Taxes

This news article is by Ashlea Ebeling and Janet Novack from partner Forbes:

 

The big stimulus bill that Congress passed last year included a tax break called the "Making Work Pay" credit. As it turns out, a more accurate name would have been simply the "Making Work" credit.

 

Recently retired seniors and some who work part-time are having their electronically filed returns claiming this credit rejected by the Internal Revenue Service's computers in large numbers.

 

Why? The credit -- usually paid through lower tax-withholding rates of $400 per worker (or $800 per couple) -- is supposed to be reduced by the also-new $250 per person (or $500 per couple) "Economic Recovery Payment" sent to Social Security recipients and veterans on disability. Supposedly, the senior filers didn't accurately state whether they got the $250 payment when filling out the new Schedule M for the Making Work Pay credit.

 

By Joe Mont, TheStreet

 

President Barack Obama's proposed budget would shift $112 billion away from the nation's top earners in 2012, according to the Tax Foundation, a nonprofit organization that monitors federal and state fiscal policies.

 

The group analyzed the impact of the 10-year budget proposal on various income groups. The study, released last week, said higher-income families would lose the most because of the expiration of Bush administration tax cuts and the proposed 28% cap on certain deductions. Low-income and middle-class families stand to benefit from the redistribution.

 

"We asked two simple questions," says Tax Foundation Senior Economist Gerald Prante, co-author of the report. "'How much in federal taxes does a given income group pay under a given set of tax policies?' and 'How much in federal taxes would that income group pay under a benefit principle system of taxation, in which a family's tax share is equal to its share of government spending benefits?'''

 

 

Before the real estate market cratered, it was fashionable to buy an old home on a huge lot, tear down the building and construct a new McMansion. Since this was a personal expense, the destruction of the old house was not deductible.

 

Then, some taxpayers got creative.

 

It seems that many fire departments need homes to practice their search-and-rescue procedures, sharpen their firefighting techniques and test their equipment. Give your old house to the fire department to torch and you’ve made a deductible charitable contribution. You’ve also cleared your land for your new McMansion.

 

With Toyota's troubles, General Motors and Ford are hoping to get new customers who now want to give the domestic car makers another shot.

 

And some of those who might have had their hearts set on a Prius are perhaps looking at other hybrid options.

 

If you are a Blue Oval fan, then you might want to go shopping for a fuel-efficient Ford sooner rather than later.

 

OK – I confess.

 

I like pushing the envelope, as long as I stay well within the sometimes elastic boundaries of fraud.

 

Here’s an idea that I like because it’s clearly legal and very simple to understand:

 

Borrow $100,000 secured by the equity in your home. The interest on a home equity loan of up to $100,000 is deductible. The IRS doesn’t care what you do with the money.

 

Let’s assume you borrow $100,000 at 5%. You pay interest of $5,000. But, if you’re in the 35% bracket, your tax bill shrinks by $1,750. So, you’re really only out of pocket $3,250.

 

Now take that $100,000 and invest it in a stock with a 4% dividend yield. That puts only $4,000 in your pocket.

 

Every year you have to make a decision -- itemize your deductions or take the standard deduction.

 

The answer was normally simple. Elect the one that gives you the biggest deduction.

 

But, this is the year for hybrids, and that now applies to the standard deduction as well. Instead of a simple flat number, the new supercharged 2009 standard deduction is a mixture that includes expenses only allowed in the past if you itemized.

 

This article comes from Ashlea Ebeling at partner site Forbes:

 

A new study suggests that states that target the rich for tax hikes may pay a stiff price.

 

It's not just that some wealthy people may flee those states. The bigger problem is that they won't move there.

 

At least that's the implication of a new analysis of wealthy folks' movements into and out of New Jersey from 1999 through 2008. In all, the state suffered a $70 billion net outflow in wealth from 2004 through 2008, compared with a $98 billion net inflow in the prior five years. The Garden State's reversal in fortune was due to a large drop in the number of wealthy households entering the state and a moderate increase in the number of wealthy households leaving.

 

I make a lot of money filing tax returns -- almost enough to cover my daughter Allison’s charge bills for January.

 

But sometimes credibility is more important than greed, even if I am an attorney. Please don’t let this out or I’m going to be tarred, feathered and banned from all future Bar Association meetings.

 

You don’t have to pay huge accounting fees just to put numbers in boxes. In fact, if you had less than $57,000 in income in 2009, you can file your federal income tax return free at the IRS website, www.irs.gov.