Individual Income Tax Rates Around the World

We often are asked where is the best country to live and work in to reduce foreign taxes.  Wikepedia has a chart showing the various income tax rates for individuals and corporations in various countries. Check it out here.   Of course you can always consider Dubai which has no taxes.

Remember, so long as you are a US Citizen or permanent resident you still must file your US form 1040 with the IRS each year and report your worldwide income. Failure to file  timely special forms required for foreign financial accounts, foreign corporations, partnerships and trusts, and other related forms can also result in substantial penalties.

Mr. Schulman is pictured.  He is the Commissioner in charge at the INTERNAL REVENUE SERVICE and is primarily responsible for the dramatic  increase in international tax regulation at that agency.

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Ask TaxMama Issue 527 - Scary Tax Breaks

Dear Family,

Don’t forget to change your clocks Saturday night. Yup, I could tell you stories of times when I didn’t. You probably have stories, too, don’t you? Anyway…

I have great news – and bad news.

First the great news. It’s VERY exciting! Not only will Congress be extending the $8,000 first time homebuyers credit, they will be expanding it to make $6,500 available for people who are not new buyers – as long as they owned their last home for at least 5 years. This could be a big help to all of us – even folks who’ve lost their homes in the depression no one will admit we had.

Now the bad news. Congress be extending the $8,000 first time homebuyers credit, and they will be expanding it to make $6,500 available for people who are not new buyers – as long as they owned their last home for at least 5 years. Why is this bad news?

Well, if the new legislation does not include authority for IRS to get proof before issuing the money, not only will there be more fraud, there will be even greater delays than we have now. It won’t take much to fix the problem. Really, truly, it’s very easy to fix. All we need to do is have folks send in their documentation with their tax returns.

But the details and authority must be in the new law.
in the new law.

What can you do about it? IMMEDIATELY email or write your legislator and send him or her the fix I outline in my open letter to my Representative, the Honorable Brad Sherman. Feel free to use my words – or use your own. But speak up NOW. We only have a few days before they vote on this, probably next Tuesday. You will find my letter in my accountingweb.com blog at:

In IRS News this week we get to read the Information Reporting Program Advisory Committee’s (IRPAC) 2009 recommendations on a wide range of tax administration issues. Did you know there was a group of tax pros watching out for you? Yes indeed. This committee, essentially volunteers over 100 hours to provide recommendations on how to make your life easier. Let’s thank the hard-working team at IRPAC!

We also get a series of IRS videos to help us set up and run a non-profit organization. Remember, if you can’t find a job you are willing to accept, you have alternatives. Perhaps this is the time to follow your passion. Set up your own non-profit organization to fulfill your dream to help, teach, educate, or save someone or something. Funds may be hard to raise at first. But once you get started, and do it right, the money will come rolling in. Passion is contagious.
http://taxquips.com/index.php?cat=IRSNews

The October issue of TaxWatch on MarketWatch.com is about the specific problems taking place right now in the processing of the First Time Homebuyers Credit. It also provides a solution. I know, you think I’m obsessed with this Credit. Well, when people call me every day, telling me their tax return was filed months and IRS lost it…yes, it gets me upset.
http://www.marketwatch.com/Journalists/Eva_Rosenberg

In today’s Money Funny we have Hospital Hostility, a little Halloween prank for you.
http://taxquips.com/index.php?cat=MoneyFunnies

In TaxQuips this week we learn if a guy supporting his girlfriend and her child qualifies for head of household filing status; whether someone can avoid paying taxes on his consulting income by depositing it directly in his son’s Sec 529 education savings plan; if an unemployed 22-year-old should cash out his retirement account to cover his living expenses; can a woman get the first time homebuyers credit if her husband co-signed on a home in the past. Incidentally Robert W. Tracey provides us with some excellent advice about whether or not to take advantage of this year’s permission not to take a minimum distribution from your retirement account. For those age 70 1/2+, it’s well worth considering.
http://taxquips.com/index.php?cat=TaxQuips

As always, we love your feedback, opinions and ideas.
You are what makes all this fun – and interesting!

