- September 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
"annualcreditreport.com" 12b-1 fees 401k 401k match 403b 457b 1974 1987 2001-2002 2008-2009 active duty advisor search alternative minimum tax area agency on aging asset allocation asset protection atm automobiles bad debt bank fees banking banking on-line banking relationships banks beneficiaries benefit term black monday bond duration bond investing 101 bond ratings brazil bric bureau of consumer financial protection bypass trust capital gains career transition caregiver 101 care manager car loans cash management catch-up contributions charity china college planning commodities compound interest core series cost basis coverdell ira cpa credit credit card credit reports credit score credit union cross purchase buy-sell agreeement custodial fees daily benefit amount debit card debt decision making deflation derivatives desires directive to physicians disability insurance divorce djia dollar cost averaging downsizing ea ebri economic education elder care elimination period emergency fund employment energy credits energy tax estate planning estate tax euro european union eurozone exemption equivalent expense ratio fafsa fair isaac family care giver federal deficit federal reserve fee-only fico fiduciary fiduciary standard financial financial aid financial coach financial planning financial reform bill financial stability oversight council find an advisor flexible spending account foreign markets foreign stocks form 1099 formula clauses front-end load generation skipping tax gifting gift taxes goals and objectives good debt government grants grat greece guardianship happiness harvesting losses healthcare health care directives health care reform health insurance premiums health savings accounts hedging high deductible insurance plans homeowner tax credit housing hsa i-bonds identity theft income tax income tax preparation india inflation insurance interest rates internet tax investing investment income investments ira ira distributions irs italy itemized deductions japan laddering layoff life insurance life insurance trust linkedin long-term care lost decade marginal tax rate marginal tax rates marriage medicaid medicaid tax medical insurance medicare medicare supplement medigap money monte carlo simulation mortgage nais.org napfa nasdaq ncua needs net-operating loss carryforward net worth new year's resolutions nine minutes no-load non-cancellation non-mortgage debt obamacare occupational outlook handbook office of credit ratings ofice of credit rating own occupation partnership personality portugal post-divorce action power of attorney prescription drug benefit private school education profit sharing plan prospectus quarterly update real estate refinance regulation residual benefit retirement plan contributions retirement planning retirement plans retirement relocation ria risk tolerance roth 401k roth 403b roth ira roth ira conversion russia s&p 500 schedule c schedule d scholarships sep shop exchanges simple ira small business social security sole proprietor spain spending spending plan standard deduction step-up basis stimulus check stock market stock market recovery stock markets surrender charges tarp tax-free bond taxable bond tax credits tax loss harvesting tips total return strategies transaction fees unemployment unemployment benefits upsizing us news & world report vat volcker rule wealth building wealth management webinar wills women yield curve
Making Cents
Subscribe
Viewing entries tagged with 'income tax'
How Will Obamacare be Paid For?
How Will Obamacare be Paid For?
By Taxing the Rich! How will you be affected?
Beginning in 2013, wealthy (loosely defined lately) Americans will pay extra Medicare taxes. Congress, President Obama and the IRS are putting a surcharge on the wealthy to help fund the health care reforms.
The New Migraine Headache - Form 1099
The New Migraine Headache - Form 1099
Warning! Please be seated when you read this blog post. One of the provisions of the Health Care Reform bill is going to give all Americans a migraine headache. Section 9006 of the health care reform bill is going to require the use of Form 1099 in huge quantities. Picture this … it’s a chilly morning in January 2012. You head out to your local office supply store to stock up on some essentials for your business – printer cartridges, copy paper, post-it notes, and a 500-pack of 1099 forms.
What? What was that last item again? 1099s? Yes, we may need them in bulk.
In 2012, you may need hundreds of 1099s. Why? Section 9006 of H.R. 3590 (the Patient Protection and Affordable Care Act, better known as the health care reform bill) has quietly ordered an enormous change in tax reporting.
