Category — Tax

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In a recent article in Forbes …. the debate is on regarding having the government prepare taxes for citizens …. Here’s the recap …

“The income tax has made more liars out of the American people than golf has.” – Will Rogers

But what if it were easier? And what if the IRS made it nearly impossible to lie? What then?

Last year, IRS Commissioner Doug Shulman hinted that one way to reduce the potential for tax fraud was to have IRS prepare returns for taxpayers. That’s right, you wouldn’t have to prepare returns come tax time: the IRS would do it for you.

The idea is commonly referred to as a “simple return” or “ready return”. Under the plan, the IRS would send out tax returns that had already been completed with taxpayer identification and wage information. Taxpayers would merely review the returns for accuracy and sign at the bottom… kind of a “check the box if you agree” system. Taxpayers would have the opportunity to correct any mistakes prior to submitting the returns to the IRS.

Why not? The IRS already has a good chunk of taxpayer information on file. Add to that the obligations of employers, financial institutions and other third parties to provide wage and other income information to the IRS and there’s already a nice little database at the IRS’ disposal.

But putting those returns together is not cheap. Right now, the IRS simply doesn’t have the manpower to prepare returns for taxpayers and pursuant enforcement and collections activities and adding to the rosters (and thus, the budget) would be a major endeavor. Shulman, however, seems to believe that it might be worth considering.

A limited version of the plan is already in place in California. The plan, called (of course), ReadyReturn, is free to taxpayers who qualify in the Golden State. The state uses information from the prior year’s return along with information from the form W-2 to pre-fill a California state tax return. The return only needs to be reviewed by the taxpayer and signed. Brilliant, right? Then how come no one is signing on?

For one, the number of taxpayers who qualify is limited. To qualify, taxpayers must have filed a 2010 California resident return as single or head of household and no more than five dependents. Taxpayers must only have income from wages from a single employer and must claim the standard deduction with no credits other than the renter’s credit. Depending on who you are, the program was either wildly successful or a terrible failure. The pilot program, sent out to 50,000 taxpayers, had a 27% participation rate. That works out to about 13,500 taxpayers. The state has about 20 million taxpayers, making the overall participation rate less than 1/2%. In 2009, the number of participants in the program grew to 60,000 taxpayers, or about 3%. Hardly statistically significant. But the folks who are using the system appear to like it.

The program has also seen success outside of the U.S. Programs in Sweden and Denmark claim participation rates of over 75% (downloads as a pdf). Could the IRS duplicate those kinds of results?

I’m not so sure.

Notwithstanding the costs – which would be huge – to convert to such a system in the U.S., I don’t think that U.S. taxpayers would embrace a system where the government prepared their returns. For one, U.S. taxpayers aren’t enthralled with the feds these days. Most are seeking less government interference, not more. I don’t think many taxpayers would trust the government with their own finances; after all, the government can barely manage its own. Further, if you’ve ever seen a substitute return (one prepared by the IRS for a taxpayer), you know that there’s a financial incentive to prepare a return that produces the most revenue for the government, not what’s most advantageous to the taxpayer. And the benefit of that to taxpayers is what, exactly?

The underlying problem isn’t that taxpayers don’t have the wherewithal to fill out a simple tax form (and keep in mind that this option would only be available to taxpayers with simple returns): it’s that the Tax Code is far too complicated as it stands. The simple tax forms aren’t the problem and yet, those are the very returns the IRS seeks to make more, well, simple with this kind of plan. We keep skirting the real problem: a tangled, confusing Tax Code. I would suggest that reform, not pre-filled returns, is a better, more economical answer.

Contributed to Forbes By Kelly Phillips Erb

President Barack Obama saluted a new spirit of political compromise as he signed the tax law bill in December, 2010. The new tax law was supposed to come into effect in 2011 and would bring pleasant tax cuts for the rich, some benefits that Obama strictly condemned, along with billions of dollars to help the middle class and all jobless workers in the US. With the surging national debt level in America, Obama has said that the White House and Congress are already facing a tough challenge to meet the deficit in the national debt. People who are looking into credit card consolidation and seeking the help of debt relief companies will find it tougher to meet the interest rates and the other terms and conditions.

The changes that have been packed into the new tax law that has been signed by Obama on December, 17th, 2010 present the tax lawyers with the opportunity to communicate with their clients to review their plans. Though the changes are good, there are some more new rules that have made some major alterations.

Some major changes in the tax law that have come into effect in 2011

The tax payers who are self-employed are allowed to deduct taxes, though within certain limits. For instance, the cost of the health insurance policy for the taxpayer, his spouse and his dependents may be deductible. This tax deduction is “above the line” deduction on Form 1040. The IRS has recently changed its position for 210 tax returns by giving an opportunity to the self-employed taxpayers to include the Medicare Part B premiums as an added health care cost.

The President has signed the tax law with an effort to spur the economic growth in the US and create more jobs to rejuvenate the balance within the economy that has already become fragile. Most debtors in the US are unable to repay their credit card bills due to the surging unemployment level and the lack of sufficient income that could support them financially. This is the reason why credit card consolidate companies are gaining momentum while assisting people to get out of their present debt situation.

