . . .

Another Senator fails the test . . .

of having any common sense. Senator Schumer recently said the following while debating the amount of waste in the so-called Stimulus Bill. "... to the class that's focusing on all those little tiny porky amendments, the American people really don't care."

Hey Chuck, some of us folks who pay your salary really do care (and we don't consider 800 billion tiny either). Click the image below to hear this unbelievable contempt for the taxpayers of America as it was recorded during Congressional debates.

Humor in the Tax Court records?

Hard to believe but it's true. Consider the case of Yang vs. IRS After their engagement fell apart, Mr. Yang sent a 1099 to his ex-girlfriend (in the amount of $10,500) for the value of the engagement ring he purchased. The full blow by blow account can be read by using this link. The conclusion? The courts ruled it was a non-taxable (and non-returnable) gift.

Slumdog appointments

The movie is interesting,but the best answer to this question is to appoint someone to a cabinet position.  

Government bailouts

American Recovery and Reinvestment Act of 2009

American Recovery and Reinvestment Act of 2009

Here are some selected provisions for individuals

“Making Work Pay” credit. The new law provides an individual tax credit in the amount of 6.2% of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly). The credit can be claimed as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return. Under the credit, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. Next year, the extra take-home pay will go down to around $7.70 per week.

Economic recovery payment. The new law provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans' Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit.

Refundable credit for certain federal and state pensioners. The new law provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit.

Unemployment compensation exclusion. A provision temporarily suspends federal income tax on the first $2,400 of unemployment benefits received by a recipient in 2009.

Expanded earned income tax credit. The new law provides tax relief to families with three or more children and increases marriage penalty relief. The changes apply for 2009 and 2010.

Expanded child tax credit. A measure increases the eligibility for the refundable child tax credit in 2009 and 2010 by lowering the AGI threshold to $3,000 (from $8,500 in 2008).

Expanded and revised higher education tax credit. The new law creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). 40% of the credit is refundable. The new credit temporarily replaces the Hope credit. Computers as an education expense. A provision permits computers and computer technology to qualify as qualified education expenses in 529 education plans for tax years beginning in 2009 and 2010.

Expanded credit for first-time home buyers. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $75,000) by first-time home buyers. The provision applied to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit were required to repay any amount received under this provision back to the government over 15 years in equal installments (or earlier if the home was sold). The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The new law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009. It also extends the credit through the end of November 2009, and bumps up the maximum value of the credit from $7,500 to $8,000.

Tax break for new car purchasers. The new law allows taxpayers to deduct State and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles, and motor homes. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns). The deduction is allowed to both those who itemize their deductions as well as to nonitemizers. However, the deduction cannot be taken by a taxpayer who elects to deduct State and local sales taxes in lieu of state and local income taxes.

Alternative minimum tax (AMT) patch. To hold the number of taxpayers subject to the AMT at bay, the new law increases the AMT exemption amounts for 2009 to $46,700 for unmarried individuals, to $70,950 for joint returns, and to $35,475 for married individuals filing separate returns, and allows the personal credits against the AMT.

INDIVIDUAL PROVISIONS 

Plug-In Electric Vehicle Credit - For vehicles bought after February 17, 2009 and before January 1, 2012, the Recovery Act creates a new 10% nonrefundable personal credit for low-speed vehicles, motorcycles, and three-wheeled vehicles that meet the criteria of a qualified plug-in electric drive motor vehicle. The maximum credit for these vehicles is $2,500. If the vehicle is also used in business, the business portion of the credit is treated as a general business credit. Four-wheel vehicles purchased after January 1, 2009 also qualify for this credit based on a law passed in 2008. There are additional qualifications, so please call for further details.

Unemployment – Partially Tax-Free – Although some states don’t tax unemployment compensation, it is taxable income for Federal purposes. Under the new law and for 2009 only, there is no federal income tax on the first $2,400 of unemployment benefits. However, the balance is taxable. The benefit of this provision depends upon your tax bracket. For example, if you are in the 15% tax bracket, this will save you up to $360 in taxes.  

AMT Patched Again – For yet another year, Congress has applied a patch to the alternative minimum tax (AMT) to prevent middle-income taxpayers from getting hit by a punitive tax that was originally enacted to counter tax shelters of the wealthy.  

AMT Exemption Amount Increased - The AMT exemptions have been increased for 2009 to: $70,950 for married individuals filing jointly, $46,700 for unmarried individuals, and $35,475 for married individuals filing separately. The AMT phase-out rules remain unchanged.

  AMT Relief for Nonrefundable Personal Credits - Nonrefundable personal credits will offset the AMT for 2009. Those credits include the dependent care credit, elderly and disabled credit, education credits, adoption credit, child tax credit, mortgage credit, saver’s credit, certain residential, home energy credits, first-time homebuyer credit, and plug-in electric vehicle credit. One-Time Payment to Retirees - Retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration or Railroad Retirement Board, and disabled veterans receiving benefits from the U.S. Department of Veterans' Affairs will receive a one-time payment of $250 in 2009. The one-time payment will reduce any allowable Making Work Pay credit. Thus, taxpayers receiving any of the benefits mentioned above who are working will be required to reduce any otherwise allowable Making Work Pay credit by the $250 one-time payment. At press time, no date was specified for release of the payments, although the new law specifies payments be made within 120 days of enactment. Presumably payments will be made in conjunction with the taxpayer’s SS, RR or Veterans payments. Government retirees who are not eligible for Social Security will also receive the $250, but in the form of a credit on their 2009 tax return, which will reduce any otherwise allowable Making Work Pay credit for 2009.

Computers and 529 Education Plans – Section 529 Education Plans are tax-advantaged savings plans that permit contributions of large sums of money to be used for the education of a designated beneficiary, and investment earnings generated by these plans are tax-free if the funds are used for qualified education expenses. Qualified education expenses include tuition, room & board, mandatory fees and books. For 2009 and 2010, computers and computer technology purchases qualify as qualified education expenses, provided the technology, equipment, or services are to be used by the plan beneficiary or his family during any of the years the beneficiary is enrolled at an eligible educational institution.

Break on Small Business Stock Capital Gains – To encourage the risk of forming new small businesses (sales of $50 million or less), the tax code (Sec. 1202) has for some time allowed taxpayers to exclude fifty percent (50%) of the gain from the sale of certain small business stock held for more than five years. The amount of gain eligible for the exclusion is limited to the greater of 10 times the taxpayer’s basis in the stock, or $10 million in gain from stock in that small business corporation. This provision is limited to individual investments and not the investments of a corporation. The non-excluded portion of section 1202 gain is taxed at the lesser of ordinary income rates or 28 percent, instead of the lower capital gains rates for individuals. A provision in the Recovery Act allows a seventy-five percent (75%) exclusion for individuals on the gain from the sale of certain small business stock held for more than five years. This change is for stock issued after the date of enactment and before January 1, 2011. There are also some alternative minimum tax implications associated with the sale; please call this office for additional information.  

Expanded Child Tax Credit – A credit of $1,000 is available to taxpayers for each qualifying child under age 17 for 2009 and 2010. This credit is phased out depending on income and the number of qualifying children. Taxpayers with “earned” (not investment) income whose child credit exceeds their regular and alternative minimum taxes are eligible for a refundable credit. This credit is 15% of the taxpayer’s earned income in excess of a threshold amount, which was to be $12,550 for 2009. However, for 2009 and 2010, the threshold amount has been reduced to $3,000, potentially expanding the number of taxpayers who may qualify for the refundable portion of the credit.  

American Opportunity Credit – The Hope education credit, which provides a tax credit up to $1,800 for qualified higher education, has been enhanced and renamed for 2009 and 2010. For these two years, it will be called the American Opportunity tax credit. Where the Hope credit only applied to the first two years of post-secondary education, the American Opportunity credit will be available for four years of college, and the maximum credit per student increases to $2,500. The credit will be based on 100% of the first $2,000, and 25% of the next $2,000, of tuition, fees and course material (including books) expenses paid during the tax year. 40% of the credit is refundable, provided the taxpayer is not a child under the age of 18 or under the age of 24, a full-time student and is not self-supporting. For higher-income taxpayers, this credit begins to phase out for AGI in excess of $80,000 ($160,000 for married couples filing jointly), an increase from the previous phase out thresholds of $50,000/$100,000.

