Latest Kansas Budget Plan in Schools

The House Appropriations Committee passed a $5.1 billion budget proposal at Topeka, KS USA, that includes no tax increases and would cause public schools to lose $172 million.

The amount that the state spends on kindergarten through 12th grade would stay the same next year as this year, but the schools would get less because they won’t receive $172 million in federal stimulus funds.

Gov. Mark Parkinson had asked the Legislature to make up for the loss of federal funds, and spend $33 million more to increase per-pupil funding. However, the House committee recommended that the state not kick in any more money.

The committee measure also seeks to save about $21 million through a 5 percent cut for most state workers, which could cause state offices to close at 3 p.m. on Fridays.

Other proposed cuts include:

• A hiring freeze on some agencies.
• No increase in state contributions to the state pension fund.
• A 1 percent budget reductions for most state agencies. Education would not be cut further. The Department of Corrections and some social services caseloads also would not be cut.

While the House committee was talking about cutting the budget, a Senate committee was debating raising taxes a proposal that went nowhere. The Senate taxation committee failed to approve anything in a bundle of tax increase bills. The original plan was to increase taxes on cigarettes, alcohol, sugary drinks and raise the overall sales tax by a penny.

Time up For Home Buyer Tax Credit

Time is almost up on the federal home-buyer tax credit, the government’s gift of up to $8,000, crafted to jump-start a stalled housing market. Just about six weeks remain for buyers to get those contracts inked.

For those just now getting into the market who wants the cash, you’re going to have to move quickly, that pushed hard for this credit and its two extensions in February and December 2009. “You’ve got to be prepared to make quick decisions.”

In honor of the countdown, here are six things to keep in mind

1. This round is actually an extension, but it doesn’t just cover first-time buyers. Move-up buyers are also eligible, though they only qualify for up to $6,500.
2. Only the contract has to be signed on or before April 30. The home purchase must be completed by June 30. Real-estate experts advise signing the contract as soon as possible and leaving plenty of time for closing, given lenders remain extra careful these days. Don’t try to squeeze in a July 1 deal. It won’t work.
3. The definition of a first-time buyer isn’t as limiting as the words indicate. In this case, the “buyer” hasn’t owned a principal residence in three years. For married taxpayers, both parties can’t have owned.
4. It might seem genius to “buy” a home from your parents, but skip any such notion. You can’t purchase a home from most family members: Parents, children, grandparents and grandchildren are excluded.
5. Consider that prices might fall after the credit expires: Buyer traffic will undoubtedly decline once this enticement goes away. As sellers adjust to this slower new reality-they’ll be more than likely to shave prices.
6. Of course, there’s talk of another extension, given housing’s recovery remains choppy. Some think the time has come to end the program pushed to extend the tax credit last fall but last month it’s time to let it expire. It’s worn out its benefit, if you extend it again, it isn’t going to do much, and what you’re doing is providing a tax break to folks who bought anyway.

Health Insurance After-tax Basis Medical Expense Deduction

The prescription from accountants says that with incomes down and insurance premiums up more Americans are qualifying to take medical and dental deductions on Schedule A of their individual tax returns.

The most common mistake people make is assuming they need a big health-care expense to qualify since their eligible medical and dental expenses must be greater than 7.5% of their adjusted gross income.

While that may have been true in the past, over the last three years Canning, who also has a tax practice, has seen an increasing number of clients meet that 7.5% threshold thanks to skyrocketing insurance premiums, deductibles, co-pays and coinsurance.

If you have employer-sponsored health insurance, find out whether you pay your premiums on a pretax or after-tax basis. Only premiums paid on an after-tax basis may qualify for the medical-expense deduction.

Add up out-of-pocket costs
To take the deduction, first, you must itemize rather than using the standard deduction. Second, you can only deduct the amount that is above the 7.5% threshold. And if you are unlucky enough to be subject to the alternative minimum tax, that limit rises to 10% of adjusted gross income.

