End of Federal Homebuyer Tax Credit

An $8,000 federal homebuyer tax credit ends Friday, after months of helping fuel sales among first-time customers. But despite concerns that the buyer frenzy will diminish as the credit goes away, Realtors and observers say the market will continue strengthening and prices will rise. That increase is partly why the end of the federal tax credit is unlikely to delay home purchases among Americans who feel now is the time to buy, according to Prudential Real Estate and Relocation Services Inc.

According to the survey, low interest rates and the expectation that rates and housing prices will rise were more important than the tax credit in prompting a purchase. Of those surveyed, 61 percent cited low mortgage interest rates as "very important" to their decisions higher than the tax credit or cheap prices. In contrast, 65 percent believe that the end of the tax credits will have little or no effect on their pursuit of a home.

That's not to say the tax credits didn't play a role in reviving a market crushed under the weight of defaulted subprime loans. More than 90 percent of consumers, according to the prudential survey, believe the credits have helped first time homebuyers and the U.S. housing market in general. Many local Realtors said the credits helped move a lot of buyers off the fence to pursue a first home.

The California Association of Realtors has repeatedly pointed to the credits as fuel for the market. And industry lobbyists have pushed leaders on Capitol Hill to extend the credit once again. It was unclear if that would happen, but lawmakers instead seemed to be emphasizing ways to create jobs as a way to drive the home market.

Georgia Chamber Tax Overhaul Plan

The tax overhaul plan is a response to the near universal assessment that the state's tax system is, in the description of the Atlanta Business Chronicle, "out of date, too full of exemptions and discouraging to potential corporate prospects."

It's an overhaul the need for which has been brought into sharp focus by the devastating drop in state revenues during the current economic crisis a mathematical fact that suggests, among other things, a revenue stream based too heavily on sources that are too volatile and too recession vulnerable.

A special committee of economists, the chairman of the Georgia Chamber of Commerce, the state chair of the National Federation of Independent Business and four other members appointed by the lieutenant governor and House speaker would recommend changes to the legislature. A legislative committee would then write a tax revision bill to be submitted to the General Assembly for an up or down vote.

That's the good news: The process seems designed to take pork politics out of the equation as much as possible, and to address chronic flaws in the ways state government in Georgia is paid for. Democrats have objected that they have too little representation on the committee the same complaint that would be, and frequently was, heard from Republicans during the decades of Democratic rule in Atlanta. The more compelling case for diverse representation has less to do with party affiliation than with the demographic and economic realities of Georgia's people.

While business interests, which account for hundreds of millions in taxes, absolutely must have prominent seats at the table, there is reason to ask whether there will be enough chairs left for other important stakeholders in tax policy meaning, of course, every citizen of Georgia, high and humble.

We suggest that the governor, lieutenant governor, the speaker and others responsible for the makeup of this council keep in mind the microeconomics, as well as macroeconomic, consequences of the decisions they make. As too many Georgians already know, bad tax policy crunches more than just numbers.

Replace Corporate and Personal Income Taxes with VAT

President Obama and his advisers are hinting that they may ask Congress to supplement the existing corporate and personal income taxes with a national Value-Added Tax (VAT) a tax on consumption. The reaction has been quick, venomous and misleading.

Missing in that criticism is any recognition that VAT-based tax discrimination in the global trading system is a major cause of our large and expanding trade deficits and is costing the United States millions of jobs as U.S. based corporations shift their production to countries with a VAT.

Eliminate the existing U.S. personal and corporate income tax system altogether and replace it with a VAT a great tax swap of historic proportions. One argument against such a swap is that it would require the repeal of the 16th Amendment, which is wrongheaded since the 16th Amendment gives Congress the power to levy an income tax, but does not mandate that it do so.
Several VAT critics are also arguing that while the VAT is efficient, fair, and effective, it would, however, raise too much money, too easily and thus encourage the purchase of more public services. They seem to like the existing chaos and inefficiency. And indeed, there is already much about the U.S. Tax Code to hate, not the least of which is its complexity and sheer size a 24-megabyte computer download that fills 7,500 letter-size pages at 60 lines per page.

