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Tuesday Tax Time

November 4, 2008 in Tuesday Tax Time | No comments

You love Tuesday Tax Time… the time of the week where your tax knowledge is exponentially increased in proportion to yours (and mine) brain size.

Some recent tax law changes before Congress went home this past October:

1.  Some AMT (Alternative Minimum Tax) provisions were added to the big financial firm rescue bill to help avoid taxing middle-income Americans.  The AMT is basically a second way to calculate tax, which denies the “rich” from taking certain tax breaks and deductions.  Each year, the income exemption of those who won’t have to pay AMT has to be raised so that middle-income Americans aren’t affected.  For the 2008 year, the exemption for married folks is $69,950 and the exemption for single taxpayers is $46,200.  That’ll just about pay for a weekly box of Lucky Charms and a tank of gas to Wal-Mart.  Happy freakin’ spending…

2.  The Social Security Tax wage base has been increased to $106,800 for 2008.  That is, when your income at work goes over this amount, you get to stop paying social security tax (you lucky dog, you).  But the Medicare tax continues to apply, without any limits.  Social Security tax and Medicare tax rates (both paid by every American earning a paycheck from a job) are 6.2% and 1.45%, respectively (add them both together and what do you got? – 7.65% – which is what you see taken out of your check each pay period). 

3.  Those receiving social security checks got an increase for the upcoming year… the raise will be 5.8%, which represents a cost-of-living hike.  Now you can buy more TV dinners (does anyone still eat those?)

4.  If you choose to take your social security early between the ages of 62 and 66, then you can only make up to $14,160 from other jobs before you start losing your benefits.  Ouch!  They’ll pay you less.  But once you are over 66 years of age, there is no limit to what you can make at another job… you’ll still get your full benefits.  Sweeeeetttt!

5.  You can contribute up to $16,500 through your 401(k) in 2009 (this is the same for a 403(b) plan).  If you have a SIMPLE, you can contribute up to $11,500.  If you are going to be putting money in your traditional or Roth IRA, then you can put in up to $5,000 for 2008.

Thanks, Jason M. Blumer

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

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Tuesday Tax Time

October 21, 2008 in Economy, Taxes, Tuesday Tax Time | No comments

Last week during Tuesday Tax Time, thriveal posted a primer on the problems behind the current economic crisis.  This week we’ll look at the main provisions behind the Emergency Economic Stabilization Act of 2008, the latest government answer to our economic woes.  Bless them.

Here goes:

1.  This bill creates the Troubled Assets Relief Program (TARP), where the Secretary of the Treasury will have the ability to use Federal funds to purchase up to $700 Billion of private company financial instruments.  Currently, the financial instruments of focus would be the junk commercial and residential mortgage assets (i.e. Troubled Assets) held by many of the nation’s largest banks.  This part of the Act is initially set to expire on December 31, 2009, but could be extended for two years if needed.  Secretary Paulson has mentioned stepping down as the Secretary after the elections, so the next President will have a lot of control over this area and it’s continued use.  Essentially, a new market for these assets will be created.  The Secretary could buy and sell these assets on some type of market and incur gains and losses as a result.  Should the government incur losses due to these purchases (duh), TARP allows the government to recoup these losses from the companies petitioning the government to buy their junk assets. 

2.  From all of the recent turmoil in the economy, it has become apparent that the chief executives and management team of some of the largest Wall Street investment firms have continued to receive unusually large bonuses and pay while their company was going down the toilet.  This Act would restrict the executive pay (that is, the top 5 executives) of those companies that petition the federal government to purchase their troubled assets.  The restrictions are lifted again when the federal government no longer holds troubled assets of a particular company. 

3.  Though set to expire December 31, 2009, the FDIC deposit insurance limits have been raised from $100,000 to $250,000 on all depository accounts.

4.  This Act requires the President of the United States to submit to Congress (within 5 years) a plan to recoup any losses to the taxpayer due to the institution of TARP.

5.  The AMT has been indexed again for inflation, thereby helping millions of middle-income taxpayers avoid this “tax on the rich.”

That sums up most of the relevant provisions.  There are a lot of ambiguities in this act, and many experts don’t actually know how a lot of this Act will be implemented.  Our economy didn’t necessarily react with great joy (the Dow is still going up and down) when the Act was passed.  I think the market still needs to “correct” itself from prior poor decisions by big companies, so we are yet to see if all is well. 

Let’s hang in there and do good business for the next year or year and a half, and see who’s standing after the smoke clears.

Thanks, Jason M. Blumer

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Last Minute Tax Updates for 2007

January 2, 2008 in Business, Taxes | 2 comments

[following is a tax update I sent to my clients in our year end update letter]

The long-awaited “AMT patch” was finally signed into law on Wednesday, December 19th, 2007.  We wanted to give you an update on the potential for this tax to affect nearly 21 million taxpayers in 2007.  Since 1969, the Alternative Minimum Tax (AMT) has been available in the tax code to make sure the very rich pay some tax.  However, the income exemption levels protecting the middle class from having AMT imposed on them do not increase each year with inflation.  Some consider this a major flaw in the original bill (although the bill provides some pretty nice tax revenue for the treasury each year).  Due to this oversight in the original bill, and as incomes have risen, more and more middle class have been subject to the AMT.  And this most recent legislation is only a one-year patch, with the quarreling to begin again next year (an election year, no less).  Now that the patch has been passed, these AMT tax revenues won’t be making their way into the coffers of the U.S. Treasury.

On the other hand, no offsetting tax savings were passed in this AMT patch bill – less AMT tax revenues means an estimated $50 billion have been added to the U.S. deficit due to this law. Had the exemption patch not been passed, those married filing joint taxpayers with income (slightly modified) over $45,000 would have felt the AMT bite.  That would have been nearly 23 million taxpayers this year (consider: only 3.5 million taxpayers paid AMT in 2006).  However, the patch has raised this married filing joint income exemption level to $66,250 ($44,350 for single taxpayers) for 2007, safe enough to exempt most middle class taxpayers.

The AMT provisions affect a number of the IRS’s internal programming capabilities, and have estimated a seven week delay in processing returns for this tax season.  The IRS is unsure if this needed reprogramming and testing of its system will make both AMT AND non-AMT filers wait for the proper processing of their returns.  We at Blumer & Associates, CPAs, PC use some high-end tax processing software, and all approved forms must come through our tax vendor.  We will keep you informed on the processing delays as tax season progresses.  We don’t expect it to actually take seven weeks (tax legislation was passed last year on Dec. 20th and the delay was only about three weeks).

Other late-year tax news includes a mortgage relief bill for those forced to claim mortgage debt forgiveness as income.  Basically, taxpayers facing foreclosure of their homes often have debt forgiveness given to them by mortgage companies who can’t cover that taxpayers full loan balance with the sale of their home (often called a short sale).  This forgiveness comes in the form of a 1099, or “imputed” income, to the taxpayer.  In this new bill, up to $2 million dollars of this “imputed” income on primary residences can be excluded from income, IF the mortgage is refinanced within a three year window.

OTHER MAJOR LAW CHANGES: The 2008 budget omnibus bill was also passed to keep the Treasury department running, with $70 billion going to fund the wars in Iraq and Afghanistan. An energy bill was also passed raising vehicle fuel economy standards by 40%, and increasing biofuel production.  

In addition, victims’ families of the awful Virginia Tech shooting will receive some income exclusion benefits related to payments received from special memorial funds.

Thanks, Jason M. Blumer

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