Section 9006 says that starting on January 1, 2012, all businesses must issue 1099 tax forms not only to freelancers and vendors, but also to any individual, business or corporation from which they purchase more than $600 in goods or services in a tax year. What? Unbelievable. (source)(source)
Think about this for a moment. Let’s say that in 2012, you spend a few days in Dallas on business and stay at a nice hotel. If the bill is more than $600, you’ll have to give that hotel (and the IRS) a 1099 for your visit. Suppose you buy $900 worth of office furniture at a big-box retailer. Guess what: your company will have to give that retailer (and the IRS) a 1099.(source)
If you rent office space, you’ll need to send a 1099 to the IRS and your landlord. If your business buys a used truck worth more than $600, it will be time for a 1099. And so on.(source)
Even if you pay more than $600 incrementally to a business for goods or services in 2012 (i.e., you buy wine and sparkling water for your café every week from the same warehouse), you will still have to issue that business and the IRS a 1099.(source)(source)
This means you’ll have to have taxpayer ID numbers for every freelancer, vendor and business from whom you purchase tangible goods and services. Another unbelievable burden on small and large business alike.
Why would the government do this? The goal is better reporting, plain and simple. The IRS estimates that $300 billion (that’s billion) in tax revenue goes down the drain annually as a consequence of unreported income.(source)
If 1099s record the majority of payments a business makes, that means businesses and self-employed individuals will be less likely to understate revenue and overstate expenses. In 2012, it will be easier to figure out precisely which business transactions need 1099s. If more than $600 is involved, the answer will be yes – that will be the only test.(source)
Is anyone working to repeal this change? Yes. Rep. Dan Lungren (R-CA) has introduced the Small Business Paperwork Mandate Elimination Act to try and get rid of this demand. At some point in 2011, the IRS will have public hearings on the new law and release regulations pertaining to it. Expect a loud, lively protest.(source)
As a small business owner, this has my blood boiling. It seems surreal the firm's clients will issue the firm a 1099 for services provided. Shame on Congress for legislating such a burden on the American taxpayers.
If you disapprove, contact your Congressman and Senator immediately in writing. Further, there is an election in November. Make your voice heard at the ballot box. It is time to bring sanity back to our legislative process and the IRS Code.
Please feel free to forward this article to family, friends or colleagues.
If you would like us to add them to our list, please reply with their address
and we will contact them and ask for their permission to be added.
50% of Americans Are Not Paying Federal Income Taxes. Is that Right?
Half of Americans aren’t paying federal income taxes.
Is that right?
A provocative statistic. Last July, the nonpartisan Tax Policy Center (a joint venture of the Urban Institute and the Brookings Institution) estimated that 47% of Americans would not owe a penny to the IRS for tax year 2009.(source) This is a scary statistic for our nation. With the Baby Boomers beginning to retire, huge stress will be placed on all the social programs including Social Security, Medicare, Medicaid, Prescription Drug Program, and the new Health Care Reform mandates. The burden of income taxation must be across the broad spectrum of American wage earners. Is it time to revise tax policy?
The White House has projected the federal deficit at $1.6 trillion for 2010 – that’s about 10.6% of our GDP, a percentage unseen since the 1940s. So is it fair to the nation so many Americans are legally avoiding federal income taxes?(source)
Could We See a Nationwide Sales Tax?
COULD WE SEE A NATIONWIDE SALES TAX?
Will a VAT become reality? How about Internet or energy taxes?
After studying and reflecting upon the mandates called for in the new Health Care Reform Bill, the $64 billion dollar question is how do the great American citizens pay for this? The only solution is to continue to raise income taxes or raise hidden taxes (think cell phone bill for instance). This is not only for national taxes, but also on the state, county and local level.
Despite the drumbeat for change during the November elections, it is a personal hunch both political parties will have to address this issue after the election. Thus, very little will be said during the fall campaigns, but you are now warned to watch closely after the November election. What do they have on their minds?
How do you pay down an $8 trillion debt? The Obama administration needs an answer, as the non-profit Congressional Budget Office says America’s debt could rise to $20 trillion by 2020.(source)
One possible answer has a very European ring to it: a VAT, or value-added tax.
What are the chances of Americans paying a national sales tax? And what about an Internet tax? Or an energy tax? Are they also possible?
