Congress is using new tactic It goes without saying that our tax system is very complicated. Our Congress helps to make that system more complicated when they pass laws that are not first and foremost tax laws. Buried within those non-tax laws, however, are tax provisions; sometimes very complicated tax provisions. The most glaring example of late is the Health Care Reform bill passed last year. In many ways, Congress tied Health Care Reform directly to the tax code. For example, all taxpayers will eventually be required to buy a health insurance policy. If a health insurance policy is not purchased, the taxpayer may pay a penalty on his/her tax return. The “may” part comes into play because if the taxpayer’s income is low enough, there won’t be a penalty. The taxpayer’s final out-of-pocket cost for the policy itself will also be tied to his/her level of income as reported on the tax return. The lower the income, the lower the taxpayer’s final cost of insurance. Congress has just given another incentive to keep total income down. A second example is the provision that requires all businesses to file 1099s to all other businesses from which they buy at least $600 of goods and services. I’m not exactly sure at this moment what filing 1099s has to do with Health Care Reform. What I do know is that if this provision is not repealed, an additional 40,000,000 form 1099s will have to be filed and will be clogging up an already overburdened tax system. Businesses will be paying for those additional 40,000,000 forms to be prepared and filed. We all know that businesses don’t pay taxes or for tax preparation—consumers pay those costs. Tax and tax preparation costs are just another part of the cost of doing business that a business simply passes on to the buyer of the product. When these types of costs go up, our costs go up as consumers. It’s a thought to keep in mind two years from now when this particular provision kicks in. A third example is the provision that requires all charge card companies to report to the IRS all transactions for all taxpayers. If you sell one item on e-bay and accept a credit card […]
Useful tax tips and information from Jerry Coon of Action Tax Service.
Congress passes late tax law Welcome to the 2011 tax season. It’s going to be a season with some challenges. First, our Congress passed a very late tax law. They waited until December 16 to pass the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Predominantly, the law extends the Bush Tax Cuts and various other provisions to the 2011 and 2012 tax years. Everyone likes stability; especially tax professionals who are diligently doing tax planning with their clients. They have to be pleased to know, with a great amount of certainty, that at least the laws in effect right now will still be in effect for the next two years. Granted, Congress may pass new laws along the way, but the ones passed on December 16 will most likely stand as they are printed. Congress has provided stability by keeping the 2010 tax rates the same for the next two years. Those rates will be 10%, 15%, 25%, 28%, 33% and 35%. In addition, the capital gains rates and rules will be the same for the next two years. Long-term capital gains will be taxed at a maximum of 15%. For taxpayers in the 10% and 15% tax brackets, a special tax rate of 0% will continue to apply for the next two years. The Alternative Minimum Tax has been fixed through December 31, 2012. The favorable education tax credits and deductions that were modified by the American Opportunity Tax Credit are now available through 2012. The increased Child Tax Credit and Additional Child Tax Credits were extended. In total, there are over two pages of provisions that were extended through 2012. It’s not the 2011 and 2012 provisions that will cause problems for this tax season. The problem arises because Congress did a very unusual thing. They retroactively brought back several provisions that had expired on December 31, 2009. Before the advent of electronic filing, Congress could make changes with very little repercussion right up until December 31. Since returns were completed by hand, the Internal Revenue Service just adjusted the form and issued new written instructions telling taxpayers, tax professionals, and their own employees how to implement the changes. It’s quite a bit more difficult to deal with late […]
Consider 10 items before 2011 Leave it to the Internal Revenue Service to assume the role of the “Grinch who stole Christmas” one more time. They announced last Thursday that due to late changes made by Congress, the IRS will require some extra time to revise their processing software. The extra time means that approximately 16 million taxpayers will see their refunds delayed by up to one full month. Said IRS Commissioner Douglas Shulman, “The majority of taxpayers will be able to fill out their tax returns and file them as they normally do.” However, the 16 million taxpayers who want to claim one of the deductions that Congress added with the passing of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 are not included in this “majority.” For those taxpayers, it may mean they will have to wait until mid- to late-February to have their return processed. If the taxpayer has a balance due, this is no big thing. It is only those taxpayers expecting a refund in late-January that the one-month wait will seem to be