Please use the Comments link online.
http://taxquips.com/index.php?id=1391

TaxNerd gear makes a bold statement during tax season.
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Hugs from your favorite TaxNerd,

Eva Rosenberg, EA

Your TaxMama is watching…out for you.

www.TaxMama.com
www.TaxQuips.com
www.IRSExams.com
www.taxnerd.net
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TAX CALENDAR 2009
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11.02.2009 3rd Quarterly Payroll Returns and Pay Taxes Due

11.02.2009 3rd Quarterly Sales Tax Returns and Pay Taxes Due
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help you achieve your goals.

Download the book here (just use your e-mail address in this e-mail, so you can avoid subscribing to
my newsletters twice.)

Feel free to share this link with your friends, your clients and your mailing list.
http://www.simpleology.com/p/blogging/taxmama/ATM440
Explore Simpleology 101 - It includes set of step-by-step daily missions for you to follow to get more focused and become more successful this year.
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Get extra discounts for yourself and friends after you order.

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Wouldn’t you love to get your logo or family crest, or picture or whatever, EMBROIDERED on hats and T-Shirts?

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• Ask TaxMama :: Where taxes are fun and answers are free
• www.TaxQuips.com :: The number ONE free tax podcast online
• Money Funnies :: Hospital Hilarities for Halloween
• IRS News :: IRPAC report, exempt org videos
• TaxMama's TaxWatch column :: Solving the First Time Homebuyer Credit Snafu

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IRS 2009 IRPAC Report Made Available

WASHINGTON — The Information Reporting Program Advisory Committee (IRPAC) today released the advisory group’s 2009 recommendations on a wide range of tax administration issues.

Based on its findings and discussions, IRPAC made more than 50 recommendations on a broad array of issues and concerns Internal Revenue Service-wide, key among them:

Creating a new form and modified rules on information reporting of payments made in settlement of payment card and third party network transactions.

Providing guidance on tax information reporting and withholding.

Reporting of customer’s basis in securities transactions.

Creating online Form W-4 instructions for non-resident aliens.

Withholding on certain payments made by government entities

Providing additional guidance to government entities that must comply with the withholding provisions.

Permitting payers to issue payee statements showing only the last four digits of a payee’s TIN.

Through IRPAC, systemic problems related to information reporting are addressed in a public forum. IRPAC draws its members from the tax professional community and supported by a staff of IRS employees.

• Ask TaxMama :: Where taxes are fun and answers are free
• www.TaxQuips.com :: The number ONE free tax podcast online
• 2009 IRPAC Report ::

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New Video Series Helps Exempt Organizations Understand Redesigned Form 990 Requirements

WASHINGTON — The Internal Revenue Service has launched a new case study and video program to help exempt organizations and their tax preparers better understand the newly revised Form 990 series which must be filed for the 2008 tax year.

The Form 990 series, redesigned for the first time in nearly 30 years, requires more disclosure and transparency by exempt organizations. With some exceptions, organizations that are exempt for federal taxation are required to file the Form 990 information return. The additional information will give the IRS and the public a better view of how the exempt organizations work, especially in terms of expenditures and executive salaries.

To help illustrate key points and answer important questions about the new Form 990, the IRS’ Exempt Organizations Division developed “The New Form 990: Getting Started,” a case study about a hypothetical organization – Exempt Organization for Disaster Relief (EODR).

The hypothetical case study includes a set of facts describing organizational and financial aspects of EODR, and a completed Form 990 based on those facts. A video series walks you through key reporting issues common to most organizations required to file Form 990.

Before starting the videos, people should read the hypothetical EODR case study and review the example Form 990. The series of videos, each between five and ten minutes long, cover a key area of the Form 990, using facts from the case study.

The videos are listed in an order based on the sequencing list found on page 5 of the Form 990 instructions. However, they can be viewed in any order. Included in the video series are:

• Overview
  This video is a good place to start for people who have questions about the redesigned Form 990. It looks at some of the key things to consider about the Form 990 and the various schedules that exempt organizations may need to complete, particularly Schedule R.

• Revenue and Expenses
  This segment covers two of the financial statement portions: Part VIII, Statement of Revenue, and Part IX, Statement of Functional Expenses. It looks at how to fill out the required columns of information for revenue and expenses.

• Balance Sheet, Supplemental Financial Statements, and Schedule D
  This video, reviews Part X of the Form 990, the Balance Sheet, and Part XI, which covers Financial Statements and Reporting. It explains some differences between the redesigned and previous version of Form 990. It also focuses on parts of Schedule D, Supplemental Financial Statements.

