Posted by taxdrz on Friday, March 18th, 2011 , Posted in Tips , No Comments »
Many people may wish to contribute to relief funds for the victims of Japan’s recent earthquake and tsunami.
The IRS reminds taxpayers there are some simple steps they can take to ensure that their contributions go to qualified charities. Taxpayers who have a specific charity in mind can make sure that it is a qualified charity by doing a search on IRS.gov. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov.
The IRS reminds donors that contributions to foreign organizations generally are not deductible.
To get a tax benefit for making a charitable contribution, taxpayers must itemize their deductions on Schedule A for the year in which they made the contribution.
IRS Publication 526, Charitable Contributions, provides information on making contributions to charities. Publication 3833, Disaster Relief: Providing Assistance through Charitable Organizations, explains how the public can use charitable organizations to help victims of disasters, and how new organizations can obtain tax-exempt status. Both publications are available on IRS.gov.
Posted by taxdrz on Monday, March 14th, 2011 , Posted in General Knowledge, Taxes , No Comments »
CONCORD, N.H. — Bucking a national trend of raising cigarette taxes, New Hampshire, New Jersey and Rhode Island have considered reducing theirs, hoping to draw smokers from other states and increase revenue.
Supporters argue reducing the tax by a dime would make New Hampshire more competitive with Maine, Vermont and Massachusetts, while opponents say that even if the state experienced higher sales as a result it still would lose millions of dollars in revenue.
It’s very unusual for states to lower the tax, University of Illinois at Chicago economics professor Frank Chaloupka says. The increase in sales isn’t enough to offset the drop in state tax revenue, he says.
Instead of lowering the tax, states have enacted 100 increases over the past decade, he says.
“New Hampshire has been going in the same direction as the rest of the country, basically forever,” Chaloupka said.
New Hampshire raised its tax repeatedly since Democratic Gov. John Lynch took office in 2006, increasing it from 52 cents per pack in 2005 to $1.78 currently.
That changed Thursday, when the state House passed a bill that would cut the rate 10 cents to $1.68 per pack in hopes of attracting smokers from surrounding states with higher taxes. Rhode Island’s bill would cut its tax by $1, to $2.46 per pack. New Jersey last year considered reducing its tax 30 cents, to $2.40 per pack, but hasn’t followed through on it.
New Hampshire Senate Finance Chairman Chuck Morse says he believes the Senate will support the cut.
“I think it’s a positive sign for business. I think it will provide revenue in the long run,” said Morse, a Republican who lives in Salem.
If approved by the Senate, the cigarette tax cut bill would go to the governor, who doesn’t support it. But the House and Senate, led by Republicans, could override a veto by the governor, saving cigarette smokers 10 cents a pack.
Smoker Aaron Evans stopped Thursday at a convenience store in Haverhill, Mass., for a sandwich and a pack of Marlboro cigarettes. The pack cost him $7.13. A couple of miles away, a bigger pack of the same smokes would cost him $5.99 at a market in New Hampshire, which already has significantly lower taxes than Massachusetts.
Evans, 25, welcomed any move to make smokes cheaper but said a dime a pack wouldn’t make him change his buying habits.
“You gotta average it out,” he said. “I could either drive all the way over to New Hampshire and waste the gas – it kind of evens it out.”
New Hampshire has historically looked to export its tax burden – and any resulting health costs – to other states through taxes on products such as tobacco and alcohol it sells to its residents.
“That’s always been the way we run our tax structure,” said Mike Rollo, spokesman for the American Cancer Society in New Hampshire. “We’ve always tried to tax people from out of state.”
Danny McGoldrick, research director for the Campaign for Tobacco-Free Kids, said other states aren’t cutting their tax rates in these tough fiscal times because they need the money. Raising the tax, he said, produces revenue despite resulting in a desired decrease in the number of smokers.
“These smoking declines, of course, save lives and health care dollars as well,” he said.
The New Hampshire Grocers Association has consistently criticized the tax increases as hurting small businesses, particularly along New Hampshire’s state line.
