TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

Today, President-elect Obama announced government "investments" on road and bridges and the like. What he means is he intends to spend, spend, spend and tax, tax, tax. "Investments" sound nice, but it takes money out of your hands (and your children, and their children's children...) and lets the politicians in DC tell you how best to live your life.

The Washignton Post reported on the International Economic Summit. The governments are "taking action" which means a government-induced economic disaster. If it is anything like the "help" of FDR's "New Deal" it will extend economic dislocations for far longer than a normal business cycle. Here are excerpts from the article : [T]he gathering in Washington of the nearly two dozen nations -- from every region of the world -- reflected the new balance of power emerging in the aftermath of a financial crisis that has devastated even well-run economies, a wrenching process that British Prime Minister Gordon Brown has dubbed "the birth pangs of this new global order." Under the plans outlined by the leaders, countries such as China, Brazil and India would gain greater roles and responsibilities as part of a restructuring of the international financial system, while European leaders won a commitment to new regulations and controls on banks, rating

2009 Inflation Adjustments Announced The IRS has released Revenue Procedure 2008-66 announcing increases in deductions, exemptions, limitations, and credits for 2009, as well as widened tax brackets. Key changes affecting 2009 returns include the following: The value of each personal and dependency exemption increases to $3,650. The new standard deduction is $11,400 for married couples filing a joint return, $5,700 for singles and married individuals filing separately, and $8,350 for head of household. Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900. The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028. The income limit for the credit for joint return filers with two or more children is $43,415. The annual gift exclusion rises to $13,000, up from $12,000.

2009 Social Security Cost of Living Adjustments Beginning January 1, 2009, the maximum earnings subject to social security tax withholding increases to $106,800. The earnings needed for one quarter of coverage is $1,090. The threshold for coverage for domestic employees increases to $1,700.

The IRS announced the following inflation adjustments for 2009: The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008. The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes. Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008. The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return file

IRS Form 1042 - Report Payments to Foreign Businesses Businesses paying U.S. source income ( including interest, dividends, rents, royalties, wages, fees) to any foreign company, foreign individual, foreign partnership, etc. (foreign persons”) must report the payments and the amount of U.S. tax, if any, that was withheld to the IRS on Forms 1042 and 1042-S. The IRS is enforcing withholding compliance associated with Forms 1042 and 1042-S. The IRS will attack businesses failing to withhold the correct amount of U.S. taxes. For example, if a business withheld the wrong amount of U.S. tax from a payment it made to any foreign persons, the U.S. taxpayer will have to pay the tax due plus penalties and interest. The IRS has shown its determination to intimidate taxpayers into compliance by releasing a new provision in its audit manual: IRM 4.10.21, "U.S. Withholding Agent Examinations -- Form 1042". This manual explains the procedures to be followed by the IRS during an examina

The Internal Revenue Service has an onerous and expensive 2-step process for approval of exempt organizations. Because of the new IRS 990 annual filing requirement for non-profits, the IRS is changing the process. Instead of giving a 5-year preliminary approval requiring a review after 5 years to demonstrate the charity receives public support, the initial letter in now a final "Letter of Determination." This will eliminate the review but does not make up for the extra work of filing the 990,

The IRS seized $97,000 from Raceland, Ky. The Mayor told a startled city council at an emergency meeting Wednesday night that the Internal Revenue Service has seized close to $100,000 from the city coffers because of non-payment of 2006-2007 taxes. This means the muncipal employees will lose their jobs and leaves the town in a precarious position for supplying fire and police services. Read more about this IRS attack.

New PIN Requirement for 2009 Filing Season Starting with the 2009 filing season, all 1040 taxpayers filing electronic returns must sign their returns using an electronic personal identification number (PIN). A taxpayer's electronic signature will include a five-digit PIN that they create and either their prior year adjusted gross income (AGI) or prior year PIN .

Interest Rates Increase for the Fourth Quarter 2008 The IRS announced that interest rates for the calendar quarter beginning October 1, 2008, will rise by a full percentage point. The interest rates are: 6 % for over payments (5 percent in the case of a corporation); 6% for under payments; 8% for large corporate underpayments; and 3.5% for the portion of a corporate overpayment exceeding $10,000.

Economist Robert Shiller (of the Case-Shiller Housing Index) announced his findings concerning housing price trends. He predicts the nationwide average price decline for homes will likely exceed the 30% decline that America experienced in the 1930's Great Depression. Since average price declines already are in the 20% range, the 30% benchmark is rapidly approaching. Some of the formerly "red-hot" markets are down 50% or more.

Rep. McHugh (R-NY) introduced the Worker Savings Account Act of 2008 on August 1, 2008. H.R. 6799 would create Unemployment Savings Accounts. These accounts would be treated like IRAs for tax purposes. Workers could contribute to these accounts to protect them during periods of unemployment other than following termination for gross misconduct. Note if passed: This legislation would not lessen the requirement for employers to pay state or federal unemployment taxes, and would not reduce an individual’s unemployment benefits. Employees would be limited to annual contributions of $5,000 (indexed to inflation) and employers could provide matching contributions up to the full amount of the employee’s contribution. The employe could rollover WSA funds into an IRA or 401(k) plan. This Bill was referred to the House Committee on Ways and Means. Because this is an election year, the Bill will most likely die in the Ways and Means Committee.

Nearly 1 million individuals and businesses filed bankruptcy in the 12 months ended June 30, according to U.S. Court data released August 27, 2008. There were 967,831 bankruptcy cases filed since July 1, 2007, up 28.9 percent from the prior 12 months, when cases totaled 751,056. Non-business filings made up 96.5 percent of those cases, but on the business side a total of 33,822 cases were filed in the 12-month period, including 23,372 under Chapter 7.