Expanded Earned Income Tax Credit (EITC) – EITC is a refundable tax credit that rewards lower-income individuals for working. The credit, based upon the amount of the individual’s earned income, is determined through a complicated computation, where the credit increases until the earned income reaches a predetermined apex and then begins to decrease as the amount of earned income increases. As a result the credit becomes zero when the taxpayer is no longer considered a low-income individual. The amount of the credit is based upon the number of the taxpayer’s qualifying children. Previously, the categories for the number of children were none, one and two or more. Under the new stimulus legislation for 2009 and 2010, a new category of three or more children has been added and, for that category, the credit will be based on 45% of the earned income instead of the 40% which applies to the category for two children. This, in effect, temporarily increases the otherwise allowable EIC for taxpayers with three or more children and provides a maximum credit in 2009 of $5,657 when the taxpayer’s earned income is $12,750. Joint filing taxpayers will also benefit by having the point at which the EITC phases out for them increased by $1,880 of earned income, to $5,000 for 2009, and to be inflation-adjusted for 2010. 

Home Energy-Efficient Purchases – Previous tax law included a 10% tax credit for the cost of home energy-efficient purchases, such as energy-efficient furnaces, hot water boilers, windows, doors, roofing, insulation and other qualified energy-efficient property, and included complicated cost limits on each category along with lifetime caps. Effective for qualifying items purchased in 2009 and 2010, the credit rate has been increased to 30% with an aggregate cap of $1,500.

Tax Credit Cap Removed for Home Energy Systems – Through 2016, individuals are allowed to claim a 30% tax credit for the cost of qualified solar water heating property (capped at $2,000), qualified small wind energy property (capped at $500 per kilowatt of capacity, up to $4,000), and qualified geothermal heat pumps (capped at $2,000). Under the new law, beginning in 2009, the dollar caps for each of these properties is removed.

Making Work Pay Credit –For 2009 and 2010, we have the new “Making Work Pay” credit which the Obama administration says will cut taxes for more than 95% of working families in the United States. It provides a refundable credit of 6.2% of a taxpayer’s earned income not to exceed $400 for individuals and $800 for joint filing couples. This credit phases out at the rate of 2% of modified AGI, starting at $75,000 for individuals and $150,000 for joint filers. It is fully phased out at $95,000 for individuals and $190,000 for joint filers. Taxpayers can receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or through claiming the credit on their tax returns.

Above-the-Line Sales Tax Deduction for New Car Purchases – Taxpayers that itemize their deductions have the option of deducting state income tax or sales tax. However, if the standard deduction is taken, there is no income tax benefit received from the sales tax that was paid for a vehicle. Under a provision that applies only to 2009, taxpayers will be allowed to deduct the sales tax paid on the purchase cost of a new motor vehicle, up to a cost of $49,500 ($24,750 if filing married separate). The deduction will be claimed “above-the-line,” thus providing taxpayers with a tax benefit for the tax paid, even if they don’t itemize deductions. Let’s say the vehicle cost $30,000, sales tax was 8% and the taxpayer was in the 15% tax bracket. He or she would save $360. This deduction is not available to taxpayers who elect to deduct sales tax in lieu of income taxes as an itemized deduction. To keep higher-income taxpayers from benefiting from this deduction, it phases out ratably for a taxpayer with modified AGI between $125,000 and $135,000 ($250,000 and $260,000 on a joint return). Qualifying vehicles for this deduction are new cars, SUVs, light trucks, or motorcycles weighing no more than 8,500 pounds, and motor homes.

First-Time Homebuyer Credit - The original first-time homebuyer credit enacted in 2008 provided what was essentially a $7,500 interest-free, fifteen-year loan. The credit has been enhanced for 2009 by raising the credit amount to $8,000 ($4,000 married separate) and removing the repayment requirement, except in cases where the home is sold or ceases to be the taxpayer’s principal residence within 36 months of its purchase. The home must be purchased between January 1, 2009 and before December 1, 2009. It must be located in the U.S, and not purchased from a close relative. The taxpayer can choose to claim the credit on either his or her 2009 return or the original or amended 2008 return. Taxpayers wishing to take advantage of this provision should act quickly. A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the three-year period before the purchase of the home to which the credit applies. The purpose of the credit is to assist lower-income individuals in acquiring their own home. Thus, the credit is reduced or eliminated for higher-income taxpayers. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.

Do you ever get to deduct 100% of business meals?

The answer is yes - under the right circumstances. Here's an explanation from IRS Publication 17.

(Click the image to enlarge.)

The million dollar question

Even during tax season we sometimes take a TV break. I hope this guy gets the right answer!

Even a dead bull market can kick your mutual fund

In a weak equity market, mutual fund managers are often forced to sell shares to raise cash. Thus even when the fund has a significant drop in its share price, large gains can be triggered and passed on to the owners.

The above often results in picking up income (without a cash

distribution) even though your share value has declined.

Money magazine has an excellent article on how to cope with this problem that we highly recommend.

As always, check with us before any major tax move.

Presidential Promises - Can you trust them?

We've experienced a number of disappointments and broken promises in the fiscal budget area during the Bush administration. The newly enacted stimulus bill seems to set the stage for more dishonesty from the White House and Congress. By their own admission, not one member of the House (due to lack of time) had completely read the bill. I decided to revisit a web site that promised we taxpayers would have a lot more than 12-14 hours to look over any major legislation. From the website: - www.barackobama.com Hmm... 5 days on the Whitehouse website? We taxpayers didn't even get 5 minutes. Is this how you keep your fiscal promises, Mr. President?

Who thinks you can't invest wisely?

Newsweek="Weak in News"

Do you believe this headline? I don't and have some pretty good reasons, but I'd like to hear yours as well. Read the Newsweek article at this link and then use the links below to sound off on why you agree (or don't agree) with this headline.

Owe IRS? Remember this number -H.R. 735

Ever wish you had one of those get out of jail cards like we used to use in Monopoly?

How about a get out of any IRS penalty card you could attach to your tax return?

House Rep. John Carter has introduced  H.R. 735 to amend the IRS code to give you just such a tool.

The text of the proposed law states that  "Any individual . . . who writes `Rangel Rule' on the top of the first page of the return . . . shall be exempt from any requirement to pay interest, and from any penalty, addition to tax, or additional amount, with respect to such return.'."

Since a picture is worth a thousand words - here's how you (if the bill passes)  could have your tax penalties waived just like Congressman Rangel and Treasury Secretary Tim Geither.

Wow! Equal justice under law. Could it possibly be that we have one Congressman who understand this concept !

Keep watching this link for developments!

Tax law changes,extensions, and renewals for 2008

On Oct. 3, 2008, the President signed into law the Emergency Economic Stabilization Act of 2008 (P.L. 110-343).  Although virtually all of the press coverage of this law has concentrated on its hotly debated $700 billion financial industry bailout plan, the legislation also contains dozens of mostly beneficial tax changes for individuals and businesses.  The significant changes, along with certain changes from prior legislation also affecting 2008 and beyond, are summarized below.

Changes Affecting Individuals

• Expansion of Kiddie Tax.  The kiddie tax rules tax a child's unearned income in excess of $1,800 at the parents' top tax rate.  The 2007 Small Business Act expanded the kiddie tax to potentially include a child who has attained age 18 before the close of the tax year or who is a full-time student who has not attained age 24.
• 0% Capital Gain Rate.  The 2003 Tax Act reduced the rates on net long-term capital gains to 0% in 2008.  The 0% rate in 2008 applies to long-term gain that would otherwise be taxed at an ordinary rate less than 25%.  Accordingly, on a joint return, taxpayers with total taxable income of no more than $65,100 for 2008 are able to pay tax on any long-term capital gain at the 0% rate.  For single filers, the 0% capital gain rate is available until total taxable income exceeds $32,550 for 2008.
• Bigger AMT Exemptions.  Greatly reduces the exposure of individual taxpayers to the dreaded Alternative Minimum Tax for at least one more year.
• College Tuition Deduction.  The above-the-line deduction for up to $4,000 of college tuition and related fees was retroactively restored for 2008 and extended through 2009.
• Optional Sales Tax Deduction.  The optional itemized deduction for general state and local sales taxes(claimed in lieu of state and local income taxes) was retroactively restored for 2008 and extended through 2009.
• Additional Standard Deduction for Property Taxes.  Individuals who do not itemize deductions can now deduct up to $1,000 of real property taxes paid during the year in addition to the standard deduction.
• Educator Expense Deduction.  The above-the-line deduction for up to $250 of personal expenditures by teachers and other school employees to provide items needed for their schools was retroactively restored for 2008 and extended through 2009.
• Tax-free Principal Residence Mortgage Debt Relief.  The provision allowing federal-income-tax-free treatment for up to $2 million of forgiven principal residence mortgage debt was extended for three more years through 2012.
• IRA Qualified Charitable Distribution Privilege.  The opportunity for IRA owners who have reached age 70.5 to use IRA money for charitable donations of up to $100,000 annually, by making so-called qualified charitable distributions, was restored for 2008 and extended through 2009.
• Credit for Residential Energy-efficient Improvements.  The separate credit for energy-efficient insulation, windows, doors, roofs, and heating and cooling equipment installed in a U.S. residence expired at the end of 2007.  The Act restores the credit for 2009, however, the credit is still not available for 2008.  The credit is limited to $500 over a taxpayer's lifetime.
• Refundable AMT Credit Rules Vastly Improved.  The new rules delete the unfavorable phase-out provision for higher-income taxpayers and make a beneficial change to the refundable credit annual limitation calculation.