With a spouse out of work and higher out-of-pocket costs for two elective surgeries, a longtime client is taking the medical deduction for the first time. If you were out of work and received the federal government's 65% subsidy for your Cobra coverage, you also can still deduct the remaining 35% that you paid. "The tax deduction eases the blow.”

While you don't need to add the premium assistance to your gross income, you may have to pay back part of that subsidy if your adjusted gross income was between $125,000 to $145,000 for individuals, and $250,000 to $290,000 if filing jointly. And if your AGI was more than $145,000 or $290,000, respectively you must repay the Cobra subsidy in full as part of your income tax.

Surprising medical deductions
This year, the IRS didn't add anything to its long list of what qualifies as deductible medical and dental expenses, but many eligible costs may surprise taxpayers because they're not covered fully or at all by insurers.

Preparing taxes Ideas

Preparing taxes is nobody's idea of a good time, but for most taxpayers, there's a payoff: a sizable refund check. This year, though, residents of several states will have to wait up to five months to receive their state tax refunds because of budget shortfalls.

The federal government hasn't run out of money at least not yet. Still, at a time when many people need their refund checks to pay the bills, some taxpayers' federal tax refunds have been delayed.

Taxpayers who file their federal tax return electronically and arrange for direct deposit typically receive their refunds in about two weeks, the IRS says. But here are some reasons your federal tax refund could arrive later than expected:

You failed to claim the Making Work Pay credit.
Of the 60 million individual tax returns filed by early March, more than 2 million contained an error related to this credit, the IRS says.

Last year's economic stimulus package provided most taxpayers with a tax credit of $400, or $800 for married couples. The IRS adjusted its withholding tables so the credit was spread out through the year.

But when you file your tax return, you need to claim the credit on Schedule M, says Michelle Eldridge, a spokeswoman for the IRS (tax software programs will do this automatically). This is particularly important for taxpayers such as workers who are self-employed who didn't receive the credit through withholding, or only received a partial credit.

You received a Making Work Pay credit and an Economic Recovery Payment.
As part of the stimulus package, Social Security beneficiaries received a one-time Economic Recovery Payment of $250. Since the maximum a taxpayer can receive from both programs is $400, those seniors will have to reduce their Making Work Pay credit by the amount of their Economic Recovery Payment. Failure to do this could hold up your refund.

If you're not sure whether you received the $250 payment, you'll have to check your bank records. The IRS didn't send out a notice about the payment, and neither did the Social Security Administration. The Treasury Department delivered the checks last year in the same manner Social Security beneficiaries received their regular benefits. If you received your Social Security benefits through direct deposit last year, your check went directly into your bank account.

You claimed the home buyer's credit.
Taxpayers who were first-time home buyers in 2009 are eligible for a tax credit of up to $8,000, while repeat buyers are eligible for a credit of up to $6,500. That's a nice benefit, but you may have to postpone buying those window treatments.

Taxpayers who claim this credit are required to attach a copy of their settlement statement to their tax return. That means they must file their return by mail instead of electronically. Congress added this requirement last year in response to reports of widespread fraud in connection with the credit.

VITA Tax Refund Help

The volunteers who help low income people fill out their tax returns at Springfield Partners for Community Action are busy early this year, seeing a rush of taxpayer’s weeks before the April 15 deadline.

"With this economy, people need the money now," Martin D. O'Connor, tax advocate and head of the Volunteer Income Tax Assistance or VITA program said. "They have bills to pay now and they can't afford to wait. They need their money now."

Springfield Partners' VITA program expects to help 3,500 to 4,000 low income Springfield residents fill out tax returns this year. The VITA program is open to taxpayers who earned $49,000 or less in 2009.

The Internal Revenue Service also estimates that more taxpayers will qualify for the earned income tax credit this tax season after suffering unemployment and cutbacks in pay and hours during 2009.