• Program Services, Other IRS Filings and Tax Compliance
  This video focuses on Part III, which allows an organization to “tell its story” and describe its program services, and Part V, which covers other IRS filings and areas of tax compliance. Part V will alert organizations if they have other filing obligations besides the Form 990 and will help them to determine if they engage in activities that raise tax compliance concerns.

• Compensation
  This segment reviews the Form 990 compensation reporting in Part VII. It explains who needs to be listed in Part VII and explains the three types of compensation to report. It also highlights Schedule J, the compensation continuation schedule.

• Governance
  This segment describes how to complete Part VI of the redesigned Form 990, which requests information about the organization’s governing body, management, policies and procedures and disclosure practices. It also focuses on Schedule L, which requests information on transactions with interested persons, such as directors, officers, key employees and their family members.

• Summary, Schedules, Signatures
  This segment covers Parts I, II and IV of the Form 990—Summary, Signature Block and Checklist of Required Schedules. It also provides an overview of several new schedules to the Form 990.

“The New Form 990: Getting Started” is only one of the online resources the IRS offers for 990 filers. There is a five-part interactive course at www.stayexempt.irs.gov and a series of 990 filing tips, plus the 990 form, schedules and instructions at www.irs.gov/charities.

• Ask TaxMama :: Where taxes are fun and answers are free
• www.TaxQuips.com :: The number ONE free tax podcast online
• IRS Case Study :: The New Form 990: Getting Started - Introduction
• IRS Video :: Form 990 Case Study
• www.stayexempt.irs.gov :: A five-part interactive course
• www.irs.gov/charities :: A series of 990 filing tips, plus the 990 form, schedules and instructions

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Death And Debts

A long illness and nursing home or hospital expenses for our parents can quickly add up to a lot of debt in California. You are not liable and cannot be sued personally for their debt so long as you didn’t agree to pay it.

You may get letters or phone calls from creditors asserting that as heirs of your parents’ estate, you are liable for their debts.

In California, children are not responsible for paying their parent’s debts unless they agree to be. The estate of the person who died is liable but if there is no money or assets in the estate, the creditors lose.

When a person dies, his or her estate is responsible for paying off the debts. If there is a probate because your parent passed away with a will or intestate without a will, creditors have four months to file a creditor’s claim. If there is no money in the probate estate or the trust estate, then the creditor won’t be paid. Creditors just write off the debt.

Similarly if your parent dies with credit card debt, you are not liable except if you co-signed with your parent on the credit card application.

For questions about your rights and obligations when someone dies, call Mitchel A. Port at (310) 559-5259.

Link to the original site

Health Care: Taxing That Fella Behind the Tree, Again

The House leadership seems convinced that a relative handful of people should pay for health reform. In the plan released yesterday by Speaker Nancy Pelosi, Democrats would fund most of the cost of insuring millions more people in two ways: cutting subsidies to Medicare Advantage plans and imposing a stiff 5.4 percent surtax on individuals making $500,000 and couples making more than $1 million.

TPC figures that just 400,000 taxpayers will pay that increase in 2011, less than three-tenths of one percent of all taxpayers. However, because the millionaire’s surtax is not adjusted for inflation (at least not yet), within a decade many more are scheduled to fall victim to the tax hike. By 2019, TPC figures nearly 800,000 would be in the bulls-eye, although that is still fewer than 1 percent of all taxpayers. Over the decade, the surtax is projected to raise nearly a half-trillion dollars. But because income subject to the surtax does not increase with inflation, annual tax revenues would grow from about $30 billion in 2011 to $70 billion in 2019

I am bothered by two elements of this. First, do we really want to put most of the cost of a national priority such as health care on the backs of a relatively few people? My concern has more to do with our social compact than economics, but wouldn’t it make more sense if we all had a horse in this race?  I know, those hit by the surtax are the same people who benefitted most from the Bush tax cuts in 2001 and 2003. But there is still something wrong with pretending that health reform is a free lunch for 99.7 percent of us. 

And I have another problem. My guess is the levy would become another Alternative Minimum Tax deal. That is, despite what looks like surtax-creep, there is a pretty good chance Congress would get cold feet somewhere along the way and protect many of those who would otherwise face the extra tax over the next decade. This would add tens of billions more to the deficit. 

I can hear lawmakers now. “This tax was never intended to hit these hard-working Americans earning just $500,000,” some pol will thunder in the run up to the 2014 elections. And on some level, I fear, that will be quite right.

