OBAMA'S REVENUE SOUP

Wall Street Journal editorial, Obama's Revenue Soup: A History Lesson on Capital Gains Taxes:

In "Annie Hall," Woody Allen tells the joke of two women complaining about a restaurant. The first says the food here is awful and the second replies, yes, and they serve such small portions. Sounds like President Obama's proposal to raise the capital-gains tax: It will hurt the economy and it won't raise much new revenue.

Mr. Obama's plan would raise the capital-gains rate on January 1 to 20% on those who earn more than $200,000 ($250,000 for couples), plus a 3.8% investment surtax to finance ObamaCare. That 23.8% rate amounts to a nearly 60% increase from the 15% rate in effect since 2003. And that's without his new "Buffett rule," which would take the rate to 30% for many taxpayers.

This and other rate hikes aimed at higher-income earners are supposed to raise about $700 billion in tax revenues over the next decade. Fat chance. Ever since the famous 1978 bipartisan capital-gains tax cut sponsored by the late William Steiger of Wisconsin, the same pattern has repeated itself: raising the capital-gains rate reduces revenues, and lowering it leads to revenue increases.

The nearby chart shows the 35-year trend in capital-gains revenue and tax rates—through 2008, the last year data are available.

The data clearly show that the overall economy is the single biggest factor in capital-gains realizations and revenue. But the data also show that time and again revenue has multiplied despite a lower rate, and arguably because of it. ... Congress shouldn't be fooled by government forecasters who predict a revenue boom from a higher capital-gains rate. They have blown this call every time. ...

In our view the optimal capital-gains tax rate is one that leads to the most capital investment, jobs and wealth gains for American workers. That economically optimal rate is somewhere close to zero and would lead to more overall tax revenue as the economy grew faster. But if Congress wants a capital-gains tax, history suggests the revenue maximizing rate is closer to 15% than to 23.8%.

As John F. Kennedy put it in 1963 when he endorsed a cut in this tax: "The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital" as well as "the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."

Today's Democrats in Washington are no Jack Kennedys. As President Obama told Charlie Gibson of ABC News in 2008, whether or not a higher capital-gains tax raises more revenue is irrelevant to him. He wants a higher rate as a matter of "fairness." The soup may be lousy but he wants more of it.

IRS GETS HALF A BILLION TO IMPLEMENT OBAMA HEALTH LAW

Did you ever wonder why the IRS is getting involved in our health care?  It has to do with them monitoring all the businesses to determine that they are providing the required coverage.  If you have ever tried to call the IRS you should be afraid.  It is not unusual to be on hold for 30 minutes.  I have even been on hold and then the music goes away and a busy signal comes over the phone.  I call back only to find that they are now closed for the day.

Even though the Supreme Court is looking at Obamacare they still are going forward funding the IRS.  See the article that was in Market Watch: CLICK HERE

2012 PRESIDENTIAL RACE

As you most likely know, on April 9, former Pennsylvania senator Rick Santorum suspended his campaign for the 2012 presidential race. This move effectively clears the way for former Massachusetts governor Mitt Romney to assume the Republican nomination.  This helps clear the way in determining your future tax situation Romney has made taxes a centerpiece of his campaign, and we expect to see even more attention focused on the issue as November draws near:

• Romney would make the Bush tax cuts permanent.
• He would cut top rates to 25% for both individuals and corporations.
• He would eliminate tax on interest, dividends, and capital gains for taxpayers making under $200,000.
• He would eliminate the estate tax entirely.
• He would eliminate the Alternative Minimum Tax (AMT) as well as new taxes imposed by the 2010 health care reform legislation.

We realize that this year's Presidential race will have a major effect on your taxes. So we're committed to tracking both candidates' tax proposals, letting you know how they affect your wallet, and offering proactive suggestions to plan for tax law changes. We're not here to take sides. We just want you to know we've got your back.

We'll be following the race carefully through November and beyond. So, if you have questions, don't hesitate to contact us.

I CAN'T PAY MY TAXES - WHAT DO I DO?

Q.  I blew it. I owe tax and don’t have any money.  What do I do?  Am I going to jail?  Should I hide?

A . The worst thing you can do is ignore the problem.  If you owe tax with your federal tax return, but can't afford to pay it all when you file, there are some things you can do to keep interest and penalties to a minimum. 