A VAT of bubbling controversy. Last year, Obama administration economic adviser Paul Volcker mentioned the possibility of a value-added tax. The CBO is now studying the idea.(source)
India and the member states of the European Union have VATs: sales taxes imposed on producers, distributors and consumers as a product makes its way through the marketplace. VATs collect a great deal of state revenue while discouraging tax fraud. In France, the VAT is 20%; in Germany, 19%.(source)
Health Care Changes in America
HEALTH CARE CHANGES IN AMERICA
Might this be the end of the debate? Most Definitely Not.
The House approves the Senate bill. Not a single Republican voted for it, but 219 Democrats did – and by a vote of 219-212, the House of Representatives sent the Senate’s version of landmark healthcare legislation toward President Obama’s desk. The President signed the bill into law on March 23.(source)But the fight is far from over. The House of Representatives also passed a collection of amendments to the Senate bill by a 220-211 margin, but the Senate must also approve this reconciliation bill – exactly as it is worded. If that doesn’t happen, then guess what … there will be another vote on the Senate version of the bill in the House.(source)(source)
“If those people think they’re only going to vote on this once, they’re nuts,” Sen. Orrin Hatch (R-UT) said on Bloomberg Television March 20. Hatch claims that Senate Republicans have the votes to force a modification of the bill passed on March 21 and boot it back to the House for a second vote.(source)
Will the reforms be overturned? Twelve state attorney generals have already filed in court to contest the bill. The conincided with the moment President Obama signed the bill.(source) What are the odds the Supreme Court will throw the reforms out? Probably pretty slim. Look at the precedents of Medicare and Medicaid. When both those federal programs were enacted, the Court twice upheld a broad federal role in health care. Yet, is this time different? The bill has different mandates than Medicare or Medicaid.
The big reforms will take effect in 2014. If you are looking forward to health insurance reform, you will have to wait a while before many of the big changes occur.
• Starting in 2014, individuals will be required to have health insurance coverage or pay an annual penalty which could climb to $750 or 2% of their income (alternately $695 or 2.5% of income), whichever is larger. Inmates, Native Americans, and those with religious objections would be exempted.(source)(source)
• In 2014, if you aren’t enrolled in an employer-sponsored health care plan, you will have to buy coverage yourself. You could shop for it through a state insurance exchange. The federal government will offer $500 billion worth of assistance to help insurance shoppers buy coverage through these state exchanges. Undocumented immigrants would not be able to buy coverage.(source)(source)
• After 2014, businesses with more than 50 employees could be fined as much as $2,000 per worker for failing to provide the option of coverage.(source)
• In 2014, insurers will be required to provide coverage to all Americans regardless of their health status.(source)
• Medicare spending will be cut by about $500 billion over the next decade, mostly in reduced government payments to Medicare Advantage plans. Democrats have claimed this will not shortchange Medicare recipients.(source)
• Federal money coming from the bill could not be used for abortions, with exceptions made in cases of rape, incest, or danger to a woman’s life.(source)
What changes are about to happen in 2010? These new rules would go into effect presently thanks to the new law.
• Insurers will be barred from revoking existing health insurance coverage on an individual, unless fraud or misrepresentation can be shown.(source)
• Insurers will not be able to limit the amount of money that can eventually be paid out on a health care policy, and it will be harder to limit the amount of money that can be paid out annually.(source)
• Seniors will get $250 payments to help them out if they face a coverage gap in the middle of the Medicare Part D prescription drug coverage plan.(source)
• Children will be able to stay on their parents’ health care policies until age 26, and they won’t be denied coverage because of pre-existing health conditions.(source)
• Adults with pre-existing health conditions will get a chance to enroll in a national high-risk insurance plan – albeit a temporary one.(source)
• Small businesses that sponsor health care plans for their workers could qualify for tax credits of up to 50% of the cost of the premiums they pay.(source)
New taxes? Yes – starting in 2013. Approval of these reforms will also bring a new 3.8% tax on investment income for individuals earning more than $200,000 and households earning more than $250,000, so the effective capital gains rate will be 23.8% for these taxpayers in 2013. Also, these taxpayers will be able to keep 8.8% less of the income resulting from taxable stock investments. The Medicare tax rate on households with income over $250,000 will also rise in 2013, from 1.45% to 2.35%.(source)(source)(source)
A huge savings? Maybe. The non-partisan Congressional Budget Office estimates that the health care reforms will reduce the federal deficit by between $65-118 billion over the next decade and by more than $1 trillion in the decade after that.(source) The proof is in the pudding, as all large entitlement programs such as Social Security and Medicare are all currently bankrupt. Might this add insult to an already bloated national debt? If history is any indication, more than likely the cost of this legislation could be disastrous for the US economy. Time will tell.