The deal that was reached with the Republicans came with an uphill battle as the Democrats were not much happy about the extension of the tax cuts for the wealth and the richer section. However, the President as well as the Vice President has thanked both parties that they’ve come together at a time when they needed them the most. However, the White House believes that the new tax law signed by Obama would help the fragile economy to accelerate and introduce many more new jobs in the market, thereby reducing the unemployment level and creating a balance between income and expenditure.

The US President is of the opinion that with the new tax law, the government is trying to inject more money into the wallets of those who are most likely to spend it and also helping businesses grow. All these steps will be taken to spark demand and strengthen the economy in 2011. Though he has also added that there are some clauses in the tax bill that Obama doesn’t like bit yet he signed the bill out of compromise as he is primarily seeing the benefit of the US economy before anything else.

While Obama says that this new tax bill in the US is the biggest win for the people belonging to the middle class, some financial analysts are of the opinion that this has been the biggest win for the entire nation since the health care reform policy. As the debt relief industry and the credit card consolidate companies are trying their best to assist people in meeting their financial obligations, the entire nation and the President are trying in their own way to revitalize the sluggish US economy.

Contributed By:DebtCC Community

The U.S. Department of the Treasury today designated Europäisch­-Iranische Handelsbank (EIH), one of the few remaining European banks actively facilitating business with Iranian banks and handling billions of dollars worth of transactions on their behalf. Today’s action was taken pursuant to Executive Order (E.O.) 13382, which blocks the property of designated weapons of mass destruction (WMD) proliferators and their supporters, thereby isolating them from the U.S. financial system.

Headquartered in Hamburg, Germany, EIH provides financial services to Bank Mellat, Persia International Bank, the Export Development Bank of Iran and Post Bank of Iran, all previously designated by Treasury pursuant to E.O. 13382 and by the European Union.

“EIH has acted as a key financial lifeline for Iran.  As one of Iran’s few remaining access points to the European financial system, EIH has facilitated a tremendous volume of transactions for Iranian banks previously designated for proliferation,” said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.  “As international sanctions tighten, Iran will find it increasingly difficult to find banks like EIH that will cooperate with it. Treasury will continue to target any bank, wherever located, that supports Iran’s nuclear or missile programs.”

EIH has facilitated Iran’s proliferation activities on a series of occasions. Examples include:

• In 2009, EIH and Bank Mellat facilitated nearly $350,000 of business between a weapons exporter and a subsidiary of WMD proliferator Iran Electronics Industries (IEI).
• In 2007, EIH and Bank Mellat facilitated a transaction of more than $250,000 directly between IEI and the same arms exporter.
• In a six-month period beginning in late 2007, EIH and the Export Development Bank of Iran enabled Iran’s missile programs to purchase more than $3 million of material.
• Also in 2007, almost $1 million in business involving an Iranian WMD proliferator was facilitated by EIH and Bank Mellat.

EIH also engages in the type of deceptive practices that have become the hallmark of Iranian government-controlled financial institutions. In addition to providing financial services to Iranian WMD proliferators described above, EIH actively obscures Iranian involvement in the process.

Not only has EIH provided financial services to Bank Mellat, the two banks also share leadership. Ali Divandari has served as EIH Deputy Chairman of the Board and Bank Mellat’s Chairman and Managing Director and was designated by Treasury under E.O. 13382 in November 2009 and by the EU in July 2010.

Bank Mellat was designated as a supporter of the Atomic Energy Organization of Iran (AEOI) and Novin Energy Company in October 2007. Persia International Bank, a Bank Mellat subsidiary, was also designated in October 2007 for being owned or controlled by Bank Mellat. The AEOI, which reports directly to the Iranian president, is the main Iranian organization for research and development of nuclear technology and manages fissile material production programs. Novin Energy, AEOI’s financial conduit, has transferred millions of dollars on behalf of AEOI to entities associated with Iran’s nuclear program. Both AEOI and Novin Energy are designated by Treasury under E.O 13382 and by the United Nations Security Council in Resolution 1747.

The Export Development Bank of Iran was designated by Treasury in October 2008 pursuant to E.O. 13382 for providing or attempting to provide financial services to the Iranian Ministry of Defense and Armed Forces Logistics (MODAFL), which was previously designated by the Department of State pursuant to E.O. 13382 in October 2007.

Treasury designated the Post Bank of Iran pursuant to E.O. 13382 in June 2010 for providing financial services to, and acting on behalf of, Bank Sepah since its designation by Treasury in January 2007 for its support and services to Iran’s missile industries and subsequent designation by the United Nations Security Council in March 2007.

EIH is the first financial institution designated by Treasury for facilitating Iran’s proliferation activities since the Department issued the Iranian Financial Sanctions Regulations on August 16, 2010 to implement the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010. Under these regulations, Treasury may prohibit, or impose strict conditions on, foreign financial institutions’ access to the U.S. financial system for facilitating significant transactions or providing significant financial services for a financial institution designated by the U.S. – such as EIH – in connection with Iran’s WMD proliferation or support for international terrorism.  EIH is the 17th financial institution designated by the United State for such activities.

