Tax News, Rumors, Tax Policy, and Tax Facts!
Fact or Fiction?: The IRS has Suspended Use of the IRS efile PIN to efile your 2016 Tax Return
This is a fact. The IRS is no longer giving the option to obtain online and enter IRS eFile PINs to efile 2016 tax returns. You will need to enter your prior-year Adjusted Gross Income, or AGI to verify your identity with the IRS. If you do not know your AGI from last year and you do not have a copy of your last year's return, you can get the information online or get transcript of your prior year return from the IRS.
Real or Scam?: Is the Call I Received Really From the IRS?
The phone call is a scam. Many people have reported receiving phone calls from the IRS Fraud Division. The caller typically asks for personal information, or tells the victim that they have to send money to the IRS and provides an address.
The IRS has reported that the scam has targeted many recent immigrants, but that other people are at risk for it as well. The callers provide fake IRS identification badge numbers and alter caller ID screen displays to make it appear they are from the IRS. Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting. Victims may also be told they have a refund due to try and trick them into sharing private information.
The IRS notes that there are a few easy ways to tell when someone is impersonating the IRS:
- The IRS never calls you initially; you will receive a notice via certified mail first.
- The IRS never demands immediate payment, and all tax bills are mailed.
- Taxpayers always have the right to question or appeal the amount you owe.
- The IRS never requires specific payment methods like a prepaid debit card.
- The IRS never asks for credit card or debit card numbers over the phone.
- The IRS will never threaten to call local police or law enforcement groups to arrest you for not paying.
Be very wary if you are contacted this way and report any phone calls such as these to the IRS directly.
Some tax scams involve convincing people to make fraudulent, or "frivolous", tax claims. Find out our top 5 frivolous arguments against income taxes.
Will Congress Extend Tax Breaks That May Affect 2014 Tax Returns?
UPDATE: Congress extended expired tax breaks so they can be claimed on 2014 Tax Returns. The details below are for informational purposes only.
In January 2014, up to 55 tax breaks expired. However, there is a possibility that Congress will extend some breaks by mid-December 2014 so taxpayers can claim them on their 2014 tax returns in 2015. Below are five currently expired tax breaks that you may be able to claim on your 2014 return:
- Tuition and Fees Deduction: If you paid for qualifying tuition and fees for yourself, your spouse, or your dependent (even if you paid with a loan), you may be able to deduct up to $4,000 by claiming the Tuition and Fees Deduction. Since it is an above-the-line deduction reported on line 34 of Form 1040, you do not need to itemize to claim it on your tax return.
- Tax-free Distributions from Individual Retirement Plans (IRAs) for Charitable Purposes: If you are 70 1/2 or older and you are required to take minimum distributions from their retirement plans (or face penalties), you may be able to directly donate a certain amount of your IRA funds, tax-free, to qualified charitable organizations. Then, you can claim charitable tax deduction on your return for that donation.
- Nonbusiness Energy Property Credit: If you purchased qualified home improvements and placed them into your existing, primary residence (not a new home) during the year, you may be able to claim the Nonbusiness Energy Property Credit. This credit is worth up to 10% of the purchase price of qualified home energy-efficient products up to $500.
- Tax Deduction for Paid State and Local General Sales Taxes: If you itemize deductions, you may be able to claim itemized deductions for state and local income taxes (though the deduction is generally worthless for states that don't collect income tax, like Texas). Fortunately, Congress passed a temporary provision that allowed taxpayers in all states (including those with no income tax) to deduct state and local general sale taxes paid. Unfortunately, that provision expired when 2013 ended.
- Educator Expense Deduction: If you are an eligible educator (K-12 teachers, counselor, aide, or principal who worked in a school for at least 900 hours during the school year), you may qualify to claim the Educator Expense Deduction. The deduction allows you to claim up to $250 of qualified expenses (up to $500 if filing jointly and both spouses were educators) as an adjustment to gross income.
Read about other expired tax breaks that might be extended!
Is the IRS Slipping on Tax Collections?