Association President John Dumais said Thursday that cutting the rate a dime would cost the state tobacco tax revenues but would result in an offsetting increase in state taxes collected from people renting hotel rooms, eating in restaurants, buying alcoholic beverages, buying lottery tickets and buying gasoline. The net result would be no loss of revenue to the state but an incentive for tourists to visit the state to shop, he said.
“People coming from out of state are going to have an empty gas tank. They’re going to be hungry. They’re going to be tired,” he said. “It’s going to help every business.”
State Rep. Patrick Abrami, R-Stratham, made that argument successfully during the House debate.
“We have reached the tipping point,” he said. “We are hurting our merchants. We are losing sales on our borders.”
But state Rep. Christine Hamm, a Hopkinton Democrat, called the move “fiscally stupid.”
“No state has cut their tobacco tax and seen a revenue increase,” she said.
The House voted 236-93 to send the bill to the Senate anyway.
Lynch spokesman Colin Manning, who said the governor doesn’t support the tax cut, pointed out New Hampshire’s tax rate already is the lowest in the region.
Massachusetts’ tobacco tax rate is $2.51 per pack; Maine’s is $2; Vermont’s is $2.24; Connecticut’s is $3; and Rhode Island’s is $3.46. Unlike the other states, New Hampshire has no sales tax.
Manning said the House is considering making much deeper budget cuts than Lynch proposed “and now with this action today it raises the question of what else they are going to cut.”
Posted by taxdrz on Sunday, March 13th, 2011 , Posted in Tips , No Comments »
The Affordable Care Act was enacted on March 23, 2010. It contains some tax provisions that take effect this year and more that will be implemented during the next several years. The following is a list of provisions now in effect; additional information will be added to this page as it becomes available.
Small Business Health Care Tax Credit
This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers.
Changes to Flexible Spending Arrangements
Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan. A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions for 2011.
For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and our questions and answers.
FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5.
IRS partners can spread the word to their clients with the help of a Health Plan Changes flyer and a drop-in article, Does your Healthcare Program need a checkup?
Health Coverage for Older Children
Health coverage for an employee’s children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice.
Excise Tax on Indoor Tanning Services — First Quarterly Payment Due Nov. 1, 2010
A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. The first payment of the tax was due Monday, Nov. 1. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn’t apply to phototherapy services performed by a licensed medical professional on his or her premises. There’s also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it will be administered, see our news release, video, questions and answers and legal guidance.
Employer-Provided Health Coverage — Not Taxable; Reporting Requirement Optional in 2011
Starting in tax year 2011, the Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee’s annual Form W-2. However, to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with this requirement, the IRS will defer the reporting requirement for 2011, making that reporting by employers optional in 2011.
The revised Form W-2 for 2011 is now available in draft for viewing. This is the W-2 that most employees will receive in early 2012. The draft form includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan.
This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable.
Adoption Credit
The Affordable Care Act raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. It also makes the credit refundable, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply. In addition to filling out Form 8839, Qualified Adoption Expenses (see instructions), eligible taxpayers must include with their 2010 tax returns one or more adoption-related documents to avoid slowing down a refund.
For other information, see our news release, tax tip, questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31 and Revenue Procedure 2010-35.
Qualified Therapeutic Discovery Project Program
This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance describes the application process.
Submission of certification applications began June 21, 2010, and applications had to be postmarked no later than July 21, 2010, to be considered for the program. Applications that were postmarked by July 21, 2010, were reviewed by both the Department of Health and Human Services (HHS) and the IRS. All applicants were notified by letter dated October 29, 2010, advising whether or not the application for certification was approved. For those applications that were approved, the letter also provided the amount of the grant to be awarded or the tax credit the applicant was eligible to take.
The IRS published the names of the applicants whose projects were approved as required by law. Listings of results are available by state.
Learn more by reading the IRS news release, the news release issued by the U.S. Department of the Treasury, the page on the HHS website and our questions and answers.
Group Health Plan Requirements
The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Other information on requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.
Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers
The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption under section 501(c)(29) for recipients of CO-OP grants and loans that meet additional requirements. IRS Notice 2011-23 outlines the requirements for tax exemption under under section 501(c)(29) and solicits written comments regarding these requirements as well as the application process. Comments must be submitted by May 27, 2011.