Changes Affecting Businesses

• Research Credit Extended and Modified.  The Act retroactively restores for 2008 and extends through 2009, the IRC Section 41 research tax credit for qualifying expenses paid or incurred in those years.
• Increased Standard Mileage Rate.  The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008.  This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008.
• Automatic Extension for Filing Partnership Returns.  The IRS has reissued regulations reducing the automatic extension period from six months to five months, in order to allow individual taxpayers to timely receive the Schedule K-1 required to complete their Form 1040.  The new extended due date for partnership returns is September 15.
• Expanded Section 179 Expensing Allowance.  The Economic Stimulus Act of 2008 increased the Section 179 annual dollar limit to $250,000, effective only for tax years beginning in 2008.  This Act also increased the asset addition phaseout threshold to $800,000, also effective only for tax years beginning in 2008.  In 2007, the limits were $125,000 and $500,000, respectively.
• Restoration of 50% Bonus Depreciation.  The Economic Stimulus Act of 2008 allows taxpayers to deduct 50% of the cost of new "Qualified Property" purchased in 2008 for use in the taxpayers trade or business.

An honest greeting card from the government

More of the night before Christmas in taxing style

‘Twas the Night Before an Obama Christmas

“Twas the night before Christmas when all through the house,Not a tax break was stirring not even inn’ spouse.The Bush cuts weren’t permanent, stim checks weren’t enough.The economy was tanking, the news was quite rough.

The stockings were hung by the chimney with care,In hopes that St. Barry O soon would be there.Tax preparers were nestled all stiff in their threads,While visions of refunds danced in their heads.

I, in green shades and warm, woolen cap,Had just lay down for a pre-tax season nap,When out on my lawn there arose such a clatter,I sprang from my lair to examine the matter.

Away to the window I trudged like a sloth,Grabbed at the drapes and ripped at the cloth.

Suddenly a cloud masked all the moonlight,The light became dark, the dark became bright. Then what to my cynical eyes should arise,But a miniature sleigh and eight do-gooder guys,With a skinny young driver, graceful and slow,I knew in a moment ’twas St. Barry O.

More rapid than lightning his henchman they came,He whistled, and shouted, and called them by name;“Now, Daschle! now, Clinton! now, Duncan and Bates!On, Holder! on Geithner! on, Richardson and Gates!

To the top of the porch! to the top of the wall!Now tax away! tax away! tax away all!”

As birds of the north in the winter south fly,Fearing the cold they take to the sky, So up to the roof O’s advisors they flew,With a sleigh full of tax hikes and St. Barry O too.And then, in an instant, I heard on the roofThe clicking and tapping of each “noble” goof.

I pulled in my hand, and had just turned around,When down the chimney O came with a bound.He was dressed all in red, from his head to his foot,But his clothes were devoid of all ashes and soot.

An empty white sack he had flung o’er his back,He looked at me harshly as if I’d been lax.His mouth, how it frowned. His eyes, how they glared.He resembled a man whom fate had ensnared. His lips were pursed, drawn down in a wave,His chin was as smooth as the speeches he gave,He opened the sack, laid it out like a net,This Saint had arrived not to give, but to get.

His face was drawn; he had large floppy ears,He eye-balled me close like a peeping-tom leers.He was wiry and lean, a right serious young elf,I recoiled when I saw him, being a tax man m’self. A wink of his eye and a twist of his head,Soon gave me to know I had much to dread.He spoke not a word, but went straight to his jag,He emptied the stockings and filled his big bag.

And laying his finger aside of his nose,And giving a nod, up the chimney he rose. He sprang to his sleigh, to his gang gave a missive,And away they all flew like cocky young Ic’rus.Then I heard him exclaim, ere he ’scaped in a stealth, “Happy Christmas to all, and to all spread the wealth.”

The night before Christmas -Part III

Part III Click to enlarge.

The night before Christmas -Part II

Part 2 of the Legal version (Click to enlarge).

The night before Christmas (Legal Version)

Click to enlarge.

Who are the players in the Bailout game?

At sporting events, we're told that we can't tell the players without a program. My thanks go to the Center for Economic and Entrepreneurial Literacy for this listing of all the guilty err I means politicians that have a role in the Billions for Bailouts game show.

Barney Frank Barnett "Barney" Frank is a Democratic congressman from Massachusetts, and the Chairman of the House Financial Services Committee, which oversees industries including banking, insurance, and housing.

Basis Point A basis point is a unit that is equal to 1/100th of a percentage point. It is frequently used to express percentage point changes of less than 1%. It is common practice in the financial industry to use basis points to denote a rate change in a financial instrument (such as a bond). For example, a rate change from 6.7% to 6.9% reflects a change of 0.2 of a percentage point or 20 basis points.

Ben Bernanke Ben Bernanke is the Chairman of the Board of Governors of the United States Federal Reserve. Before taking office in 2006, he was a professor of economics at Princeton University. Bernanke has worked closely with Treasury Secretary Henry Paulson in coordinating the US government’s response to the 2008 financial crisis.

Christopher Cox Christopher Cox is the Chairman of the Securities and Exchange Commission (SEC), the agency responsible for regulating the nation’s stock exchanges and enforcing securities laws (such as insider trading).

Commercial Paper In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days. Since it is only backed by the issuing corporation’s promise to pay, only firms with excellent credit ratings can sell their commercial paper at a reasonable price. While usually regarded as safe, if the issuing corporation goes bankrupt, holders of commercial paper can lose their investment (as in the case of Lehman Brothers’ 2008 bankruptcy).

FDIC The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation that guarantees the safety of checking and savings deposits in member banks, currently up to $250,000 per depositor per bank. The FDIC was created in 1933, in response to the large number of bank failures caused by runs on the bank in the Great Depression.

Henry Paulson Formerly the CEO of investment bank Goldman Sachs, Henry Paulson became Secretary of the Treasury in 2006. In late 2008, Paulson, along with Ben Bernanke and Christopher Cox led the effort to help financial firms by using $700 billion to purchase bad debts and provide liquidity.

Insolvency Insolvency means the inability to pay one's debts. This is defined in two different ways. Cash flow insolvency is the inability to pay debts as they fall due. Balance sheet insolvency is having negative net assets, i.e. one’s liabilities exceed one’s assets. For banks, which need to be constantly borrowing and lend large sums of money, insolvency usually means going out of business, either by declaring bankruptcy or being purchased by another bank.

Leverage Leverage means borrowing money for investments. A simple example: if someone invests $1000 of their own money in a corporate bond that promises an 8% return, they will make $80 in profit after one year. If they instead borrow $10,000 at an interest rate of 3% (a cost of $300), and buy the same corporate bond with that money, their profit will be $500 ($800 in interest, minus the $300 cost of the loan). However, if the corporate bond defaults, and pays no interest, the borrower will end up losing the $300 they paid for their loan. Many of the large bank failures in the current financial crisis happened after the banks borrowed too much money and were unable to repay their debts after the value of their investments fell.

LIBOR: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London financial market. When the LIBOR is very high, as happened in the 2008 financial crisis, it is expensive for banks to borrow money, which means it is more difficult for corporations and consumers to get access to credit.

Liquidity: Liquidity refers to an asset's ability to be easily converted through an act of buying or selling. Strong global currencies like the US Dollar and the Euro are the most liquid form of assets, as the number of potential buyers and sellers is very high. (In this sense, anyone who sells a product and receives payment in dollars is “buying” dollars.) Illiquid assets, on the other hand, are difficult to convert. A house is an example of an illiquid asset: while it may be very valuable, selling a house takes a lot of time and effort.

Complex financial assets, such as mortgage-backed securities and collateralized debt obligations, became very illiquid after the financial crisis raised doubts as to their value. Many of these assets may turn out to be valuable, but for now it is difficult to find buyers.

Mortgage-backed Securities A mortgage-backed security (MBS) is a type of financial instrument called a security (bonds are also securities) whose cash flows are backed by the principal and interest payments of a set of mortgage loans. Because MBS’s are backed by a bundle of mortgage loans, the risk of default is lower (because it is unlikely that, for instance, all 500 mortgages in an MBS would go into default simultaneously). The subprime mortgage meltdown made the valuation of MBS’s more difficult, because the number of foreclosures and loan defaults turned out to be much higher than predicted.