According to a recent report from IRS auditor Treasury Inspector General for Tax Administration (TIGTA), that may be the case. The report states that 57% of the time, IRS workers do not follow all the necessary procedures to collect unpaid taxes worth $6.7 billion (such as tracing mailing addresses, motor vehicles, and court records). The TIGTA also added that required Notices of Federal Tax Lien were not sent to taxpayers 7% of the time. The IRS responded to the report saying they were not able to collect the taxes because it couldn't find the taxpayers to verify any records to complete the procedures and send notices to them. Therefore, you may be part of the 43% exception group if you received an IRS notice about your back taxes.
Did you receive a notice or audit from the IRS? Don't panic! Review our IRS Tax Notice, Tax Return Audit, and Audit Appeals guide for step-by-step instructions on what to do about it!
Amazon Starts Collecting California Sales Tax September 15
If you a) shop on Amazon.com, b) plan on shipping your purchases to California, and c) don't want to pay state sales tax, then it's time to make those purchases now! That's because on September 15, Amazon (and other online vendors) will begin charging CA sales tax on all online purchases shipped to the state.
Thirteen other U.S. states are either currently or will be requiring online vendors to collect state sales tax.
Current participating states are:
- North Dakota
- New York
- New Jersey
The following state will begin requiring online sites to collect sales tax in the future:
- South Carolina: January 2016
IRS Pays Whistle-Blower $104 Million
Usually, crimes don't pay. However, for a former banker serving two and a half years in prison for tax evasion, it did. The IRS paid Bradley C. Birkenfeld a $104 million reward for disclosing information on the Swiss banking system, known to be a secret tax haven for Americans. This allowed the U.S. Treasury to collect unpaid taxes worth billions of dollars.
Related tax evasion stories
Gone Phishing - Don't Fall for Fake IRS emails
The IRS has warned of a new wave of email phishing scams, where honest taxpayers are lured into providing personal information by email to criminals posing as the IRS. These scams are simple to avoid, because the IRS never initiates contact by email. The IRS only communicates by regular mail, or by phone if you call them. Do not reply to any email purporting to be from the IRS.
Will IRS Budget Cuts Make Life Harder for Taxpayers?
All of the latest congressional budget proposals for the IRS have been significantly smaller than last year's budget. If a lower budget is approved, the IRS may have to reduce its staff. This would translate into longer hold times on the phone and longer waits for IRS letters, decisions, and maybe even refunds.
Disaster Victims Still Have Time to efile
Did you miss the extended tax deadline due to one of this season's natural disasters? If so, don't worry. Tax extension filers who live in federally declared disaster areas may have extra time to efile this year. The IRS has extended the final tax filing deadline for many of these disaster victims.
Find out more about extended tax deadlines for disaster victims.
Update: Do You Pay Heavy Highway Vehicle Use Tax?
Attention commercial vehicle and truck drivers: if you currently pay the Heavy Highway Vehicle Use Tax, 2011 will not be the last time you pay it. Congress has passed, and the President has signed, an extension of the tax into next year. Now the tax will expire on September 30, 2012. This year, you have until November 30, 2011 to pay it.
If you use a vehicle for business, you can take a deduction for business miles driven.
Extension Filers: efile or File by Oct. 17, 2016 Even if You Can't Pay
If you can't afford to pay your tax bill by April 18, don't let that stop you from filing your return by October 17 if you filed an extension! Why? Because the IRS penalty for filing late is literally 10 times worse than the penalty for paying your taxes late.
Find out the details of IRS penalties for not filing and not paying.
And remember that electronic filing (efiling) is faster and more reliable than paper filing.
Does Jersey Shore Deserve a Tax Break?
The governor of New Jersey doesn't think so. Governor Chris Christie has exercised his right to veto a $420,000 state tax credit that would have gone to the show for filming its first season in the Garden State.
Discover other controversial and unusual tax breaks and tax deductions.
Filing Deadline Extended to Oct. 31 for Disaster Victims
With hurricane damage along the east coast and wildfires in Texas, the IRS is providing some tax relief to victims of recent disasters who had filed tax extensions. The new extended filing deadline (if you already got a tax extension) is October 31.
Find out more about extended filing deadlines for disaster victims.
Paying for After-School Child Care?
