IRS Launches Mobile App

The IRS has released an app that allows taxpayers to check the status of their tax refund and to get other tax news and information.  The app is called "IRS2Go."  You can find out more at this page on the IRS website.

Illinois Raises Tax Rates - Will Iowa Benefit?

Illinois has announced that it will enact major increases to its tax rates.  Will Iowa benefit?  My friends at Radio Iowa have a story about this possibility.

The founder of sandwich company Jimmy John's, based in Champaign, Illinois, has already said he might move his company to Florida because of the rate hike.

Itemizers Can File Starting February 14

The IRS today announced that it will start accepting tax returns with itemized deductions on February 14.  The IRS had previously announced that there would be a delay in accepting returns from itemizers.  The last-minute tax legislation passed by Congress on December 17th affected certain types of deductions, and the IRS said it needed time to update its computer systems for the changes.

Tax Lien Filed Against Montel Williams

Montel Williams is the latest celebrity to have tax problems.  According to "The Smoking Gun," the IRS has filed a $1 million lien against Williams and his wife in connection with their 2008 and 2009 tax returns.

Read more here.

Federal Tax Due Date is April 18

Tax season will last a little longer this year thanks to a holiday being celebrated in Washington, DC.  The deadline for filing your 2010 tax return will be Monday, April 18, 2011.  The due date is normally April 15, but this year, the 15th falls on a holiday called "Emancipation Day" that is celebrated by Washington, DC.  Even though the holiday is only celebrated in Washington, DC, we all benefit from it by getting 3 extra days to file our tax returns.

Unemployment Benefits are Taxable in 2010

One item that did not get extended in this month's tax bill was the exclusion from income of the first $2,400 of unemployment benefits. 

In 2009, taxpayers who received unemployment compensation during the year were not taxed on the first $2,400 of benefits received.  This provision was not extended for 2010, so all unemployment benefits received in 2010 will be taxable.

Celebrity Tax Problems - Lawyer Mickey Sherman

An attorney who has made frequent television appearances as a legal analyst and who represented a member of the Kennedy family in a murder trial a few years ago has been sentenced to jail time on tax charges.  Lawyer Michael "Mickey" Sherman owes about $1.2 million in back taxes from between 2001 and 2009.  Sherman was sentenced yesterday to one year and one day in prison.  Read more here.

IRS Says Itemizers Will Have to Wait a Bit to File

The IRS on Thursday announced that its computer systems won't be ready to handle certain types of tax returns until mid-to-late February.  This is because of certain tax law changes enacted in last week's tax bill passed by Congress.

The IRS says people who itemize deductions, people who claim a "front-side" deduction for college expenses, and K-12 teachers who take the "front-side" deduction for purchases of classroom supplies will have to wait to file until sometime in February. 

The IRS says it will soon give a more-solid date for when these types of returns can be filed.

Standard Deductions Increase Slightly for 2011 Tax Returns

On Thursday the IRS released the standard deduction amounts for 2011.  This will affect your 2011 tax return that you'll file in 2012.

• The personal exemption amount will increase to $3,700 (up from $3,650 for 2010 returns).
• The standard deduction for married couples will be 11,600 (up $200 from 2010); $5,800 for single and married filing separately (up $100); and $8,500 for head of household (up $100).
• The tax bracket thresholds will increase slightly.  For example, the 25% tax bracket for a married couple will begin at $69,000 (up $1,000 from 2010).

Read more in this IRS news release.

Additional Standard Deduction for Real Estate Taxes is No More

Many tax breaks that had expired or were set to expire got extended in the tax bill passed by Congress last week.  But one break that did not get extended and thus has gone away is the additional standard deduction for property taxes paid.

This tax break allowed people who don't itemize deductions to add up to $500 ($1,000 for married taxpayers) to the standard deduction for property taxes paid.  This was a handy extra deduction for anyone who didn't have enough itemized deductions and had to take the standard deduction.  Unfortunately, this tax break expired on December 31, 2009, and was not renewed in any legislation in 2010, meaning that this extra deduction for non-itemizers has ridden off into the sunset.

People who itemize deductions will still get to claim an itemized deduction for property taxes, same as always.  The expiration of this tax break only affects those who take the standard deduction.

