Marriage Tax Penalty and Unit of Taxation
The marriage tax penalty refers to the fact when two people marry, they pay more taxes than they do when they are single. This happens when the two persons have roughly the same income.
The mirror image of the marriage tax penalty is the marriage tax bonus, that is when two spouses have disparate income or one spouse decides to stay at home, they pay less tax than they do if they don't marry.
I touched on the topic of marriage tax penalty in two previous posts: » Read more …
Rollover IRA to Solo 401k
It looks like the Roth IRA conversion rule changes will stick, at least for 2010. There are only three months until the end of 2009. Congress is busy with something else. I don't think they will repeal the current law before the end of the year.
In preparation for converting my non-deductible IRA contributions to Roth IRA in 2010, I'm rolling over the pre-tax portion of my traditional IRA to my solo 401k. I set up the solo 401k last year primarily for this purpose — to provide a harbor for my pre-tax IRA money so I won't get taxed proportionally on my Roth conversion. After the rollover, I should have only one small IRA, consisting of my non-deductible contributions plus or minus market fluctuations from now until I convert in January 2010.
I have my solo 401k with Fidelity. When I called them about the rollover procedures, to my surprise, the rep actually discouraged me from doing so. To his credit, he made valid points. He knew what he was talking about. Fidelity trained them well.
Tax Credit for Buying a Hybrid or Diesel Car
Reader Nate asked in a comment to my previous post Refundable Tax Credit and Non-Refundable Tax Credit about the tax credit for buying a VW Jetta TDI. I thought I'd put it in a separate post in case others are also interested.
The government gives tax credits for buying a "green" car. If you are not buying a "green" car, you don't get a tax credit, but you still get a tax deduction for the sales tax. See previous post Tax Deductions: Above-the-Line, Standard, Itemized, and Miscellaneous for the difference between a tax credit and a tax deduction.
The tax credit is called Alternative Motor Vehicle Credit. It's been available for a few years now. There are four categories of vehicles under the program. For the average consumers, the two most relevant categories are basically hybrid and clean diesel cars. These cars must be purchased new. Leasing does not get you the credit.
Summer Tax Tips From the IRS
The kinder, gentler IRS published 7 sets of tax tips for the summertime this year. Check them out:
IRS Taxing Employer Provided BlackBerry or Cell Phone
Does your employer provide you a BlackBerry or cell phone or pay for your wireless service? Do you use that device for personal purpose too? The IRS is considering three ways to tax you for that.
Certain employee benefits, like health care, are not taxable. Personal use of an employer provided BlackBerry or cell phone is not one of them. The IRS published Notice 2009-46 on June 8. It's on pages 13-15 in Internal Revenue Bulletin 2009-23. They are asking for public comments about the three methods it's considering.
1. Minimal Personal Use Method. There are two proposals under this method. Under the first proposal, if the employee can show to the employer that he/she carries another personal cell phone and uses that phone for personal matters, then the employee won't have to pay taxes on the company provided BlackBerry or cell phone. Under the second proposal, there would be a threshold of say X minutes. If the employee can show he/she used the BlackBerry or cell phone for personal purpose for no more than X minutes or he/she used it only for certain exempted types of calls (emergency for example), the employee won't have to pay taxes for such personal use.
Bartering and Taxes
While catching up on old news, I heard a story about bartering on the Marketplace Money podcast. It's called a Time Bank. Basically you do something for someone else and earn some Time Dollars. Then you use your Time Dollars for services you want from another person. It's an indirect bartering system because direct bartering requires a coincidence of wants. In other words if you are a plumber and you fix a car mechanic's drain, but you need guitar lessons, not replacing the water pump in your car, you can't barter directly with the car mechanic, unless the car mechanic also happens to teach how to play a guitar. Time Dollars serve as a medium of exchange.
Bartering is apparently hot these days. The popular web site Consumerist recently quoted an Associated Press article Short on cash? Bartering making a comeback which said traffic to bartering web sites doubled in this weak economy.
2009 AMT Tax Brackets
The stimulus law American Recovery and Reinvestment Act of 2009 included a modest increase in Alternative Minimum Tax (AMT) exemption amounts for 2009 tax year compared to the same amounts for 2008. They typically do this kind of patch close to the end of the year. They were early this year. With the exemption phaseout, the AMT tax brackets for 2009 become:
| Married Filing Jointly | Single or Head of Household | AMT Income | QD & LTCG* |
| $0 – $70,950 | $0 – $46,700 | 0% | 0%/15% |
| $70,951 – $150,000 | $46,701 – $112,500 | 26% | 15% |
| $150,001 – $226,760 | $112,501 – $199,860 | 32.5% | 21.5% |
| $226,761 – $433,800 | $199,861 – $299,300 | 35% | 22% |
| $433,801 or more | $299,301 or more | 28% | 15% |
Tax Proposals in Obama's 2010 Budget Outline
After reading the full text of President Obama's 2010 budget outline, I can see much more details than what I read in the news. I encourage everybody to read it as well. If you'd rather not read a 140-page document, here are what President Obama proposed in this budget outline with regard to taxes:
1. Make some tax cuts in the stimulus law permanent. These tax cuts are already in the stimulus law, but the stimulus law had them for only two years in 2009 and 2010. President Obama proposed to make them permanent.
- $400/$800 Making Work Pay Credit
- lower refundable threshold for Child Tax Credit
- American Opportunity Tax Credit for college education. Stimulus law increased the maximum benefit from $1,800 per year for two years to $2,500 per year for four years.
Retirement Plans Galore: 401(a), 401(k), 403(b), 457, SEP, SIMPLE
A reader sent me an e-mail some time ago about the interplay between a 401(a) plan and a Roth solo 401(k) plan. You probably heard of 401(k), 403(b), and 457 plans. The names of these plans come from the section numbers in the tax code which specify the rules for these plans.
401(k) plans are offered primarily by private sector employers. Employees in public schools and tax-exempt organizations have 403(b) plans. State and local governments and tax-exempt organizations have 457 plans. Some employers offer both a 403(b) plan and a 457 plan. What is a 401(a) plan then?
Strictly speaking a 401(a) plan is a bit of a misnomer because other kinds of plans including 401(k) plans must also qualify under tax code 401(a). In a loose context, a 401(a) plan is a retirement savings plan in which employees can't choose or change the amount contributed to the plan. It's also called a "money purchase plan."
TurboTax, TaxCut, and TaxACT Compared Side By Side
Over the President's Day long weekend, besides reading the book A Fool and His Money, I also did my taxes.
In a previous post Free E-File Is NOT Free, I said I'm going to try TaxACT this year because it's substantially cheaper than TurboTax and TaxCut. A couple weeks ago, I got TaxCut Standard for $1 at Dollar Tree. TurboTax also sent me a trial CD some time last year. With all three major tax prep software on hand, I was able to do a side-by-side comparison.
The tested versions are (all on Windows): » Read more …
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