Now that the kids have gone back to school, your child care situation may have changed. Be sure to keep track of your after-school care expenses--up to 35% of these expenses may be covered by the Child and Dependent Care Tax Credit.
How Do You Deduct Disaster Losses?
The estimates of Hurricane Irene's total damage are topping $7 billion. If your property was damaged by the hurricane, you may be able to deduct disaster losses that exceed 10% of your AGI. Your loss may qualify if the amount is greater than $100.
To claim disaster losses, you need to itemize deductions and file Form 4684, Casualties and Thefts. You can prepare and efile this form with your tax return on efile.com.
Texas Strip Club "Pole Tax" Upheld
Texas strip club owners were fighting the "pole tax", saying it violated their first amendment rights, but the Texas Supreme Court has upheld the state's Sexually Oriented Business Fee Act, which imposes a $5 per patron tax on any establishment featuring nudity and alcohol. Learn about other strange taxes from the U.S. and from around the world.
Student Taxes 101
Many college students may be facing their first income tax returns this year and have a lot of questions on their minds. Do I even have to file a tax return? What student tax breaks are available to me? Is my scholarship money taxable? Find out the answers to all of your student tax questions in our comprehensive guide to student income taxes and how to file a tax return.
Have You Heard about the Famous Tax Evader Who...?
It is amazing what some rich and famous tax evaders thought they could get away with. Just recently, a professional race car driver blamed his failure to pay $80 million in taxes on an old brain injury. Read about him and other famous tax cheaters and tax evaders.
Do You Pay Sales Tax Online?
One reason a lot of people enjoy shopping online is because they usually don't have to pay state sales taxes. Well, in 7 states, you might have to pay sales taxes for online purchases, depending on where the vendor or certain of its assets is physically located. Those states are Arkansas, California, Connecticut, Illinois, New York, North Carolina, and Rhode Island. But if the bill called the "Main Street Fairness Act" gets voted into law by Congress, all online purchases may become subject to state sales taxes. With an estimated $24 billion in lost revenue at stake, this is an important issue for all states. We will keep you updated as the story unfolds...
August Sales Tax Holidays
In order to stimulate sluggish summer commerce, a bunch of states are having sales tax holidays this August (on certain goods). Here are the states and the dates:
- Alabama (Aug 5-7)
- Arkansas (Aug 6-7)
- Connecticut (Aug 21-27)
- Florida (Aug 12-14)
- Iowa (Aug 5-6)
- Louisiana (Aug 5-6)
- Maryland (Aug 14-20)
- Missouri (Aug 5-7)
- New Mexico (Aug 5-7)
- North Carolina (Aug 5-7)
- Oklahoma (Aug 5-7)
- South Carolina (Aug 5-7)
- Tennessee (Aug 5-7)
- Texas (Aug 19-21)
- Virginia (Aug 5-7)
More Relief for Innocent Spouses
An "innocent spouse", in tax terms, is one who is not responsible for their spouse's or ex-spouse's tax debts from a previously filed joint return. There was a 2-year limit on all requests for innocent spouse relief, even if your spouse had lied to you or been abusive--but the IRS has lifted the limit for new and pending "equitable relief requests".
Learn more about innocent spouse relief.
Follow-Up: A Baseball Fan's Taxes
The goodwill of the fan who caught and returned Derek Jeter's 3,000th hit baseball has been recognized again. Since the Yankees gave him memorabilia worth over $150,000, other companies have come forward to pile on the gifts. Modell's and Steiner Sports have both stepped up to the plate with cash rewards, and Miller High Life has offered to pay the fan's taxes on all of the great stuff he has been given. Though some still believe that the fan's rewards should not be subject to income taxes, only to gift taxes...
What's the Weirdest Tax Deduction You Ever Heard of?
Pet moving expenses? Clarinet lessons? The cost of beer? Find out about these and other unusual but legitimate tax deductions.
Have You Seen the President's Tax Return?
Have you ever wondered what the President's tax return looks like? Since Nixon, the income tax return of the President of the United States has traditionally been made public knowledge. View the Presidents' Tax Returns and historic tax return forms.
Derek Jeter's 3,000th Hit Baseball - Taxable Income or Gift?