The federal government also changed the tax credit this year allowing for an enhanced credit for people with three or more children. The benefit used to stop growing after the second child.

The amount of the refund varies according to a person's income and number of dependent children. For example, a single person with no dependent children would have to earn no more than $13,440 a year to qualify. But a parent of three or more children can qualify with an income of $43,279 or $48,279 for two parents married and filing jointly, according to the IRS.

The maximum tax credit ranges from just $457 for someone with no dependent children to $5,657 for someone with three or more qualifying children. Last year, 24 million people received $50 million in benefits. The average refund was $2,000.

California State Tax Free Bonds

Despite all the talk about California going bankrupt (which it can't, legally) or being like Greece, investors scooped up the state's tax-free general obligation bonds this week. Demand was strong enough that Treasurer Bill Lockyer increased the size of the sale by $500 million to $2.5 billion today.

Individual investors bought about 55 percent of the bonds, primarily the shorter-term maturities, during a two-day retail order period that ended Wednesday. Institutional investors bought the rest of the bond issue today.

Strong demand allowed the state to pay slightly less than originally planned. Final yields ranged from 1.17 percent for the March 2012 maturity to 5.65 percent for bonds maturing in March 2040. The state had expected to pay 5.7 percent on the 2040 maturity.

"I think (investors) recognize what the treasurer and state officials have been saying forever, that California is still a sound investment. Despite all those negative headlines and our ratings (California has a lower credit rating than any other state), our likelihood of default is virtually zero."

California was lucky that the overall supply of tax-free bonds both newly issued debt and previously issued bonds trading in the secondary market has been unusually small lately. Meanwhile, demand for tax-free bonds has been strong because many investors expect tax rates will be going up. Strong demand and limited supply means investors were willing to pay a slightly higher price and accept a slightly lower yield than some market experts had expected.

Supply has been limited because many states, instead of issuing tax-free bonds, have been issuing Build America Bonds, which pay taxable interest. These bonds, nicknamed BABs, were created by last year's federal stimulus act. States and other government issuers sell them to finance infrastructure projects. Because they are taxable, they pay higher interest rates than tax-free bonds, but the federal government reimburses states for 35 percent of the interest.

Kansas Tax Increase in Alcohol

Kansas lawmakers trying to close a $467 million budget deficit weighed two tax increases, one on alcohol, and another on tobacco. One fared better than the other.

The proposed alcohol tax hike was tabled indefinitely by the House Tax Committee. But the idea is likely to resurface as lawmakers look for alternatives to further budget cuts. The added alcohol tax revenue would have been split between mental health programs and services for people with development disabilities.

But several members of the House Tax committee opposed the bill, HB 2593, for different reasons. Some worried it could hurt businesses that sell alcohol. Others questioned if the tax revenue would actually be spent on its intended purpose.

The bill would have doubled a wholesale tax on beer, wine and alcohol that’s been unchanged since 1977. The current tax is 18 cents per gallon of beer, 30 cents per gallon of wine and $2.50 per gallon of alcohol. The tax, amounting to a few pennies per drink, is passed on to the consumer. The increase would have raised $21.8 million a year.

Community mental health agencies have lost $20 million in state funding due to recent budget cuts. More than 4,000 Kansans with disabilities are now awaiting services.

Meanwhile, the Senate Tax Committee reviewed legislation to increase the tax on tobacco. A committee vote is likely next week. The tax would go up by 55 cents per pack of cigarettes to $1.34, the national average. The increase would raise $69 million.

Anti-tobacco groups argue that the measure, SB 516, would reduce smoking rates, especially among teenagers. They note the state already pays hundreds of millions to defray the cost of smoking related illnesses. School lobbyists and social service advocates contend the tax could help prevent further budget cuts.

But tobacco and convenience store owners maintain that increasing the tax would backfire. They argue that smokers near the state line would travel to Missouri, home of one of the nation’s lowest tobacco tax rates at 17 cents per pack.