/PRNewswire/ -- State government tax collections decreased $14.3 billion to $704.6 billion in fiscal year 2010, the U.S. Census Bureau reported today. There was a $65.8 billion decrease in 2009.
These new data come from the 2010 Annual Survey of State Government Tax Collections , which contains annual statistics on the fiscal year tax collections of all 50 state governments, including receipts from licenses and compulsory fees. Tax revenues also include related penalty and interest receipts of the governments.
"The first response of researchers and analysts, when confronted with a new tax policy question, is to see what the Annual Survey of State Government Tax Collections data tell them about the question," said John Mikesell, a Chancellor's Professor at Indiana University's School of Public and Environmental Affairs. "These data make the public finance world easier to understand and to analyze."
According to the survey, corporate net income tax revenue was $38.2 billion, down 6.6 percent, while tax revenue on individual income was $236.4 billion, down 4.4 percent. General sales tax revenue was $224.5 billion, down 1.8 percent. These taxes comprised 70.8 percent of all state government tax collections nationally.
This survey provides an annual summary of taxes collected by state for up to 25 tax categories. For more information about this survey, visit http://www.census.gov/govs/statetax/.
Eleven states saw increases in total tax revenue in fiscal year 2010, led by North Dakota (9.6 percent), North Carolina (4.8 percent), Nevada (4.0 percent), and California (3.8 percent).
The states with the largest total tax revenue decreases were Wyoming (23.4 percent), Louisiana (14.2 percent), Oklahoma (13.5 percent), and Montana (11.0 percent).
States with the largest percent decrease in revenue from individual income taxes were Louisiana (22.2 percent), Tennessee (22.2 percent), North Dakota (18.0 percent) and New Hampshire (16.2 percent).
Severance taxes — collected for removal or harvesting of natural resources (e.g., oil, gas, coal, timber, fish, etc.) — were down $2.3 billion, a 17.4 percent decrease. This followed a 24.8 percent decrease in fiscal year 2009. The largest decreases in severance tax revenue were seen in the West and South. The Midwest saw an increase in severance tax revenue this year.
Revenue on taxes imposed distinctively on insurance companies and measured by gross or adjusted gross premiums (insurance premium sales tax) increased $754.0 million, up 5.0 percent. This followed a 4.6 percent decrease in fiscal year 2009. The largest increases in insurance premium sales tax revenue were seen in the Northeast and South.
These data do not include employer and employee assessments for retirement and social insurance purposes. Also excluded are collections for the unemployment compensation taxes imposed by each of the state governments. In addition, these data include tax collections for state governments only; they do not include tax collections from local governments.
Although the data are not subject to sampling error, the statistics are subject to possible inaccuracies in classification, response and processing. Every effort is made to keep such errors to a minimum through care in examining, editing and tabulating the data.
The tax revenue data pertain to state fiscal years that ended June 30, 2010, in all but four states. Amounts shown for these four states reflect the different timing of their respective fiscal years, which were the 12-month periods ending on March 31, 2010, for New York; Aug. 31, 2010, for Texas; and Sept. 30, 2010, for Alabama and Michigan.
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Wednesday, March 23, 2011
Census Bureau Reports State Government Tax Collections Decrease $14 Billion in 2010
Tuesday, January 11, 2011
Big U.S. Tax on Overseas Earnings Means Fewer Jobs Here, Finance Pros Say
/PRNewswire/ -- U.S. corporations are making fewer domestic hires and investing less in U.S. operations, due to cash trapped overseas, according to a recent survey from the Association for Financial Professionals (AFP). High U.S. corporate tax rates create an incentive for companies to leave cash abroad, often permanently.
In follow-up questions to AFP's recent 2011 Business Outlook Survey, 26% of respondents with operations abroad say that excessive U.S. corporate tax discourages their organization from bringing cash back to the U.S. and using it to invest in corporate growth in the form of new hires, capital investments, or research and development.
Proponents of the current tax rates on repatriated foreign earnings say the tax deters companies from making investments in non-U.S. operations and stems the flow of American-based jobs overseas, but AFP members indicate that this is not the case. Of those with non-U.S. operations responding to the survey, two-thirds indicate that the tax on repatriated foreign earnings at current rates has little to no impact on the decision to begin or continue operations outside of the U.S.
"Capital is mobile. Companies have choices about where to locate and where to invest," said Jim Kaitz, AFP's president and CEO. "For U.S. companies to grow domestic operations and make hires here, AFP believes that the current corporate tax regime must become competitive with that of other nations."
In a January 2011 policy statement, AFP said that U.S. companies should be permitted to repatriate foreign earnings at a tax rate that allows the U.S. to compete for investment of those earnings with other countries that tax those earnings at significantly lower rates. AFP recently delivered the same message to members of the 112th U.S. Congress, the White House and staff of the U.S. Treasury.
Since U.S. companies can choose when and if ever to repatriate earnings that are taxable in the U.S., the lost tax revenue is extremely low. In fact, a more favorable tax treatment might increase tax revenue in both the short- and long-term because companies would no longer have a strong incentive to avoid high U.S. taxes by reinvesting foreign earnings elsewhere. The likely inflow of capital to the U.S. could stimulate capital investment and hiring, contributing to economic recovery and long-term economic growth.
Reported estimates have U.S. corporations holding $1 trillion in cash and cash-like investments abroad.
AFP members, who are responsible for ensuring that their organizations have enough cash on hand to fund operations, are uniquely positioned to observe the cash flows of their organizations, and many of them are directly responsible for tax-related issues. Since they work in a wide range of industries and in both public and private organizations of varying sizes, their opinions reflect a broad corporate perspective that is both operational and strategic.
ABOUT THE SURVEY
From November 29 through December 10, 2010, the AFP surveyed U.S. financial professionals about current and expected business conditions in the U.S., then sent follow-up questions based upon policy issues, which included corporate tax issues for repatriated cash and floating NAV for money market funds. These two issues are the focus of the 2011 AFP Business Outlook Survey Policy Supplement. The original survey generated 808 responses from professionals holding a variety of financial positions within their organizations, including CFO, vice president of finance, treasurer and assistant treasurer. The results produce a margin of error of +/- 3.4 percent.
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Wednesday, January 5, 2011
GBPI Releases New Fact Sheet: Income Tax Evens Out the Burden for Families
The Georgia Budget and Policy Institute (GBPI) released a fact sheet highlighting the attributes of the income tax that make it a good counterweight to sales taxes, especially for families.
The Special Council on Tax Reform and Fairness for Georgians meets today to finalize recommendations before state legislators return on Monday, Jan. 10. Those recommendations will go to a joint House and Senate committee, which will craft legislation for an up or down vote by legislators.
The Council is likely to recommend a shift from the income tax to the sales tax, based on a presentation by Chairman A.D. Frazier in December.
The income tax is an important mechanism for recognizing the different needs of families and vulnerable populations. For example, the income tax excludes a base amount of income per person to ensure we are not taxing the most basic level of income.
Each person in a four person family receives a personal exemption ($5,400 for the parents and $3,000 for each child). A single person receives a $2,700 personal exemption. Thus, a family of four earning $50,000 pays about $1,900 in state income taxes, compared to about $2,500 in income taxes for a single person earning $50,000. In contrast, the sales tax does not recognize that it takes a larger amount of income to provide for more people.
"The state income tax is a tool that allows us to balance some of the negative aspects of the sales tax," said Sarah Beth Gehl, deputy director of the Georgia Budget and Policy Institute. "A dramatic shift from income to sales tax will likely mean middle class families and vulnerable populations will foot more of the bill for state services."
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Monday, December 20, 2010
New Tax Laws Preempt Existing Trusts Tax
/PRNewswire/ -- Late Friday afternoon, Congress enacted the most sweeping change in the estate tax law in 29 years. The new law contains some good news for the very wealthy, but it also makes most estate plans obsolete. Everyone who has a living trust (family trust) should update it promptly.
Tax lawyer and estate planning expert Robert F. Klueger notes that, "At a minimum, the new law requires every married couple who wrote an estate planning trust to have that trust reviewed, and perhaps modified. If not, many people will learn that their trust doesn't reduce their taxes but can indeed increase their tax liability."