An overview of the CO-OP program is available on the Department of Health and Human Services website.
Medicare Part D Coverage Gap “donut hole” Rebate
The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at www.medicare.gov.
Additional Requirements for Tax-Exempt Hospitals
The Affordable Care Act adds requirements in the Internal Revenue Code that tax-exempt hospitals must meet to maintain their tax-exempt status. IRS Notice 2010-39 described the new requirements and solicited public comments. Due to changes to IRS forms and systems to reflect the additional requirements for charitable hospitals, the start of the 2010 filing season for hospital organizations is delayed. Tax-exempt organizations that are required to file Form 990, Schedule H (Hospitals), may not file their 2011 Forms 990 before July 1, 2011. The 2010 Form 990 and Schedule H include new questions relating to the new requirements that are in effect for tax years beginning after March 23, 2010, addressing the financial assistance, emergency medical care, billing and collection policies and charges for medical care.
Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers
The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. More information can be found in Notice 2010-71 and Notice 2011-9, which provide proposed guidance and solicit comments on the new fee, and on Form 8947, Report of Branded Prescription Drug Information.
Modification of Section 833 Treatment of Certain Health Organizations
The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. Guidance can be found in Notice 2011-04, which provides procedures for a taxpayer to obtain automatic consent to change its method of accounting for unearned premiums.
Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers
The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. Initial guidance on the application of this provision can be found in Notice 2011-2, which also solicits comments on the application of the amended provision.
Posted by taxdrz on Saturday, March 12th, 2011 , Posted in General Knowledge, IRS, Taxes , No Comments »
In targeting the medical marijuana industry, the IRS is pursuing action that could send shockwaves through the medical marijuana industry — or even destroy it completely.
The IRS is thought to have begun audits on at least 12 medical marijuana dispensaries in California under the determination that past business deductions are invalid because of a clause in the federal tax code prohibiting any business that traffics in Schedule I or II drugs from making business deductions on their tax returns. The move could bankrupt every dispensary that it targets. The first dispensary to receive a final audit decision from the IRS is the Marin Alliance for Medical Marijuana (MAMM) in Fairfax, Calif.
Posted by taxdrz on Thursday, March 10th, 2011 , Posted in Tips , No Comments »
WASHINGTON — The Internal Revenue Service today unveiled IRS2Go, its first smartphone application that lets taxpayers check on their status of their tax refund and obtain helpful tax information.
“This new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it,” said IRS Commissioner Doug Shulman. “As technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information.”
The IRS2Go phone app gives people a convenient way of checking on their federal refund. It also gives people a quick way of obtaining easy-to-understand tax tips.
Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.
“This phone app is a first step for us,” Shulman said. “We will look for additional ways to expand and refine our use of smartphones and other new technologies to help meet the needs of taxpayers.”
The mobile app, among a handful in the federal government, offers a number of safe and secure ways to help taxpayers. Features of the first release of the IRS2Go app include:
Get Your Refund Status
Taxpayers can check the status of their federal refund through the new phone app with a few basic pieces of information. First, taxpayers enter a Social Security number, which is masked and encrypted for security purposes. Next, taxpayers pick the filing status they used on their tax return. Finally, taxpayers enter the amount of the refund they expect from their 2010 tax return.
For people who e-file, the refund function of the phone app will work within about 72 hours after taxpayers receive an e-mail acknowledgement saying the IRS received their tax return.
For people filing paper tax returns, longer processing times mean they will need to wait three to four weeks before they can check their refund status.
About 70 percent of the 142 million individual tax returns were filed electronically last year.
Get Tax Updates
Phone app users enter their e-mail address to automatically get daily tax tips. Tax Tips are simple, straightforward tips and reminders to help with tax planning and preparation. Tax Tips are issued daily during the tax filing season and periodically during the rest of the year. The plain English updates cover topics such as free tax help, child tax credits, the Earned Income Tax Credit, education credits and other topics.
Follow the IRS
Taxpayers can sign up to follow the IRS Twitter news feed, @IRSnews. IRSnews provides the latest federal tax news and information for taxpayers. The IRSnews tweets provide easy-to-use information, including tax law changes and important IRS programs.