Predatory Lending Predatory lending refers to dishonest or deceptive practices by lenders taking advantage of borrowers. For example, during the subprime mortgage bubble of the past few years, many first-time homebuyers ended up with mortgage payments they could not afford, due to confusing and misleading terms and conditions. Predatory mortgage lending was a major contributor to the surge in home foreclosures in 2008, as well as the current economic and financial crisis.

Short Selling Short selling is the practice of selling a financial instrument (such as a stock or a bond) that the seller does not own at the time of the sale. Short selling is done with the intent of later purchasing the asset at a lower price. Short-sellers are effectively betting that the price of the asset will fall, as opposed to “going long,” which is buying an asset in the hopes that it will rise in value.

Subprime Mortgages “Subprime” is a financial term that was popularized by the media during the "credit crunch" of 2007 and involves financial institutions providing credit to borrowers perceived as risky or unreliable. Subprime borrowers include individuals with a history of loan delinquency or default, those with a recorded bankruptcy, or those with limited debt experience. Although there is no standardized definition, in the U.S. subprime loans are usually classified as those where the borrower has a credit score below a particular level, e.g. a FICO score below 660.

Timothy Geithner Timothy Geithner is reported to have been nominated as President-elect Barack Obama’s Secretary of the Treasury. Geithner previously served as the 9th president of the Federal Reserve Bank of New York. As President, he also served as the Vice Chairman of the Federal Open Market Committee. Geithner was born in Brooklyn, New York and attended Dartmouth College.

Treasuries “Treasuries” refers to government bonds issued by the United States Department of the Treasury. There are four types of marketable treasury securities: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS). Because they are backed by the credit of the United States government, treasury securities are considered among the safest investments in the world.

U.S. Federal Reserve The Federal Reserve System (or “Fed”) is the central banking system of the United States. The Fed performs a variety of functions within the U.S. economy, including the regulation of banks and the management of the money supply. The Fed is an independent institution, and can act without prior approval from Congress or the President. Ben Bernanke is the current Chairman of the Board of Governors, having replaced Alan Greenspan in 2006.

3 Big Employee recordkeeping mistakes

Mistake #1: Keeping all employee information in one file.

An employee’s personal information should not be mixed with their employment related information. If a supervisor has access to information concerning a worker's age, health status, or workers' compensation claim, for example, an employee could file a discrimination claim based simply on that access, whether or not the supervisor sought and/or used that information. The employee’s main file should not include any information that may be construed as discriminatory, such as the employee’s date of birth, marital status, medical history, citizenship, and the like. This information should be kept in a separate secure file, only accessible to those with a need to know.

Mistake #2: Being unaware of what records to keep

The Immigration Reform and Control Act requires employers maintain employee I-9 forms, the Fair Labor Standards Act requires employers retain employee payroll information, the Americans with Disabilities Act requires employers to retain application forms and resumes, the Family Medical Leave Act requires employers keep records of employee requests for leave…with all the different laws governing employer recordkeeping practices it’s difficult to know what to keep and what to toss. Below is a list of what should be kept in employee personnel files: Resumes and employment applications – even if you don’t hire the individual: New hire paperwork: offer letters, employment agreements, I-9 forms, non-compete agreements, employee handbook acknowledgements, direct deposit authorizations, W-2 and W-4 forms, emergency contact forms Performance appraisal forms and performance related documentation, such as discipline notices and recognition forms and Employee grievances Payroll reocrds, timesheets, and wage related reports Time off and leave requests Job descriptions Exit interview and reasons for termination Mistake #3: Failing to keep records secure.

All employee reocrds should be secure at all times (under lock and key), only accessible by those with a need to know.

Learn from history !

Listen closely at the 1:27 mark as JFK explains how dollars released from taxation create new jobs. I wish Congress could learn from this guy!

An easy starting quiz

We're starting with easy questions, but they will get more challenging.
Just hover your mouse over the choices.

Self-employed? Get ready to provide more tax info.

Here's just a few of the new lines that self-employed folks  will have to contend with on the 2008 Schedule C.

(Be sure to express your thanks to the present Congress for this).

... Differential wage payment credit. Eligible differential wage payments made after June 16, 2008, to qualified active duty members of the uniformed services, may qualify for a credit equal to 20% of up to $20,000. For more information, see Form 8932.

... Increasing research activities credit. The credit for increasing research activities has been modified and extended for amounts paid or incurred before Jan. 1, 2010. See Form 6765 for details.

... Section 179 deduction increased. For property placed in service during a tax year beginning in 2008, the limit for the Code 179 deduction to expense certain depreciable business property has been increased to $250,000. This limit will be reduced when the total cost of this property placed in service during the tax year exceeds $800,000.

... Gulf Opportunity (GO) Zone property. In addition to the increase discussed in the above paragraph, the higher 179 deduction has been extended for qualified GO Zone property placed in service in 2008. Substantially all of the use of this property must be in specified portions of the GO Zone.

... Special depreciation allowance. For qualifying property acquired and placed in service in 2008, a taxpayer may be able to take a depreciation deduction equal to 50% of the adjusted basis of the property. Qualifying property includes certain property with a recovery period of 20 years or less, certain computer software, water utility property, or qualified leasehold improvements.

... Indian employment credit has been extended. The Indian employment credit has been extended for qualified wages paid to an employee through Dec. 31, 2009.

... Special rules for contributing food inventory have been extended. These rules were due to expire at the end of 2007 but have been extended to contributions made in 2008 and 2009.

... Deduction for qualified clean-up costs in the GO Zone has expired. This deduction was available for certain demolition and clean-up costs paid or incurred before Jan. 1, 2008.

... Increased expensing for qualified timber property in the GO Zone has expired. The increased expensing limit was available for reforestation expenditures amounts paid or incurred before Jan. 1, 2008. 

Don't be ripped off by a "ROBS"

What's a "ROBS"? 

It's the newest planning technique (and do we ever use that term loosely) from your friendly neighborhood financial planners.

It stands for Rollovers as Business Startups.

Normally I don't recommend that you read the IRS site for tax advice, but in this case, they have a well done summary at this link.

(Hint: Read the summary on page 1 and skip to the conclusion on page 15)

Our advice? Proceed with extreme caution if you're approach by a planner with this idea.

More new and improved amounts for 2008 tax returns

IR-2008-117 - The IRS announced the 2009 inflation adjustments late last week. The big changes affecting 2009 returns (returns filed in 2010) are:

• The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
• The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
• Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
• The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
• The annual gift exclusion rises to $13,000, up from $12,000 in 2008.

Last minute humor

and we sure do need some!

Retirement limits increase for 2009

Pictures that say a lot!

and once more the question of Who pays the Lion's share ?

(click to enlarge)

Know your estate ABC's

Never by confused by an attorney (or CPA) know these terms before meeting for your tax and estate planning.

A-B Trust - A kind of living trust that, upon the death of the first spouse, divides into two distinct trusts: the Marital/Survivor's Trust and the Credit Shelter/Bypass Trust.

Administrator The individual or institution appointed by the court to oversee the settlement of an estate of a person who has died without a will.

Alternative Date of Death The executor or trustee of an estate has the option to appraise or value assets six months after the death of the decedent. Estate tax liabilities may be lower in the event that assets values have declined over this six month period.

Affidavit The written declaration of facts made voluntarily under oath.

Ancillary Administration The Probate of the decedent’s property located in a different state than which the decedent lived.

Annual Exclusion The amount of money or value of property (soon to be $13,000 for an individual and $26,000 for husband and wife) that can be given as a gift to a recipient each year without incurring gift tax.

Appraisal The process of determining the fair market value of property or asset within an estate.

Ascendants The ancestors of a person either alive or deceased such as; parents, grandparents, great-grandparents.

Beneficiary An individual named in a will or trust document to receive money, property, principal or income from an estate or trust.

Bequest A Gift of property given under the terms of a will.

Bond Money that backs a promise that an individual will perform a duty.

Credit Shelter Trust (aka Bypass Trust) - An estate planning tool whereby part of a deceased spouse's estate passes to a trust rather than to the surviving spouse, thereby reducing the likelihood that the surviving spouse's subsequent estate will exceed the estate tax threshold.

Capital Gains and Losses A tax calculation, the difference between the purchase price (cost) and selling price (proceeds).

Codicil An addition or other change to an existing will.

Creditor A individual, business or entity which may be owed money by an estate.

Claim Against an Estate Refers to a charge against an estate to settle an agreement or an outstanding obligation (as in the case of bills unpaid at the time of death).