Klueger & Stein, LLP has prepared a short video featuring Robert F. Klueger that reviews the changes to the estate tax law and how it impacts existing estate plans, with suggestions as to how these plans can be modified. The video can be viewed free of charge at http://www.maximumassetprotection.com or http://www.lataxlawyers.com.
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Monday, November 1, 2010
Will Small Business Jobs Act Boost Economic Growth?
The recently enacted Small Business Jobs Act of 2010 fulfills a promise U.S. President Barack Obama made to entrepreneurs soon after his election, pledging to create incentives aimed at encouraging small-business creation and growth.
Many experts agree that the package of finance and tax incentives represents some good news for small businesses struggling to cope with weak economic conditions. Although some faculty at Emory University and its Goizueta Business School and other observers praise the new initiative, others wonder if it will have the necessary impact to help jump-start the economy.
"Until now, large companies have been the biggest beneficiaries of stimulus programs and tax incentives," says Thomas Smith, an assistant professor in the practice of finance at Goizueta. "The accelerated tax write-offs featured in the new act are a good idea, since they’re aimed at incentivizing businesses to make capital purchases that can have a ripple effect throughout the economy."
Among other changes under the Small Business Jobs Act, companies can reduce their taxable income by immediately expensing the costs of certain kinds of newly acquired business assets, instead of depreciating them over their "useful life," a period of years determined by the Internal Revenue Service. Generally, companies like to expense their assets quickly as a way to significantly reduce their tax liability.
The asset write-offs, popularly known as Section 179 after the applicable part of the Internal Revenue Code, were previously limited to $250,000 in a given year. The new act raises the threshold to $500,000 of newly purchased assets per year, subject to certain limitations, during 2010 and 2011.
In another bid to get businesses to spend more, the act extends and revises the so-called bonus depreciation rules, which let taxpayers depreciate 50 percent of the cost of certain assets in the first year they are placed in service.
An earlier set of bonus depreciation rules expired at the end of 2009, but the new act extends it to assets placed in service through the end of 2010, and certain assets may qualify even if they are purchased and put into service through 2011.
Some observers have questioned the timing of the legislation, suggesting that few small business owners will risk making significant capital expenditures during the current downturn. They also complain that the bonus depreciation rules, while welcome, have such a limited timeframe that few businesses will not have enough time to plan and get financing for the capital purchases.
Smith, however, isn’t so sure about that.
"The fact is that machinery and equipment is either wearing out—or, in the case of computers and other technology-based assets—is becoming obsolete," he says. "Businesses that want to stay competitive aren’t likely to hold off on necessary purchases just because the economic recovery isn’t moving as quickly as they hoped. Obama’s responses to the recession may not all be perfect, but he’s moving in the right direction."
If Smith was hedging on his view of the tax incentives, another Obama initiative has his full support.
"I think the tax incentives were a good idea, but the $30 billion that’s being released to banks to stimulate small-business lending is even better," he says. "Many small business owners I’ve spoken with have complained that they’ve wanted to take advantage of expansion and other opportunities, but simply couldn’t get loans to finance their plan."
Besides replacing aging assets, some business want to upgrade to more efficient machinery and equipment that can reduce their operating and other costs, adds Smith.
"It’s difficult to say with certainty exactly what the catalyst to spur business activity will be," Smith observes. "But we’ve got to try bold, new initiatives like these, as well as other strategies, to incentivize businesses to start hiring again. To do nothing would be myopic."
Perhaps, but this economy presents some unique challenges, says T. Clifton Green, an associate finance professor at Goizueta.
"Although the recession is officially over, we seem to be having the jobless recovery that people feared, in that unemployment is still very high," notes Green. "The idea behind the $30 billion government bank-loan program and the tax credit initiative is to get small businesses spending to expand their businesses and hire new people."
But large companies can easily borrow at historically low rates, "and they are not using the money to expand," he adds. "Rather than hiring, they're using new debt to buy back stock or replace old technology that they held off replacing during the recession. The recent behavior of large business suggests the small business act may not have the intended new hiring effect."
Indeed, William J. Carney, a chaired professor of corporate law at Emory, stresses that another administration initiative, healthcare reform, may have already undermined any benefit the Small Business Jobs Act may have provided.
"Congress meant well by pushing businesses to provide healthcare insurance," he says. "But it could be counterproductive to hiring, especially among low-wage employers who don't want to take on "Cadillac" insurance programs for minimum-wage workers. We've already seen pushback from McDonald's Corp. and other big employers that complained and are getting limited waivers."
Yet New York City entrepreneur and Goizueta graduate Brett Klasko believes that more credit access could boost businesses.
"Opening up the lending channels is a good idea," says Klasko, chief executive officer of the marketing firm Phinaz whose subsidiaries, Ticket Boosterand Investors Alley, focus on the sports and financial industries, respectively.
"The additional federal funding could give banks an incentive to lend," he adds.
If the effectiveness of this program and others is in debate, then how—or if—such legislation can stimulate a positive response with voters in the midterm elections is even murkier.
"I don’t know if this program and others will really help the Democrats much in the midterm elections," notes Klasko. "For example, the president has been pushing to let some or all of the Bush-era tax cuts expire, and I don’t think that’s a good idea, since it will end up hurting businesses."
Obama may hope that the administration’s most recent stimulus effort will help Democrats in the November elections, but Goizueta finance professor Tarun Chordia does not believe it will help the economy much.
"The act, like the previous "cash for clunkers" and "homebuyers’ incentive," might just move some activity forward," he says. "It might not really create new activity, and we’ll suffer the aftereffects later on."
In contrast to these "small fixes," there’s a real need to upgrade infrastructure, says Chordia. "We currently have spare capacity in the economy, and it is important that the right projects are funded. There is a large debate in economics between those who feel that government spending on infrastructure projects during downturns can help future GDP growth and those who feel that government spending is generally wasteful. It is probably true that projects funded for political reasons, just before the November elections, are likely to be wasteful.
Chordia believes that big issues like the hangover in the housing market will take at least two or three years to resolve, regardless of what the federal government does.
"This recession is different than past slumps," explains Chordia. "In this one, we’ve seen a broad retreat in asset prices, and it will take time to get supply and demand back into balance. At this point the motivation for the stimulus programs seems to be the November election."
From Knowledge@Emory
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Friday, September 17, 2010
Taxpayers Will See Relief By Way of Inflation-Adjusted Indexing, But Total Tax Impact Remains Unclear, CCH Says
/PRNewswire/ -- Taxpayers stuck in the current economic downturn will get at least some relief in 2011 thanks to the mandatory upward inflation-adjustments called for under the tax code, according to CCH, which today released estimated income ranges for each 2011 tax bracket. CCH also projects the growing number of other inflation-sensitive tax figures, such as the personal exemption and the standard deduction.
"Indexing for inflation has become an established part of our tax system, and it's likely to be a part of the tax law for the foreseeable future even as Congress debates changes to the tax rates themselves," according to George Jones, JD, CCH Senior Federal Tax Analyst.
Projections this year, however, are clouded by the uncertainty of expiring provisions in the tax code. If Congress allows the tax cuts within Economic Growth and Tax Relief and Reconciliation Act of 2001 (EGTRRA) to expire as called for at the end of 2010, many taxpayers could lose more ground than they will otherwise gain.
When there is inflation, indexing of brackets lowers tax bills by including more of people's incomes in lower brackets - in the existing 15-percent rather than the existing 25-percent bracket, for example. The formula used in indexing showed a relatively small amount of inflation this year, just under 1.5 percent. However, this is far greater in comparison to the 0.18 percent inflation factor used to set 2010 tax amounts. Therefore, while 2010 inflation-adjusted amounts in many cases stayed flat as a result, most 2011 figures will move higher.
For 2011, however, the big question is not whether the brackets will continue to increase because of inflation - they will. Rather, it is what tax rates will be applied against those brackets. The current 10-, 15-, 25-, 33- and 35-percent rates are now scheduled to sunset to the pre-EGTRRA rate structure of 15, 28, 31, 36 and 39.6 percent. In addition, there are two possible alternative scenarios being debated by lawmakers:
-- Extend the current tax bracket structure in its entirety; or
-- As the proposal from President Obama calls for, keep the current rate
structure except revive the 36- and 39.6-percent rates, starting at a
higher income bracket level; he would also amend the standard
deduction so that it does not revive the marriage penalty that had
been in place prior to EGTRRA.