The fan who caught the 3,000th baseball hit by Derek Jeter returned the the historic (and instantly valuable) ball to the Yankees, but he was given a collection of memorabilia and some front-row tickets in return. The IRS may expect the fan to pay income taxes on the fair market value of the items he received. But some tax experts believe that the items he received should be considered non-taxable gifts.
New Millionaire Surtax?
A nonbinding resolution has been passed by the U.S. Senate which states that millionaires should contribute more to the deficit reduction effort. A new 3% surtax on people with over $1 million in annual income has been proposed as part of the deficit agreement, but Republicans will not accept any new taxes as part of the deal. Still, this does signal the intent of Congress to wring some new revenue out of millionaires...
See the current income tax brackets and tax rates.
NFL Lockout Could Cost Big Bucks
The Maryland Comptroller has issued a report which estimates that the state stands to lose $40 million in tax revenue if the NFL doesn't play this year. This figure includes income taxes from employees of the Washington Redskins and Baltimore Ravens, sales taxes from the fans, and jock taxes from visiting teams.
Deduct Summer Camp Expenses
Did you know that the cost of sending your child to day camp during the summer can be deductible? You may be able to count summer camp expenses toward the Child and Dependent Care Credit.
See other great summertime tax tips.
Deductible Mileage Rates Increased
The IRS has raised the standard deductible mileage rates for the use of your vehicle for business (or medical) purposes.
Find out the new IRS standard mileage rates.
One Billion efiled Tax Returns
June, 2011, marks the milestone of one billion federal tax returns filed electronically since the IRS-efile program was launched in 1986. As of June, 2011, almost 80% of all individual 2010 Tax Returns had been securely efiled.
Find out the latest efile tax return and direct deposit statistics.
IRS Announces Tax Relief for Residents of Joplin, MO and Other Victims of Recent Disasters
Major tornadoes and flooding have left parts of Missouri and Mississippi devastated. The IRS has granted some relief for residents of the affected counties in the form of extensions of time to file and to pay their taxes.
Learn more about these extended filing deadlines.
Federal Income Taxes versus Federal Debt: A 10 Year Per Capita Comparison
Year 2000: Income Taxes per Capita: $4,500; 2000 Income per Capita: $30,318
Year 2010: Income Taxes per Capita: $2,900; 2010 Income per Capita: $43,000 (est.)
36% less Federal Income Taxes per Capita.
42% more Income per Capita.
Year 2000 Federal Debt per Capita: $19,930
Year 2010 Federal Debt per Capita: $45,520
128% more Federal Debt per Capita.
Year 2000: 5.6 Trillion Federal Debt; U.S. Population: 281 Mil.; Federal Debt per Capita: $19,930
Year 2010: 14.02 Trillion Federal Debt; U.S. Population: 308 Mil.; Federal Debt per Capita: $45,520
How Much We're All Working for the Government
April 12, 2011 will be Tax Freedom Day®. On that day Americans will have earned enough money to pay for their federal, state and local tax obligations. In other words, for 102 days, from 01/01 - 04/12, we are all just working for the government.
Tax Audits Are Up for Upper Income Groups
If your income is above $10 million you are more likely to be audited. Statistics shows that tax audits for higher income earners has increased in the last 4 years. In other words, one in five of America's wealthiest households (or 18.5%) get audited every year. More tax audit statistics.
Average Federal Tax Refund for 2011 Tax Season: $2,985
According to the latest IRS data, the average taxpayer's Federal Tax Refund for the 2011 Tax Season is $2,985. What do most American taxpayers do with their tax refunds? According to a recent survey, 37% of taxpayers would spend their tax refunds; 31% would save some of their refund money; 19% would pay down debt; and a small percentage would put that money into their retirement accounts or their kid's or grandkid's college savings accounts. What would you do?
TIP: The average credit card interest rate for 2010-2011 is 14.43%, so it may be a good idea for you to use your tax refund to pay off your credit card debt -- you could realize a net gain of 14.43%. That is a much better return than the average 0.62% yield from a money market account. There is no tax advantage to holding this debt, since credit card debt cannot be deducted on your tax return next year. Furthermore, paying it off would improve your credit score! Check your tax refund status.