Contest of a Will Challenging the validity of a will, through a legal proceeding, to prevent the distribution of estate assets.

Date of Death The date the decedents dies.

Decendent The person who died.

Descendants Any children or offspring leaving or deceased including grandchildren.

Domicile The state and county that the decedents lived (primary residence).

Donee / Donor The recipient of a gift; the giver of a gift.

Estate Planning - The process of arranging a person's property and estate, taking into account the laws of wills, taxes, insurance, property and trusts so as to gain the maximum benefit of all laws while carrying out the person's own wishes for the disposition of his property upon his death.

Estate Tax - A tax imposed on the right to transfer property at death. The estate tax is levied on the decedent's estate, and not on the heir receiving the property.

Executor The individual or institution named in a will responsible for carrying out the provisions specified in a will. A co-executor serves as executor with one or more named individuals.

Fiduciary The individual or institution responsible for acting in the best interests of another party. Fiduciaries are bound by law to put aside personal interests and act in good faith when making decisions for the benefit of another.

Grantor An person who gives property outright or through a trust document.

Guardian A individual or institution (trust company) determined by a court to manage the property of a individual who is judged incapable of handling their affairs.

Heir A person inherits funds or property from the estate of a person who has died.

Homestead Property that is set aside for a specific family member that cannot be transferred to a third party.

Interested person A person who may have a claim against a decedent’s estate or an interest in a distribution or outcome of an estate.

Intestate The term for dying without a will.

Invasion of a Trust Refers to a distribution of assets made from the principal of a trust.

Irrevocable Trust A type of trust that cannot be revoked or changed in any way.

Joint Ownership Also called joint tenancy, this phrase refers to ownership of property by two or more persons, generally with right of survivorship (upon the death of one owner, the surviving owner or owners assume ownership).

Jurisdiction The authority of a court to determines legal cases.

Last Will Literally, the will last executed by an individual, which revokes any former existing wills.

Letters of Administration Documentation signed by the probate court give a person authority to act on behalf of an estate.

Living Trust A trust that takes effect while the settlor is still alive.

Living Will A legal document in which an individual states, in advance of final illness or injury, his or her wishes regarding procedures and equipment designed to extend life.

Gross Estate - All property owned by a decedent that will be subject to the Federal estate tax. It includes all assets over which the decedent exercises Dominion and Control.

Intestacy - The state or condition of dying without having made a valid will, or without having disposed by will of a part of his property. The intestacy process is much similar to probate, except that the State of California shall determine (by statute) where your assets will go, and who shall be guardian of your minor children.

Marital Trust (aka Survivor's Trust) - The trust over which the surviving spouse exercises complete control and ownership. Assets placed into the marital trust will be taxed upon the surviving spouse's death should they exceed the estate tax threshold.

Power of Attorney - A legal instrument whereby you, as principal, can appoint another person as your agent and confer authority on the agent to perform certain specified acts on your behalf. Common powers of attorney include those for finance, and for health care. “Springing” powers of attorney only become valid upon the occurrence of a given event, such as your incapacity or inability to make decisions for yourself.

Probate - A court procedure by which a will is proved to be valid or invalid; also refers to the legal process wherein the estate of a decedent is administered. This process involves: collecting a decedent's assets, liquidating liabilities, paying necessary taxes, and distributing process to heirs. These activities are carried out by the executor or administrator of the estate, under the supervision of the probate court.

Petition Documents filed in probate court to request that an action be taken, such as a petition to open an estate for probate.

Power of Appointment The power given by an individual to another in a will or trust document to determine which persons will receive an interest in his or her estate.

Power of Attorney A legal document authorizing one individual to act as the agent or "attorney" for another (the "principal"). If the attorney is authorized to act in behalf of another for all matters, he or she has general power of attorney. Authority to act solely regarding specified situations is special power of attorney. If the authority granted extends beyond the disability of the principal, the attorney has durable power of attorney.

Preference The payment of certain types of creditors before other creditors.

Principal Refers to the assets included in a trust that yield income. In an agency relationship, this word refers to the individual who gives authority to the agent to act on his or her behalf.

Principal also refers to an asset of an estate or trust which is viewed separately from the income it may provide (as in principal and income accounting).

Probate The process through which a will is proved to be valid and the legal procedure of settling an estate.

Pro rata A portion of value based on percentage amount.

"Prudent Investor" Rule Legal term that refers to the duty of the fiduciary to invest and manage assets in the best interests of another.

Real Property Land and that which is attached to the land.

Remainderman In the case of a trust, this term refers to the individual who will receive the principal of a trust when final distribution takes place.

Revocable Trust A type of trust that can be terminated by the settlor (the opposite of an irrevocable trust).

Settlor An individual who establishes a trust in order to transfer property. (See Grantor)

Successor Trustee or Executor An individual or institution taking the place of a trustee or executor unable to continue the responsibilities designated in the trust agreement or will.

Summary Administration A simplified probate proceeding for estate valued at less than a stipulated amount (see state statues) and holds no real property.

Trust - A legal entity which is created by a Grantor for the benefit of other(s) (called - beneficiaries). Assets placed into a valid trust shall not pass through probate, but through the trust administration process (see Trust Administration).

Trust Administration - The process of administering the estate of a decedent who dies with a valid living trust in place. In the typical A-B Trust, this process involves determining which assets shall belong to the surviving spouse, and which assets shall go into the credit shelter trust. Unified Credit Amount - The amount of your gross estate that is not subject to the current Federal estate tax.

Will - A legal instrument by which a person, called the “Testator”, determines what shall happen to their property after their death. In addition, a will may determine who shall be the legal guardian(s) of the decedent's minor children. When a person dies with a will, their estate goes through the probate process

More detail on Obama vs. McCain tax plans

Presidential Candidate Tax Plan Comparison

	Barack Obama	John McCain
New Tax Cuts	Refundable "Making Work Pay Credit" of 6.2 percent of earnings up to a maximum earnings of $8,100 per worker Refundable "Universal Mortgage Credit" of 10 percent of mortgage interest for nonitemizers up to $800 Eliminate income tax for seniors making less than $50,000 per year Make Research and Development and renewable energy production tax credit (wind, solar) permanent Extend childless Earned Income Tax Credit (EITC) phasein range and increase phaseout threshold; increase EITC phase-in rate to 45 percent for families with three or more children; increase add-on to EITC phase-out threshold for married filers to $5,000 Make Child and Dependent Care Tax Credit refundable and equal to 50 percent of child care expenses less than $6,000 Make saver's credit refundable and change to a 50 percent match of the first $1,000 of contributions Rename the Hope Credit the "American Opportunity Tax Credit" and expand it to a refundable credit of 100% of the first $4,000 of college expenses Provide a refundable $3,000 per employee credit for increases in employment for firms with growing employment Eliminate the taxation of unemployment insurance	Allow first-year deduction of 3 and 5-year equipment, deny interest deduction (expires after 2013) Reduce maximum corporate income tax rate from 35 percent to 25 percent (phased in by 2015) Increase the dependent exemption by two-thirds (phased in by 2016) Convert Research and Development credit to 10 percent of wages incurred for Research and Development, make permanent Tax the first $50,000 of withdrawls from IRAs and 401ks at 10 percent in 2008 Exempt unemployment insurance benefits from tax in 2008 and 2009 for those making less than $100,000
Capital Gains	Increase maximum capital gains rate to 20 percent for those earning more than $200,000 ($250,000 for married couples) Require information reporting of basis for gains	Make permanent current rates on capital gains and dividends, (0 and 15 percent) Increase the amount of capital gains that can be deducted against ordinary income to $15,000 in 2008 and 2009 Reduce the tax rate on long-term capital gains to 7.5 percent in 2009 and 2010
2001/2003 Tax Cuts	Permanently extend child credit expansions, 10, 15, 25, and 28 percent rates, and changes to tax implications of marriage Restore 36 and 39.6 percent statutory income tax rates in 2009 Restore phaseouts of personal exemptions and itemized deducations (PEP and Pease) for households making more than $200,000 ($250,000 for married couples), increase the PEP and Pease threshold	Make permanent all provisions other than the estate tax repeal
Alternative Minimum Tax	Extend and index 2007 AMT patch	Extend and index 2007 AMT patch, further increase exemption by additional 5 percent per year after 2013 (temporarily)
Estate Tax	Make permanent estate tax with $3.5 million exemption and 45 percent rate	Make permanent estate tax with $5 million exemption and 15 percent rate
Simplification	Provide taxpayers with simple returns the option of pre -filled tax forms to verify, sign, return to IRS	Create optional alternative tax with two rates and larger standard deduction and personal exemption
Revenue Raisers and Tax Havens	Eliminate oil and gas loopholes Close loopholes in the corporate tax deductibility of CEO pay Tax carried interest as ordinary income Reallocate multinational tax deductions Impose a windfall profits tax on oil and gas companies Require publicly traded financial partnerships to pay corporate income tax Codify economic substance doctrine (requires transactions that qualify for tax benefits have economic justification beyond those benefits) Create an international tax haven watch list of countries who do not share information with the U.S. and require greater financial disclosure to decrease tax shelters	Repeal domestic production activities deduction Eliminate oil and gas loopholes Unspecified corporate base broadeners
Health	Income-related federal tax subsidies for health insurance purchased through new health insurance exchange Require employers to provide insurance or pay a percentage of payroll to support the national plan Small business healthcare tax credit of 50 percent of employer paid premiums	Replace exclusion from income for employer sponsored health insurance with refundable credit of $2,500 for individuals and $5,000 for families who purchase qualifying health insurance
Other	Social Security/payroll taxes: impose additional tax of 2-4 percent (combined employer and employee) on workers with income above $200,000 ($250,000 for married couples) Allow penalty-free withdrawls of up to 15 percent from retirement accounts Mandate automatic 401(k)s and automatic IRAs	Ban internet and cell phone taxes Suspend rules that require distributions from IRAs at age 70.5