In other words, Jones noted, it gets complicated quickly without knowing yet which approach Congress will take.
"While we were looking at the very real possibility of deflation in the tax adjustment required under the tax code last year, this year we are 'back to normal' in the sense that the expected upward adjustment in tax benefits from 2010-2011 are taking place," said Jones. "The only wildcard remains how Congress will deal with the sunsetting provisions. We may not know that until a possible lame-duck session of Congress this December."
The examples below show the modest tax savings generated by indexing and how they would be reversed if the EGTRRA tax cuts were to expire wholesale:
-- Because of inflation adjustments, a married couple filing jointly with
a total taxable income of $100,000 should pay $112.50 less in income
taxes in 2011 than they will on the same income for 2010 (compared to
only a $12.50 savings between 2009 and 2010). That savings remains
whether the EGTRRA tax cuts are fully extended or President Obama's
proposal is adopted. However, if the rates and marriage penalty relief
sunset entirely, the couple will end up paying $3,143 more in taxes in
2011.
-- A single filer with taxable income of $50,000 should owe $56 less next
year due to the adjustments (again, compared to only a $6.25 savings
between 2009 and 2010). However, once again, even with savings from
the inflation adjustments, a single filer will owe $834 more in 2011
than in 2010 on the same $50,000 amount if complete sunset of the
rates takes place.
-- For taxpayers with more than $379,150 in taxable income in both 2010
and 2011, the maximum savings from indexing the tax brackets for 2011
will be more dramatic. However, so will the additional tax that would
be owed under either a complete sunset of the EGTRRA tax cuts or
adoption of the Obama proposal, which would continue to give
high-income taxpayers the incremental benefit of the 10-percent rate
bracket as well as allow them an expanded 28-percent bracket.
Inflation-generated savings if all rates were extended would amount to
$330 for a single filer with $400,000 taxable income, for example.
However, that same taxpayer would pay an additional $11,394 under a
full sunset of the rates, and $5,080 more under the Obama proposal
above 2010 amounts.
Inflation Adjustments
Since the late 1980s, the U.S. tax code has required that federal income tax brackets be adjusted for inflation annually, and inflation adjustments have been inserted into the Internal Revenue Code in recent years with increasing frequency.
For example, the Code now requires over 50 other inflation-driven computations to determine deduction, exemption and exclusion amounts in addition to the 40 separate computations needed to inflation-adjust the tax bracket tables each year. In fact, the health care reform legislation passed earlier this year adds an even greater number of inflation-adjustments to the tax code, although health-related indexing won't start until 2013.
Most adjustments are based on Consumer Price Index figures for September through August immediately prior to the adjusted year. However, some inflation-adjusted figures are computed earlier and some later. For example, amounts such as the 2011 vehicle depreciation limits won't be available until 2011 (the $3,060 regular first-year amount for 2010 was not released until February 2010), while the standard business mileage rate (that is currently set at 50 cents for 2010) isn't expected to be computed for 2011 and released until December 2010.
CCH's projections for other indexed amounts are based on the relevant inflation data released September 17, 2010, by the U.S. Department of Labor.
The IRS usually releases official numbers by December each year. CCH tax bracket projections are provided for illustrative purposes only, and should not be used for income tax returns or other federal income tax related purposes until confirmed by the IRS later this year.
Some Items Not Indexed
Jones observed that some items in the Code are not indexed for inflation and stay the same, while others rise by dollar amounts already written into the tax law.
"The exemption amounts for the alternative minimum tax are not indexed, which means that each year Congress must either increase the amounts by statute or expose additional households to the AMT," Jones said.
For 2009, Congress set the AMT exemption amounts at $46,700 for single individuals and $70,950 for married couples filing jointly. Congress has relied on one- or two-year AMT patches to account for inflation from the initially set amounts of $33,750 and $45,000, respectively. However, there is no technical requirement under the tax code to increase those amounts for inflation. No amounts have been set yet for 2010, no less for 2011. While they are scheduled to revert to the default amounts of $33,750/$45,000 without action, the Obama administration tax proposals contemplate further increases.
Standard Deduction, Personal Exemption Rise
The standard deduction and personal exemption amounts are also subject to indexing; however, because of "rounding down," some years show no change at all. After very little movement in the 2010 amounts, 2011 will see a jump in all standard deduction levels. However, a wrinkle occurs if the EGTRRA sunset provisions move forward. In which case, the marriage penalty relief that has been built into the standard deduction for married couples filing jointly will be eliminated. Rather than double the standard deduction for unmarried single filers, the 2011 standard deduction for joint filers would drop by $1,750 to $9,650, even taking the past year's inflation into account.
Assuming that Congress will not let any of the standard deduction amounts sunset, however, the standard deduction for single taxpayers, heads of households and marrieds filing separately will all increase by $100 in 2011. The standard deduction for joint filers would rise by $200, to $11,600. Any increase in the standard deduction, of course, can produce lower taxes by decreasing the taxpayer's taxable income.
The additional standard deduction for those age 65 or older or who are blind will rise by $50 to $1,150 in 2011 for married individuals and surviving spouses, and by $50 to $1,450 for single filers. The personal exemption amount also gets bumped up by inflation by $50, to $3,700 in 2011.
Taxpayers have had to lose a good portion of the value of personal exemptions and itemized deductions when their incomes rise above certain levels, which have also been adjusted for inflation. For 2010, these "phaseouts" disappeared from the tax code, but only temporarily if Congress does not act. As part of the EGTRRA sunset, they are scheduled to return in 2011, with a personal exemption phase-out range starting at $254,350 for joint filers and $169,550 for single filers and a phase-out range for itemized deductions starting at $169,550 for all filers except married couples filing separately whose phase-out range for itemized deductions starts at $84,775.
"The removal of limitations on itemized deductions and personal exemptions, rather than indexing of brackets, will provide major tax savings in 2010 for many well-off taxpayers. The return of these limitations in 2011 would pose an equally important change in the reverse direction," Jones observed.
For a complete look at how income ranges for each tax bracket are projected to shift next, see the CCH chart below.
"Kiddie" Deduction, Gift Tax Exemption
In general, inflation adjustments are rounded to the next-lower multiple of $50, so if the adjustment produces an increase of less than $50, no increase is made. The "kiddie" deduction, used on the returns of children claimed as dependents on their parents' returns, increased only five times in the years 2001 through 2010. It last rose for the 2009 tax year. For 2011 the deduction will remain at that $950 level.
The Code only allows the gift tax exemption to rise when the inflation adjustment would produce an increase of $1,000 or more. The last increase occurred in 2009, when it rose to $13,000. It remains there for 2011.