Did You Live in the United Kingdom? You Might Qualify for a UK Tax Rebate
Every year, many US citizens live in the United Kingdom to work or to study. Many Americans travel on a temporary basis – on a short term visa, or to complete a university course - before returning home. If you worked or studied in the UK, you very well may have paid some income taxes while you were there. The good news is that when you return to the United States, you may be eligible for a tax rebate for the taxes you paid to the United Kingdom. Find out more details (and if you might qualify for) a UK Tax Rebate.
Tax Cut Extension Passed
A compromise on the Bush tax cuts has been passed by both the Senate and the House, and was signed into law by President Obama. The compromise extends many tax breaks for all Americans (even the wealthiest) and introduces a few new provisions. Here is an overview of the key provisions:
- Social Security paycheck withholdings will be reduced by 2% (from 6.2% to 4.2%) for all workers in 2011. Employers will begin using new withholding tables by the end of January, 2011.
- The Estate Tax exemption amount will be $5 million, and the tax on any amount above that will be 35% through 2012.
- Executors of 2010 estates may elect to use the 2010 or 2011 tax rules for estates and capital gains.
- The Estate, Gift, and Generation-Skipping Transfer Taxes will be unified so that a single exemption amount of $5 million per individual applies to all three taxes combined.
- Income tax brackets and tax rates will remain the same through 2012.
- The standard deduction for married filers will remain high enough to allow couples to avoid the "marriage penalty" through 2012.
- The Alternative Minimum Tax has been patched through 2011, and retroactively to January, 2010.
- The Earned Income Credit will remain at rates generous to low-income families through 2012.
- The Child Tax Credit will remain at $1,000 through 2012.
- The student tuition deduction has been extended through 2011.
- The American Opportunity Credit for education has been extended through 2012.
- Coverdell Educational Savings Account contribution limits will remain at $2,000 (instead of falling to $500) through 2012.
- The teacher expense deduction of $250 has been extended through 2011.
- State and local sales taxes may continue to be deducted instead of state and local income taxes through 2011.
- Personal exemption phaseouts and the income-based limit on itemized deductions (the "Pease limitation") will stay repealed through 2012.
- The tax on long-term capital gains and dividends will remain at an all-time low of 15% (and 0% for those earning under a certain amount) through 2012.
- Taxpayers older than 70 1/2 may still make tax-free donations of IRA funds, avoiding taxes on required distributions, through 2011.
- Unemployment benefits will be extended for many taxpayers through 2011.
- Several business tax credits and deductions have also been extended.
- The Making Work Pay Credit will be allowed to expire. (It is replaced by the 2% Social Security tax reduction, which benefits more Americans, but benefits those earning under $20,000 less than the Making Work Pay Credit did.)
- Real estate taxes may no longer be added to the standard deduction of a non-itemizer.
Possible Bipartisan Compromise on Bush Tax Cuts
Democrats and Republicans on Capitol Hill have reportedly reached a compromise on the question of the expiring Bush tax cuts. The highlights of the proposal include the following:
- The expiring tax cuts will be extended for 2 years for all taxpayers--there will be no income limits.
- Unemployment benefits will be extended for many out-of-work taxpayers.
- Social Security taxes will be reduced by 2% for all workers for 1 year.
- The Estate Tax will be reinstated at 35% for estates worth over $5 million.
- New tax breaks for businesses will be introduced.
The compromise has been approved by President Obama, but it must still make its way through the House and the Senate before becoming law. Watch this page for updates!
Key Tax Recommendations of Obama's Debt Commission
President Obama's bipartisan debt panel has issued its final report, which makes a number of points about government spending, social security, and taxes. The major tax-related recommendations are:
- Lower all income tax brackets.
- Eliminate the Alternative Minimum Tax.
- Eliminate most tax credits, with the exception of the Earned Income Credit and the Child Tax Credit.
- Reduce or eliminate most tax deductions.
- Increase the percentage of worker income subject to payroll taxes.
- Increase federal gas taxes.
- Tax capital gains and dividends at ordinary income tax rates.
- Lower corporate tax rates, but eliminate most business deductions.