Matrix used with permission of the Urban-Brookings Tax Policy Center. Detailed analysis available as a free PDF download. Data provided prior to Emergency Economic Stabilization Act of 2008. 

What's worth more than 9 tanks of gasoline?

According to Congress, not much of anything that you have.

The 2009 cap on Social Security will be raised by $4,800 which at 12.4% (6.2% SS x2) is over 9 fill ups of gasoline for my car.

When I  calculate the effect of the future value of this increase on my social security at retirement it makes no real difference. 

So, thank you Congress for nothing. I'll attempt to prosper and succeed in spite of you.

Care to let your Senators know your appreciation for their kindness?

Here's an email link.

Senator J Isakson

Senator Saxby Chambliss

Extensions, Extenders, and Efforts by Congress ...

to renew tax breaks that were expiring this year.

Here's a partial summary of what they renewed via the tax bill entitled (appropriately)  "Tax Extenders and Alternative Minimum Tax Relief Act of 2008" signed on Oct 3, 2008.

Deduction of state and local general sales taxes. The option to deduct state and local general sales taxes is extended through 2009.

Qualified tuition deduction. The above-the-line tax deduction for qualified higher education expenses is extended through 2009.

Teacher expense deduction. The provision allowing teachers an above-the-line deduction for up to $250 for educational expenses is extended through 2009.

IRA rollover provision. The provision allowing qualified taxpayers to make tax-free contributions from their IRA plans to qualified charitable organizations is extended through 2009.

Additional standard deduction for real property taxes. The standard deduction for real property taxes for non-itemizers is extended through 2009.

Research and development credit. The research tax credit is extended through 2009. In addition, the alternative simplified credit is increased from 12% to 14% for the 2009 tax year, and the alternative incremental research is repealed for the 2009 tax year.

15-year straight-line cost recovery for qualified leasehold, restaurant, and retail improvements. The 15-year writeoff for qualified leasehold, restaurant and retail improvements is extended through 2008.

Basis adjustment to stock of an S corporation making charitable contributions of property. Favorable Subchapter S basis rules for gifts of appreciated property are extended through 2009.

Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. The provision allowing a Section 199 domestic production activities deduction for activities in Puerto Rico is extended through 2009.

Other extended provisions. Other provisions extended through 2009 include:

• Qualified zone academy bonds.
• Indian employment credit.
• Accelerated depreciation for business property on Indian reservation.
• Tax credit for certain expenditures for maintaining railroad tracks.
• 7-year recovery period for certain motorsports racetrack property.
• Work opportunity tax credit hiring period for Hurricane Katrina employees (through Aug. 28, 2009).
• New markets tax credit.
• Increased rehabilitation credit for structures in the Gulf Opportunity Zone.
• Enhanced charitable deduction for qualified computer contributions.
• Tax incentives for investments in the District of Columbia.
• Enhanced charitable deduction for food inventory.
• Enhanced charitable deduction for contributions of book inventory to schools.
• Special expensing rules for certain film and television productions.
• Exception under Subpart F for active financing income.

Revenue raisers. The new legislation offsets the cost of the tax break extensions by requiring hedge fund managers and others to account for deferred compensation (income held in offshore accounts and other corporate structures) as it accrues, rather than avoiding appropriate and timely income taxes.

Additional tax relief provisions. In addition to the extensions of tax relief described above, the 2008 Extenders Act also includes liberalizations for the child tax credit, income averaging for Exxon Valdez litigation amounts, a 5-year writeoff for certain farming equipment, and a change in the standards for imposition of the tax return preparer penalty.

Disaster relief. Included in the new legislation is Midwestern disaster area tax relief for victims of the disaster in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin, and a new tax relief package for victims of all Federally-declared disasters occurring after Dec. 31, 2007 and before Jan. 1, 2010 (e.g., eased loss deduction rules, a new business writeoff for demolition, cleanup and repair, a 5-year carryback for casualty losses or qualified disaster expenses, bonus 50% first year depreciation for property placed in service through Dec. 31, 2011 (Dec. 31, 2012 for real property), and increased expensing dollar limits). 

A Tale of Two Tax Plans

"It was the best of times; it was the worst of times." -- Charles Dickens

Actually, given our choices in this election, it's the most taxing of times. Everyone has been requesting an analysis of the Obama vs. McCain tax plans, so let's start with the chart below. Red numbers are the McCain plan and the blue numbers are the Obama plan.

The first point in any analysis is . . .

How do you define the terms?

This is a critical point. So, ask yourself, how do I answer the following questions?

• What is “rich"?
• What do you mean by cutting taxes?
• Is imposing higher taxes on “rich” people punishing success or just "spreading the wealth around?"
• Do “rich” people have a civic, legal, or moral duty to help the middle class and the poor?
• Should the formation of capital (which drives capitalism) be rewarded or punished?
• How do the candidates propose taxing your income that is "on the margin"? This is one of the most important concepts, and we're one of the few who discuss it.

Let's see what the candidates say on some of these questions. Question- What is a tax cut? Obama-The phrase cutting taxes includes giving funds (via refundable credits) to those who pay no income taxes. This group comprises roughly 40% of the tax base. McCain-The phrase cutting taxes means reducing a tax liability currently owed. Our recommendation- See the following link to the Wall Street Journal's article on how and why Obama's Tax Cut for 95% of Americans Is an Illusion Question-Is it possible to tax business entities (corporations, LLCs, etc.) independently of individuals? Answer- A former candidate may have said it better than anyone else. The following cites are from our blog cpataxnet.blogspot.com on September 4, 2008;

Due to their extreme bias, I rarely draw ideas from the CNN money site. However, a recent article with the above title about the wealthy caught my attention. It's best to ignore most of what both candidates are saying and much better to simply watch what they have done. Presently, two schoolteachers (hardly a high-wealth profession) can be hit with the Alternative Minimum tax under both candidates' proposals. Fred Thompson said it well (although I would apply this to both parties). "Now our opponents tell you not to worry about their tax increases. They tell you they are not going to tax your family. No, they’re just going to tax “businesses”! So unless you buy something from a “business”, like groceries or clothes or gasoline … or unless you get a paycheck from a big or a small “business”, don’t worry … it’s not going to affect you. They say they are not going to take any water out of your side of the bucket, just the “other” side of the bucket! That’s their idea of tax reform."
Very well stated Senator, I hope both sides of the aisle really heard you.

Our recommendation? Both candidates need to learn on this one. There is no way to tax the business community without the consumer paying the tax in higher prices, reduced dividends, or both. Question- How do the candidates propose taxing the formation of capital? Obama-Proposes an increase (although he vacillates on the amount) on the capital gain rate. McCain-Proposes retaining or lowering capital gains rates. Answer- Empirical evidence exists dating back to the Presidency of JFK in the 1960's through the present that proves that reduced capital gains rates generate more gross revenue than higher cap gains rates. When confronted with this statistic by Charles Gibson, Obama's response was that the higher rates were "fairer." Question- How do the candidates tax your income "on the margin"? Let's define the term "on the margin." Our astute clients have noticed that when you divide the actual income tax into taxable income, you almost never arrive at rates listed in the tax code (i.e. 10%,15%,25%,28%,33%,35%). No matter what "cuts'" someone promises, the important factor is the effect on your "marginal" rate. For example, if you're on the threshold of going from 25% to 28% rates, then a $1000 bonus will cost you 34 cents on the dollar (28% Federal and 6% Georgia). If, under the same facts, you're self employed, the marginal rate may be 49% (34% above plus 15% self-employment tax) or more! It gets worse. Beginning about 1991, Congress realized that they could muddy the waters with so many marginal-rate changes the tax burden could be increased with raising the statutory rates listed above. Through the use of phase outs of deductions, credits,etc., marginal rates up to 50%-64% and higher can be created on each additional dollar of income within a certain range. Thus under both candidates' tax plans, as certain tax breaks disappear (phase out) at various income levels, high marginal rates are created for individuals. So who is really proposing a tax cut? The chart at the top of this page gives you the answer. The non-partisan Tax Foundation offers the following analysis. First, the Obama plan and . . . . . . the McCain plan. Summary Obama-Marginal rates of approximately 60% McCain-Marginal rates of approximately 40%

Do you have more questions?