CCH 2011 TAX PROJECTIONS*
Married Filing Jointly (& Surviving Spouse)
Tax
Rate 2011 Taxable Income
Complete Full
Sunset Extension
10% n/a $0-$17,000
15% $0-$57,650 $17,000-$69,000
25% n/a $69,000-139,350
28% $57,650-$139,350 $139,350-$212,300
31% $139,350-$212,300 n/a
33% n/a $212,300-$379,150
35% n/a $379,150+
36% $212,300-$379,150 n/a
39.6% $379,150+ n/a
Tax 2010 Taxable
Rate 2011 Taxable Income Income
Obama
Proposal
10% $0-$17,000 $0-$16,750
15% $0-$69,000 $16,750-$68,000
25% $69,000-$139,350 $68,000-$137,300
28% $139,350-$237,300 $137,300-$209,250
31% n/a n/a
33% n/a $209,250-$373,650
35% n/a $373,650+
36% $237,300-$379,150 n/a
39.6% $379,150+ n/a
Unmarried Individuals (other than surviving spouses and heads of
households)
Tax Rate 2011 Taxable Income
Complete Sunset Full Extension
10% n/a $0-$8,500
15% $0-$34,500 $8,500-$34,500
25% n/a $34,500-$83,600
28% $34,500-$83,600 $83,600-$174,400
31% $83,600-$174,400 n/a
33% n/a $174,400-$379,150
35% n/a $379,150+
36% $174,400-$379,150 n/a
39.6% $379,150+ n/a
2010 Taxable
Tax Rate 2011 Taxable Income Income
Obama Proposal
10% $0-$8,500 $0-$8,375
15% $8,500-$34,500 $8,375-$34,000
25% $34,500-$83,600 $34,000-$82,400
28% $83,600-$195,550 $82,400-$171,850
31% n/a n/a
33% n/a $171,850-$373,650
35% n/a $373,650+
36% $195,550-$379,150 n/a
39.6% $379,150+ n/a
Head of Household
Tax Rate 2011 Taxable Income
Complete Sunset Full Extension
10% n/a $0-$12,150
15% $0-$46,250 $12,150-$46,250
25% n/a $46,250-$119,400
28% $46,250-$119,400 $119,400-$193,350
31% $119,400-$193,350 n/a
33% n/a $193,350-$379,150
35% n/a $379,150+
36% $193,350-$379,150 n/a
39.6% $379,150+ n/a
2010 Taxable
Tax Rate 2011 Taxable Income Income
Obama Proposal
10% $0-$12,150 $0-$11,950
15% $12,150-$46,250 $11,950-$45,550
25% $46,250-$119,400 $45,550-$117,650
28% $119,400-$216,400 $117,650-$190,550
31% n/a n/a
33% n/a $190,550-$373,650
35% n/a $373,650+
36% $216,400-$379,150 n/a
39.6% $379,150+ n/a
Married Individuals Filing Separate Returns
Tax Rate 2011 Taxable Income
Complete Sunset Full Extension
10% n/a $0-$8,500
15% $0-$28,825 $8,500-$34,500
25% n/a $34,500-$69,675
28% $28,825-$69,675 $69,675-$106,150
31% $69,675-$106,150 n/a
33% n/a $106,150-$189,575
35% n/a $189,575+
36% $106,150-$189,575 n/a
39.6% $189,575+ n/a
2010 Taxable
Tax Rate 2011 Taxable Income Income
Obama Proposal
10% $0-$8,500 $0-$8,375
15% $8,500-$34,500 $8,375-$34,000
25% $34,500-$69,675 $34,000-$68,650
28% $69,675-118,650 $68,650-$104,625
31% n/a n/a
33% n/a $104,625-$186,825
35% n/a $186,825+
36% $118,650-$189,575 n/a
39.6% $189,575+ n/a
Standard Deduction Amounts
Filing Status 2011** 2010 Increase
Married Filing
Jointly (&
Surviving
Spouse) $9,650 (with marriage $11,400 (-$1,750)
penalty relief
sunset);
$11,600 (without marriage
penalty relief
sunset) $11,400 $200
Married Filing
Separately $4,825 (with marriage $5,700 (-$875)
penalty relief
sunset)
$5,800 (without marriage
penalty relief
sunset $5,700 $100
Single $5,800 $5,700 $100
Head of
Household $8,500 $8,400 $100
**A marriage penalty exists when the combined tax liability of a
couple filing a joint return is greater than the sum of the tax
liabilities each would have if they were unmarried. If the EGTRRA
sunset takes effect, it will trigger a marriage penalty with the
basic standard deduction for married individuals filing joint
returns dropping considerably.
Standard Deduction for Dependents ("Kiddie" Standard Deduction)
2011 2010 Increase
$950 $950 $0
Income Level at Which 3-Percent Itemized Deduction Limitation Takes
Effect (Adjusted Gross Income)
2011(with
Filing Status sunset) 2010*** 2009
Married Filing
Jointly $169,550 n/a $166,800
(& Surviving
Spouse)
Married Filing
Separately $84,775 n/a $83,400
Single $169,550 n/a $166,800
Head of Household $169,550 n/a $166,800
*** For 2010, these limitations disappeared from the tax code; if the
limitation rules under EGTRRA are allowed to sunset, the above rates
will apply for 2011.
Personal Exemption Amounts
2011 2010 Increase
$3,700 $3,650 $50
Threshold for Personal Exemption Phaseout
2011(with
Filing Status sunset) 2010**** 2009
Married Filing
Jointly $254,350 n/a $250,200
(& Surviving
Spouse)
Married Filing
Separately $127,175 n/a $125,100
Single $169,550 n/a $166,800
Head of
Household $211,950 n/a $208,500
**** For 2010, these "phaseouts" disappeared from the tax code; if
the phaseout rules under EGTRRA are allowed to sunset, the above
phaseout levels will apply for 2011.
Gift Tax Exemption
2011 2010 Increase
$13,000 $13,000 $0
Income Limit for Full Roth IRA Contribution
Filing Status 2011 2010 Increase
Married
Filing
Jointly $169,000 $167,000 $2,000
Single $107,000 $105,000 $2,000
Income Limit for Full Roth IRA Contribution
Filing Status 2011 2010 Increase
Married Filing Jointly $169,000 $167,000 $2,000
Single $107,000 $105,000 $2,000
* These numbers are projected for the 2011 tax year and have not been confirmed by the Internal Revenue Service. CCH, a Wolters Kluwer business (CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913.
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Friday, September 3, 2010
Majority of Voters Expecting Double-Digit Tax Increases in Next 10 Years
/PRNewswire/ -- PJTV's Tea Party TV today unveiled the results of its weekly Tea Party tracking poll, which revealed that 71 percent of likely voters and 76 percent of Independents believe there will be a tax increase of 10 percent or more if current federal spending habits continue.
"Voters overwhelmingly believe the government's spending habits will force lawmakers to increase taxes by double-digit amounts," said Roger L. Simon, CEO of Pajamas Media. "In the last two years, Washington has lifted the debt ceiling twice, extending the limit by $2.2 trillion. Now, Americans - especially Republicans and Independents - are translating that national public debt into a personal financial burden."
When asked about the potential of a tax hike of 20 percent or more, only Democrats were skeptical. Majorities of Republicans (58 percent) and Independents (50 percent) thought this to be a real concern while only 18 percent of Democrats were anxious of this outcome.
The weekly PJTV/Pulse Opinion Research nationwide survey of 1,000 likely voters tracks Tea Party support as well as provides a snapshot of public opinion regarding the week's top issues. In addition to the weekly Tea Party tracking questions, this week's special question asked voters whether they believed taxes would decrease, stay the same, or increase by 10, 20, or 30 percent.
"The poll revealed that support for the Tea Party movement is holding strong at more than 50 percent," said Vik Rubenfeld, PJTV's Polling Director. "Moreover, we are seeing movement in the portion of likely voters who support the movement in the public arena. Today, 39 percent of likely voters report they publicly support the Tea Party, increasing from 33 percent three weeks ago."
Poll Highlights
-- 71 percent of likely voters and 76 percent of self-identified
Independents believe taxes will increase by 10 percent or more in the
next 10 years. Meanwhile, 42 percent of likely voters and 50 percent
of self-Independents believe they will increase by 20 percent or more.
-- 55 percent of likely voters support the Tea Party movement.
-- 39 percent of likely voters support the Tea Party movement publicly,
compared to 35 percent on August 22 and 33 percent on August 15.
Methodology
The Tea Party Tracking Study is a PJTV survey. The telephone survey of 1,000 Likely Voters was conducted by Pulse Opinion Research on August 29, 2010. Pulse Opinion Research, LLC is an independent public opinion research firm using automated polling methodology and procedures licensed from Rasmussen Reports, LLC. Margin of Sampling Error, +/- 3 percentage points with a 95% level of confidence.
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Wednesday, June 2, 2010
Governor Signs Legislation Creating Tax Reform Council
Governor Sonny Perdue yesterday announced that he has signed House Bill 1405, legislation creating the Special Council on Tax Reform and Fairness for Georgians. The Governor was joined by House Speaker David Ralston and Lt. Governor Casey Cagle.
“Throughout my term and during this challenging economic time, we have transformed state government by implementing efficiencies and cost-savings measures in our agencies,” said Governor Perdue. “This legislation sets up a framework that will allow for a serious examination of our tax code and ensure that it works for Georgians.”