By the conventions of budget scoring, of course, it doesn’t matter if many never pay the tax. The scorekeepers (JCT in this case) must assume the law will apply for 10 years. So, if this provision survives the next few months of congressional debate, Congress will be able to give itself credit for paying for health reform, never mind that would do so in a way that is irresponsible and very likely phony.  

Link to the original site

Hospital Hostility

Hospital Hostility

An extremely ill man was in the hospital for a series of tests, the last of which left him feeling as if he constantly had to have a bowel movement.

After several uneventful trips to the bathroom, he decided the latest episode was just another false
alarm and stayed put.

Suddenly he filled his bed with diarrhea! Embarrassed beyond belief and not wanting to bother the nurse he
struggled out of bed, gathered up the messy bed sheets, and threw them out the hospital window.

The sheets landed on top of a drunk who happened to be walking by the hospital. When the sheets landed on him he began yelling and cursing, swinging his arms violently to get the sheets off. Finally after a mighty struggle he ended up with the soiled sheets in a tangled pile at his feet.

As he stood there, unsteady on his feet, staring down in amazment at the sheets, a hospital security guard
walked up and asked, “What the heck is going on here?”

The staggering drunk looked up and replied: “I think I just beat the shit out of a ghost”

Happy Halloween !

Courtesy of the old I-HelpDesk & Webreview, from Oct 29, 2003

Please remember to send us your humor.
Clean jokes preferred.

• Ask TaxMama :: Where taxes are fun and answers are free
• www.TaxQuips.com :: The number ONE free tax podcast online
• More Money Funnies ::

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Paul Ryan’s Consumption Tax

Representative Paul Ryan (R-WI), one of Congress’ most interesting members, was the guest at this morning’s session of TPC’s Tax Reform 2.0 series. He came to talk about his Roadmap for America’s Future—a comprehensive plan for dramatically restructuring both entitlement spending and the tax code. Ryan is nothing if not ambitious.

I’ll leave his proposals for Medicare, Medicaid, and Social Security for another day. But on revenues, Ryan has embraced the idea of a consumption levy to replace the current income tax. (which is really a clumsy hybrid of both).

On the business side, Ryan goes for the Full Monty. He’d dump the corporate income tax for a subtraction method value-added tax. As in similar models, he’d allow businesses to fully expense all capital investment, but firms would no longer deduct their interest costs. The tax, which he’d set at a very low 8.5 percent, would be border adjustable so it wouldn’t affect exports. Ryan is hardly the first person to come up with such a tax structure. Years ago, Rudy Penner and others proposed the very similar USA Tax. 

But Ryan gets credit for taking the leap on any form of VAT, usually anathema to his fellow Republicans and much of the business community. Bruce Bartlett, another often-heretical Republican, also endorses the VAT in a recent Forbes piece.

When it comes to individuals, however, Ryan loses his nerve. He proposes a full-blown consumption tax, all right, but then makes it voluntary. This is similar to what GOP presidential hopeful Fred Thompson talked about in the 2007-2008 primaries. Taxpayers would be given a choice: They could switch to a simplified income tax with almost no credits, deductions, or exclusions or keep today’s system with all its subsidies and complexity.

Ryan is convinced that taxpayers would flock to the new tax. It would have two rates—10 percent for income up to $100,000 and 25 percent on earnings above that level. It would include a big standard deduction and personal exemption ($39,000 for a family of four). Interest, capital gains, and dividends would be tax free. So would all estates.

The problem, as Rudy noted this morning, is that the wealthy would avoid taxes on their investments by migrating to the new system while middle-class itemizers (many of whom are hooked on their deductions for mortgage interest and the like) would stick with the current mess. The result: A huge revenue sink.

Ryan believes his new system would generate federal revenues of about 18.5 percent of   GDP—close to the post World War II average. But TPC found the Thompson plan would cut federal revenues by a staggering $6 trillion to $7 trillion over 10 years, assuming everyone chose the version that most minimized their tax bill. The biggest benefit would go to those making between $100,000 and $500,000. The TPC estimate was static, so actual revenue losses might be more moderate, but still…

In the longer run, young people might go for simplicity before they get hooked on tax preferences and may end up on the consumption tax. But in the long run, as they say, we are all dead.

