Rangel Rule

Wouldn't it be nice if you were able to eliminate interest and penalties on your back taxes. Well Congressman John Carter (R-TX) has proposed this legislation. He has introduced H.R. 735, The Rangel Rule Act of 2009, which would add new Code § 7529 to prohibit the IRS from charging penalties and interest on back taxes. From Congressman Carter.

Under the proposed law, any taxpayer who wrote “Rangel Rule” on their return when paying back taxes would be immune from penalties and interest.

“We must show the American people that Congress is following the same law, and the same legal process as we expect them to follow,” says Carter. “That has not been done in the ongoing case against Chairman Rangel, nor in the instance of our new Treasury Secretary Timothy Geithner. If we don’t hold our highest elected officials to the same standards as regular working folks, we owe it to our constituents to change those standards so everyone is abiding by the same law. Americans believe in blind justice, which shows no favoritism to the wealthy or powerful.”

Now wouldn't that be nice.

First Time Home Buyer Credit

One of the new tax provisions that are available to new homeowners in 2008 is the First Time Home Buyer Credit. The First Time Home Buyer Credit would provide a refundable tax credit that is equivalent to an interest-free loan equal to 10 percent of the purchase price of a home (up to $7,500)by first-time home buyers. Unlike other tax credits, the first-time home buyer credit must be repaid in equal installments over 15 years. Repayments start two years after the year in which the residence is purchased.

The credit can be applied to homes purchased on or after April 9, 2008, and before July 1, 2009.
The new credit phases out for married couples filing jointly with modified AGI between $150,000 and $170,000 and for single taxpayers with modified AGI between $75,000 and $95,000.

A person is considered a "first-time home buyer" if he or she (or spouse) had no ownership interest in a principal residence during the three-year period before the new home is purchased. Renters who own a vacation home may qualify for the credit since the three-year look back period for owning a home applies only to a principal residence.

Housing Assistance Tax Act: of 2008

The Housing Assistance Act of 2008 is a tax law change that applies only for 2008. Under this act, taxpayers who pay real estate taxes but are unable to itemize this expense on their tax returns may now increase their standard deduction amount for 2008. The maximum amount that may be claimed is $500 single filers and $1,000 for joint filers.

For example, a married couple filing jointly with an income of $28,000 that did not itemize their tax return but paid $1,200 in real estate taxes in 2008 could increase their standard deduction amount by $1,000. This additional standard deduction would decrease their tax liability by $100.

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Connecticut could get 1.8 billion from stimulus package

The Connecticut economy would likely receive a $1.8 billion boost in federal funding over the next two years under a proposed $825 billion economic stimulus package. The House began floor debate Tuesday on the package, which Democratic leaders hope to send to President Barack Obama within three weeks. The federal funding would go for a wide variety of established spending programs from highway construction to helping the poor pay heating bills.
House Speaker Nancy Pelosi said Tuesday that the bill would create as many as 4 million jobs by giving 95 percent of American workers an immediate tax cut and providing hundreds of millions of dollars in new spending.
"According to experts, every dollar in state aid creates $1.38 in economic activity," she said during a telephone press conference with the leaders of the National Governors Association.
Pennsylvania Gov. Ed Rendell, who is president of the NGA, said that the federal funds will help states, which are facing more than $200 billion in deficits, balance their budgets over the next two years without necessarily having to raise taxes.
"Working families will get a $1,000 tax cut from the federal government. But if ... no aid came to the states, and we have to raise taxes, and the school districts had to raise taxes, that $1,000 tax cut from the federal government would be virtually wiped away by the tax increases that the states, local governments and school districts would have to make," Rendell said.

The state's take would include $1.16 billion for infrastructure improvements including highway, bridge, transit and sewer construction; $403 million for education including school renovations, Pell grants, Head Start and employment training; $243 million for Medicaid programs; and $39 million for other programs including the Low Income Home Energy Assistance Program, elderly nutrition and community block grants.

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State Budget Troubles

Everyday when I turn on the news and there is another story about some company who has to lay off workers as a result of the worsening economy. On Black Monday, Home Depot, Caterpillar, Sprint Nextel, Microsoft and seven other companies announced that they would be cutting over 75,000. This is going to have an enormous effect on state budgets because the state has now lost personal income tax revenue because people aren't working, sales tax revenue is going to decline because people aren't going to be spending money. Conversely, the state must now add the expense of paying unemployment insurance. The end result is that the state's budget deficit is growing which will eventually lead to increased taxes and programs being cut. Last I heard was that my home state of Connecticut is forecasting a 900 million dollar deficit.

States are facing a great fiscal crisis. At least 45 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well. Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion. That is half of the bank bailout, and 43% of the economic stimulus package. No wonder President Obama and other economist say that it will get worse before it gets better.