The members of the council, as specified in the legislation, are Governor Perdue, Dr. David Sjoquist of Georgia State University, Dr. Jeffrey Humphreys of the University of Georgia, Dr. Roger Tutterow of Mercer University, Dr. Christine Ries of Georgia Tech, the 2010 chairperson of the Georgia Chamber of Commerce, the 2010 Georgia chairperson of the National Federation of Independent Business and two members each appointed by the Lt. Governor and Speaker of the House.
The Special Council on Tax Reform and Fairness for Georgian will conduct a study of the state’s current revenue structure. Following their study, the Council will make a report of its finding and recommend legislation to the Speaker of the House and the Lieutenant Governor.
Under the legislation, the Council will make a recommendation to the Special Joint Committee on Georgia Revenue Structure. The Special Joint Committee will then write a bill which will be voted on by the General Assembly without amendments.
This process is similar to the federal Defense Base Realignment and Closure (BRAC) Commission from the mid-2000s.
NFIB/Georgia, the state’s leading small business association with 7,900 members statewide, praised the legislation
“This is a big victory for small business,” NFIB Georgia State Director David Raynor said. “Small business is the heart and soul of Georgia’s economy and one of the challenges facing our entrepreneurs and small, family businesses is high taxes. We thank the governor for signing HB 1405 into law, and we thank the House and Senate leadership for making NFIB/Georgia a part of the reform process. The decision to put the chairman of the NFIB/Georgia Leadership Council on this council shows us that our elected officials understand the crucial role small business plays in Georgia’s economy and will play in its recovery.”
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Wednesday, April 14, 2010
Federal Income Taxes On Middle-Income Families at Historically Low Levels
/PRNewswire/ -- The following release by Chuck Marr and Gillian Brunet was released today by the Center on Budget and Policy Priorities:
Middle-income Americans are now paying federal taxes at or near historically low levels, according to the latest available data. That's true whether it comes to their federal income taxes or their total federal taxes.
-- Income taxes: A family of four in the exact middle of the income
spectrum will pay only 4.6 percent of its income in federal income
taxes this year, according to a new analysis by the Urban
Institute-Brookings Institution Tax Policy Center. This is the
second-lowest percentage in the past 50 years.
-- Overall federal taxes: Middle-income households are paying overall
federal taxes -- which include income as well as payroll and excise
taxes -- at or near their lowest levels in decades, according to the
latest data from the Congressional Budget Office (CBO).
Federal Income Taxes Have Declined Significantly in Recent Decades
Federal income taxes on middle-income families have declined significantly in recent decades.
In 2000, the year before the 2001 tax cut that President Bush and Congress enacted, the median-income family of four paid 8.0 percent of its income in individual income taxes, according to Tax Policy Center estimates -- a smaller share than in any year since 1967 (except for 1998 and 1999).(1) The Bush tax cuts further reduced middle-income tax obligations.
This year, the Making Work Pay tax credit, which President Obama and Congress enacted as part of the 2009 American Recovery and Reinvestment Act, is providing a credit of $800 to married joint filers ($400 to single filers). A median-income family with two children thus will receive an $800 tax cut in the return it files this year.
With the new tax cut, the median family's federal income taxes will equal just 4.6 percent of its income in 2009. That is lower than in any year since 1955 (the first year for which these data are available) except for 2008, when another stimulus-related tax cut was in effect.
The 4.6 percent effective tax rate -- the percentage of its income that a family pays in taxes -- is well below the 15 percent marginal tax rate that a family of four in the exact middle of the income spectrum faces. Typically, such a family reduces its effective tax rate by taking the standard deduction (or, in some cases, itemized deductions), personal exemptions, and tax credits such as the child tax credit. The Making Work Pay tax credit further reduces that family's effective tax rate.
Overall Federal Taxes Also at Low Levels
The decline in income taxes on middle-class households in recent years has driven a decline in these households' overall federal taxes.
Households in the middle fifth of the income spectrum paid an average of 14.2 percent of their income in overall federal taxes in 2006, the latest year for which data are available, according to CBO.(2) This is just slightly above this group's effective tax rate of 13.8 percent in 2003, which was the lowest level since at least 1979.
Most Americans pay more in payroll taxes, which support Social Security and Medicare, than they do in income taxes. Thus, the 14.2 percent figure reflects the impact of payroll taxes far more than income taxes.
Due to the impact of the recession and the temporary tax cuts in the Recovery Act, particularly the Making Work Pay tax credit, CBO data for 2009 (when they become available) will likely show that middle-income families faced significantly lower effective overall federal tax rates than in 2006.
This analysis, and other reports that provide a greater understanding of trends in taxation, are posted to: www.cbpp.org.
The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.
NOTES:
(1) Tax Policy Center, "Historical Federal Income Tax Rates for a Family of Four," April 12, 2010. The Tax Policy Center's estimates were derived by updating (using Treasury's methodology) a 1998 Treasury Department analysis that examined changes since 1955 in the percentage of income that the median-income family of four pays in federal income taxes.
(2) The CBO study covers the 1979-2006 period and includes federal income, payroll, and excise taxes. Congressional Budget Office, "Historical Effective Federal Tax Rates, 1979-2006," April 2009.
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Stimulus Programs Remain Untapped by Most Americans: AICPA Survey
/PRNewswire/ -- The overwhelming majority of Americans haven't taken advantage of the U.S. government's programs to stimulate the national economy, according to a survey conducted for the American Institute of Certified Public Accountants by Harris Interactive.
Nine out of 10 Americans (91 percent) said they haven't capitalized on the job stimulus plan covered under the American Recovery and Reinvestment Act, the housing stimulus tax credit of 2009 and Cash for Clunkers.
The AICPA commissioned the survey in recognition of April as Financial Literacy Month. In 2007 the Institute began conducting an annual survey of Americans to determine their attitudes toward their finances.
"The government's stimulus efforts and the hard financial challenges people have faced over the past year emphasize the essential role financial literacy plays in our lives," said Carl George, immediate past chairman of the AICPA's National CPA Financial Literacy Commission, which seeks to help Americans become financially astute and achieve financial well-being. "Individuals can't always control the events that affect their finances, but they can learn to control their finances. We want everyone to understand that financial literacy can and should be a major part of their lifestyle."
Four percent of the survey respondents said they've taken advantage of the housing tax credit to buy their first home. That figure represents 5.1 million Americans(1). The housing stimulus tax credit, which now includes homebuyers who've owned their previous residence for five years and are seeking a new principal home, expires on April 30.
Only 2 percent said they applied for jobs through the stimulus program, and another 2 percent received rebates when purchasing new cars through Cash for Clunkers, the 2009 legislation that encouraged citizens to replace their gas-guzzling cars with more fuel-efficient vehicles. The U.S. government reported creating 608,000 jobs in the fourth quarter of 2009. The government also reported that Cash for Clunkers resulted in the sales of 680,000 vehicles.
The CPA profession's financial literacy efforts encourage Americans to educate themselves and consider all financial decisions in the context of their individual circumstances, George said. "Americans potentially interested in a housing stimulus credit must consider basic questions: What does the program offer? How do the provisions relate to their own personal situations? Can they afford the mortgage payments even after the stimulus credit? What is the overall financial commitment? Does it make sense for them to apply?"
Sixty percent of Americans said they were delaying major decisions because of financial concerns. Interestingly, out of a list of nine, buying an automobile is the most common financial decision Americans are putting on hold (27 percent). Buying a home ranked fourth, behind "some other major purchase or decision" and medical procedures.
The National CPA Financial Literacy Commission oversees two programs to help Americans achieve financial well-being. The first, 360 Degrees of Financial Literacy (www.360financialliteracy.org), educates Americans on how financial issues affect them at 10 life stages, from childhood to retirement. The free Web site, devoid of all marketing and advertising, includes tools and articles on homeownership and financial considerations of a job search.
A second campaign, Feed the Pig (www.feedthepig.org), created with the Advertising Council, encourages Americans aged 25 to 34 to begin preparing for long-term financial security. Ad Council research has shown that individuals who have seen or heard a Feed the Pig public service announcement are more likely to change their financial behavior for the better.
