Buying a home can be a lot of different things. It will most likely be the most money you will spend on any single purchase. It may be the biggest debt you ever incur. And very likely, it could be the best investment you will ever make. Needless to say, it is a major decision to be made.
There are certainly many ways in which buying and owning a home is going to reflect on your personal income taxes. This is why seeking a consultation with H&R Block prior to making that purchase simply makes so much sense. They will make sure you grasp precisely what you are getting involved with.
Congress is constantly revamping the rules in the tax code, points out Lynn Ebel who is a tax attorney. Lynn works with the H&R Block Tax Institute.
Thanks to California’s new state income tax, there are a lot of high earning citizens who are considering moving to a new state. One such citizen is Phil Mickelson, a top-ranked golfer. This week he suggested that the new state taxes may force him to move out of the state. Later Phil Mickelson went on to say that he shouldn’t have spoken out as he did but there are others who are saying the same thing.
Leader Phil Mickelson teeing off on the 18th hole at TPC at Sawgrass during the final round of the 2007 Players Championship. Mickelson bogeyed the hole but still won the title by two shots. (Photo credit: Wikipedia)
Many of those who will be taxed feel as though it will be excessive. They are also feeling that California is slowly becoming unfriendly to businesses. This is seemingly something that has been going on for quite a while and thus they are starting to think that there will be no end to it. In fact, some of them have even said that this can be traced as far back as Proposition 30, saying this is what changed everyone’s mindset.
Most of the wealthy businessmen who are thinking of relocating are merely thinking and talking about it right now. However, tax analysts expect that they will see the occurrence by 2014. It will take the wealthy this long to figure out how to relocate to avoid paying state taxes without actually moving out of the state. Some of these people are thinking of moving to Texas where the personal income-tax rate is zero, whereas it’s 13.3% in California. Of course, this is just one of the many states to which they may relocate as there are others who also don’t charge individual taxes.
A trend in tax filing is already taking place in some Republican led Southern and Midwest states. Other states are considering a similar plan to eliminate their state income taxes and replace it with a higher sales tax to make up for loss of revenue. Legislative watchdogs and tax reform experts can only speculate to the success of these new tax reform campaigns.
The Push for State Tax Reform
English: Map of US states by state tax as a percentage of average income per capita, 2007. Legend: 5%-5.5% 5.5%-6% 6%-6.5% 6.5%-7% 7%-7.5% 7.5%-8% 8%-8.5% >8.5% (Photo credit: Wikipedia)
Since there is little hope for any more changes with the federal tax system, many states are making plans to spur economic growth within their own region from changes in tax law. Reform activist agree that any major tax changes for this year will have to take place at the state level. However, they do not agree that states will be successful, or that this strategy is the answer to the reform problem. The states of Texas and Florida have no individual income tax which makes them attractive to residents and businesses.
States Considering Lower state income Taxes
Louisiana and North Carolina are two states who have made recent announcements with similar plans. Kansas cut those taxes last year and are talking of more reductions for the coming year. Oklahoma wasn’t successful in their attempts last year and may push another attempt through this year. Alaska eliminated their state income tax but were able to replace the lost revenue with income from the oil industry.
An Example of Republican Economics
This type of reform is an example of “trick-down” economics that was adopted by many in the Republican party 30 years ago. Eliminating the state individual tax filing would give citizens more money in their pocket and initiate consumer spending. Taxing consumers products and services would replace the lost revenue.
The Effect on Socioeconomic Class
The lower and middle socioeconomic classes would be hit the hardest with the change. Many consumers who didn’t pay the state any taxes on their income previously, would now be paying more for necessary items. Additionally, people who would normally receive a refund would no longer qualify for that income assistance.
Many states are making plans to reform their tax laws and alter their state income taxes. As the year progresses, it will be interesting to see other creative economic plans take shape.
A perk or fringe benefit is a financial benefit that your employer provides for you. Whether that benefit is taxable depends on a number of factors. The tax implications of many fringe benefits are well understood. Here are some less familiar tax implications:
Airline Miles Become Taxable
Earlier this year (prompted by a claim by Citibank that the miles it grants its customers upon opening an account (among other items) are gifts and therefore the recipient is on the hook for paying taxes) the IRS publicly stated that the value of frequent-flier miles are “provided as a premium for opening a financial account” that those should be deemed taxable income. The miles earned for purchasing a ticket? Still unclear…
Health Insurance Benefits
Under federal law, certain fringe benefits provided to employees are not taxable. For example, health insurance benefits that an employer provides to an employee are not taxed (on the employee), as long as benefits go to the employee, spouse or dependents. However, this definition excludes domestic partners, who are not spouses under the law.
If your employer offers health insurance to you and your “domestic partner”, the added cost of covering your domestic partner may be taxable as “imputed income”. Imputed income in this instance is the monthly value of your domestic partner’s coverage. This amount is added to your gross income and subject to federal income tax withholding and employment taxes.
Depending on whether your state gives legal recognition to various forms of domestic partnerships, this type of benefit may be exempt from state taxes.
Under the American Recovery and Reinvestment Act (ARRA), popularly known as the Stimulus Bill, beginning in March of 2009 tax exclusions on a monthly basis for employer-provided commuter highway vehicle transportation as well as transit pass benefits was increased to $230. This fringe benefit, which gave transit and vanpool users the same tax break as drivers, was extended through December 2011.