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Senate Confirms Geithner for Treasury Position

Amid all the controversy regarding Timothy Geithner's tax disclosures, he was confirmed Monday by a vote of 60 to 34. The bipartisan majority agreed that Geithner's experience in government and finance outweighed concerns they may have had about the delinquent tax payment of $34,000. Geithner was sworn in Monday night and oversee President Obama's economic recovery plan. Hopefully he will see that some transparency is made an integral part of an taxpayer funds that are used in the bailout of the banks. For more reading on Timothy Geithner

New York Times

New York Daily News

Senate Finance Bill

The Senate Finance Committee proposed 275 billion in tax cuts as part of an economic stimulus package to help jump start the sagging US economy. The Senate Finance legislation, which will be debated and amended by the committee on Jan. 27, will be part of the Senate Democrats' overall economic recovery package. The Senate package is similar to the one the House Ways and Means passed last week in that it contains:

• Make Work Pay credit.



• Child tax credit.



• Help for the unemployed.



• Business loss tax breaks.

More info check out

• CNN Money
• US World News
  

Free E-File Options

Have you started preparing your taxes? Here are some of the free e-filing options that are available to you so that you can get your taxes off to the IRS asap.

1. TaxCut. TaxCut is offering a free edition if you want to prepare your return online. It also includes free e-filing. I’m a big fan of TaxCut, and I have used their products for many years. It’s available at TaxCut Online.
   
   
2. TurboTax. TurboTax offers a free online edition available at TurboTax Online. It includes free e-filing. TurboTax is one of the most popular tax software packages around. I have used TurboTax and was quite satisfied.
   
   
3. TaxAct. You can prepare, print, and e-file your return for free. TaxAct offers an online version or a download version of their software at TaxAct. I have never used this product but I understand it is pretty good.
   
   
4. IRS Free File. The IRS Free File program is an IRS partnership with 20 tax software companies offering free filing. There is an income limit of $56,000 or less in 2008.
   
   
5. IRS Free File Fillable Forms. The IRS Free File Fillable Forms is not a tax software, but blank forms. There are no income limitations. You pick the forms you need, fill in the numbers, and e-file for free. If you know what you are doing, this is a great option!
   
   
6. VITA. The Volunteer Income Tax Assistance program offers free e-filing. You can go to your nearest VITA location in person and have a volunteer complete your return. To locate the nearest VITA site, call 1-800-829-1040.

Senate Finance Committee approves Timothy Geithner

After Treasury Secretary nominee Timothy Geithner submitted over 100 pages of answers to follow up questions from senators, the Senate Finance Committee today approved his nomination by an 18-5 vote. Geithner, whose nomination goes before the full Senate at a later date, received the nod despite questions about more than $40,000 in Social Security and Medicare taxes he failed to pay between 2001 and 2004. Geithner paid the taxes and apologized, but several Republicans questioned his honesty.

• ABC News
• Associated Press
• Bloomberg
• New York Times
• Politico
• Wall Street Journal
• Washington Post

Mortgage Forgiveness Debt Relief Act Part 2

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Example. Assume that a residential home was purchased in 2005 for $200,000. The value of the home has declined to $180,000 and payments are in arrears. The delinquency has added interest and late fees to the mortgage balance, which is now $198,000. The mortgagee (bank) forecloses on the home and later resells it for $170,000. The result is a nondeductible loss of $30,000 and Cancellation of Debt (COD) income of $28,000.

Gain/Loss on Sale:

$170,000 Selling Price

– $200,000 Original Cost

$ 30,000 Nondeductable Loss

COD Income:

$198,000 Mortgagge and past due interest

-$170,000 Selling Price

$ 28,000 COD Deductable Loss

It is clear that the negative tax consequence is the result of two items: the low selling price received by the mortgage company, and the high debt resulting from accrued interest and penalties.

Mortgage Forgiveness Debt Relief Act

The banks are really feeling the heat as a result of the real estate market crisis and the rise of home mortgage foreclosures. During the recent U.S. real estate boom, some lending institutions abandoned all caution. Lending policies became extremely lax. Dubious loans—such as the so-called “Ninja” (no income, no job or assets) loans—became increasingly commonplace. Many banks made these bad loans because it was assumed that the price of the home would always appreciate. What a surprise these lenders got when the real estate market bottom fell out.

In December 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007. It will rescue many families facing foreclosure on their personal residences. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012.

• Up to $2 million of forgiven debt is eligible for this exclusion.


• $1 million if married filing separately.


• The exclusion can be used only if the loan was taken out to acquire, build or substantially improve a principal residence. Forgiveness of debt on vacation homes, second homes and investment property doesn't qualify.

More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

Tax or Spend?

Some people believe that tax cuts will be the best way to stimulate the economy while others believe government spending is the best way to stimulate the economy. There are interesting arguments for both arguments. I have found this article at CNN Money that examines both sides.

