WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’
January 27, 2009 by THE WANDERING TAX PRO
Filed under Articles
* Fellow twit, and fellow tax blogger, Michael Rozbruch “turned me on” to an article from the Washington Post titled, “Don’t Wait for Obama to Cut Your Taxes”. It provides some good advice and resources.
* The TAXGIRL does not take week-ends off (actually none of “us” do this time of the year). Last Saturday she provided a good answer to a common question in “Ask the taxgirl: 1099 for Closed Business”.
* Kelly answers another oft asked question in “Ask the taxgirl: Running As Fast As I Can”. Her correct answer points up another inequity in the Tax Code – another instance where the taxpayer must bend over. Income is reported on Page 1, increasing AGI, but related deductions claimed on Schedule A (lost to non-itemizers) as “miscellaneous” subject to the 2% of AGI exclusion. To be fair only excess hobby income should be reported on Page 1.
* From the “I couldn’t have said it better” file – Kay Bell said it all when she pointed out “From the get-go, the lack of oversight in administering the Troubled Asset Relief Program (TARP) has made every bailout handout a very unfunny, and egregiously costly, joke. And since Congress opened up the bailout door so wide, then who’s to stop any legal business form seeking relief?” in her post “Next In Bailout Line: Porn” at DON’T MESS WITH TAXES.
* Kay has also provides a good basic overview of the many educational tax benefits that are available in her post “Rags, Riches and College Costs”
* TAXPROF Paul Caron quotes from the Wall Street Journal to tell us “Obama Plans to Keep Estate Tax” -
“President-elect Barack Obama and congressional leaders plan to move soon to block the estate tax from disappearing in 2010.
Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million — $7 million for couples — from any taxation.”
*Jeff Rose provides a good answer to ”Reader Question #4- Can I Take a Tax Loss on My Kids 529 Plans?” over at GOOD FINANCIAL CENTS (Helping you make “cents” of your investments).
Jeff smartly ends his answer with, “be sure to speak with your tax advisor just to make sure”.
* An AccountantsWorld.com article reports “Americans Failing Taxes 101”.
A survey by of all people The Tax Institute at H&R Block indicates that “most can’t answer even the most basic tax questions correctly . . . the majority doesn’t know a credit from a deduction”. Duh! Hey – it seems that many Americans have something in common with H+R Block tax preparers!
*WebCPA reports that “IRS May Expand Enforcement During Tax Processing” and pay closer attention to returns claiming the Child and Dependent Care Credit and Earned Income Credit while in the course of the initial processing of returns.
* The weekly NATP member email newsletter reports-
“The IRS has announced that victims of the severe storms and flooding on December 10, 2008, in the city and county of Honolulu, have more time to make tax payments and file returns. As a result, the IRS is postponing certain deadlines for taxpayers who reside or have a business in the disaster area until February 9, 2009. The postponement applies to return filing, tax payment, and certain other time-sensitive acts otherwise due between December 10, 2008, and February 9, 2009.”
* We have a winner – actually two. Peter Pappas of THE TAX LAWYER’S BLOG reports the results of his online poll in “Worst Tax Cheat Poll Results Final: Kiss Your Sister, We Have a Tie”.
* It appears that BO’s proposed economic “stimulus” package will include some individual tax breaks – Among them, according to the press release by Charles Rangel for the House Ways & Means Committee, the following:
· refundable tax credit of $500 per worker/$1000 per couple (up to $200,000 income)
· expansion of EITC
· expansion of child tax credit
· simplification of education credits and making the credit partially refundable
· turning the $7,500 loan for first time home buyers during 2008 into a subsidy (no repayment requirement)
· increased expensing for businesses
· increased bonus depreciation for businesses
· increased (5-year) carryback of net operating losses for businesses
· “prospective” repeal of Treasury’s illegal section 382 ruling (Notice 2008-83).
· annual one-year AMT fix {I added this to list – rdf}
More and expanded refundable credits – great! The mouths of tax-fraud scammers are most certainly watering.
I will provide more information when available.
TTFN
This post is from THE WANDERING TAX PRO
Will the Tax Cuts Help Fix the Economy?
How much will the $300 billion in tax cuts approved today by the House Ways & Means Committee really stimulate the economy? They will help some, but don’t expect them to accomplish a lot.
I’d give the overall plan a Gentleman’s C. Some provisions would channel money to low-income people most likely to spend it, but deliver the cash too slowly. Others distribute the funds relatively quickly, but give an awful lot to wealthier taxpayers who are least likely to spend it.
The business tax cuts may be even less effective. The proposed investment incentives are troublesome on two counts: They are not likely to help companies that are losing money (if you are already not paying taxes, an additional tax break is of no value). At the same time, they would create a windfall for profitable companies that were going to invest anyway.
TPC will release a detailed report card on the Ways & Means bill within the next few days but, in the meantime, here’s a quick look at the pros and cons of the tax stimulus, starting with the breaks for individuals:
Proposals to increase the Earned Income Tax Credit and the child credit get high stimulus marks for targeting those working families most likely to spend the money, one key to getting the economy back on its feet. Unfortunately, many families won’t get their credits until they file their 2009 tax returns in 15 months.
The cash payments to workers through the Make Work Credit, one of President Obama’s big campaign promises, almost mirror the pros and cons of the EITC. By increasing take-home pay by about $10-a-week, it will get cash into people’s wallets quickly enough. However, couples making up to $200,000 would get this payment, and many are likely to save, not spend, those extra dollars. One good idea: Paying out the money a bit at a time rather then in a lump-sum rebate. Some economists think people are more likely to spend money when they get it in small chunks.
It is tougher to see how most of the business credits would help much. The bill would allow small businesses to immediately deduct the cost of up to $250,000 in capital investment they make this year. It would also allow larger businesess to take faster write-offs for investments they make in 2009. But in the real world, how many are in any position to buy new equipment now? Their sales are in the tank and they can’t get credit.
Another proposed change would get cash to businesses that were once in the black, but are losing money now. Making better use of Net Operating Losses would not only provide a much-needed boost to their cash flow, it might also leverage the investment incentives. This may be the best of the business tax breaks when it comes to helping the economy in the short-run.
While some of these ideas may help a bit in today’s lousy economy, what will happen once we get back on our feet? Obama wants to make the Making Work Pay credit permanent, and it is unlikely the increases in the EITC or child credit will ever be rolled back. It is the same for small business expensing of equipment. So we probably are making some important long-run changes to the tax code in the name of stimulus. I’m just not sure they are going to do very much good right now.