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Who Pays Taxes? | Tax Tip of the Week | No. 112 September 28, 2011

Posted by bradstreetblogger in : Tax Tip, Taxes, Uncategorized , 1 comment so far

51% of Households Owed No Federal Income Tax in 2009

The nonpartisan Joint Committee on Taxation recently announced a study showing 51% of American households had no federal income tax in 2009.  Also, about 30% of households received refund checks in excess of their tax withholdings.  This is due to refundable credits such as the Earned Income Tax Credit, Home Buyer’s Credit, etc. (For a closer look at tax credits please refer to TTW #87).

It is important to remember that this study only addressed federal income taxes.  All workers are still subject to payroll taxes, state income taxes and possibly city income taxes.

The number of households not paying taxes increased in 2009 due, in part, to the effects of the recession that resulted in a higher number of low income workers.

It is also important to note the Home Buyer’s Credit and Making Work Pay Credit are no longer in effect.

So who pays taxes?

Percentiles                  AGI                  % of
by AGI                Thresholds          Federal
Taxes Paid

Top 1%                   $389,354          38.02%

Top 5%                     159,619          58.72

Top 10%                   113,799          69.94

Top 25%                     67,280          86.34

Top 50%                     33,048          97.30

Bottom 50%       under 33,048            2.7

Based on Tax Year 2008

Source:  National Taxpayers Union

Want to make sure that you are only paying your fair share?—-just give us a call!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Did you Move This Summer? | Tax Tip of the Week | No. 111 September 21, 2011

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Ten Tax Tips for Individuals Who Moved This Summer

Summertime is a popular time for people with children to move since school is out. Moving can be expensive, but the IRS offers 10 tax tips on deducting some of those expenses if your move is related to starting a new job or a new job location.

1. Move Must be Closely Related to Start of Work – Generally, you can consider moving expenses incurred within one year from the date you first reported to a new location, as closely related in time to the start of work.

2. Distance Test – Your move meets the distance test if your new main job location is at least 50 miles farther from your former home than your previous job location was.

3. Time Test – You must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location, or at least 78 weeks during the first 24 months if you are self-employed. If your income tax return is due before you’ve satisfied this requirement, you can still deduct your allowable moving expenses if you expect to meet the time test in the following years.

4. Travel – You can deduct lodging expenses for yourself and household members while moving from your former home to your new home. You can also deduct transportation expenses, including airfare, vehicle mileage, parking fees and tolls you pay to move, but you can only deduct one trip per person.

5. Household Goods – You can deduct the cost of packing, crating and transporting your household goods and personal property. You may be able to include the cost of storing and insuring these items while in transit.

6. Utilities – You can deduct the costs of connecting or disconnecting utilities.

7. Nondeductible Expenses – You cannot deduct as moving expenses: any part of the purchase price of your new home, car tags, drivers license, costs of buying or selling a home, expenses of entering into or breaking a lease, security deposits and storage charges except those incurred in transit.

8. Form 3903 – You can deduct only those expenses that are reasonable for the circumstances of your move. To figure the amount of your moving expense deduction use Form 3903, Moving Expenses.

9. Reimbursed Expenses – If your employer reimburses you for the cost of the move, the reimbursement may have to be included on your income tax return.

10. Update Your Address – When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822 Change of Address, to notify the IRS.

For more details, review IRS Publication 521 –Moving Expenses or, just give us a call.

 You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

 

Refunds of Airline Excise Taxes | Tax Tip of the Week | No. 110 September 14, 2011

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment

No Refunds From the IRS

As you may recall, Congress allowed the 7.5% ticket tax and $3.70 domestic segment tax to expire after July 22, 2011.  This inaction caused a shutdown of all non-essential FAA services—and cost an estimated $30 million/day in lost tax revenue.

At that time, many news outlets, and airlines, reported that travelers who bought tickets before the shutdown should be entitled to refunds because they were paying for services not provided.  The reports continued to speculate that such refunds would come from the IRS.

On August 5, 2011 Congress retroactively reinstated the levies to July 22, 2011.  The speculation that airline travelers, between July 23, 2011 and August 5, 2011, would be entitled to refunds has now proved to be false.

While most airlines simply increased fares to match the uncollected taxes during this period—no one will get any refunds.  However, if you were one of the fortunate few who bought tickets during the period, you will not be required to retroactively pay the excise tax.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

 

Rollovers as Business Startups | Tax Tip of the Week | No. 109 September 7, 2011

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ROBS – A Good Idea?

The tax code is full of acronyms.  This week we’ll take a look at “Rollovers as Business Start-ups”—ROBS.   

There are an increasing number of promoters that advocate using this method to help taxpayers establish a new business. ROBS is an arrangement in which prospective business owners use their retirement funds to pay for new business start-up costs.    Typically it works like this:  You pay a fee to a plan sponsor to create a corporation, which sets up a profit sharing plan.  Then you roll your retirement assets into the corporate plan and the-now funded plan buys the stock of your new company.  As a result, your new company’s retirement plan owns your company’s stock, and your company has tax-free cash.

 The IRS admits that ROBS are not considered an abusive tax avoidance transaction.  While profit sharing plans are a legitimate way to reward employees, they must follow strict rules.  These include filing annual tax returns and Form 5500 returns.  These plans must also avoid transactions that discriminate in favor of highly paid employees, including yourself. 

While the idea of receiving tax-free cash to start a new venture is attractive, there is the potential of many pitfalls. Once again, the old adage of “if it sounds too good to be true, it probably is” applies here. 

Give us a call if you want to look at this, and other methods, to start your new business. 

 You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.