Methodology
In an effort to understand how the economic crisis has affected behaviors and attitudes among the general public, the AICPA participated in the Harris Interactive March 2010 Harris Poll Quorum telephone omnibus study. The interviewing took place from March 17 to 21, 2010. The Harris Poll Quorum is a bi-monthly survey among 1,009 U.S. adults ages 18 and older.
(1) Based on a total of 129,065,264 housing units as reported by the U.S. Census Annual Estimates of Housing Units as of J uly1, 2008.
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Thursday, March 18, 2010
Dept of Audits Says State Will Gain at Least $355 Million Beginning July 1 if Law Passes
Lawmakers can balance deep cuts to the state by passing House Bill 39, which picks Georgia's cigarette tax up off the bottom of the national ranking and brings the state squarely to the middle.
Raising the tax $1 a pack from 37 cents, even accounting for declining sales, doubles Georgia's tobacco revenue, according to the state's official fiscal note.
"Given Georgia's multi-billion deficit and slashes to vital services such as child protection, public safety, hospitals, and elder servies, this additional revenue is very important," said Sarah Beth Gehl, the Georgia Budget & Policy's tax expert and deputy director.
Bottom line: New revenues should be part of a balanced approach to resolving Georgia's revenue problem.
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Thursday, March 11, 2010
Sensible Tax Change Would Bring in $450 Million, Avoid Additional Service Cuts
The General Assembly is poised to slash the budget more in light of another month of declining revenues caused by the Great Recession and Georgia's structural deficit.
"This problem is too large to solve with budget cuts alone," said Sarah Beth Gehl, deputy director of the Georgia Budget & Policy Institute. "We should seek a balance of cuts and new revenues through sensible tax changes such as repealing the deduction of state income tax."
One concrete way to bring in $450 million* is to repeal the bizarre state tax deduction, which almost all states do not allow. The deduction not only costs nearly a half-billion dollars, but it unfairly lowers the effective tax rate for taxpayers who itemize.
"This tax change would not affect the vast majority of taxpayers with incomes less than about $50,000, since they do not itemize," said Gehl, "but for those who do, about 15 percent of filers, the average tax increase would be $85. (The total amount will still be deductible on the federal income tax.)
"Another $1 billion cut to state services will have an immediate negative impact on Georgia's economy, as
well as devastating effects on the education and healthcare infrastructure," said Executive Director, Alan Essig. "This sensible tax change should be part of a balanced solution going forward, along with the proposed increase in the cigarette tax."
* $450 million is an estimate calculated by the Institute on Taxation and Economic Policy, March 2010.
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Monday, February 8, 2010
Tax Reminder: A Big Portion of Your Long Term Care Insurance Premiums May Be Deductible
/PRNewswire/ -- Want to keep more of your money in these challenging times? Then check with your tax advisor if you have long term care insurance. You may be able to deduct a big chunk of your 2009 premiums. What if you don't have long term care insurance? Then consider getting it NOW to lock in tax benefits next year. Uncle Sam may in effect pick up the tab for much of your premiums for 2010. This reminder comes from LTC Financial Partners LLC (LTCFP), one of the nation's most experienced long term care insurance agencies.
"For the 2009 tax year, an individual with a qualified policy may be able to deduct up to $3,980, depending on age," says Cameron Truesdell, CEO of LTCFP. "For a couple, the maximum amount doubles, to nearly $8,000." According to the Internal Revenue Service, for individuals the amounts of long term care insurance premiums that are deductible as medical expenses in 2009 can be as high as --
-- $3,980 if you're 70 or over
-- $3,180 if you're over 60 but not over 70
-- $1,190 if you're over 50 but not over 60
-- $600 if you're over 40 but not over 50
-- $320 if you're 40 or under
"Those who don't have policies, but want them, can set themselves up for substantial deductions next year," Truesdell says. For individuals, the amounts deductible as medical expenses in 2010 can be as high as --
-- $4,110 if you're 70 or over
-- $3,290 if you're over 60 but not over 70
-- $1,230 if you're over 50 but not over 60
-- $620 if you're over 40 but not over 50
-- $330 if you're 40 or under
"These deductions are not a one-time thing," Truesdell says. "They recur. You can take them each and every year that you pay premiums; and the deductible limits have been increasing annually."
Truesdell strongly urges individuals and companies to investigate ALL the tax advantages that may be available to them. Additional potential benefits, beyond the above federal deductions, include --
-- If your state offers tax deductions or rebates, and you qualify, these
are additive to your federal deduction, if you qualify.
-- When a policy is designed to pay on a per-diem basis, a limited
portion of the benefits may be excluded from taxable income.
-- When a policy is paid for out of a Health Savings Account (HSA), there
can be tax advantages.
-- For businesses, there are tax breaks that can be especially
attractive. For example, opportunities exist for some business owners
to deduct premiums without having to satisfy the 7.5% medical expense
threshold amount.
"With so much government support, we often wonder why more people don't get LTC policies," says Truesdell.
LTCFP does not offer tax advice but teams up with accountants and other tax experts to help their clients get all the deductions or other benefits available to them. "We've formed strategic alliances with banks, accountants, other financial advisors and tax preparers, and organizations such as the National Association of Estate Planning Attorneys," says Truesdell.
How can you make sure you don't miss out? "Ask your tax expert to check into every deduction that may apply in your case," Truesdell advises. "We're glad to help. We'll consult with anyone's accountant, tax attorney, or other advisor -- now or closer to the tax deadline." In Truesdell's national organization, hundreds of experts are available by phone or Internet. Requests for help, at no charge, may be made at http://www.ltcfp.us/ltcfp/taxbreaks.htm.
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Sunday, January 24, 2010
New Bill Signed by President Obama Allows Taxpayers to Claim Haiti-Related Contributions on 2009 Tax Return
/PRNewswire/ -- Taxpayers wishing to lend their support to relief efforts in Haiti now have an additional incentive to do so, thanks to new legislation signed into law by President Obama.
Through the new bill, H.R. 4462, taxpayers have two options regarding monetary contributions for Haitian Earthquake Relief. They can either deduct contributions made after January 11, 2010 and before March 1, 2010 on their 2009 return or can wait and claim the deduction on their 2010 return. In addition to allowing the contributions to be deducted on a 2009 tax return, the bill also includes a provision that recognizes donations made to a charitable organization via text message, provided that a copy of the phone bill showing the date, time, organization name, and donation amount is available.
"The nation of Haiti is suffering a devastating humanitarian crisis, and millions of Americans have already been moved to donate money to charities that are taking part in relief efforts," said Mark Steber, Chief Tax Officer, Jackson Hewitt Tax Service Inc. "Having the President specifically designate that Haiti-related monetary contributions may be acknowledged on a 2009 tax return, even though the calendar year has passed, is a powerful way to encourage this kind of giving - while also reminding taxpayers of the financial benefits of charitable contributions."
Here are some tips from Jackson Hewitt on how to make and record charitable donations and claim them on a 2009 tax return:
-- There are several ways to make a tax-deductible contribution to a
qualified charitable organization: through a cash payment, a check, a
credit card charge or by making a payroll deduction to a charity. The
Internal Revenue Service allows taxpayers to search for a qualified
organization on its Web site at http://www.irs.gov/app/pub-78/
-- Keep records of your donations. Acceptable records include a receipt
from the organization that states the date, name, address, location,
and amount of the donation; a cancelled check; or other bank documents
that provide the same information.
-- Don't forget to claim all the household items and clothing you donated
to your church, school, or other local charity during the year. The
fair-market value of all items in good or better condition that are
donated to a qualified organization are deductible. Make sure you
keep a list of all items donated and their value when you contributed
them.
-- If you volunteer, you can also deduct out-of-pocket expenses you have
that are directly related to your volunteer work.
-- Out-of-pocket expenses include mileage related to charitable work
(at present, 14 cents per mile), the cost of uniforms required
while doing the volunteer work (such as for scout leaders, EMTs,
firefighters, etc), and any supplies needed to do this work.
Remember to keep your receipts with the date and the
organization's name for your records.
-- If you are claiming mileage, make sure you have a record of the
miles driven, the date, and the organization's name. You should
also indicate starting point and destination.
"Charitable contributions claimed on a 2009 tax return must have been contributed in the 2009 tax year," notes Steber. "The new Haiti legislation is an exception."