IRS2Go is the latest IRS effort to provide information to taxpayers beyond traditional channels. The IRS also uses tools such as YouTube and Twitter to share the latest information on tax changes, initiatives, products and services through social media channels. For more information on IRS2Go and other new media products, visit www.IRS.gov.
Posted by taxdrz on Monday, March 7th, 2011 , Posted in General Knowledge, Taxes , No Comments »
South Carolina state Senate approved an immigration bill similar to SB-1070 — the controversial Arizona legislation that was signed into law by Gov. Jan Brewer (R). However, South Carolina’s version, S-20, contains a few extra provisions that were not included in Arizona’s bill. One of the most troubling additions is a provision which creates the Illegal Immigration
South Carolina’s proposed Arizona-style immigration bill, passed last week by the Senate, would do more than require police to check the immigration status of anyone they suspect might be in the country illegally — it would also create a whole new police force to patrol the state’s borders.
Called the Illegal Immigration Enforcement Unit, the squad of officers would have their own insignia, patrol cars, uniforms and statewide jurisdiction while operating within the Department of Public Safety, but outside the S.C. Highway Patrol.
Given that it is probably pretty expensive to set up a whole new police force, South Carolina legislators decided to pay for the Illegal Immigration Enforcement Unit by taxing international wire transfers. Tammy Besherse of the South Carolina Appleseed Legal Justice Center believes that lawmakers are trying to tax undocumented immigrants who are sending money home to their families. Besherse also doubts that the tactic will work. “I assure you people are going to be smart and figure out some other way to send money home so they don’t get taxed,” she says. “So what happens when that funding source goes away? Then your funding source is going to dry up and you’re going to have to take it out of the general budget and cut other services that taxpayers may prefer.”
There are a couple of other problems with the tax. First of all, the whole purpose of the law is to drive undocumented immigrants out of the state. So, if S-20 actually fulfills its objectives, there would presumably be no one to tax under the logic that Besherse presents.
Yet, the thing is, undocumented immigrants are not the only people sending money wire transfers abroad. There are a lot of legal immigrant families (my own included) which send money back to their home countries through wire transfers as well. Although it’s estimated that 75 percent of business to business wire transfers are domestic, that still means that the remaining 25 percent could be taxed by South Carolina under this law. Ultimately, unless South Carolina wants to force wire transfer companies to verify the immigration status of their customers, a lot of other people who aren’t undocumented immigrants will have to deal with the economic burden of the tax.
Meanwhile, South Carolina state lawmakers reportedly have no idea how much an Illegal Immigration Enforcement Unit is even going to cost.
Posted by taxdrz on Saturday, March 5th, 2011 , Posted in General Knowledge, Tax News , No Comments »
In the summer of 2009, Illinois governor Pat Quinn cobbled together bipartisan support for a $31 billion capital spending bill. The ambitious legislation provided funding for construction projects around the state, and created funding sources for the bill by opening the door to video poker and raising taxes on candy and alcohol.
So ambitious was the bill, in fact, that it was ruled unconstitutional late this January. A decision by the Appellate Court dealt a stunning blow to Quinn and the legislature by ruling that the law violated the state constitution by dealing with too many things at once. The “single-subject” rule in the Illinois Constitution (section 8(d)) forbids bills to deal with multiple issues that have no logical connection.
The state is scrambling to appeal the case to the Supreme Court. Meanwhile, though, construction season is about to start, and some lawmakers are concerned about the possibility of missing the season for lack of funding.
So, Illinois Senate President John Cullerton is proposing a new revenue stream to pay for this year’s projects: an increase in the cigarette tax.
“The construction program is too important to risk delays,” Cullerton spokesman John Patterson said, according to the Chicago Tribune. He’s hoping that revenues from the tax increase on smokers will pay for this year’s construction projects while the courts and legislature sort out the broader funding picture for the bill.
A similar measure passed in the Senate earlier this year, intended to provide funding for public schools, but it was voted down in the House by a 51-66 margin, the Sun-Times reports.