The administrative compliance costs to the U.S. economy, moreover, are enormous, with the General Accountability Office (GAO) estimating that it consumes approximately one percent of the gross domestic product annually ($145 billion in 2009). The Cato Institute, a Washington-based think tank, estimates that the U.S. "tax army" of accountants, lawyers, and computer experts includes more than 1.2 million tax preparers and processors.

The present system also has vast non-compliance. The IRS estimates that the difference between what taxpayers paid and what they should have paid in 2001 was $345 billion, which was 17 percent of federal revenue that year. Put another way, cheaters evade paying about one of every six dollars of taxes due the federal government.

For many VAT critics, their goal is not to define the method by which the U.S. government raises taxes or to improve its efficiency but to slash revenues as a means of cutting government, or "starve the beast."

Amazon Tax Ignited a Tax War with Huge Online Retailer

Every consumer knows that shopping online can be a handy way to avoid paying sales tax on books, CDs and electronics. But not nearly as many know that they're still supposed to pay tax on these purchases. That's something Colorado, North Carolina and other states, desperate for revenue, want to change.

But by taking steps to collect what many have simply begun calling the “Amazon tax,” the states have ignited a tax war with the huge online retailer that is the primary target of their efforts. Colorado passed a law requiring Amazon.com and other Internet retailers to mail notices to customers reminding them of their tax liabilities. Amazon responded by shutting down its affiliate program in Colorado, effectively closing thousands of small businesses that were marketing Amazon's products over the Web.

Amazon sued North Carolina after the state's department of revenue asked the company to turn over the names and addresses of its North Carolina customer’s information the state would need if it were to try to collect unpaid taxes. With as many as 15 more cash-strapped states weighing whether to pass Amazon taxes of their own, there's a lot of interest in seeing how that case, as well as a related case in New York State, turn out.

The disputes in Colorado and North Carolina are only the latest twists in the fight over Internet sales taxes. Opponents of taxing the sales of Amazon and other Web-based retailers say such measures are a misguided attempt at recouping additional revenue without having to raise taxes. Further, a Tax Foundation report released last month questioned how much money it would actually bring in. Still, the states say it's not just money they're after but fairness: Main Street retailers have to collect sales taxes, and leaving the Internet as a tax-free shopping zone puts them at a disadvantage.

Repeated New Home Buyer Tax Credit

The first-time homebuyer and repeat buyer tax credits expire on April 30. As of this moment, there doesn’t seem to be a movement to extend these credits again in California.

Common myths related to the tax credits are,

If deals haven’t completely closed by April 30 as long as you sign a binding sales contract by April 30, you have until June 30 to complete the transaction and qualify for either the $8,000 first-time homebuyer or $6,500 repeat buyer tax credits.

Receiving new home buyer tax credit check is even if you buy a home in 2010, you can claim the first-time homebuyer or repeat buyer credit on your 2009 return. If you haven’t yet filed your 2009 return, great. If you did, you’ll need to file an amended return. Otherwise, you can wait until you file your 2010 taxes.

In most cases, the government doesn’t issue you a check. Instead, every dollar of the tax credit reduces your income taxes by a dollar. So if your total tax liability was $10,000, the $8,000 tax credit would bring your total tax liability down to $2,000.

So when does someone receive a check? If your total tax liability was $5,000, the IRS would send a qualifying first-time homebuyer a check for $3,000 the difference between the $8,000 tax credit and the buyer’s $5,000 tax liability.

Eligible for the tax credits is for the home you buy has to be your principal residence. And it has to have cost no more than $800,000. There are also exclusions based on your modified adjusted gross income. For example: If your modified adjusted gross income is $145,000 or more, or $245,000 and up if married and filing jointly, and you bought your home after Nov. 6, 2009, you can’t claim either the first-time homebuyer or the repeat buyer tax credit.

Spend Time to Review Your Tax Return

Most of us would like an answer to this question: Am I on the royal highway toward realizing my long-term financial goals building up savings for the children’s education and for retirement.

Your tax return can provide clues for answering that question. So, before filing away a copy of your 2009 return, spend some time reviewing it. Even if you want professional advice, review the return first. For the tax return the topics to consider and the questions to ask are,

INVESTMENTS
If you have more than $1,500 of either, at the attached Schedule B, it will show net capital gains or losses, with the details of your trades on Schedule D.

