"Portability" of Estate Tax Exemption to Spouse

"Portability" as mentioned in the October 8-9, 2011 Wall Street Journal "allows a surviving spouse in effect to roll over the unused portion of a deceased spouse's [estate tax] exemption."

Ms. Saunders in her Wall Street Journal article mentions that the IRS has clarified what needs to be done if a spouse wishes to carry over the deceased spouse's unused estate tax exemption to their own estate. She indicates that the IRS has done some clarifying, but it will only apply to 2011 and 2012 unless Congress applies the same estate tax provisions to future years.

One important point is that even if the deceased spouse has a small estate, an estate tax return must be filed nine months after the individual has died, with a six month filing extension available, in order for a spouse to take advantage of the portability option.

If you are married, it is a good idea to become familiar with what is required in order to take advantage of the portability option.

Read the Wall Street Journal here.

Somebody's gotta pay for this thing

Funding Health Care. Tax the rich, tax passive income, make big pharma pay, soda pop tax, make "non-profit" hospitals chip in more. These are the options currently on the table:

* Expanding the 1.45% Medicare payroll tax on earned income to "passive income," or unearned income, which could raise $100 billion;

* A 5% surtax on individuals who earn more than $500,000 and couples who earn more than $1 million;

* A tax on employer-sponsored health benefits at a level higher than previously considered, with one proposal to tax plans worth more than $20,300 for a family and $8,300 for an individual. The proposal could raise $240 billion. Another option would be to increase the cutoff to plans worth more than $25,000, which could raise $90 billion;

* Capping the tax break on itemized deductions at 28%, which could raise $168 billion, or a freeze on the top deduction rate at 35%, which could raise $90 billion;

* Issuing tax credit bonds to pay for the proposed Medicaid expansion, which could generate $75 billion in new revenue;

* Charging fees to pharmaceutical companies and insurers, which could generate up to $20 billion and $75 billion, respectively;

* Raising taxes on sugary drinks. A three-cent tax increase would generate $30 billion, while a 10-cent tax increase could result in $100 billion in new revenue (Budoff Brown/Rogers, Politico, 7/9); and

* Requiring that not-for-profit hospitals provide a minimum amount of charity care, which would both increase the amount of care provided that the federal government does not fund and force those hospitals not providing enough no-cost care out of tax-exempt status (Martinez, Wall Street Journal, 7/10);

Unintended Consequences

The Metro train car that slammed into another on the Red Line killing 9 and injuring 76, was two months past due for scheduled maintenance on its brakes, and the car was an older model that federal officials had recommended be replaced because of concerns about its safety in a crash, according to the Washington Post.

From Concurring Opinions, via Taxprof, Taxes incentives may be a cause of the crash. Taxes not only raise revenue they influence behavior, intentionally or not so much.

Here the Metro authorities knew that the aging trains posed safety concerns, one reason they weren't so quick to ask, according to Prof. Sarah Lawsky is they were received money for keeping them.

The Metro Transit Authority sold equipment, including train cars, to another party then leases it back. The other party gets various tax advantages associated with owning the equipment that the Metro as a tax-exempt organization can't take advantage of. In return the company gives a cut of those tax savings back in cash to the Metro.

The State of the Estate Tax in Vermont

State of vermont is getting $13 million in estate taxes from the estimated $80 to $100 million dollar estate of a resident who died last year.

In a report on the Vermont estate tax done in 2001 by the Vermont Joint Fiscal Office, in Fiscal year 2001, 221 estate tax returns were filed in Vermont. Roughtly half (108 returns) had no tax liability. Of the 87 returns with liability, five estates valued over $10 million paid 75% of total estate tax that was collected.

IRS Ruling on Non Profits and Political Activism

The IRS ruled that the Niemoller Foundation funded by financial backers of Texax Gov. Rick Perry did not risk losing their tax-exempt status for engaging in political acts on behalf of issues such as traditional-values advocacy.

The Texas Freedom Network filed a complaint saying that the Niemoller Foundation brought together pastors and politicians to champion moral issues during Republican Gov. Rick Perry's 2006 re-election campaign.

Short of endorsing a particular candidate or spending substantial portions of their nonprofit budgets on legislative lobbying, ministers and their churches are free to engage in political acts on behalf of moral values, the IRS said.

From the Washington Times.

Vocabulary Lessons

Tax credit: A credit that directly lowers your bill. This is like the dependent child credit. If your tax liability is 2000 and you have one child, it is reduced to $1,000, two children, $500, and so on.

Tax credits can be refundable and nonrefundable. The dependent child credit is nonrefundable, if your tax liability is $2000 and you have five children (a credit of $2500) your taxes are 0 not -$500.