The United States has closely consulted with the German government in taking today’s action against EIH and is aware that the German government is also taking steps under its national authorities.

IRS Also Announces How Tax-Exempt Organizations Will Claim Credit

The Internal Revenue Service released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations – which do not generally file income tax returns – will claim the credit during the 2011 filing season.

The IRS has posted a draft of Form 8941 on IRS.gov. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations – even those that owe no tax on unrelated business income – also to claim the small business health care tax credit.

The final version of Form 8941 and its instructions will be available later this year.

The small business health care tax credit was included in the Affordable Care Act signed by the President in March and is effective this year. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years.  The maximum credit goes to smaller employers – those with 10 or fewer full-time equivalent (FTE) employees – paying annual average wages of $25,000 or less.

The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

WASHINGTON – In an op-ed piece for the McClatchy-Tribune News Service, Treasury Chief Economist and Assistant Secretary for Economic Policy Alan Krueger writes about the impact of the HIRE Act on private-sector hiring and the continued economic recovery.  To read the op-ed piece online, see link below.  The full text of the piece follows.

The Treasury Department today also released an updated report on the number of newly hired workers who are eligible for tax credits under the HIRE Act.   Nationally, from February 2010 to July 2010, businesses have hired an estimated 6.9 million new workers who had been unemployed for eight weeks or longer, making those businesses eligible to receive billions in HIRE Act tax credits.  The updated report also contains state-by-state estimates and regional breakdowns by industry of hiring of eligible workers.

Measure succeeds in promoting private-sector hiring

Labor Day is an occasion to honor and celebrate American workers. The opportunity to work in a decent job gives people and society benefits beyond the income it generates. Conversely, unemployment causes workers and their families distress beyond their loss of income.

Job growth was weak throughout the 2000s, and the past few years unquestionably have been difficult for American workers, as the financial crisis and subsequent recession destroyed jobs at an alarming rate. When President Barack Obama took office, the country was losing 750,000 jobs a month, and more than 7.5 million jobs have been lost since the recession began in late 2007. Although the economy has started to recover and layoffs have declined from their peak, hiring remains too slow to provide enough jobs for the growing workforce.

Since day one, the Obama administration’s top priority has been to create the conditions needed for the private sector to create jobs for American workers. Although major legislation, like the Recovery Act – which the nonpartisan Congressional Budget Office estimates has saved or created 2 million to 4.8 million jobs – gets most of the attention, the administration and Congress have taken numerous additional steps to support job growth and help unemployed Americans.

These efforts include assisting states to retain teachers and pay Medicaid costs, the “cash for clunkers” program, an unprecedented expansion of unemployment insurance benefits, and business tax incentives. In addition to all of this support, the administration is actively pursuing legislation for additional tax cuts and better access to capital for small businesses.

A notable example of a targeted measure to boost the economy is the Hiring Incentives to Restore Employment, or HIRE, Act of 2010. In his state of the union address, President Obama called on Congress to create a tax incentive to encourage private sector employers to increase their payrolls. Congress responded with the HIRE Act, which exempts private employers from paying the employer portion of Social Security payroll taxes for newly hired workers who have been unemployed for 60 days or longer. As an added incentive, employers can receive up to an additional $1,000 tax credit for each of the newly hired workers they retain for 52 weeks.

The HIRE Act expires at the end of this year, so employers have a stronger incentive to increase their hiring sooner rather than later.

Analysis suggests that the HIRE Act is working. According to recent data, employers hired some 6.9 million unemployed workers who are eligible for HIRE Act tax relief through July. Moreover, preliminary evidence suggests that employers have already claimed tax credits for about one in every four eligible workers hired. This reduces the payroll tax payments employers send to the federal government, leaving them with more money to expand their businesses.

While not all of these jobs were created solely because of the HIRE Act, economist Mark Zandi of Moody’s Analytics estimated that one-quarter of a million additional jobs will be added because of the HIRE Act. Even as the unemployment rate remains stubbornly high, employers across the country are claiming the HIRE Act tax credits and hiring individuals who were previously out of work.

It is not just the numbers that point to the success of the HIRE Act. The HIRE Act switches the focus from job loss to job creation. Many businesses are excited by the opportunity to hire workers they may not have been able to hire otherwise.

After being forced to impose a hiring freeze in the beginning of 2009, James Barba, the CEO of the Albany Medical Center in Albany, NY, said the HIRE Act “gave us immediate tax relief … of hundreds of thousands of dollars, and frankly, made my job considerably easier in deciding that we would hire people again.”

The HIRE Act supports the hiring of workers who have faced the greatest difficulty in the job market, and gives employers more of an incentive not only to hire them but also to keep them on the payroll. The program encourages private sector job growth, which is essential to get the economy back on track.

It is an example of the kind of temporary, targeted and responsible economic policy that has been the hallmark of this administration.

That so many eligible unemployed workers have been hired so far is a testament to the dynamism of the American job market and the resourcefulness of American workers and businesses even in a time when unemployment is unacceptably high. That gives us another reason to celebrate the American worker on this Labor Day.