Undelivered Tax Refund Checks Total $164.6 Million
Every year the IRS has thousands of refund checks returned to them because of incorrect mailing addresses. This year 111,893 taxpayers are due a refund which has gone undelivered because the IRS has the wrong address on file. The average amount of these refund checks is $1,471, which is 28% higher than last year's returned check average. The IRS recommends using electronic filing and direct deposit to ensure the proper delivery of your tax refund money. Using efile paired with direct deposit will also guarantee a faster refund.
Find out how to claim your undelivered tax refund check.
Treasury Secretary Geithner Supports Tax Code Reform
There is growing support in Washington for a complete overhaul of the tax code. At the end of every year, Congress scrambles to patch and extend certain tax laws. If the Bush tax cuts are extended, this annual exercise could include the basic tax rates. Treasury Secretary Timothy Geithner told the Wall Street Journal, “It’s not a sensible way to run a country to have this magnitude of tax issues left to annual uncertainty.”
Finally a Tax Break on Which Both Parties Can Agree -- Fix the AMT
On November 9, 2010, the leading Democrats and Republicans from both the House and Senate Tax Committees sent a letter to IRS Commissioner Doug Shulman assuring him that Congress is working on a bill to patch the Alternative Minimum Tax (AMT) for 2010. Of course, the letter was really meant for the American people, particularly the 20 million or so taxpayers who are in danger of getting hit with the AMT.
Frequently referred to as the "Wealth Tax", the AMT was originally targeted at wealthy people who were able to take advantage of so many tax breaks that they ended up owing no income taxes. Because the income thresholds which require someone to pay it are not adjusted for inflation, the AMT affects more and more middle-income taxpayers each year. So, to keep the Wealth Tax from hitting so many people so hard, temporarily patching this particular piece of the tax code has become something of an annual ritual for Congress. But an AMT patch will not come cheaply--it will reduce total tax revenue by an estimated $70 billion.
Learn more about the Alternative Minimum Tax.
Tax Humor: "A tax bomb! Quick, rich people, to your tax shelters!." -Stephen Colbert on the expiring Bush tax cuts
The Expiring Bush Tax Cuts: Forget the Politics and Find Out What It All Means To You!
How will it affect you and your taxes if the so-called Bush tax cuts are allowed to expire? What if the Bush tax cuts are extended? What will happen to your taxes if a compromise is reached, such as the Democratic plan or the Republican plan? Click the link below to see how each of these potential tax scenarios may affect you depending on your filing status, income level, household size, and family situation.
Find out how the expiration of the Bush tax cuts and other tax scenarios may affect you
Tax Quote: George W. Bush on the Today Show
"First of all, it’s too bad they call them the Bush tax cuts. They might have a better chance of being extended if they were the Lauer tax cuts."
Tax Fact: Your Taxes and the Federal Government Debt
Did you know that the US Gov. is adding about $170 Million more debt per hour or about $2.8 Million per minute!
Total US Government Debt as of 10/28/2010: $13,673,749,566,734.10
Tax Humor: "You don't pay taxes. They take taxes." -Chris Rock
Tax Politics: Republicans Have Promised to Cut the Budget... So Why Not Start with Their Pay Raises?
Now that Republican candidates have scored some hefty victories in the November 2010, elections, they can start fulfilling some of their campaign promises, right? One major Republican promise to taxpayers has been a vow to cut government spending. Some tax advocate organizations, such as the National Taxpayers Union, have suggested that an easy way to cut spending would be for Congress to give up their pay raises next year. For example, Speaker of the House John Boehner makes an annual salary of approximately $223,500. To give some of that up would be a meaningful symbolic gesture as well as a practical cost-cutting measure!
Economy Fact: Number of Failed Banks Still High
Year: 2007 - 3 banks with Total Assets $2,602,500,000 and a loss to FDIC's DIF $113,000,000
Year: 2008 - 25 banks with Assets of $373,588,780,000 and a loss to FDIC's DIF $15,708,200,000
Year: 2009 - 140 banks with Assets of $170,867,000,000 and a loss to FDIC's DIF $36,432,500,000
YTD: 2010 - 127 banks with Assets of $87,312,800,000 and a loss to FDIC's DIF $20,175,600,000
No More IRS Tax Form Tax Packages in the Mail
Don't expect any Tax Form Packages for Tax Year 2010 in the mail around January, 2011. Efiling has become so popular that the IRS has decided to stop mailing out paper Tax Packages to individuals and businesses. So if you don't want to make the trek to a library or post office, you will have only two options: Download your tax forms or just prepare and efile your taxes online. Since 1990, the IRS has securely processed nearly 1 billion tax returns that were efiled safely online.