Illinois’s current tax of $0.98 per pack places makes it the 32nd-highest in the nation. If it were to be increased to $1.98 a pack, as WGN reports Cullerton is proposing, it would move up to 15th in the nation, passing neighbors Indiana ($0.995 a pack) and Iowa ($1.36) but still taxing less than Wisconsin ($2.52 a pack, the 7th-highest rate in the nation).
Posted by taxdrz on Wednesday, March 2nd, 2011 , Posted in Uncategorized , No Comments »
WASHINGTON — Rep. Jan Schakowsky (D-Ill.) announced legislation on Wednesday that would create new tax brackets for earners who make significantly more than the baseline for the current top income bracket.
Currently, the top marginal tax rate of 35 percent applies to income starting at $373,650, and the tax code fails to distinguish between earners making a few hundred thousand dollars a year and those making a few hundred million dollars a year. “LeBron James and LeBron James’s dentist: same difference,” New Yorker financial columnist James Surowiecki quipped last year during early debate over the extension of the tax cuts enacted under former President George W. Bush.
Meanwhile, income inequality continues to soar, as Schakowsky, one of the 18 members of President Barack Obama’s debt commission, noted on Wednesday.
“In the United States today, the richest 1 percent owns 34 percent of our nation’s wealth — that’s more than the entire bottom 90 percent, who own just 29 percent of the country’s wealth,” she said during her prepared remarks at a press conference. “And the top one-hundredth of 1 percent now makes an average of $27 million per household per year. The average income for the bottom 90 percent of Americans? $31,244.”
Schakowsky’s bill would create new tax brackets for earners making between $1 million and $1 billion annually, with tax rates starting at 45 percent with the millionth dollar and increasing on a sliding scale. The legislation would also tax capital gains and dividend income as ordinary income for those earning over $1 million in a given year. A full list of the new brackets appears below:
$1-10 million: 45%
$10-20 million: 46%
$20-100 million: 47%
$100 million to $1 billion: 48%
$1 billion and over: 49%
If enacted in 2011, Schakowsky’s Fairness in Taxation Act would raise an estimated $78.9 billion in its first year, according to Citizens for Tax Justice, a liberal lobbying group. CTJ was unable to provide further projections, however.
Reps. Keith Ellison (D-Minn.) and Raul Grijalva (D-Ariz.), co-chairs of the Congressional Progressive Caucus, partnered with Democratic Reps. Jesse Jackson, Jr. (Ill.), Donna Edwards (Md.), Bob Filner (Calif.), Jerry Nadler (N.Y.), Steve Cohen (Tenn.), John Yarmuth (Ky.) and Peter DeFazio (Ore.) to cosponsor the bill.
“The middle class is shrinking and deficits are rising because Republicans are giving a pass to special interests who aren’t paying their fair share,” Ellison said at the press conference. “This bill is part of a plan to level the playing field.”
As the battle over the budget for the remainder of fiscal year 2011 continues to unfold on Capitol Hill, Schakowsky has been insisting that there are more progressive ways to reduce the country’s $13.7 trillion debt. She said she hopes her bill can broaden the focus of the debate, and Yarmuth offered similar sentiments in remarks to reporters Wednesday.
“Yes, we have a spending problem,” said Yarmuth, “but we also have a revenue problem. We’re only asking that those of us who have done extremely well bear our fair share of the problem.”
Yarmuth told reporters that a number of his Republican colleagues had told him in confidence that it would be difficult for them to vote against Schakowsky’s bill were it to come to a vote. “It will just be very interesting if we can get it up to a vote,” he said.
A recent NBC News/Wall Street Journal poll found that the most popular way to reduce the federal deficit was to place a surtax on federal income taxes for Americans making more than $1 million per year, with 81 percent of respondents agreeing with that statement.
Katharine Myers, a Pennsylvania millionaire who made her fortune off the royalties from the Myers-Briggs personality test created by her mother-in-law, told reporters at Wednesday’s press conference that she believes the wealthy should pay substantially higher taxes — all of them.
“Someone once said, ‘Why don’t you donate money to the government?’ Well that would be like putting a grain of sand in a beach,” Myers said. “It needs to apply to everybody.”