Analyzing the Tax Cut Deal

President Obama signed a tax bill into law yesterday (Friday) that gives us some clarity on what the tax situation will be for 2011 and 2012.  Here are the highlights of the bill:

• Tax brackets to remain the same, with a 10% bottom rate and a 35% top rate.  Without this legislation, the bottom rate would have increased to 15% and the top rate to 39.6%.
• A "payroll tax holiday" that reduces the amount of FICA withholding by 2% (self-employed taxpayers will see their self-employment tax decrease by 2%).  For a person making $40,000/year, this would equal an $800 savings.  (But the Making Work Pay Credit is expiring, which negates some of the savings.)
• Another "patch" to the Alternative Minimum Tax that will help millions of taxpayers avoid this tax.
• The capital gains and qualified dividends rates remain at 0% for taxpayers in the 10% and 15% tax brackets, and at 15% for taxpayers in the higher tax brackets. 
• The Child Tax Credit will remain at $1,000 (it had been set to decrease to $500 in 2011).
• You can claim dependent care expenses of $3,000 for one child or $6,000 for two or more children.  These amounts had been set to decrease to $2,400 and $4,800.
• The expanded Earned Income Credit remains in place through 2012.
• The credit available for energy efficient upgrades to your home remains in place through 2012 (it had been set to expire at the end of this year).
• Extension of the American Opportunity Credit for college expenses, and an extension of the "above-the-line" deduction for college expenses.
• Special 100% "bonus depreciation" for purchases of brand-new assets from September 9, 2010, through the end of 2011.
• The estate tax returns with a $5 million exemption per person, and a 35% top rate, retroactive to January 1, 2010.  Estates arising in 2010 will have the option of of using these rules, or using the "old rules" of no estate tax and a reduction in the amount of increase in carryover basis.

We Have a Tax Deal

The House has approved a tax deal that extends the Bush Tax Cuts and provides for a number of other tax provisions for 2011 and 2012.  The bill heads to President Obama for signature today.  Over the next few days, I'll post more about the tax implications of the bill.

Article from CNN.

Closure on Bush Tax Cuts Could Come Today

The long wait to know what the tax landscape will look like in 2011 could end today.  The U.S. House is expected to vote on an extension of the "Bush Tax Cuts."  The Senate approved the extension yesterday by a vote of 81-19.  Iowa's Senators were split on the measure, with Republican Charles Grassley voting for it, and Democrat Tom Harkin voting against it.  In addition to extending the Bush-era tax rates, the measure also includes other tax provisions such as another "patch" to the Alternative Minimum Tax.

The IRS is Now on Twitter

The IRS announced yesterday that it now has a Twitter account.  From "IRS Special Edition Tax Tip 2010-14":

The Internal Revenue Service is using Twitter and other social media tools to share information with taxpayers and the tax professional community.

The IRS Twitter news feed, @IRSnews, provides the latest federal tax news and information for taxpayers. The focus of the IRS Twitter messages will be on easy-to-use information, including tax tips, tax law changes, and important IRS programs such as e-file, the Earned Income Tax Credit and “Where’s My Refund." Anyone with a Twitter account can follow @IRSnews by going to http://twitter.com/IRSnews.

Another important IRS Twitter feed, @IRStaxpros, is designed for the tax professional community. Follow @IRStaxpros by going to http://twitter.com/IRStaxpros.

The IRS also tweets tax news and information in Spanish at @IRSenEspanol. Follow this Twitter feed by going to http://twitter.com/IRSenEspanol.

The IRS Twitter feeds will work in conjunction with http://www.irs.gov/  and the IRS YouTube channels to bring IRS information direct to taxpayers. Since August of 2009, there have been more than 1 million views of videos on the IRSvideos ( http://www.youtube.com/irsvideo), IRS Multilingual (http://www.youtube.com/user/IRSvideosmultilingua) and IRS American Sign Language (ASL) ( http://www.youtube.com/IRSvideosASL) channels.

In addition to Twitter and YouTube, the IRS provides additional social media tools to inform and assist taxpayers.