Tax Humor: "The nation should have a tax system that looks like someone designed it on purpose." -William Simon
Tax Rumor: No Payroll Tax Holiday for Employers?
The Congressional Budget Office says a payroll tax holiday would be a more effective stimulus for the economy than a decrease in the income tax. If employers got a break on employment taxes, they would probably be more likely to start hiring again--and decreasing unemployment may be the only sure way to get the economy rolling again. So why are both parties in Congress stuck on debating the Bush-era tax cuts? Because a payroll tax holiday would temporarily increase the deficit, and that is seen as political suicide.
A Better Adoption Credit, Thanks to the Affordable Care Act
A provision of the Affordable Care Act which expands the Adoption Credit has gone into effect. The new Adoption Credit can now be claimed on 2010 Tax Returns, to be filed in 2011. The maximum amount of the Adoption Credit has been increased to $13,170 per child (it was $12,150 in 2009) and the whole thing is now refundable, which means the credit doesn't just reduce your taxes--you will get the money back in your tax refund, even if you didn't owe any taxes for the year.
The only catch is that the documentation requirements have also been expanded. To claim the revised credit, you will have to file the brand-new Form 8839, Qualified Adoption Expenses (only available in draft form as of October, 2010), and include additional adoption-related documents. What this means is that if you want to claim the new Adoption Credit on your 2010 Tax Return, you will not be able to file online. But don't worry; you can still use a service such as efile.com to easily prepare your taxes online and then just print out your tax forms for mailing.
Learn more about the Adoption Credit
Tax Humor: "On my income tax 1040 it says 'Check this box if you are blind.' I wanted to put a check mark about three inches away." -Tom Lehrer
Tax Policy: More than 100 Tax Breaks in Limbo
Since Congress has decided to adjourn until November, they have made tax planning difficult for the rest of us. There are over 100 different tax breaks that have either already expired or are scheduled to expire at the end of the year. Some will affect next year's taxes, but many will impact our 2010 Tax Returns (which we will be filing in 2011). Many of the expired tax breaks are likely to be resurrected ("extended") by Congress and will apply to this year's tax returns.
Only some of the expiring tax breaks are part of the Bush-era tax cuts; others were part of Obama's Recovery Act, and some are still on the books by virtue of having been regularly extended year after year. Congress is in the habit of putting off these so-called "tax extenders" until the last minute, so stay tuned and we'll see what tax breaks ultimately get extended and which ones are left to expire.
Tax Humor: "Worried about an IRS audit? Avoid what's called a red flag. That's something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That's a red flag." -Jay Leno
Tax Myth: Higher Taxes Will Reduce the Deficit (FALSE)
President Obama has stated that his goal is to reduce the annual deficit to 3% of GDP by 2015. That's a pretty big drop -- the 2010 deficit is already expected to be about 9% of our GDP. It's hard to see how that kind of reduction can be possible under Obama's proposed budget, or under any conceivable budget that would be acceptable to the American people. According to the Tax Policy Center, income taxes would have to be raised by close to 40% for all taxpayers in order to reduce the deficit to 3% of GDP by 2015. If taxes were only raised for individuals making more than $200K and couples making over $250K, their tax rates would have to increase by more than 50%. The highest earners would have to be taxed at a rate of almost 80%.
Tax Fact: Income Taxes Down
Individual income taxes fell in 2008, by an average of $84 per tax bill. The top 5% of earners earned 34.7% of the nation's total Adjusted Gross Income and paid a whopping 58.7% of all federal individual (not business) taxes collected.