Tax Rules for the Unemployed Part 3: Moving Expenses

As meaningful employment becomes more difficult to find, you may find yourself in a situations where a new job will require you to relocate. If you have to relocate in order to find meaningful employment, you may be able to deduct qualified moving expenses not reimbursed by the new employer. Taxpayers should keep receipts related to all moving expenses in order to substantiate these expenses. You may be able to deduct your moving expenses if

• your expenses were incurred 1 year from the day you first reported to work.


• your new job is 50 miles farther from your former home than your old main job location was from your former home.


• If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive in the area of your new job location (39-week test).

$300 Billion Tax Cut

President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses in order to entice companies to create jobs and jump start a sagging economy.

The proposed tax cuts represents 40% of an economic stimulus package that would cost $775 billion over two years. According to the Wall Street Journal, one of the reasons for adding the tax cuts to the economic recovery package is that it may be easier to win Republican support for a stimulus package that relies on tax cuts instead of spending. Senate Republican leader Mitch McConnell of Kentucky said there will be “widespread Republican enthusiasm” to include tax relief as a large part of the stimulus package.

Another reason for the emphasis on tax cuts is a need to get money into the hands of consumers. The plan's focus is to boost consumer spending by providing a $500 tax cut to individuals and a $1,000 tax cut to families. This tax cut would be accomplished by making changes to the tax code pertaining to payroll withholding rules so that taxpayers could see an immediate increase ion their take home pay. According to Michael Darda, chief economist for MKM Partners LP , cutting the payroll tax “would be more efficient” in helping the economy.

The business portion of the proposed tax cuts would allow companies to use their tax losses to offset U.S. taxable income. Currently, companies are allowed to carry back losses for a period of two years. The Obama proposals likely would mean that companies with enormous losses from last year and this year could use the losses to help wipe out tax obligations from the previous five years and receive sizable tax-refund checks from the Treasury Department. For some firms, that would mean cash payments of billions of dollars.

Another element would offer a one-year tax credit for companies that make new hires or forgo layoffs, which could be worth $40 billion to $50 billion. And the Obama plan also would allow small businesses to write off a broad range expenditures worth up to $250,000 in 2009 and 2010. Currently, the limit is $175,000

Tax Rules for the Unemployed in 2008, Part 2

For individuals who found themselves unemployed as a result of lay-offs, business closures, or any other unfortunate reason, there are still tax rules that you must be aware of if you are searching for a new job. The following is a list of some of the deductible costs that you may have incurred in your job search.

• Mileage costs accrued on a personal vehicle while job hunting including trips to job interviews and to the unemployment office. Between January 1, 2008, and June 30, 2008, taxpayers can claim 50.5 cents per mile. Between July 1, 2008 and December 31, 2008, taxpayers can claim 58.5 cents per mile.


• Costs for creating, printing and mailing a resume.


• Costs for a headhunter or job placement agency. This applies to costs only paid by you. It does not apply to fees paid by the employer to the job placement agency.


• Transportation costs such as a bus, taxi, train or plane to an interview.


• Meals and lodging if out of town for an interview.


• Parking and tolls when driving to an interview.


• Long distance or mobile phone call charges directly associated with a job search.


• Business research services.


• Physical exam expenses if required by a potential employer.

Tax Rules for the Unemployed in 2008, Part 1

As a result of the economic downturn in 2008 or the "Great Reccession" there are many individuals who have lost their jobs in 2008. According to the Wall Street Journal, employers are expected to cut 475,000 jobs from their payrolls after cutting 533,000 jobs in the previous month. The unemployment rate, generated by a separate survey, is expected to have risen to 7% from 6.7% in the previous month. If you are one of the many unemployed who are looking for work, there are still some tax rules that you need to be aware of.

• unemployment compensation is taxable on federal and most state tax returns.

Income tax is not automatically withheld from unemployment compensation, however, individuals can elect to have taxes deducted. If you did not have taxes withheld throughout the year, you may have a potential balance due when you file your 2008 income taxes.

Rose Bowl is estimated to generate 58 million to Pasedena

According to a study that was done by the USC Marshall School of Business, the Rose Bowl is estimated to bring in an additional 58 million dollars to the economy of Pasadena. The study indicates that of the 58 million:

• 5.6 million dollars will go directly to the city of Pasadena in tax revenue.


• 30.6 million will come from ticket revenue, direct spending by game attendees, corporate sponsors and other sources related directly to the game.


• $20 million will be generated from the game in indirect revenues, such as sales tax, hotel taxes, and other taxes.

The study is the first to calculate the effects of the game solely on Pasadena's economy, rather than on the larger county economy, said Darryl Dunn, general manager of the Rose Bowl. Since the governor of California has gone on record as saying that the state will run out of money in 60 days, the additional 20 million dollars is not going to put a dent in an expected deficit of 42 billion dollars by 2010. However, something is better than nothing.

Happy New Year

Happy New Year.