•    File your return on time and pay as much as you can with the return. By doing this it will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest charges

• Consider obtaining a loan or paying by credit card. The interest rate and fees charged by a bank or credit card company may be lower than interest and penalties imposed by the Internal Revenue Code

• Request an installment payment agreement. You do not need to wait for IRS to send you a bill before requesting a payment agreement. Options for requesting an agreement include:
•  Using the Online Payment Agreement application  and
•  Completing and submitting IRS Form 9465-FS, Installment Agreement Request, with your return
  

IRS charges a user fee to set up your payment agreement. See

·      

• Request an extension of time to pay. For tax year 2011, if you qualify you may request an extension of time to pay and have the late payment penalty waived as part of the IRS Fresh Start Initiative. To see if you qualify visit www.irs.gov and get form 1127-A, Application for Extension of Time for Payment. But hurry, your application must be filed by April 17, 2012.
  

Good luck, and start saving for 2012.  Estimated payments are due 4/15/12, 6/15/12, 9/15/12 and 1/15/13.  I would work on the 2011 first.

www.irs.gov or the installment agreement request form for fee amounts.

WHERE THE HECK IS MY REFUND?

Here’s your obvious statistic of the tax season: most early filers do so because they are expecting a refund. And by now, many of those taxpayers want to know, “Where the heck is my refund?”

According to the IRS, 90% of taxpayers will receive a refund in 21 days or less. That’s the average taking into account all returns filed, whether e-filed or filed with traditional paper returns.

How can you speed that process up? The IRS says that if you e-file and use direct deposit, you can receive your refund in as few as ten days. I’ve heard of folks getting them as quickly as three.

Who might have to wait? The usual suspects: taxpayers who make mistakes. Submitting an error free return increases the likelihood that your refund will be processed quickly. Mistakes – sloppy returns, transposed numbers or bad math – can slow down processing and result in delays.

The IRS warns that ramped up scrutiny for fraud may slow down some refunds. If your refund is sizable or if it’s based on a credit that the IRS has identified as ripe for abuse (EITC and fuel tax credits, for example), your return might get a second look.

Other issues that can affect the timing of your refund include bankruptcy, an open audit or a balance due on a related account such as a different tax year. Your refund may also be slowed if you are subject to an offset for outstanding liabilities such as delinquent child support or unpaid student loans.

If you’ve done everything right and your refund feels slow, you can check on the status with the IRS. You’ll need to wait at least 72 hours after you e-file or three weeks after you mail your paper return before you can make an inquiry.

The fastest and best way to get the info is using the “Where’s My Refund?” tool on IRS.gov .

To check on your refund, you’ll need to have your tax return handy. You’ll need to enter:

• Your Social Security Number
• Your filing status
• The amount of your refund as shown on your tax return

Here’s a quick caveat about dates: if you’ve amended your return using a form 1040X, all bets are off. It may take 8 to 12 weeks or longer to process the return. If 8 weeks have passed after you’ve filed a form 1040X and you have not received your refund, call the IRS at (800) 829-1040. Be prepared to wait (and wait).

Finally, if your check is supposed to be in your mailbox and it’s not because it was lost, stolen, or destroyed, you can file an online claim for a replacement check. You can make the claim if it’s been more than 28 days from the date that the IRS says it mailed your refund. Head over to the “Where’s My Refund?” tool on IRS.gov for details.

DON'T HAVE YOUR ROTH IRA OWN S CORPORATION STOCK

The Appeals Court has ruled that a taxpayer that put his S corporation stock in a Roth IRA tainted the S election so therefore the corporation was a C corporation. Because a Roth IRA is an ineligible S shareholder, the company is taxed as a regular corporation (Taproot Admin. Services, 9th Cir.).

The rational is that the Roth doesn’t owe tax on its share of the firm’s earnings and the Roth owner wouldn’t be taxed on payouts from the account once it had been in existence for five years and the owner was 59½.

MORE TIME TO FILE FOR SOME

Most people must file their tax return on April 17th this year but some taxpayers get more time to file without having to ask for it.

These include:

• Taxpayers abroad. U.S. citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the U.S., have until June 15 to file. Tax payments are still due April 17.

 • Members of the military and others serving in Iraq, Afghanistan or other combat zone localities. Typically, taxpayers can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due. For details, see Extensions of Deadlines in Publication 3 , Armed Forces Tax Guide.

 • People affected by certain tornadoes, severe storms, floods and other recent natural disasters. Currently, parts of Indiana, Kentucky, Tennessee and West Virginia are covered by federal disaster declarations, and affected individuals and businesses in these areas have until May 31 to file and pay.