Post your own question below. Fill in your own tax advice for the candidates below and email it back to us. The five best responses will win a book on solutions to America's banking crisis.

Important data for your 2008 & 2009 tax planning

The old numbers have been adjusted for inflation and the following are the new upper limits for the coming tax year.

• 0% capital gains and dividends taxable income limit: $67,900 MFJ, $33,950 S
• Kiddie Tax unearned income limit: $950
• 401(k) elective deferral limit: $16,500 (plus $5500 if age 50 or over)
• Defined contribution overall limit: $49,000
• IRA contribution limit: $5000 (plus $1000 if age 50 or over)
• Roth IRA phaseout range: $166,000-$176,000 MFJ ($105,000-$120,000 others)
• Social Security taxable wage base: $106,800
• HSA contribution limit: $3000 ($5950 family), plus $1000 for each taxpayer 55 and older
• The annual gift exclusion rises to $13,000, up from $12,000 in 2008.
• The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
• Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
• Simple-Ira limits are increased to $11,500 for 2009 with a $2,500 catch up provision for those 50 and older.

The new winner of the stupid award for financial planning . . .

has to be this article from the Contra Costa Times in California.This tripe surpasses even Al Gore's ridiculous lecture of "Tax what we burn, not what we earn."

http://cpataxnet.blogspot.com/2008/07/stuck-on-stupid-award-of-week.html

We don't want to be accused of pulling material out of context so the entire article is quoted below.

A detailed critique will be posted shortly.

Contra Costa Times (Walnut Creek, CA) via NewsEdgeOct. 15--FEW investment funds in the world can brag that they have weathered this financial hurricanethat has battered global markets without losing a dime. You are very likely invested in such a fund, maybe even without your knowledge.

Retired and working Americans should take some comfort in knowing that money taken out of their paychecks for Social Security has been invested in funds that have not lost a penny during this financial crisis or any previous crisis.

Considering how 401(k) accounts have melted quicker than a snowball in Arizona, the idea pushed a fewyears ago to privatize individual Social Security accounts, such as a 401(k), should be put to rest. It is worth repeating: While private retirement accounts and pension funds have lost more than $2 trillion dollars during the past 15 months, the Social Security investment trustfunds have lost absolutely nothing, earning typical Treasury bond returns of between 1 and 2 percent at worst.

Since the beginning of theSocial Security program, all securities held by the trust funds havebeen issued by the federal government. According to the Social Security Administration, there are two general types of such securities that thefunds invest in: special issues, available only to the trust funds; andpublic issues, marketable Treasury bonds available to the public.

When the stock market wasbooming with the dot-com success of the late 1990s and into the currentcentury, President Bush and others floated the idea that individuals should be able to divert funds from those never-losing Social Securitytrusts into the stock market to achieve higher gains than those stodgyold 1 and 2 percent annual returns.

Fortunately, wiser heads prevailed, and the idea, even at the height of a historic bull run, was shelved. Today, that's as brilliant a move as we have seen come down the pike from Washington, D.C., in quite some time

If anything, the past few weeks have taught us one thing: 401(k) plans carry a risk few believe existed. Also, consider that unlike the untouchable Social Securitytrust funds, 401(k) accounts are frequently raided for loans or liquidated after a job change or loss by the individuals they are meant to protect.The advent of the 401(k) 25years ago has Wall Street written all over it. Let's not kid ourselves.When Capitol Hill was deciding whether to make 401k the future of retirement savings in America, Wall Street had a big seat at the table. Billions,perhaps, trillions of dollars in fees and business have been generatedfor Wall Street during the past 25 years.Think about those huge market losses of 1987, 2001 and today; the myriad quarterly fees people quietly pay out of their "savings accounts" for maintenance,commissions, etc. Couple that risk with the risk of losing 25 percentof that nest egg in one week -- like we just saw happen -- and those "low" performing Social Security accounts start looking pretty good.

In the wake of the worst financial crisis since the Great Depression, here's something Congress can do to help the "little guy" in between shoveling hundreds of billions of our taxpayer dollars to banks: Let us have the option ofsending those same pre-taxed 401(k) dollars to our individual SocialSecurity accounts.

AFR - A Free Reprieve?

There is really nothing free in the tax code but the proper tax planning with AFRs can help reduce the bite. AFR stands for applicable federal rate. This is the "safe harbor" interest percentage you can insert into a loan document and the IRS will accept it as (in their mind) a fair and acceptable return on investment. In these tough economic times, many clients are borrowing from friends or family. Or, conversely, they be be seeking to reduce the rate on current debt.

AFR Interest rates are pretty reasonable. The AFRs for September 2008:

2.36 percent for "short-term" loans of three years or less. 3.41 percent for "mid-term" loans of more than three years but no more than nine years. 4.49 percent for "long-term" loans more than nine years.

They are adjusted each month and float with the prime rate. If your child needs a home loan, you and he can both come out on top. Your child gets a loan with less cost than the traditional methods, you earn an acceptable return on your money, and don't have to deal with gifting and a potential gift tax problem.

Tax provisions in the "Bailout Bill"

The Tax Extenders and Alternative Minimum Tax Relief Act of 2008, which was enacted on Oct. 3, 2008, extends several expired charitable giving tax breaks and provides several new tax incentives for charitable giving.

Here is a brief overview of the charitable provisions in the new legislation..


Existing giving provisions extended for two years.
Several popular charitable incentives expired at the end of 2007 and would not have been available to taxpayers on their 2008 tax returns if Congress had not acted. The new law restores the provisions and extends them for two years (through 2009). The extended provisions include:

IRA charitable rollover. This provision allows individuals aged 70 1/2 and older to donate up to $100,000 from their individual retirement accounts (IRAs) and Roth IRAs to public charities without having to count the distributions as taxable income. This giving incentive is particularly beneficial to those individuals who do not itemize their tax deductions and would not otherwise receive any tax benefit for their charitable contributions.

Enhanced charitable deduction for food inventory. This provision allows businesses to claim an enhanced deduction for the contribution of food inventory. The new law also eliminates the percentage limitation for contributions made by certain farmers and ranchers after Dec. 31, 2007, but before Jan. 1, 2009.

Enhanced charitable deduction for contributions of book inventory to schools. This provision allows C corporations an enhanced charitable deduction for donations of books to schools, public libraries and literacy programs.

Enhanced charitable deduction for qualified computer contributions. This provision encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools by allowing an enhanced deduction for such contributions.

Basis adjustment to stock of S corporations making charitable contributions of property. Under this provision, if an S corporation makes a contribution to a charity the amount of a shareholder's basis reduction in the S corporation stock will be equal to the shareholder's pro rata share of the adjusted basis of the contributed property (rather than the pro rata share of the fair market value of the contribution, as was the case under prior law).

New tax incentives for charitable giving.

New incentives for charitable giving contained in the new legislation include:

Temporary suspension of limitations on charitable contributions. The amount allowed as a charitable deduction in any year may not exceed ten percent of the corporation's taxable income or fifty percent of an individual's adjusted gross income. The new law temporarily waives these limits regarding charitable cash contributions dedicated to Midwestern disaster relief efforts. The provision is effective for contributions paid during the period beginning on the earliest applicable disaster date for all States and ending on Dec. 31, 2008.

Increase in standard mileage rate for charitable use of vehicles. The mileage rate individuals may use to compute a tax deduction for personal vehicle expenses associated with charitable work is statutory and has not been increased since 1997 and is currently at 14 cents per mile. For a taxpayer assisting in relief efforts related to the Midwestern disaster, the new law sets the charitable mileage rate at seventy percent of the current standard business mileage rate, beginning on the applicable disaster date and ending on Dec. 31, 2008.

Exclusion from income of mileage reimbursements for charitable volunteers. In general, reimbursements received for operating expenses of a personal vehicle used in connection with charitable work in excess of the statutory charitable mileage rate are taxable income to the recipient. However, reimbursements for charitable mileage attributable to the Midwestern disaster up to the amount of the standard business mileage rate will not be considered taxable income through Dec. 31, 2008.

