Volcker Tax Reform Report
Back in February 2009, President Obama appointed former Fed chairman Paul Volcker to head a President’s Economic Recovery Advisory Board (PERAB). The Board issued a report on tax reforms last Friday.
Who’s on the Board
The board is largely non-political. Besides Paul Volcker, the Board has as its members a former SEC chairman, a venture capitalist, a representative from AFL-CIO, corporate executives, endowment fund manager David Swensen, university professors, and Obama’s economic advisor Austan Goolsbee.
Do You Cheat On Your Taxes?
Do you cheat on your taxes? Before you automatically answer no, hold that thought.
Does your state have a sales tax? According to Wikipedia, only five states don’t have a sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. There is a sales tax everywhere else. For purchases from an out-of-state store that does not collect sales tax, the states usually have a use tax, with the same rate as the sales tax. You are supposed to report and pay the use tax for these out-of-state purchases.
Have you?
According to Wikipedia again, 22 states including New York, California, Ohio, and Virginia have a specific line for use tax on the state income tax return. If your state income tax form has a line for it, what did you put down on that line? Did you leave it empty? Did you include everything you bought online? If not, is that cheating on your taxes?
Tax Deductions Extension: Property Tax, Sales Tax, College Tuition and More
My trusted tax source CCH reported that a tax extenders bill in the House is on the fast track to approval and enactment. It’s called American Jobs and Closing Tax Loopholes Act (HR 4213). It extends many expired tax breaks by one more year. Here are the major ones for individuals:
$500 or $1,000 property tax deduction for people who don’t itemize. This was originally for 2008 only. It was extended once for 2009. See previous post. Now it will be extended a second time for 2010.
Sales tax deduction. This primarily benefits people in states without an income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Sales tax paid can be deducted on the federal tax return. The deduction was originally for only two years, 2004 and 2005. It was subsequently extended through 2009. Now it will be extended again for one more year through 2010.
1099 Filing Requirement in Health Care Reform Law
I read on FatWallet that a hidden gem in the new health care reform law will require a business to issue a 1099 Form to all vendors starting in 2012 if the business purchases $600 or more in goods or services in a year from that vendor.
Currently a business is only required to issue 1099s for payments for services, not goods, purchased from individual persons, not corporations, if the total payments to that person exceed $600 a year.
I find this quite unbelievable. Small business owners buying from Costco will have to send a 1099 to Costco at the end of the year. Because chain stores are often owned by different entities under a franchise agreement, a business buying from one store versus another under the same chain will have to track the corporate entities behind each one separately. What a nightmare.
The Best Tax Book
I can tell it’s tax time. Most of the questions posted to my old posts are about taxes. I’m not a CPA; I write about taxes only to the extent they affect me.
The best way to get tax questions answered is of course asking a real CPA. I realize not everybody can afford a real CPA so they ask an amateur on the Internet. The next best way to get tax questions answered would be getting a tax book.
There are two popular tax book series. J.K. Lasser’s Your Income Tax and Ernst and Young Tax Guide. These books are updated every year. They are very inexpensive for their size (think yellow pages). They both go for $13.57 at this moment on Amazon.
3.8% Medicare Tax on Unearned Income in Health Care Reform Bill
[Updated on April 1, 2010. The proposed legislation has become law.]
Reader Chuck asked about the 3.8% Medicare tax in the health care reform law.
"Does the 3.8% tax on unearned income kick in all at once? You could be looking at an infinity percent marginal rate if you have, say $199,999 in wage income, and $50,000 in capital gains if one extra dollar of income costs $1900 in tax, for example."
Health Care Reform: What’s In It for Me?
I admit I did not get myself emotionally attached to the health care reform one way or the other when it was being debated in Congress. I keep myself loosely informed from reading my friend Austin Frakt’s blog The Incidental Economist. Now that the final legislation is passed, everybody inevitably asks "What’s in it for me?" So do I.
I read the excellent timeline summary from Austin and the tax summary from CCH Group. I’m not too surprised to see that the vast majority of the items have absolutely no direct benefit to me. I have health insurance from an employer, which is not a small business. I do not cover an adult child as a dependent. HIPAA has covered pre-existing conditions for nearly 15 years. I’m not on Medicare, nor its Part D.
Of the few items in the health care reform that do affect me, unfortunately all are negative. If you happen to be in a married two-earner household working in a high cost-of-living area, you have been selected as a potential revenue source for the new law. The $250,000 married-filing-jointly tax threshold is not indexed to inflation. If you haven’t crossed it yet, eventually you will, just like the AMT thresholds.
Refundable and Non-Refundable Tax Credit in Charts
One thing I’d like to learn to do a better job of this year is to communicate more effectively with visuals. A good picture is worth 1,000 words. In some of my old posts, I wrote 1,000 words but people still keep asking the very question I attempted to address. Clearly I wasn’t effective in getting the point across with 1,000 words.
The post Refundable Tax Credit and Non-Refundable Tax Credit is one of those posts. Let me try again with some charts.
New Tax Forms and Schedules for 2009 Tax Year
Form 1040 for 2009 tax year has two new schedules.
Schedule L is used for claiming (a) the additional $500 or $1,000 tax deduction for property tax paid, (b) the sales tax paid on a new car purchased between Feb. 17, 2009 and December 31, 2009, and (c) a net disaster loss (together with Form 4684).
Schedule M is used for claiming the Making Work Pay tax credit. Making Work Pay tax credit is the $400/$800 tax credit added in the economic stimulus law.
While we are at it, here’s a list of the tax forms you will need for the various new tax incentives for 2009 tax year. » Read more …
The Origin of Solo 401k
As I wrote in a previous post Rollover IRA to Solo 401k, I rolled over substantially all pre-tax money in my traditional IRA to my solo 401k plan in 2009. My traditional IRA was left with non-deductible contributions plus a little bit of earnings. For 2010, I made another non-deductible contribution before I converted the whole thing to a Roth IRA.
Because the traditional IRA had mostly non-deductible contributions, I will not pay much tax for this conversion. I plan to do the same contribute-then-convert move in 2011 and beyond unless Congress changes the law.
Having a solo 401k made things easy for me. This post is a sidebar about the history of solo 401k.
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The Elements of Investing by Burton Malkiel