Tax Humor: "A taxpayer received a strongly worded 'second notice' that his taxes were overdue. Hastening to the collector's office, he paid his bill, saying apologetically that he had overlooked the first notice. 'Oh,' confided the collector with a smile, 'we don't send out first notices. We have found that the second notices are more effective'". -Dave Barry
Tax Policy: Expiring Tax Cuts to Hit Low-Income Workers Hard
We all know the Bush-era tax cuts of 2001 and 2003 helped the wealthy pay less taxes. But what a lot of people don't realize is that the tax cuts were also of immense benefit to lower-income earners. If the tax cuts are not extended, the following benefits will revert to their pre-2001 status:
- The 10% tax bracket will vanish, making the lowest tax bracket 15%.
- The standard deduction for married couples filing jointly will decrease to less than twice the standard deduction for single filers. This is one aspect of the old "marriage penalty" which may be resurrected.
- The Child Tax Credit will be cut in half and a much smaller portion will be refundable, and refunds will only be available to families with 3 or more children.
- The Earned Income Credit will phase out at lower incomes for married filers. This means that married couples may find they make too much money to qualify for the EIC if they combine incomes. This is another aspect of the old "marriage penalty" returning to haunt us.
New Federal Tax Lien Relief
The IRS has implemented an expedited process that will make it easier for financially distressed homeowners to avoid a federal tax lien that would block the refinancing of a mortgage or the sale of a home.
Learn more about tax liens on mortgages and federal tax lien relief
Tax Consequences of Bankruptcy and Insolvency
This year has been financially brutal for many taxpayers. It is important to know the tax ramifications of bankruptcy or insolvency.
Learn more about bankruptcy and insolvency
Mortgage Forgiveness Debt Relief Act
The IRS has reassured homeowners that although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax consequences for financially-strapped taxpayers who have lost their homes. If you find that you owe additional tax due to a home foreclosure or mortgage refinancing, you may request a payment agreement with the IRS. In some cases, eligible taxpayers may qualify to settle their debt for less than the full amount through an offer-in-compromise.
Learn more about canceled or forgiven debt and mortgage debt relief
Report Foreign Income
The IRS and U.S. Treasury have released tax guidance for United States citizens and residents living and/or working abroad.
Learn more about earning foreign income and paying foreign taxes
Need a Copy of an old W-2?
If you are still working for the same employer, simply request the W-2 from them. If the W-2 is from a previous employer, you may call 800-829-3676. You will need to provide as much information as you have about the employer from whom you need the W-2 (even if they have gone out of business). In addition, you may want to call the Social Security Administration (SSA) at 800-772-1213 for help with obtaining wage information and other W-2 data.
New Electronic PIN Signature Requirements
The Internal Revenue Service has simplified the electronic filing (efile) signature process. Using a PIN eliminates the need for a paper signature document to be sent to the IRS in support of electronically filed tax returns.
Learn more about PIN Signatures
Poker Tournament Winnings Must Be Reported to the IRS
Casinos and other sponsors of poker tournaments are generally required to report gambling winnings to the Internal Revenue Service. This requirement was designed to clear up confusion about the tax reporting rules that apply to poker tournaments. In recent years, some casinos and players have been confused over whether poker tournament sponsors who hold the money for participants in a poker tournament are required to report the winnings to the IRS and withhold tax on the winnings. Winners are also frequently confused about whether they have to pay taxes on their winnings and about how much they must report.
Learn more about reporting and paying taxes on gambling winnings
IRS Announces Pension Plan Limitations
Every year, the IRS announces the costs of living adjustments applicable to dollar limitations for pension plans and other items. Section 415 of the Internal Revenue Code requires that the IRS annually adjust these limits for cost of living increases.
Learn more about pension plan limitation amounts
IRS Warns of New Email Scams
The IRS has alerted taxpayers to the latest versions of an email scam intended to fool people into believing they are under investigation by the agency's Criminal Investigation division. The email purports to be from the IRS and falsely states that the person is under a criminal probe for submitting a false tax return to the California Franchise Board. The email seeks to entice people to click on a link or open an attachment to learn more information about the complaint against them. The IRS warned people that the email link and attachment is a Trojan Horse that can take over the person's computer hard drive and allow someone to have remote access to the computer. The IRS states that they will never initiate contact with any taxpayer via email. You should generally not even open an email that purports to be sent from the IRS.
Learn more about email scams