The tax credit is refundable you take the full amount even if it pushes your tax liability into negative numbers. An example is the earned income credit, where the tax payer can receive a refund that is more than the amount withheld.

Tax deductions: Tax deductions reduce your taxable income. Mortgage interest and charitable contributions are the most commonly used. The money or a portion of the money spent on tax deductable items can be used to reduce your adjusted gross income, which can drop you into a lower tax bracket.

Tax incentives: Tax incentives are designed to promote and reward certain economic decisions. Here again we have the mortgage interest deduction, which is supposed to encourage home ownership.

Marginal tax rate A marginal tax rate is a system that taxes certain levels of your income differently as you move up into higher tax brackets. So if your adjusted gross income is 40K this year it is taxed at 15% and your tax bill is $6000. If you get a raise next year and your income goes up to 40K you will be taxed 15% on the first 30K and 25% on the 10K increased earnings, not on the full 50K. So your tax bill will be 40 x 15% = 6000 + 20 x 25% = 2500 = total tax of 8500.

Do As You Are Told

IRS reminder as Filing Deadline Nears:

File and Pay on Time.

More.

Wacky Tax

From Newsweek

Cleverly worded tax deductions so it's not obvious which particular taxpayer is getting help.

4. Clarinets and Other Medical Necessities
Way back in 1962, the IRS approved a write-off that was so out there, it's still a favorite of tax lawyers. The agency allowed parents to deduct their children's clarinet and music lessons. The reason? Orthodontists argued that it would help with kids' overbites.

Risk of Audit

According to the Wall St. Journal, you are more likely to run into the taxman if -

- you make a lot of money.

- take the full mortgage-interest deduction on a refinanced mortgage where you've borrowed to take equity out. This is particularly true in higher-priced housing markets.

- have a major change in income - even if it's a decline.

- big business expenses

- numerous gifts to charity

- reported income that doesn't match numbers on 1099 and W-2 forms

- file Schedule C, profit and loss for business

- big write-offs for hobbies.

Tax Help

Super Saturday Sites in Utah

Volunteer sites and IRS ofice will be open March 21, to provide free taxpayer assistance.

Brigham City - Building Assets Together Coalition
325 W 1100 S
10 a.m. to 2 p.m.

Ogden IRS
325 25th St.
9 a.m. - 2 p.m.

Ogden - Building Assets Together Coalition
3159 Grant Avenue
10:30 a.m. - 1:30 p.m.

Provo IRS
173 E. 100 North
9 a.m. - 2 p.m.

St. George - Southern Utah Coalition
2610 S. Pioneer Road
10 a.m. - 2 p.m.

Salt Lake City - GAIN
1300 W. 300 N.
10 a.m. - 2 p.m.

Salt Lake City - GAIN
3100 S redwood Road
9 a.m. - 2p.m.

Salt Lake City - IRS
50 S. 200 East
9 a.m. - 2 p.m.

Super Saturday Sites for other states here.

Income Tax Code fuels Rise in Asprin Stock

From Forbes



--Individuals and businesses spend 7.6 billion hours a year filling out tax forms for the IRS. Those 7.6 billion hours consume the equivalent of 3.8 million full-time workers.

--The cost of complying with the code comes to $193 billion. Other experts think that assessment is too low and have come up with estimates approaching $300 billion.

--The number of words in the code has grown by 2.3 million since 2001.

--In 2008 there were more than 500 changes to the tax code.

--Other surveys have found that the code has been amended some 14,000 times since the mid-1980s.

--No one can cope anymore: "Individual taxpayers find the return preparation process so overwhelming that more than 80% pay transaction fees to help them file their returns."

Trivia

So far this year, the number of boxes of TurboTax software that Intuit has sold or sessions of TurboTax online that the company has logged totals 9.9 million, up 6 percent from the same period last year, according to the Silicon Valley Mercury News.

The IRS reports that last year 156,297,000 tax payers filed returns.

It seems only fair.

The WSJ reports on a significant change that is coming to 401(k)s. The change will benefit heirs who are not spouses. Non-spouse beneficiaries have been subject to different rules. The benefit to spouses, was once the money was in an IRA, they could stretch out withdrawals, and the tax bills, over their own life expectancies.

Children and other heirs were requried to withdrawing the cash over five years. The new law applies to 401(ks) and other defined-contribution type retirement savings plans. In order to take advantage of this change, beneficiaries have to transfer the inheritance to an IRA and take a first distribution by the last day of the year after the year in which the account owner dies.

Nonprofits Must File or Lose Status

GuideStar, the leading provider of nonprofit information, reports that half a million nonprofits could find themselves stripped of tax-exempt status in May 2010.
According to IRS estimates, that's how many smaller organizations have failed to file a Form 990-N.