Deal Reached on Taxes (Maybe)

President Obama and Republicans in Congress have reached an agreement on taxes.  The agreement calls for the following:

• Extension of the Bush Tax Cuts through the end of 2012.  For more on what this means, see this article posted a few days ago on the Dinesen Tax Times.
• A two-year "AMT patch."  This will prevent an estimated 22 million taxpayers from falling victim to this tax.  For more on what would happen without this patch, see this Dinesen Tax Times article.
• Extension of the expanded Earned Income Tax Credit, extension of the expanded child tax credit, and extension of the American Opportunity Credit for college expenses.
• Extension of miscellaneous tax provisions such as the additional standard deduction for real estate taxes paid by non-itemizers.  The $250 "above-the-line" deduction for classroom expenses of K-12 teachers is also extended.
• Unlimited expensing of new assets in 2011.
• A reduction in the employee portion of FICA withholding, from the current 6.2% to 4.2%.  For a person making 40,000 per year, this would equate to a savings of $800 over one year.  This provision may have been put in the agreement to make up for the expiration of the Making Work Pay Credit.
• The estate tax will return with a $5 million exemption and a top rate of 35%

Democrats are not happy with this proposal, so it remains to be seen if it will actually be passed into law.

Debt Commission Report Fails to Get Necessary Votes

President Obama's "Debt Commission" voted today on their plan to reduce the federal deficit by $4 trillion over the next 10 years.  The plan was approved by a vote of 11-7, but 14 "yes" votes were needed in order for the proposal to be put before Congress.  Despite that, many analysts think that parts of the proposal will be brought before Congress as part of other budget proposals.

You can read more about today's vote here, and previous Dinesen Tax Times coverage here.

House Passes Extension of Bush Tax Cuts

The U.S. House of Representatives today passed an extension of the Bush Tax Cuts for the lower and middle classes.  The measure passed 234-188 in the House and now goes to the Senate.  Pundits say the Senate will likely vote the measure down.

Link to a Reuters news article about the House vote.

Making Work Pay Credit Expires - Paychecks Will Decrease

I haven't seen much media coverage of the "Making Work Pay Credit," but this credit expires soon and will cause a lot of people's paychecks to be smaller in 2011.

The Making Work Pay Credit was part of the 2009 economic "stimulus" package and existed in 2009 and 2010, but is set to expire on December 31st.

The credit amounts to $400 per person for most working adults.  People who receive W-2 wages have received the credit bit-by-bit in each paycheck, in the form of lower withholding. 

If Congress does not renew the Making Work Pay Credit, you'll notice that your first paycheck of 2011 will be lower.  The decrease will amount to $33.33 per month per person ($400/12).

President Obama has proposed extending the credit into 2011, but lawmakers have not been receptive to the idea.

(UPDATE:  the tax bill signed into law December 17th, 2010, did not extend the Making Work Pay Credit, but it did provide for a reduction in FICA withholding from paychecks in 2011, which will more than offset the expiration Making Work Pay Credit.)

AMT Could Hit 20% of Taxpayers in 2010

(UPDATE 12/22/10:  The tax bill signed into law on December 17, 2010, does provide an AMT patch that will help millions of Americans avoid the AMT.  Read the story here.)

We are hearing constantly about Congress debating the "Bush Tax Cuts" and whether to extend the tax cuts for only people who earn less than $250,000 a year, or to extend them for all taxpayers.  But there are other tax provisions unrelated to the Bush Tax Cuts that Congress needs to take action on this month -- and in my opinion, the most important of those provisions is the alternative minimum tax (AMT).

If Congress does nothing regarding the AMT, millions upon millions of taxpayers (an estimated 1-in-5) will be hit with this tax, which, when it was enacted in 1969, was only supposed to hit a few extremely wealthy people.  The AMT exemption amount for a married couple will drop from $70,000 in 2009 to just $45,000 in 2010; and from $46,700 in 2009 for single or head of household to $33,750 in 2010. 

The AMT is too complex to go into in one article, but suffice to say that at the very least, Congress MUST extend the 2009 exemption amounts into 2010 or lots of people will be very unhappy when they find out they owe this tax….

Major Tax Changes Proposed in Debt Commission Report

President Obama's "Debt Commission" released a report today (Wednesday) with recommendations on how to cut the federal deficit.  The Commission says its recomendations would reduce the federal debt by $4 trillion over the next 10 years. The Commission is made up of 6 Republicans, 6 Democrats and 6 others appointed by the President. In order for any of these recommendations to be put before Congress, at least 14 members of the Commission need to approve the plan. The Commission is set to conduct a vote on Friday.

Major changes to the tax code are a part of the plan.  The Commission proposes repealing the alternative minimum tax, creating three tax brackets for individuals (12%, 22% and 28%), and eliminating all itemized deductions (everyone would take a standard deduction, but certain tax credits would be allowed for mortgage interest and charitable contributions).

Corporate taxes would have one flat rate of 28%.

The proposal includes much more than just tax reform.  You can read the entire proposal here, and a CNN article about the proposal here.