However, Congress allowed this benefit to expire. Starting January 2012, the amount that can be excluded from reported wages for individuals who buyrail, bus, or other mass transit licenses or passes under their employer-sponsored program will decline from the previous $230 per month exclusion to a $125 per month exclusion. On the other hand, the monthly fringe benefit exclusion for workplace parking is increasing to $240 from $230 this year.
Employees in 2012 may still exclude from income up to $125 per month in transit benefits and $240 per month in parking benefits. Employees are eligible to receive benefits for commuting, transit passes and parking during the same month. As part of the Act, these benefits are not considered part of the employee’s gross income for federal income tax reasons and are excluded from reported payroll wage figures.
Job-related educational expenses may be excluded from an employee’s income as a working condition fringe benefit. This exclusion is available for any form of educational instruction or training that improves the job-related abilities of an employee. Employees and contractors of government employers may qualify as well. Educational expenses may include tuition and books, as well as certain transportation and housing costs. For example, you may deduct expenses from driving your car at a statutory rate.
There are multiple provisions in the tax code for educational exclusions. If an educational expense does not qualify under one provision, check the others.
For example, an employer may also help pay for an employee’s education, when the education is not job-related. In this case, the employer is required to have a written educational assistance plan, and may not discriminate in favor of highly compensated employees. Tax-exempt assistance is normally limited to $5250 per employer.
The firm of Katz & Phillips, P.A. believe that each American should have a comprehensive team of financial and legal advisors identified for commonly encountered problems, from tax preparation to personal liability protection. With a team identified you won’t be scrambling to find appropriate assistance when an issue crops up. When considering an Orlando DUI Lawyer, please keep Katz & Phillips, P.A. in the forefront of your mind and Rolodex.
There are various tax credits that are worth knowing about, and if you claim one and are eligible, you can receive a refund even after you have your tax liability lowered to zero.
When preparing your 2011 Federal income tax return, consider the following four tax credits:
1. If you earn less than $49,078, you can take advantage of the earned income tax credit, and the amount can be up to $5,751 depending on your age, income and number of qualifying children. Many workers are seeing this for the first time, becuase of a drop in wages or earnings. IRS publication 596 has more details.
2. If you have expenses due to caring for a qualified child under 13 or a disabled spouse, while you were looking for work or working, you can take advantage of the child and dependent care credit. IRS publication 503 has more information.
3. If you have a qualifying child, the child tax credit can help you, and it allows $1,000 for each qualifying child. You are able to claim the child and dependent care credit as well as this, if applicable and IRS publication 972 has more details.
4. Saver’s credit, or retirement savings contribution credit can help you save for retirement, if your earnings are lower. This is also in addition to any other tax savings applicable to your situation, and you may qualify if you contribute to a 401K, IRA or other workplace plan. IRS publiation 590 has more details.
Check your tax form or turbo tax form carefully, although depending on your individual situation, there may be other applicable tax credits you can take advantage of. The IRS can help you, either online or over the phone at 1-800-TAX-FORM.
Welcome to the February 7, 2012 edition of Tax Carnival Ecstasy. In this issue we have an article by Gregory Stokes on not Missing The Tax Credits Income Deadline. Mark Roberts takes a look at How To Choose The Right Filing Status. Plus there’s a post on Making 401k Withdrawals by Roger White. Hope you enjoy the articles, share, bookmark, tweet, like on Facebook, and come back real soon.
Gregory Stokes presents Don’t Miss The Tax Credits Income Deadline posted atTax Credit Calculator, saying, “The deadline for income tax credits is January 31st. If you don’t provide your actual income figure by this time you could get the wrong amount of tax credits and have to pay a penalty.”
Mark Roberts presents How To Choose The Right Filing Status posted at Tax Brackets, saying, “This blog post looks at how to choose the correct filing status for your situation.”
Roger White presents Making 401k Withdrawals posted at 401k Calculator, saying, “If you are thinking about making a 401k withdrawal, you should consider the choice very carefully. This blog post highlights some of the risks of making a withdrawal.”
That concludes this edition. Submit your blog article to the next edition of tax carnival ecstasy using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.
Millions of Americans are without regular work despite a steadily dropping nationwide jobless rate. Being in this unenviable situation inheres a major tax implication: Unless federal income tax withholding was previously requested by the payee, unemployment insurance benefit recipients face an unwelcome surprise when calculating their 2012 taxes.
Previous Congressional exemption of the first $2,400 in unemployment insurance payments no longer exists. Although all 2011 unemployment benefits are taxable, other allowable deductions are available to offset out-of-work taxpayers‘ public pecuniary obligations.
The Earned Income Tax (“EIT”) credit may be claimed by taxpayers whose household compositions underwent major changes during 2011, for instance.
Those who returned to the classroom to pursue advanced education or enhanced professional skills development may be eligible for the American Opportunity Credit or one of many other educational tax deductions.
Internal Revenue Service (“IRS”) officials urge taxpayers to promptly file personal 2011 tax returns even if unable to pay their tax bill in full. Installment payments or negotiation settlements are popular options that help financially-strapped taxpayers avoid substantial penalties and additional interest for unpaid 2012 taxes.
Costs incurred in connection with ongoing job searches are also deductible. Examples include toll charges for long-distance calls, motel room rentals, stationery, and postage. All such associated job-hunting expenditures must have been made in an attempt to secure work in the same or a similar field as one’s previous occupation or profession.
Be sure to retain receipts and keep accurate records of all such expenses to avoid overpayment of 2012 taxes.