The Pension Protection Act of 2006 requires exempt organizations (nonprofits the IRS has designated as exempt from federal income taxes) that do not meet the income threshold for filing an annual return (IRS Form 990 or one of its variants) to provide certain information to the IRS each year. The IRS created Form 990-N for this purpose, and smaller nonprofits began filing it in 2008.

The Pension Protection Act also directs the IRS to revoke the tax-exempt status of any organization that fails to file an annual return, including the 990-N, for three consecutive years. Revocations will happen automatically beginning in May 2010.

Beware

Beware Scams: Since it is tax season, there will be a lot of scams floating around. Be very careful who you work with and always confirm that they are an “Authorized IRS e-file Provider” before you start working with them. You can use the IRS’s search tool to find e-file Providers but be sure to do your due diligence. Remember, you need to trust the company or person you are working with because you are giving them every bit of information they need to steal your identity. If you can’t confirm something, call up an IRS Taxpayer Assistance Center

Don't go it alone!

SL Tribune is reporting on a tax mistake that took four years to resolve and hundreds of dollars in interest and penalties.

Last fall, the a Tooele couple agreed to pay $3,178 that the commission said they owed in capital-gains taxes after selling a small rental property. The state tacked on an additional $449 in interest.

The couple made an error in calculating their capital gains on their 2005 return.

The two are now retired and living on a fixed income.

On Jan. 20, the couple received a letter from the Tax Commission declaring they owed another $421.76 -- and warned that if they didn't pay in two weeks, a lien would be placed on their house.

Dee Talbot, the director of State Taxpayers Services, a division of the Tax Commission, said he recalculated that penalty and eventually lowered it to $116.

Is it over?

If they had paid the tax and then appealed, they would have saved the second penalty, Talbot explained.

The Taxpayer Services director noted that to avoid such misunderstandings, the state offers on-line tutorials and free tax advice for anyone who needs help filling out tax forms.

Help calculating taxes
The Utah Taxpayer Service offers on-line tutorials at Utah Tax Commission.

Taxpayers can call for assistance in filing tax forms at 801-297-2200.

And don't forget the AARP Tax-Aide sites starting February 1st. These sites are for middle and low-income taxpayers and they in several places in the state and all over they country. There are 13 sites in the Salt Lake area alone. Info here.

Tax Help

AARP Tax-Aide. Starting February 1st, several sites will provide free confidential tax help for middle- and low-income taxpayers of all ages with special attention to those aged 60 and older. There are 7000 locations across the U.S. and thirteen sites in the Salt Lake area alone. Go to aarp.org/taxaide to places and times.

More Audits Likely

Santa Rosa Press Democrat reports that with the increase in the estate-tax exemption raising to $3.5 million this year, there will be fewer returns, but there more likely will be more audits and that the IRS has hired more estate and gift-tax auditors.

More audits will take place, in part at least, because of lost revenue due to the increase in exemption.

News for 2008 Tax Filing

A few things from the IRS "Highlights of 2008 Tax Law Changes"

Taxpayers may qualify for the recovery rebate credit if they didn't get a payment in or had a child in 2008.

AMT Exemption increases for incomes from 46,2000 to 69,950

Expiring tax breaks have been renewed:

- deduction for state and local sales taxes
- educator expense deduction
- tuition nad fees deducion
- District of Columbia first-time homebuyer credit
- residential energy-efficient property credit

Standard Deduction Increases

- 10,900 for married couples filing jointly and qualifying widow/widowers
- 5,450 for singles and married individuals filing separately
- 8,000 for heads of household

Personal and dependecy exemption is up $1000 to $3500.

Earned income tax credits rise to $41,646 for people with two or more children
$36,995 for people with one child
$15,880 for those with no children.

One in six taxpayers claim the earned income tax credit. Individuals can get this credit even if they owe no tax and even if no tax is withheld from paychecks.

Five-percent tax rate on qualified dividends and capital gains is reduced to zero if your income is below a certain amount.

New this year, taxpayers can claim an additional standard deduction, based on state or local real-estate taxes paid in 2008.

First-time Homebuyer Credit - is a credit of up to $75,000 that works much like a 15-year interest-free loan. It is available for homes bought 4/9/08 through 6/30/09. There are income limits and qualifying rules.

Standard mileage rates for business use of a car is 50.5 cents per mils from Jan 1 to June 30, 2008. For the rest of 2008 it goes up to 58.5.

IRS has a comprehensive tax guide Publication 17 for individuals on IRS.gov called "Your Federal Income Tax." It is updated with changes for 2008 including info on the new recovery rebate credit, new first-time home-buyer credit, and an additional standard deduction for real estate taxes. It gives info on how to file, what to include, how to calculate gains and losses, what kind of expenses can be reported, etc.