More information about charitable contributions can be found on the Jackson Hewitt web site at www.jacksonhewitt.com. To find a nearby office or speak with a local tax preparer, call 1-800-234-1040.
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Tuesday, January 5, 2010
AICPA Supports IRS Plan to Register All Tax Preparers, Expresses Concern Over Wider Plan to Certify Non-CPAs
/PRNewswire/ -- The American Institute of Certified Public Accountants supports a proposal announced today by the IRS to regulate U.S. tax preparers by requiring nationwide registration of paid tax return preparers in 2011. The IRS's goals are to enhance compliance and elevate ethical conduct of tax preparers which are consistent with the AICPA's code of conduct and tax standards.
"The AICPA worked closely with the IRS during the public comment period leading up to this proposal and we believe this change will foster greater compliance with the tax code and better, more reliable service for U.S. taxpayers across the board," said AICPA President and CEO Barry Melancon.
"However, we have concerns about the IRS plan to provide tax preparers who are not already CPAs, enrolled agents or attorneys with a certification based on limited qualifications," Melancon said. "A new IRS examination process may cause confusion among taxpayers about the relative qualifications of tax return preparers."
The IRS plans to conduct a campaign to educate the public about the need to regulate tax preparers and the AICPA will work with the IRS to help it implement the recommendations to meet both the public interest and CPA practice requirements.
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Tuesday, November 3, 2009
Small Businesses Get Whacked With Tax Increases in Pelosi Health Bill
/PRNewswire/ -- The Joint Committee on Taxation (JCT) is reporting what the small business community has been saying all along -- proposed tax increases on the "wealthy" amount to big tax increases on small business owners. In a November 3, 2009 memo, the JCT estimates that one-third of the $460.5 billion estimated to be raised from H.R. 3962, the "Affordable Health Care for America Act," through a proposed 5.4 percent surtax is business income. According to the Small Business & Entrepreneurship Council (SBE Council), America's economic recovery is highly dependent on small-business job creation and investment. Seizing more of their hard-earned capital flies in the face of White House efforts, for example, to provide small businesses with access to credit and capital, according to the advocacy group.
"No wonder small business owners are gripped by uncertainty. With mixed messages coming from Washington, they don't know whether to add to their payrolls, hoard cash, cut jobs or stay-the-course," said SBE Council President & CEO Karen Kerrigan.
Kerrigan added: "More than $150 billion of the proposed surtax alone falls on the backs of small business owners, according to the JCT. When will those who support these tax hikes wake up to the fact that they are sucking oxygen out of the very businesses that need this capital for survival and growth. Businesses can't save or create jobs without money. All of the tax increases proposed in the House health bill will deprive the private sector of the capital it needs to hold onto their workers, create more job opportunities, invest, innovate and grow."
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Wednesday, October 28, 2009
US Lawmakers Now Agree with Cayman Approach to Tax Transparency
/PRNewswire/ -- Cayman Finance, representing the financial industry based in the Cayman Islands, today congratulated Chairman Max Baucus of the Senate Finance Committee and Chairman Rangel of the House Ways and Means Committee on their plan to tackle offshore tax abuse through increased transparency and enhanced reporting requirements. The new comprehensive proposal does away with the damaging features of Senator Levin's Stop Tax Haven Abuse Act, which would rely on "lists" and other provisions that would discourage corporations and other financial entities from conducting lawful business in Cayman and providing funding into the United States. "Cayman Finance commends Chairman Baucus, Chairman Rangel and their colleagues for their leadership on this important issue," said Cayman Finance Chairman Anthony Travers. "This proposal is entirely consistent with the approach suggested by Cayman Finance in our many meetings with these and other U.S. policymakers."
The new Senate-House proposal sets in place practices that will clamp down on jurisdictions which still practice tax evasion and improve taxpayer compliance by giving the IRS new administrative tools. The "Foreign Account Tax Compliance Act" aims to force foreign financial institutions, foreign trusts and foreign corporations to provide information about their U.S. accountholders, grantors and owners. The government and financial firms in the Cayman Islands have supplied full financial information and tax information for many years under the 1990 and 2001 treaties with the United States, and take pride in the regulatory and fiscal transparency that is a requirement for IOSCO (International Organization of Securities Commissions) membership. Cayman has also signed tax transparency treaties with the European Union and more than 12 other jurisdictions.
"Cayman Finance is confident that enactment of the U.S. legislation proposed by the two Chairmen will contribute significantly to the certainty and stability that the capital markets require, as well as the ability of the Cayman Islands to continue to successfully fund United States institutions from those markets," Travers said.
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Monday, February 23, 2009
Tax Provisions Hopeful Sign in New Stimulus, Says Tax Expert
The big question on the economic stimulus bill passed by Congress is: Will it work? Federal tax expert Dorothy Brown of Emory Law says one factor in favor of the new plan is that the tax provisions are incremental, rather than one-time payments.
"Studies have shown that one-time payments are likely to be saved," says Brown, "whereas with this bill, one of the tax provisions will adjust payroll withholdings for workers at the lower income level, which studies have shown are more likely to be spent."
"It will be an increase in the check every week, and workers are more likely to think 'this is more permanent, so I can go ahead and spend it' as opposed to a lump sum of $600 that they want to save," says Brown.
And because the tax breaks are hitting payroll withholding, "it's going to kick in sooner," also a positive sign, she says.
"When I look at the tax provisions, most of them go for low- and middle-income workers, which is exactly what President Obama said he was going to do—tax cuts for 95 percent of American families," Brown observes. "This may be one of the rare instances where a candidate said it and then when elected, did it."
On the president's housing policy, Brown says the provision giving bankruptcy judges the ability to renegotiate mortgages or write them down to the fair market value of the house "is a huge deal."
"I imagine they'll be some pushback," she says. "The argument is when you [renegotiate mortgages] then cost of credit for everybody goes up, because banks can no longer be comfortable with the documents they sign; they're going to be affected. But I think people will get over that. This is a crisis the likes of which we haven't seen."
Brown, professor of law, specializes in federal tax law and critical race theory and is known for her work examining the racial implications of federal tax policy. She has been an adviser to J. Stephen Swift of the U.S. Tax Court, an associate with Haynes & Miller in Washington, D.C., and an investment banker at New York’s Drexel, Burnham & Lambert. She also was a special assistant to the Federal Housing Commissioner at the U.S. Department of Housing and Urban Development in the late 1980s under President George H.W. Bush.
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Thursday, January 29, 2009
A Dozen New Items to Consider When Filing Your 2008 Return
/PRNewswire/ -- First Quarter, 2009 - While the process of filing your return each year is pretty much the same, it will be important to watch the details and consider new options when rounding up your statements of income, figuring out your standard or itemized deductions, subtracting your credits, and making your choices on payment. According to William E. Massey, Senior Tax Analyst for the Tax & Accounting business of Thomson Reuters, "If you just ease into the same routine when doing your 2008 taxes, you may miss out on big tax savings that could result from a number of key changes that first apply for the 2008 tax year."
To help you take advantage of the new tax saving opportunities, he has put together this list of a dozen key items to consider when filing the form 1040 for 2008:
1. Economic stimulus payment. You may have received an economic stimulus payment in 2008, based on your 2007 taxes. If so, don't include it as income on your return. It's not taxable. If you didn't receive a payment, you may be eligible for the recovery rebate credit, as explained below. You may even qualify for that credit if you did receive an economic stimulus payment.
2. Recovery rebate credit. This credit is figured like last year's economic stimulus payment, except that the amounts are based on tax year 2008 instead of tax year 2007. The maximum credit is $600 ($1,200 if married filing jointly) plus $300 for each qualifying child. You may be able to take this credit only if you did not get an economic stimulus payment, or your economic stimulus payment was less than $600 ($1,200 if married filing jointly for 2007) plus $300 for each qualifying child you had for 2008.
Massey notes, "Many individuals may have received a zero or reduced economic stimulus payment because of the phase out rules. Under those rules, the amount of an economic stimulus payment (both the basic and the child's amount) was reduced by 5% of a taxpayer's adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). Since the time when IRS first started sending out economic stimulus payments, economic conditions have drastically worsened. As a result, many individuals who lost all or a portion of their economic stimulus payment because of the phase out rules may now be in a position to claim a recovery rebate credit on the 2008 return they file in 2009. This would be relevant to a taxpayer who, for example, experienced a job layoff, cutback in hours or reduction of salary. A recovery rebate credit may also be allowed on account of a child being born in 2008 or to someone first entering the workforce in 2008."
