INCOME COMPARED TO THE NATIONAL DEBT

To give you some prospective on how large the national debt is: Net farm income in the USA was $98.1 billion in 2011 (i.e., gross income less expenses), up +59% in the last 2 years. The $98.1 billion was an all-time record, exceeding the $87.4 billion earned in 2004 (source: Department of Agriculture).

Now let’s compare that to the national debt.  If you want to get really concerned look at the debt clock at http://www.usdebtclock.org/

As I write this on Saturday March 31, 2012 at 8:50 AM you can see that our total US national debt (upper left hand corner) is a $15,603,671,688,728.  That’s over fifteen and a half trillion dollars.  It shows the annual deficit at $1,318,819,988,953.  I challenge you to open the hyperlink above and see how much it has grown since I wrote this.

So what does this all mean?  It would take all of the farm income for 13.44 years just to cover the current year’s budget deficit.  And, that number is growing.  If that is not scary enough, it would take over 159 years of all the farm income in the United States just to cover our national debt.

Politicians need to do something to reverse this trend but it is not politically correct so they do nothing.  Eventually we are going to see higher taxes and less government services.  I hope they fix it before it’s not too late.   

1%

Want to know where the 1% that everybody is talking about?

$1 BILLION AWAITS PEOPLE WHO HAVEN’T FILED 2008 TAXES

Tax refunds amounting to over $1 billion are awaiting an estimated 1 million people who still have not filed a federal income tax return for 2008.

To collect, taxpayers and preparers must file a return with the Internal Revenue Service no later than Tuesday, April 17. The IRS estimated that half of the potential tax refunds are for more than $600.

In some cases, the IRS acknowledged, people may not have filed because they had too little income in 2008 to require filing a tax return, even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a tax return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund.

WHAT IS THE REAL INFLATION RATE

If you have been following my blogs you will know that I have been concerned that because of the national debt that inflation will be raising its ugly head.  Now according to CBS Report: U.S. Inflation Is Really ‘around 8%' the rate of inflation is quietly creeping up.

(CBS News) -- CBSnews.com reports, "Forget the modest 3.1% rise in the Consumer Price Index, the government's widely used measure of inflation. Everyday prices are up some 8% over the past year, according to the American Institute for Economic Research." 

According to the story, the AIER study looked at Americans' typical daily purchases, "such as food, gasoline, child care, prescription drugs, phone and television service, and other household products."  The story notes that the biggest factor is motor fuel and transportation costs, which "are up 21.06% from year-ago levels."

BACK IT UP - YOUR COMPUTER THAT IS

We always hear people talking about backing up their computer. Unfortunately, a lot of people take the “that won’t happen to me approach.”  Several times a year I deal with clients who have had computer crashes and for some reason or another had not backed up their data. Can you imagine trying to enter a full year’s data in your software? Plus there is the question of would the IRS really believe you that the computer crashed should they come calling.

Here’s a good example of someone who is a good business person. One of my clients has recently informed me that they were broken into and the computer and other items were stolen. Fortunately, the individual had her computer locked down and the individuals were not able to steal any of the client’s names or pertinent information. Furthermore, they had backup of all their computer data so their business did not skip a beat.

If you haven’t taken time to setup a backup system, I strongly urge you to do that now. Something like this could happen to you.

TEN TIPS ON A TAX CREDIT FOR CHILD AND DEPENDENT CARE EXPENSES

If you paid someone to care for your child, spouse, or dependent last year, you may qualify to claim the Child and Dependent Care Credit when you file your federal income tax return. Below are 10 things the IRS wants you to know about claiming the credit for child and dependent care expenses.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.

2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, and other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.

4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person; to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.

5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6. The qualifying person must have lived with you for more than half of 2011. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See Publication 503, Child and Dependent Care Expenses.

7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.

8. For 2011, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income, such as a flexible spending account for daycare expenses.

10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer's Tax Guide.

If you need any more information let us know.

BEWARE OF PHONY TAX SCHEMES

Recently I was in Chicago speaking at an industry conference.  After my tax program a participant came up to me and said that he had been contacted by a group that promised him a refund due to a “loophole” in the tax law that would give him some type of education credit.  He was going to have to send them some money to have them get the credit for him.  My advise… run.

As a matter of fact the IRS recently issued a warning about the new scheme. Scammers have been targeting senior citizens, members of church groups, working families and other potential victims this tax season.  Just like the person that talked to me, the schemes promise large tax refunds to people who have little or no income and normally don’t have a tax filing requirement. Promoters claim they can obtain for their victims a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college.