If Schedule D showed only gains, take it as a warning sign. “Harvesting losses is an important part of good planning.” Often investors do not want to sell losers, feeling a stock will surely bounce back. But a capital loss could offset a capital gain, making the gain tax-free, and the money that was recognized in selling losers could be reinvested, perhaps more productively. Net losses of up to $3,000 can offset ordinary income with any excess carried forward to future years.

Many tax professionals expect tax rates to rise, and if they do, harvesting losses can become even more valuable. President Obama has proposed raising the rate on long-term gains those held more than a year to 20 percent for most taxpayers, and under present law the top rate for ordinary income next year is to rise to the 2001 top of 39.6 percent.

A nonprofit that encourages teaching personal finance to students, warned against two extremes. Short-term gains are taxed as ordinary income, not at lower capital gains rates, so frequent trading can result in a high tax bill. But if Schedule B shows dividends but there is no Schedule D, you may not be re-balancing your portfolio to keep the right mix of stocks and bonds to meet your long-term goals within your personal risk tolerance.

RETIREMENT SAVINGS
“You always want to put away as much as you can on a tax-deferred basis.” If you are an employee, look at your Form W-2 to see if you have made the maximum contribution to a 401(k), 403(b) or other employer-sponsored plan. The income from wages and salaries reported after the retirement contribution.

Self-employed people can set up several different types of tax-deferred retirement plans, including the Simplified Employee Pension, known as SEP, and Simple and qualified plans, such as solo 401(k) plans. And they can take a deduction for their contributions. People whose retirement accounts have eroded in recent years may want to generate some self-employment income and contribute as much as possible to one of these plans to rebuild retirement savings.

People whose employers do not sponsor retirement plans or whose income is below certain limits can put $5,000, or $6,000 if age 50 or older, into a deductible I.R.A. To encourage lower-paid workers to save for retirement, Congress has authorized a tax credit, which offsets taxes dollar for dollar, of up to $1,000 for single filers or $2,000 for married filers.

DEDUCTIONS
Schedule A, which lists itemized deductions, gives rise to several planning issues. For people who are not liable for the alternative minimum tax, state income taxes are deductible. Some people are liable for taxes in two states because they maintain two homes. With state taxes generally rising, people thinking of buying a second home or of eventually retiring to a different state may want to check the state and local tax rates first.

If you take a deduction for mortgage interest expense, consider the rate on your mortgage, he said. With today’s low interest rates, it may make sense to refinance, though the rules are tricky and careful study is needed.

Many people write checks to favorite charities and claim a tax deduction. But the tax savings can be far larger if they give appreciated securities, which are deductible at market value with no capital gains tax due. Affluent people may “discover the enjoyment of lifetime charitable giving,” as distinct from bequests. If so, they may want to set up charitable trusts, donor-advised funds or private foundations for tax-efficient giving.

SELF-EMPLOYMENT
If you are filing Schedule C as a sole practitioner, ask your adviser if you would be better off with a limited liability company. Other tax-saving moves for self-employed people, include hiring family members to do legitimate work. That will shift income to them and may make them eligible for retirement and health plans.

No Gas Tax Hike Announced by Senators

In US Senators John Kerry (D-MA), Lindsey Graham (R-SC) and Joe Lieberman (I-CT) have been discussing the idea of establishing a “linked fee” on oil and gas companies. This potential fee would be related to the carbon market price for other industrial sectors rather than putting oil companies directly into an economy-wide cap-and-trade program.

Kerry, Graham, and Lieberman struggle with how their climate and energy bill will affect oil companies under a carbon control plan, though all reject the prospect of a gas tax hike. There is no gas tax; however, the notion of putting a fee on oil and gas companies, a measure which could in turn raise prices at the pump, in the current political and economic climate is cause for alarm in some quarters.

The senators have floated the concept of a “linked fee” on oil and gas companies, which would tie to the carbon market price for other industries instead of grouping oil companies directly into a cap-and-trade program. ConocoPhillips, BP and ExxonMobil Corp. have expressed support for the idea.

The Congressional Budget Office (CBO) has come out with numbers on the cap-and-trade legislation passed by the House in June. The CBO said the legislation would raise the cost of electricity and other goods produced through the use of fossil fuels, costing the average household $160 a year in 2020 and $930 a year by 2050.