interminable. The taxpayers affected include those who claim the $250 teacher’s classroom supplies deduction, the $4,000 tuition deduction, the mortgage insurance premium deduction, and those claiming state sales tax and certain charitable deductions. I’m surprised there are only 16 million affected taxpayers. Spending a refund before it actually is in the bank this year is not a good idea. There are many good ideas available, however. Some will make a refund larger or a balance due smaller, and some will take advantage of an expiring tax provision. The most common strategy available is to accelerate deductions into the current year. By accelerating deductions into December 2010 and then filing the tax return in 2011, the tax benefit is realized quickly. By waiting to make the deduction in 2011 and filing the return in 2012, a whole year elapses before the tax benefit is realized. If you believe in the time value of money, making the deduction in December makes perfect sense. Here are 10 items to consider before the stroke of midnight on December 31: 1. Make a charitable contribution in December that you were going to make in January. Remember that Michigan […]
Bush Tax Cuts extended two years One of the reasons I enjoy writing this article for The Rockford Squire is they graciously allow me to write about areas other than income tax. I have taken advantage of that graciousness to write about a variety of subjects such as fishing in Canada, hunting in Marion, attending sprint car races in Iowa, and traveling with my family to various places around the United States. I do try to use those other topics to segue into the tax world. Sometimes that is a bit of a challenge. As many of you know, I got involved in a different type of challenge this fall. I ran for election to the Rockford City Council. The campaign had its fun moments, but it was hard work also. However, I was successful. I was elected on November 9, and have now attended two council meetings. It has been interesting. I have found that there are many activities going on in the City, including large projects such as Wolverine’s Tannery project and the 10 Mile Corridor project; smaller ones such as the extending of the Nature Trail Boardwalk and working with the Chamber of Commerce on the Santa Parade; and day-to-day activities such as keeping the snow cleared and maintaining the wells for the city water. I am quite impressed with how Michael Young, our city manager, manages all of those projects. After discussing various topics with him and seeing him in action, it is easy to see that we are fortunate to have him as our city manager. I realize his middle name is not Solomon, the wisest man who ever lived, but Michael seems to have made and does make many correct decisions. He runs an efficient ship and has put together a great staff that works well together. Longevity is one of the keys to being efficient and, as I found out at the staff’s Christmas party, there is much longevity at Rockford. Michael is celebrating his 15th year as our city manager. Derek Haan, Michael Miller and Chris Bedford are celebrating their 20th years. Jamie Davies, David Robinson and Jeff Dood are in their 10th years, and Greg Young is in his fifth year of working on the […]
Negotiations to benefit economy Chicago is a great place to spend a weekend. Our daughter, Kim, is working on her master’s degree at DePaul University, so visiting her provides the perfect excuse to go to Chicago and take in some of the sights. On Friday night, we went to the Christkindlmarkt in downtown Chicago. The Christkindlmarkt is an outdoor bazaar that originated in Germany. Knowing the Germans, it most likely was really just a great reason to get together and drink some beer. It has evolved and now has many merchants from many European countries displaying their Christmas wares. Beautiful handcrafted ornaments, Christmas decorations and gifts were available from a variety of countries. We sampled and bought some made-on-the-spot chocolate. Hot, spiced wine was available as well as German beer. It was a clear, cold perfect night for strolling around Daley Plaza. Of course, that changed on Saturday. It was still cold, but the clear went away. It rained all day Saturday so we went inside to the Museum of Science and Industry. Among the attractions we looked at were the Christmas trees on display from around the world. The museum has more trees than Meijer Gardens, but all of us agreed that the Meijer trees are better. When we left, we were greeted by much windier, much colder, and thicker rain that eventually did freeze and then turned to snow. Sunday was brutal and it took us about twice the normal time to get home, but we did get home safely. Friday, on the way down, we did stop at the Cabalas in Hammond. Too bad the Cabalas in Walker was never built. That could have been a destination-type of attraction for Walker. Rockford could use a large destination-type of attraction. Chicago has several attractions to bring people into the area such as the Ferris wheel on Navy Pier, the U-505 German submarine within the Museum of Science and Industry, the Shedd Aquarium, and the Goose Island Brew Pub. I had to throw in the brew pub because we aren’t going to match Chicago on those other attractions, but I believe our city would support a Brew Pub. Sometime in the future, I hope to not have to travel to Chicago, Holland or even […]