Con-artists falsely claim the tax refunds are available even if the victim went to school decades ago. A variation of the scheme also falsely claims the college credit is available to compensate people for paying taxes on their groceries. Huh?

The schemes can be extremely costly for the victims. Promoters may charge them exorbitant upfront fees to file the tax claims and are often gone before victims discover that they have been scammed.

There is a bigger problem in that regardless of who prepared their tax return, the taxpayer is legally responsible for the accuracy of your tax return and must repay any refunds received in error, plus any penalties and interest. You could even face criminal prosecution.

In recent weeks, the IRS said it has identified and stopped an upswing in these bogus tax refund claims coming in from across the country.

NEW VEHICLE RATES

Each year, IRS issues the amounts that can be claimed as depreciation for vehicles placed into service that year, over their useful lives. As has been the case since these Luxury Vehicle rules were implemented in 1984, they do not apply to vehicles weighing more than 6,000 pounds gross vehicle weight (GVW).

The IRS has just issued the following amounts for business vehicles placed into service during 2012.

Passenger Automobiles:
Year 1 – $3,160 ($11,160 if bonus depreciation applies)
Year 2 – $5,100
Year 3 – $3,050
Year 4 and on – $1,875 per year

Trucks and Vans:
Year 1 – $3,360 ($11,360 if bonus depreciation applies)
Year 2 – $5,300
Year 3 – $3,150
Year 4 and on – $1,875 per year

US DEBT PROBLEM

I was reading an article in the local paper and Tom Purcell from the Omaha World Herald is spot on with the US debt problem. He does a great job of summarizing the issues.

To read his article: CLICK HERE

GIVE ME ONE OF THOSE STEM CELL BURGERS

Using the stem cells from an adult cow, a Dutch physiologist has grown a sliver of edible artificial "meat."  He claimed this could offer a better way than traditional animal farming to satisfy the world's booming taste for meat. 

According to researchers within the next 50 years meat production will have to double worldwide to meet the demands of a growing population.  This method could help avoid the cost of using precious farmland.

But you might not want to order a stem cell burger just yet.  The first patty, promised for later this year will cost $300,000.

HOW MUCH OF YOUR GAS PRICE IS TAX - SEE THE MAP

This new map show the state gasoline tax rates. How much does your state tax gas?

A REMINDER: FEDERAL TAX FILING DEADLINE IS APRIL 17 THIS YEAR

The good old IRS sent us a reminder, they sent out a video this week reminding everyone that this year's tax filing deadline is Tuesday, April 17, 2012. This is because the traditional April 15 deadline is a Sunday, and April 16 is a holiday in the District of Columbia.

This give us two extra days to get your taxes in!

ONE OF THE WALL STREET PROTESTERS SALUTED ME

I can't figure out why this happened. I have been trying to figure out the psychology of why a young man would for some reason give me the middle finger salute. I finally came to the conclusion that he was angry at me because I was part of the establishment.

Here is what happen. First of all I have to tell you I have a nice car. Not a Rolls or a Porsche, but a really nice black Infinite. I have to tell you I have earned this vehicle by working hard (and smart). For example during the last two weeks I have put in over 70 hours each week. I am not complaining but just trying to justify my Infinite 50FX. It is a good car for me because it is like me. It is a SUV that thinks it is a sports car and I am a old guy (63) who thinks he is a young guy.

On Monday I was in Waterloo Iowa doing a class on how to take your business to the next level. My wife Maggie came along with me.

After the program I put my brief case in the back of my SUV. My car was dirty so I grabbed my California Duster and started wiping down my car. I noticed a guy who was about 25 years old with tattooed arms and sloppy clothes walking accross the parking lot to a car behind me.

I noticed him but did not even make eye contact because I was concentrating on my car. When I got in my car my wife, who was waiting patiently in the car said that before the young man got into his car looked towards me and although i was not looking he felt it necessary to give me the middle finger salute.

Just why would he do that? Because I have a nice car. Because I cared how it looked? Because apparently I am successful. If someone knows why I deserved this please let me know. I know that my new friend will not be reading this. I doubt if he can read. By the way new friend, if you do happen to be reading this, I did notice that your pants were falling off.