The Case-Shiller Home Price Index came out today, and it showed that home prices fell 15.4% in the second quarter nationwide, and this just puts more pressure on anyone falling behind in mortgage payments. A homeowner that has a loan worth more than their mortgage often finds it easier to just walk away from a home rather than sell it, so until we can see some price stabilization, the glut of homes on the market is likely to grow. Keep in mind that a lot of the adjustable loans are still set to adjust, so again, the pressure on prices will likely continue. Note: Commercial Building prices seem much steadier. The problem I observe is not the Sales price being too low, but the Listing price of many properties being above market value.

Due to rising gas prices, the IRS announced the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile. Full Article .

Manufacturing and Construction down! The Institute for Supply Management's manufacturing index for May showed its fourth straight monthly decline,. The Commerce Department reported construction spending dipped in April, for the sixth time in seven months, due to a drop in home building.

IRS Drops Interest Rates The Internal Revenue Service announced June 2, 2008 that interest rates for the calendar quarter beginning July 1, 2008, will drop by one percentage point. The new rates will be: five (5) percent for overpayments [four (4) percent in the case of a corporation]; five (5) percent for underpayments ; seven (7) percent for large corporate underpayments ; and two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.

Remember all the experts reminding us the aggregate housing market had never declined since the Great Depression? That myth was shattered by today’s Case-Shiller 20-City Index showed a huge 14.4% decline in the March 2008 compared with March, 2007 prices. This is average of the 20 cities. Las Vegas was down nearly 26%. This was the biggest decline in the index has seen since it was started in 1988. Other areas not in the index, such as shore and vacation properties show an even bigger decline.

Increasing Foreclosure Rates Foreclosures were up 57% from March of last year. Approximately 1 in 538 houses in the U.S. are in foreclosure. Nevada has the worst rate with 1 in 139 homes in foreclosure. California has a 1 in 204 foreclosure rate.Nevertheless, since the bulk of the ARM loans were made in 2005 and 2006, the market is clearing out the problem loans through foreclosure, selling, or walking away.

IRS is Increasing Audit Rates The IRS is greatly increasing the rate of tax audits on higher income taxpayers and businesses. The audit rate started dropping in 1998 because of restructuring at the IRS. It bottomed in 2000, when just 0.5 percent of individual tax returns were audited but doubled that rate by 2007, to 1 percent. Audits of the Wealthy. Audits of those who make more than $1 million a year jumped 84 percent from fiscal 2006 to 2007, according to IRS figures. Those taxpayers have a 9 percent likelihood of being audited. That's nine times as much as the average taxpayer. Small Business Audits. But when it comes to businesses, the IRS is stepping up audits on smaller and mid-sized firms. The IRS targets sole proprietorships that report income on Schedule C with a 6 percent chance of getting audited. "We have increased our focus on mid-market corporations - those with assets between $10 million and $50 million," the IRS said in a statement.

IRS Warns of Scams by Tax Return Preparers! The IRS Reports : "Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes. These scam artists make their money by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Some preparers promote the filing of fraudulent claims for refunds on items such as fuel tax credits to recover taxes paid in prior years. Taxpayers should choose carefully when hiring a tax preparer, especially one who promises something that seems too good to be true." If you have any questions about promises by a tax return preparer, call Ronald J. Cappuccio, J.D., LL.M. (Tax) at (856)665-2121.

New Jersey Government at the Bottom The Pew Center reports that New Jersey has an extremely poorly run government. Except for Rhode Island and New Hampshire, New Jersey government scored among the worst in the US. That is no surprise to taxpayers who have suffered years of high tax and wasteful spending big government.

Housing Sales Drop 13% House Sales for 2007 fell 13%, to mark its biggest yearly decline in 25 years. Also, median prices FELL by 1.8% nationwide. That was the first national decline in the 40 years that home sales have been tracked! Many economists say that the last time prices fell like that would likely have been in the years that followed the Great Depression in the 1930s.

The Courier Post published my commentary about Ron Paul: Saturday, January 5, 2008 Re: "Republican Ron Paul offers a different choice and new ideas" (Perspectives, Dec. 28). U.S. Rep. Ron Paul, R-Texas, is the only candidate running who actually represents the America of our founding fathers. He promotes more individual choice, the right for you to control your life, not the government controlling you and taxing you into penury. Let's stop the "yes, but" Republicans and the "tax-and-spend" Democrats from overriding the Constitution in the name of "patriotism" or some favored social program. Paul represents a new freedom for all Americans from an overbearing federal government. That is why I am voting for Ron Paul in the Republican Primary. Thank you. RONALD J. CAPPUCCIO Cherry Hill Click Here for the full article.

Lottery Winners Lose! The 11th U.S. Circuit Court of Appeals in Atlanta ruled Dec. 19 that Bertucci and the others around the country who sold their winnings to investment companies must pay income taxes on the lump sum they received instead of lower capital gains taxes. Click Here for more details.

Congress passed a new law increasing nuisance penalties against businessees: Failure to File Partnership Returns Will Be More Costly. The new law extends the period for charging the monthly partnership return failure-to-file-penalty from 5 to 12 months and increases the monthly per-partner penalty from $50 to $85. This change applies to partnership tax returns due after December 20, 2007. (Another unrelated new law increases this monthly penalty $1 to $86 per partner.) Failure to File S Corporation Returns Will Also Be More Expensive. The new law imposes a monthly penalty for failing to file an S corporation return or failing to provide information required to be shown on the return. The penalty amount is $85 per shareholder per month up to a maximum of 12 months. This change applies to S corporation tax returns due after December 20, 2007.