Wills that won't

do what you wish.

From MS money:

By all accounts, Anna Nicole Smith loved her baby daughter, Dannielynn. She shielded her from the media, provided her with constant care and surrounded her with every comfort.

She also accidentally disinherited her.

Here's how: In a will executed in 2001, the celebrity model arranged to place all of her assets in a trust and identified her son, Daniel, as the beneficiary, rather than use the more inclusive term "my children" or "my issue."

When Daniel died before his mother, the trust legally lapsed for want of a living beneficiary, since Smith had failed to name a contingent beneficiary for Daniel. Then, because she failed to update her will to include Dannielynn before her own demise in 2007 at age 39, her sole surviving child was accidentally disinherited.

As a result, Smith's estate, including the fortune she might've someday been awarded from the estate of her late husband, Texas oil billionaire J. Howard Marshall II, will likely pass through the laws of intestacy -- that is, as if she had died without a will.

But don't cry for Dannielynn, Argentina. Although children have no legal right to inheritance throughout most of the United States, many states do provide protection against accidental disinheritance. Because she was born after the execution of Smith's will, Dannielynn will likely be considered a pretermitted child who was accidentally disinherited and thus will likely inherit the bulk of Smith's estate.

But had Smith had other children or stepchildren, Dannielynn's expected windfall would almost certainly have been challenged or shared.

Congress gets Charitable but . . .

it's with your money - not theirs.

Here's an overview of the charitable provisions in the new tax law.

Charitable giving provisions extended for two years.

Items scheduled to expire in 2007 and renewed to 2009:

• IRA charitable rollover. This provision allows individuals aged 70 1/2 and older to donate up to $100,000 from their individual retirement accounts (IRAs) and Roth IRAs to public charities without having to count the distributions as taxable income. This giving incentive is particularly beneficial to those individuals who do not itemize their tax deductions and would not otherwise receive any tax benefit for their charitable contributions.
• Enhanced charitable deduction for food inventory. This provision allows businesses to claim an enhanced deduction for the contribution of food inventory. The new law also eliminates the percentage limitation for contributions made by certain farmers and ranchers after Dec. 31, 2007, but before Jan. 1, 2009.
• Enhanced charitable deduction for contributions of book inventory to schools. This provision allows C corporations an enhanced charitable deduction for donations of books to schools, public libraries and literacy programs.
• Enhanced charitable deduction for qualified computer contributions. This provision encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools by allowing an enhanced deduction for such contributions.
• Basis adjustment to stock of S corporations making charitable contributions of property. Under this provision, if an S corporation makes a contribution to a charity the amount of a shareholder's basis reduction in the S corporation stock will be equal to the shareholder's pro rata share of the adjusted basis of the contributed property (rather than the pro rata share of the fair market value of the contribution, as was the case under prior law).

New tax incentives for charitable giving in 2008 and 2009

• Temporary suspension of limitations on charitable contributions. The amount allowed as a charitable deduction in any year may not exceed ten percent of the corporation's taxable income or fifty percent of an individual's adjusted gross income. The new law temporarily waives these limits regarding charitable cash contributions dedicated to Midwestern disaster relief efforts. The provision is effective for contributions paid during the period beginning on the earliest applicable disaster date for all States and ending on Dec. 31, 2008.
• Increase in standard mileage rate for charitable use of vehicles. The mileage rate individuals may use to compute a tax deduction for personal vehicle expenses associated with charitable work is statutory and has not been increased since 1997 and is currently at 14 cents per mile. For a taxpayer assisting in relief efforts related to the Midwestern disaster, the new law sets the charitable mileage rate at seventy percent of the current standard business mileage rate, beginning on the applicable disaster date and ending on Dec. 31, 2008.
• Exclusion from income of mileage reimbursements for charitable volunteers. In general, reimbursements received for operating expenses of a personal vehicle used in connection with charitable work in excess of the statutory charitable mileage rate are taxable income to the recipient. However, reimbursements for charitable mileage attributable to the Midwestern disaster up to the amount of the standard business mileage rate will not be considered taxable income through Dec. 31, 2008.

I like the honesty on this tax form

Here's the new draft (courtesy of Joe Biden) of the 2009 return.

IRS releases data on charitable contributions

IRS statistics reveal that the average taxpayer with AGI over $200,000 makes over $20,000 of charitable contributions:

• $15,000-$30,000 AGI:  $1,916 average charitable deduction
• $30,000-$50,000 AGI:  $2,158 average charitable deduction
• $50,000-$100,000 AGI:  $2,703 average charitable deduction
• $100,000-$200,000 AGI:  $4,057 average charitable deduction
• $200,000 or more of AGI:  $20,434 average charitable deduction

Cup o' Joe (Biden)

Joe Biden recently said, ""We want to take money and put it back in the pocket of middle-class people," and "It's time to be patriotic ... time to jump in, time to be part of the deal, time to help get America out of the rut."

Here's a quote for you Senator Biden: (maybe you could learn from this what a proper Supreme Court Judge would sound like)

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury.

There is not even a patriotic duty to increase one's taxes.

Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

--Judge Learned Hand

Maybe Ole Joe would like this one better:

"His tax plans really would kill jobs and hurt small businesses and make even today's bad economy look like the good old days"

-Gov. Sara Palin

They ARE kidding --right ??

I don't recall anyone asking our client's opinion on this one.

IRS Oversight Board Meeting in Washington, D.C.

The IRS Oversight Board yesterday released a press release reporting on its September 9-10 meeting in Washington, D.C. to discuss the IRS’'s five-year strategic plan for 2010-2015. Among the highlights:

• The Board reviewed results from the IRS annual Employee Engagement Survey (right), which showed that 72% of IRS employees are satisfied or very satisfied with their jobs, a 3 percentage point increase from 2007, and a 21 percentage point from 2001.
• The Board discussed the activities of the IRS Whistleblower Office. In the first eight months of 2008, the IRS has been contacted by more than 800 whistleblowers with cases that allege $2 million or more in unpaid taxes.
• The Board said farewell to former (2006-2007) Board Chair Paul B. Jones, whose term as a member ends this month.

Charlie Rangle visits the hot tub again . . .

Which is another way of saying that he is in hot water.

After "forgetting" about $75,000 in unreported rent income, he now has broken ethical rules on using government property.

Remember, this is the guy who chairs the committee that writes the tax law !

Here's the summary version:

Rep. Charles Rangel has been using a House of Representatives parking garage for years as free storage space for his old Mercedes-Benz --a violation of congressional rules and a potential new tax woe for the embattled lawmaker ...  House rules forbid use of the garage for long-term storage more than 45 days - and congressional aides told The Post that Rangel's car has been sitting there for years. ...

A House Web site on parking regulations informs anyone with a space that, under IRS regulations, the benefit of the free parking is considered "imputed income" and must be declared to the government. The spaces are valued by the House at $290 per month, the site says -- about the monthly cost of leasing a space in a private DC-area garage. If the car has been in that space since its license plates were surrendered four years ago, the imputed income would be nearly $5,000.

What's the mileage rate - It depends !

Applicable Period	Rates (in cents per mile)	Source
July 1 - December 31, 2008	Business 58.5 Charitable 14 Medical and moving 27	IR-2008-82
January 1 - June 30, 2008	Business 50.5 Charitable 14 Medical and moving 19	IR-2007-192
2007	Business 48.5 Charitable 14 Medical and moving 20	IR-2006-168
2006	Business 44.5 Charitable contribution: (a) General 14 (b) Hurricane Katrina deduction 32 (c) Hurricane Katrina reimbursement 44.5 Medical and moving 18	IR-2005-138
September 1 - December 31, 2005	Business 48.5 Charitable contribution: (a) General 14 (b) Hurricane Katrina deduction 34 (c) Hurricane Katrina reimbursement 48.5 Medical and moving 22	IR-2005-99 Pub. L. 109-73
August 25 - 31, 2005	Business 40.5 Charitable contribution: (a) General 14 (b) Hurricane Katrina deduction 29 (c) Hurricane Katrina reimbursement 40.5 Medical and moving 15	IR-2004-139 Pub. L. 109-73
January 1 - August 24, 2005	Business 40.5 Charitable 14 Medical and moving 15	IR-2004-139
2004	Business 37.5 Charitable 14 Medical and moving 14	IR-2003-121
2003	Business 36.0 Charitable 14 Medical and moving 12	Rev. Proc. 2002-61
2002	Business 36.5 Charitable 14 Medical and moving 13	Rev. Proc. 2001-54