STATE BEER TAX

Did you ever wondered what the state excise tax rates on off-premise beer sales were? Well take a look at this....

http://www.taxfoundation.org/UserFiles/Image/maps/beermap_large_r1.png

WHICH PRESIDENTS TAX PROPOSAL IS BEST... AND DOES IT REALLY MATTER?

Q: We are seeing a lot of proposals to revamp the tax system.  Obama has a plan and Rommey has a plan.  Which one do you think would be better for the average person?

A: Tax reform plans are popping up all over, like robins showing up in the spring, but don't get too excited.  If you think about it this is just election posturing.  It takes more than just the president to change the tax code.  Legislation must first start with the House Ways and Means Committee and then make it all the way through Congress before it hits the president’s desk.  Sure the president has some power to influence but that is about all.  Because of this I don't get too excited about election promises. 

We are watching and will keep you posted.

YOU MAY OWE TAX IF CREDIT CARD DEBT FORGIVEN

Q: I just received a 1099C from a credit card company.  The attachment says that the amount is due to debt that they forgave.  They said that it may be taxable. Can you explain?  I did not get any money from the company.  How can that be taxable?  The amount is $31,269.

A: This can be a little complicated.  I strongly suggest that you work with a competent professional on this matter. 

You aren't the only ones surprised by 1099C's.  There are a lot of them being sent out due to the poor economy.  Lenders, like the credit card companies, are required to send out these 1099's or face steep penalties.  Realize that they also send a copy to the IRS.  We have found some discrepancies in the 1099's.  Discrepancies include amount of debt written off, when the debt was written off and wrong taxpayer numbers.

Here is the deal on the tax law:  Debt that is canceled or forgiven is considered taxable income.   There are a couple of exceptions which is why you need to be working with a competent professional.  If you can prove that the debt was discharged in bankruptcy or if you were insolvent then you might meet the exception. 

If you happen to meet one of the exceptions you still need to recognize the 1099C on the tax return and then explain why it was not taxable.  If you do not, you most likely will get a letter or visit from the IRS.

NEW HSA AMOUNTS FOR 2012

Here are the new contribution limits for 2012 HSA:

•Contribution limit ~ Family: $6,250 Self: $3,100

•Catch up if over 55 ~ Family: $1,000 Self: $1,000

•Minimum deductible ~ Family: $2,400 Self: $1,200

•Max out of pocket ~ Family: $12,000 Self: $6,050

The catch up contribution can only be made by individuals who are at least 55 and are not yet enrolled in Medicare.

Remember that starting in 2011 because of Obama Care over-the-counter medicines may not be reimbursed thru HSA.

RESEARCHING CHARITIES

Q:My mother is thinking about a sizable contribution to a charity.I am not opposed to her spending her money but I want to make sure the charity is legit. Any thoughts?

A: You are wise to look into this.There are a lot of scams out there.The more comfort you want the more you should research.Here are a few basic steps that you can take.

Check the organization's tax exempt status with the IRS and confirm that it is in good standing.The IRS compiles a list of organizations eligible receive tax deductible charitable contributions in Publication 78.Check outwww.irs.gov\app\pub-78

Secondly you can review the nonprofit's financials using online tools such as the Foundation Center's 900 Finder www.foundationcenter.org/findfunders/990finder. You can see the organizations tax return which can give you a lot of information on the finances of the operation.

Use the above tools to check the funding sources and check for debt levels.

• I would check the organizations mission.Does their mission meet your mothers wishes?
• If you still are not satisfied, there are organizations that specializes in philanthropic issues that you may want to consult.

REFUND DELAYS

The Internal Revenue Service is providing an update on the status of the tax refund delays that plagued the agency this season.

In late January, the IRS sent an email to us tax professionals warning that tax refunds could be delayed a week this tax season because of new anti-fraud safeguards. The IRS had fine-tuned its identity theft filters to prevent the growing trend of tax refund fraud. Many taxpayers who wrote to have said that they were experiencing much longer delays than a week.

The IRS also had problems with its “Where’s My Refund" tool giving a different date whenever taxpayers checked up on the status of their refunds, and last month the page told many taxpayers that it had no information on the status of their tax refunds.

MORE PRESSURE ON BUSINESSES USING INDEPENDENT CONTRACTORS

There is legislation floating around Washington that would permit the IRS to issue guidance on classifying workers as employees. That's not all, the Service would also get the power to reclassify workers who’ve been misclassified, despite a contrary 1978 law, in essence voiding the controversial Section 530 relief that many business rely on.

We will keep you posted if we hear anymore on this.