Please feel free to forward this article to family, friends or colleagues.
If you would like us to add them to our list, please reply with their address
and we will contact them and ask for their permission to be added.
When Doing Your Own Taxes Makes Sense
When Doing Your Own Taxes Makes Sense
And When It Doesn’t
Tax deadline is April 15, so if you haven’t begun gathering your annual tax records it’s time to do so. Every year, however, people’s lives change – they buy and sell houses and move, they take new jobs, have kids, buy and sell stock. Those and dozens more reasons might give you cause to hire a tax preparer.
It’s worth going over the primary reasons why some people should get help with their taxes and others can continue going it alone.
Should you do it by yourself? If you meet the following circumstances, you can probably do your taxes by yourself:
Tax Alert: Plan to Take Advantage of 2010
TAX ALERT: PLAN TO TAKE ADVANTAGE OF 2010
The Bush tax cuts are set to expire – and other big changes are poised to occur.
Do you see a warning light flashing? Americans with high net worth and high incomes are preparing for the likelihood of higher taxes in 2011 and subsequent years. High earners are almost certainly going to take the hit if the EGTRRA and JGTRRA cuts fade away at the end of 2010. Here’s a summary of what’s happening – and a look at what might happen. There are some developments you will want to remember, and some tax breaks you might very well want to exploit.
No phaseouts on itemized deductions and personal exemptions in 2010. This may provide you with an opportunity for some notable tax savings. Historically, high-income taxpayers have been subject to a reduction in the value of itemized deductions and personal exemptions. That has gradually decreased in this decade. In 2010, the phaseouts are gone entirely. In 2011, they are poised to return.(source)
As IRS standard deduction and personal exemption amounts are indexed to inflation, you’ll see very little change there for 2010. The standard deduction for heads of household will rise by $50 to $8,400 for the 2010 tax year. Other standard deductions will stay put, and the personal exemption amount will remain at $3,650 for 2010.(source)
Lower long-term capital gains rates through 2010. Unless Congress decides to extend these Bush-era cuts, capital gains tax rates will revert to pre-2003 levels in 2011. For 2010, the long-term capital gains rate for those in the 10% and 15% tax brackets is 0%. In 2011, it is set to go to 10%. If you fall into the 25%, 28%, 33% or 35% tax brackets, the capital gains rate is 15% in 2010 and 20% in 2011.(source)
The Tax Extenders Act of 2009. The House passed this legislation on December 9, and the Senate is likely to follow suit. The final version of this bill would likely extend the additional standard deduction for real property taxes, the deduction for state and local sales tax, and deductions for tuition/education expenses and teachers' classroom expenses into 2010.(source)
The estate tax. 0% estate taxes in 2010? That was the plan … but the reality is that estate taxes are likely to remain at current levels in 2010 with some retroactive lawmaking. In early December, the House voted to restore the estate tax for 2010; a week later, the Senate voted against temporarily extending 2009 estate tax levels into the coming year. The Senate will almost certainly take up the issue again in January. However, to prevent a complete repeal of the estate tax next year, any new legislation is expected to contain a retroactive provision. So instead of taking effect upon passage, any new estate tax law would likely be made retroactive to January 1, 2010.(source)
The AMT (Alternative Minumum Tax). You know how it works – Congress comes up with another AMT patch at the stroke of midnight and middle-class taxpayers are saved once more. Well, just to make things interesting, the Tax Extenders Act of 2009 doesn’t include an AMT patch for 2010. Many tax professionals think the 2010 patch issue will be addressed early next year, with the patch for the 2010 tax year made retroactive.(source)
How will marginal tax rates rise in 2011? Does anyone think taxes won’t increase in the near future? At present, the marginal tax rates are 10%, 15%, 25%, 28%, 33% and 35%. If Congress doesn’t act by the end of 2010, the tax brackets will reset to 15%, 28%, 31%, 36% and 39.6%. By the way, President Obama and some Democrats have proposed future tax brackets of 10%, 15%, 25%, 28%, 36% and 39.6% for 2011 (that is, only the highest two brackets would revert to pre-EGGTRA levels).(source)
Your Annual Financial To-Do List
YOUR ANNUAL FINANCIAL TO-DO LIST
Things you can do before and for the New Year.