3. Withdrawal of economic stimulus payment from certain accounts. You may have opted to have your economic stimulus payment directly deposited to a tax-favored account, such as an IRA, and you now realize you need the money. Don't worry about being penalized for taking the payment back. If you withdraw it by the due date of your return (including extensions), the amount withdrawn will not be taxed and no additional tax or penalty will apply. For stimulus payments deposited into a Coverdell education savings account (CESA), the withdrawal can be made by the later of the above date or May 31, 2009.
4. Alternative minimum tax (AMT) exemption amount increased. For 2007, you may have owed AMT or come close to owing it. That's the added tax that arises when your income is refigured in a special way to tax you on certain items that aren't taxed under the regular rules and to deny certain deductions that are allowed under the regular rules. Some individuals may not be hit with the tax for 2008 because the AMT exemption has increased to $46,200 ($69,950 if married filing jointly or a surviving spouse; $34,975 if married filing separately).
5. Standard deduction increased by real estate taxes. Suppose you own a home and pay real estate taxes but don't have enough total deductions to be able to itemize. There is good news for you. You can increase your standard deduction by the state and local real estates taxes you paid, up to $500 ($1,000 if married filing jointly).
6. Standard deduction increased by net disaster loss. There have been many natural disasters in 2008. If you were one of the unfortunate individuals who was victimized by a hurricane, flood, fire or other natural disaster last year, there is some new tax help for you. You can increase your standard deduction by your net disaster loss. This amount is your personal casualty losses from a federally declared disaster in a disaster area less any personal casualty gains from it.
7. First-time homebuyer credit. There's a new credit for "first-time" homebuyers. Actually, that term is misleading because, as we demonstrate below, you may qualify even if you previously owned a home. Qualified homebuyers can subtract the credit amount from their federal income tax when they buy the home and even get a refund if the credit exceeds the tax. However, they are then required to pay the credit back over 15 years. The result is that the credit resembles an interest-free loan that must be repaid to the government. Here are the details:
-- The home must be located in the U.S. and must be your principal
residence (main home). You (and if married, your spouse) must not have
owned another principal residence in the U.S. in the three-year period
before purchasing the new home. Thus, the home doesn't literally have
to be your first home.
-- The home must have been purchased from April 9, 2008 through June 30,
2009, inclusive.
-- A special rule allows taxpayers who purchase a principal residence in
the first six months of 2009 to treat the purchase as if made on
December 31, 2008. This allows the taxpayer to claim the credit for
2008 rather than 2009.
-- The credit is equal to 10% of the price paid for the home, up to a
maximum of $7,500. The $7,500 maximum credit applies both to
individuals and married couples filing a joint return. A married
individual filing separately can claim a maximum credit of $3,750.
-- The credit is phased out for individual taxpayers with modified
adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and
$170,000 for joint filers) for the year of purchase. Taxpayers with
modified AGI over $95,000 ($170,000 for joint filers) can't claim the
credit.
-- In the second year after purchase, taxpayers who took the credit must
start paying back the credit in equal installments over 15 years, with
no interest charge.
-- No credit is allowed if: the taxpayer or the taxpayer's spouse was
ever entitled to a D.C. homebuyer credit; the home purchase was
financed through tax-exempt mortgage revenue bonds; the taxpayer is a
nonresident alien; or the taxpayer disposes of the residence (or it
ceases to be a principal residence) in the year of purchase.
8. Rollovers to Roth IRAs. Subject to conditions, you can roll over distributions from an eligible retirement plan to a Roth IRA. The rollover is not tax-free. But with lowered account values, the tax may not be onerous. Also, you may be able to use other available tax breaks to eliminate or reduce the tax arising from the rollover. "You may be thinking, why would I want to do something that causes me to pay tax? You would do this to gain the advantages of a Roth IRA," says Massey.
9. Standard mileage rates. The 2008 rate for business use of one's vehicle is 50 1/2 cents a mile (58 1/2 cents a mile after June 30, 2008). The 2008 rate for use of one's vehicle to get medical care or to move is 19 cents a mile (27 cents a mile after June 30, 2008).
10. Personal exemption and itemized deduction phaseouts reduced. Taxpayers with adjusted gross income above a certain amount may lose part of their deduction for personal exemptions and certain itemized deductions. The amount by which these deductions are reduced in 2008 is only 1/2 of the amount of the reduction that otherwise would have applied in 2007.
11. Tax rate on qualified dividends and net capital gain reduced. The 5% tax rate on qualified dividends and net capital gain that applied for 2007 is reduced to zero for 2008.
12. Tax on child's investment income. Form 8615 is required to figure the tax for a child with investment income of more than $1,800 if the child: (1) was under age 18 at the end of 2008; (2) was age 18 at the end of 2008 and did not have earned income that was more than half of the child's support; or (3) was a full-time student over age 18 and under age 24 at the end of 2008 and did not have earned income that was more than half of the child's support.
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Monday, December 29, 2008
Understanding The Changing Tax Picture
(NAPSI)-As more baby boomers reach retirement age, analysts say it could pay to give some extra thought to taxes.
Indeed, tax efficiency and dividends will become important income streams for a growing number of retirees. And, according to a recent survey, investor interest in tax management strategies-which can help avoid the loss of returns to taxes-is on the rise.
One key to protecting your assets could be to work with a financial advisor, since investors who do so are twice as likely to invest in mutual funds that are specifically designed to minimize the effects of taxes. But it's also important to understand the tax picture. This quick quiz from Eaton Vance could help:
Questions
1. T or F? For the average taxable mutual fund investor, about 2 percentage points of return were surrendered to taxes each year over the past decade.
2. T or F? The highest tax rate on both qualified dividends and long-term capital gains today is 15 percent.
3. T or F? Tax-managed stock funds, municipal bond funds and variable annuities are examples of investments best suited to be held outside of a qualified retirement plan such as an IRA or 401(k).
4. T or F? AMT stands for "Alternative Minimum Tax."
5. T or F? All municipal bonds are "tax-free" and therefore are not subject to the Alternative Minimum Tax.
Answers
1. True. Over the past 10 years, taxable mutual fund investors gave up between 1.3 and 2.2 percentage points of return because of taxes.
2. True. The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the tax rate on qualified dividends and long-term capital gains from almost 39 percent to 15 percent. This now gives investors two incentives to better manage the tax consequences of their investments.
3. True. The optimal use for each of these tax-advantaged investments is outside of a qualified retirement plan. Investors should generally use their qualified retirement plans to shield investments that would otherwise be fully taxable. Investors who are unsure of how best to use qualified plans should consult a financial advisor to help them make the correct investment decisions.
4. True. The Alternative Minimum Tax, or AMT, is calculated alongside ordinary income tax for all households. Under the AMT, taxpayers must pay whichever is higher, the AMT-usually 26 percent to 28 percent of income-or their typical blended tax rate. The AMT was originally adopted in 1969 to ensure that the wealthy would pay taxes. But, because the AMT's exclusion level is not inflation-indexed and incomes have risen, many middle-class American families are now subject to this tax. Without additional legislation, the AMT could affect nearly half of households earning between $75,000 and $100,000 by 2010.
5. False. Municipal bonds issued by entities-such as housing agencies, airports and industrial developers-are subject to the AMT because their use is considered outside of government purposes. These bonds, which comprise about 10 to 12 percent of the overall municipal bond market, are popular with municipal bond investors (including some mutual funds) because they tend to provide income (yield) that is about 0.25 percent higher than similar AMT-free bonds. While this can provide a good source of income for investors who are not subject to the AMT, after-tax yield comparisons between these bonds are not favorable for AMT-paying investors. Because AMT status may not be clear until the end of a tax year, municipal bond investors should ensure that holdings are AMT-free.
For more information or to begin learning how changing government regulations might affect your tax returns in the coming years, visit www.eatonvance.com/mediacenter or call 800-225-6265.
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