Ryan’s reason for giving people the choice seems more political than economic. He understands that tax reform usually creates losers as well as winners. So he figures his winners-only option may make a consumption tax more appealing to voters. Still, it is too bad he blinked. But give Ryan credit for at least confronting the failure of the income tax. It is a lot more than most of his colleagues are willing to do.
 

Link to the original site

Qualifying Person for HOH

Today TaxMama hears from Orla in Colorado. “I have a friend who has provided full support for his girl friend who is unemployed, and her daughter who is 18 and in high school. They both have lived with him for the full year. He should be able to file head of household but can he claim them as dependents?”

Dear Orla,

Actually, you have it a bit backwards.

He can claim them as dependents. But he cannot use head of household status.

They don’t qualify as either family or qualified relatives for HOH. Sorry.

BUT, since they are dependents, he can use medical deductions, education expenses, etc.

HOH rules
http://www.irs.gov/publications/p17/ch02.html#en_US_publink100032140

Qualifying Person
http://www.irs.gov/publications/p17/ch02.html#en_US_publink100032152

And remember, you can find answers to all kinds of questions about being head of household and other tax issues, free. Where? Where else? At TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

• Ask TaxMama :: Where taxes are fun and answers are free
• www.TaxQuips.com :: The number ONE free tax podcast online
• IRS Publication 17 :: Head of Household rules
• IRS Publication 17 :: Who Qualifies for Head of Household

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Behavioral Economics and the Conservative Critique of VAT

Our grim fiscal outlook has led to renewed calls for a value added tax (VAT). As discussed by Greg Mankiw, conservatives have conflicting feelings about a VAT. The main appeal is that a VAT taxes consumption, so shifting from our current income tax system (which is actually a hybrid of an income tax and a consumption tax) to a VAT would remove existing disincentives to save, which in turn would promote long-term economic growth. 

Yet many conservatives fear that a VAT, which taxes each stage of production, will lead to bigger government. As Milton Friedman wrote in 1980, “Because it would be collected by business enterprises, VAT would be concealed in the total price the consumer paid and hence not perceived as a direct tax burden. That is its advantage to legislators – and its major defect to the taxpayers.”

Friedman’s concern is now very much at the center of the new field of behavioral public finance. In the most recent edition of the American Economic Review, Raj Chetty, Adam Looney, and Kory Kroft, examine the effect of tax transparency – what economists call salience – on economic efficiency. 

Traditionally, economists view the structure and application of a tax as unimportant. All that matters is the change in relative prices. But Chetty, Looney, and Kroft find that structure and application do matter. For example, they find that consumers are less likely to buy an item if a sales tax is explicitly listed on the product than if the same tax is instead added at check-out. 

This simple finding has great political economy implications. With the traditional view that the magnitude of the tax is all that matters, the left/right debate among economists has focused on how responsive people are to a given tax. For example, would taxing labor lead to a small or large reduction in hours worked? The bigger the response, the more economically harmful the tax. But the new behavioral studies suggest that policymakers can actually manipulate the reaction to a tax. By making a tax less transparent, policymakers can trick consumers or workers into non-response, thus reducing the economic harm.

Chetty, Looney, and Kroft’s theoretical model indeed shows that efficiency increases as a tax becomes less salient. However, their model also shows that reducing the salience of a tax will necessarily harm consumers (albeit not by as much as it helps the government). In other words, tricking consumers into thinking a tax does not exist has two effects: 1) it leads them to poor consumption choices; and 2) it increases tax revenue because more transactions are taxed. In dollar terms, the harm to consumers is less than the increase in revenues. But whether or not you view an opaque tax as a useful policy instrument depends on whether you think the gains to government coffers are worth the reductions in consumer welfare. 

As Friedman feared, government can go a step further. If complicated and opaque taxes can dull consumer response, they can also dull the political penalty associated with higher tax rates. An optimizing government could then increase tax rates by more than fully-informed voters would like. Amy Finkelstein, in the most recent edition of the Quarterly Journal of Economics, finds that drivers are less aware of tolls paid electronically and that switching from toll booths to electronic tolls led to a 20 to 40 percent rate increase. In other words, as salience goes down, tax rates go up.

The flourishing field of behavioral economics is improving our understanding of how psychological factors influence economic responses. But the risk is that policymakers will use these insights to deliberately temper healthy economic and political constraints on the growth of government. 

Link to the original site

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