The end of the year is a good time to review your personal finances. What are your financial, business or life priorities for 2010? Try to specify the goals you want to accomplish. Think about the consistent investing, saving or budgeting methods you could use to realize them. Also, consider these year-end moves.
Think about adjusting or timing your income and tax deductions. If you earnings increased substantially, and you have the option of postponing a portion of the taxable income you will make in 2009 until 2010, this decision can bring you tax savings. You might also consider accelerating payment of deductible expenses if you are close to the line on itemized deductions – another way to extend further tax savings.
Max out your IRA contribution at the start of 2010. If you can, do it early. The sooner you make your contribution, the more interest those assets will earn. For 2010, the contribution limits are unchanged for both traditional and Roth IRAs: $5,000 if you are age 49 and below, $6,000 if you are age 50 and above. Remember that you can still make an IRA contribution for the 2009 tax year through April 15, 2010.(source)
While we’re talking about maxing things out, don’t forget your 401(k), 403(b) or Thrift Savings Plan if you are still working. You can contribute up to $16,500 to these plans in 2010, with a $5,500 catch-up contribution also allowed if you are age 50 or older.(source)
Consider a Roth IRA conversion for 2010 (see this Money Cents Newsletter for details). Next year, anyone may convert a Roth IRA. The $100,000 modified adjusted gross income (MAGI) ceiling that often prevented conversion in the past will be gone - forever. The MAGI phase-out limits for contributing to Roth IRAs will be $167,000 for joint filers and $105,000 for single filers in 2010, but if your MAGI will exceed those limits, you may still contribute to a non-deductible traditional IRA in 2010. Then consider immediately rolling it over to a Roth.(source)(source)
More good news: if you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns. This nice opportunity won’t be available if you make a Roth conversion in 2011.(source)
Another detail to remember: in 2009, withdrawals from a traditional IRA may be used to fund a Roth IRA. (This relates to the 2009 suspension of Required Minimum Distributions.) So even if you don’t want to convert a traditional IRA to a Roth account, you may still fund a Roth IRA using a withdrawal from a traditional IRA through the end of this year (provided your 2009 MAGI is $100,000 or less).(source)
Be sure to consult a tax or fee-only fiduciary financial advisor before you arrange a Roth conversion or make any IRA moves. You will want see how it may affect your overall financial picture. The tax consequences of a Roth conversion can get sticky if you own multiple traditional IRAs.
Should you take a distribution from your IRA this year? It’s an interesting question. Barring an act of Congress, RMDs will be back for 2010. If you think taxes will be higher next year, you could opt to take a distribution before the end of this year to lower your IRA balance as of the end of 2009. As RMDs are based on an IRA’s value as of Dec. 31 of the previous year, taking a distribution in 2009 will reduce a 2010 RMD.(source)
Retirement Plan Solutions for the Small Business Owner
RETIREMENT PLAN SOLUTIONS FOR THE SMALL BUSINESS OWNER
The SEP, the SIMPLE IRA, and more.
What retirement plan options small business owner's have? If you own and manage a small company and want a retirement program, you want to consider these plan options.
Don't Forget These 2009 Income Tax Breaks!
Don’t Forget These 2009 Income Tax Breaks!
Plan to exploit them before they expire.
