Simply Junior

With the recent changes made to the health care bill, it is estimated that the new legislation will cost a whopping $871 billion over the next 10 years. The new health care plan will be paid for by $483 billion through cuts in spending and another $498 billion will be paid for through new revenue. The Congressional Budget Office claims that the new health care bill will reduce the budget deficit by $130 billion over a period of 10 years.

The legislation will be funded through the individual mandate tax. From 2014, anyone who does not have a qualified health insurance plan will have to pay an income surtax. This tax is expected to earn the federal government $15 billion. The surtax for 2014 is around 0.5 percent. However, in the next two years, it will increase to 1 percent and then to 2 percent the following year.

The federal government will also be levying tax on employers. Employers will 50 or employees will necessarily have to give health insurance to employees, or they will have to a tax of $750 per full time employee. This amount will be non-deductible.

In addition, there will be a 40 percent tax from 2013 on Cadillac health insurance plans. The Cadillac health insurance will have plans for individuals valued at $8,500, while it will be $23,000 for families. However, there will be some exceptions like the Longshoremen, who lobbied to have their union members removed from this new tax.

No longer will the 5 percent tax be levied on cosmetic procedures. However, there will be a 10 percent tax on tanning salons.

Small businesses with less than 25 employees and having an average salary of $50,000 will be given tax credits as an encouragement to get the businesses to offer health insurance to their employees. Small businesses with 10 or less employees can look forward to larger tax credit.

Individuals earning more than $200,000 and married couples earning more than $250,000 will now have to pay increased Medicare payroll tax. The tax is now 0.9 percent instead of the proposed 0.5 percent.

Health insurance companies as well as medical device manufacturers will now have to pay some new taxes. The government has estimated that with these new taxes, it will be able to generate $60 billion over the next 10 years. Companies that are making profit of $50 million or more will now have to pay these new taxes. From 2011, medical device manufacturing industry will have to pay $2 billion every tax year until the end of 2016. Then in 2017, the levy will increase to $3 billion.

In addition, the new health care bill has increased the limit for medical deduction. Currently if a person spends more than 7.5 percent of the adjusted gross income on medical treatment, this amount can be deducted from the taxable income. With the new bill, the limit has been increased to 10 percent of the adjusted gross income.

With many of our brave men and women currently overseas defending our freedom, we need to make sure they know how grateful we are for their service to our country. These courageous Americans fight on foreign soil while their loved ones eagerly await their return home. Because of this, we should never forget to thank them for their sacrifices.

VA Loans Homebuyer Tax Credit

To continue to show gratitude for the military, the U.S. government has extended the homebuyer tax credit for members of the uniformed services, members of the Foreign Service and employees of the intelligence community.

The homebuyer tax credit, which expired earlier this year for the general public, gives you an $8,000 credit or 10% of the purchase price of your home for first-time home buyers. Repeat home-buyers are eligible for $6,500 credit or 10% of the purchase price of your home.

Who Is the Credit For?

The credit is available for those who serve or have a spouse in the Military Reserve, National Guard and Air National Guard. The serviceman or woman must be on official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

How Do I Get The Credit?

To take advantage of the credit, the eligible taxpayer must buy, or sign a contract to buy, a residence on or before April 30, 2011. If a contract is entered into by that date, you have until June 30, 2011, to close on the purchase.

This special offer accompanies the VA Loan for which our servicemen and women are already eligible, making now a great time to think about buying your own home.

If you are thinking about buying your own home or just want more information on the homebuyer tax credit, please check out your local mortgage lender or a homebuyer tax credit information page. Thank you for serving our country!

The US needs more jobs. Our economy has not been fully repaired despite recent stimulus programs. Both sides argue now as to the value of extending tax cuts in order to stimulate the economy. How can we increase job production with tax cuts? I predict in 2011 new tax cuts will stimulate jobs and lift the US out of recession and economic crisis.

Instead of extending the current income tax cuts that do not directly stimulate hiring workers, I predict the US will devise new laws for employers who hire staff. Yes, a new law that allows additional income tax credits for hiring and retention of workers is the newest form of tax cut for the US. With this new law unemployment figures will improve, the economy will begin to accelerate and the national debt will be reduced.

Any new hires that increase an employer’s payroll will receive an additional 30 percent tax credit over and above the regular deductions for paid wages for the first six months. This tax cut would be in effect as long as the business does not lay off other workers. Any business that retains these new staff and maintains a higher payroll will receive an additional 20 percent tax credit on wages for the next six months. Then a 10 percent tax credit for increased payroll for the following whole year will be made. Employers will automatically feel less economic risk and uncertainty when hiring because of these new laws.

Of course, if a business later lays off any new or senior workers during that time, then that employer will lose that portion of their new tax credit and their regular deduction. Meanwhile all the employers who merely want to avoid or evade paying taxes will receive no further benefit in their federal income tax assessments.

New staff will soon start spending their paychecks while driving the engine of the US economy to new heights. These workers will also be paying taxes which will decrease the US national debt and fund necessary programs. This is the most effective single way to reward employers, hire jobless workers and lower the national debt. US citizens will demand the most effective solution possible – and I predict that this new tax law will be the answer in 2011 for the US.

Nearly 1.5 Million people have taken advantage of the $8,000 tax rebate since it’s conception in January 2009. The tax credit has been available to all first time home buyers. The first time home buyer is defined as anyone who has now owned their own home for three consecutive years. Oh, one more criteria for eligibility… It must be for your primary residence which is unfortunate for investors. The credit is in the form of a tax rebate for 10% of the purchase price of the home, up to a total of $8,000. One of the great benefits of the tax rebate is that is FULLY refundable to the buyer. For instance if the first time home buyer owed no taxes on their taxes, then the first time home buyer can amend their tax return and capture the full $8,000.

The tax rebate has helped improve the national home sales. The current tax rebate is set to expire on November 30, 2009. This means that the purchase must be fully closed and completed in order to qualify. It typically takes approximately 30 days to close on a home transaction with conventional bank financing. The point is that in order to be confident your purchase will qualify you should plan to be under contract to purchase your home by November 1, 2009. If you are trying to capture the $8,000 tax rebate and have not yet put your home under contract or you dont qualify for conventional financing then you need to consider finding an alternate approach. One alternate approach is to find seller financing. If the seller is providing the financing and you do not need to wait the typical 30 days for bank financing, then you can still close by December 1, 2009 without many challenges.

What about the possibility of extending the rebate past December 1, 2009? There are currently several bills in Congress that would allow the extension. Each of the bills in Congress provide alternate solutions toward the extension. Of course there is a lot of politics involved in completing the extension, from all poitical parties. Here is a brief summary of the extensions:

S1230: Senator Johnny Isakson introduced Senate Bill 1230 in June. The Bill proposes a tax credit up to $15,000 that can be split over 2 year for everyone who purchases a home for their personal residence.

HR 2619: This one proposes to extend the existing $8,000 tax credit to July 1, 2010 and adds provisions for a tax credit of up to $3,000 for homeowners who refinance. This would certainly create a ton of refinances. Is this part of the recent mortgage issue? Many Americans seem to use their home equity as an ATM machine, pulling it out and spending it. I guess that would potentially help spur the ecomony in the short term.

HR 2801 – Similar to S1230 but it extends benefits to January 1, 2011.

Several key politicians are publicly making comments about getting the extension approved by early November. Those making positive comments include Senator Bill Nelson of Florida, Senate Majority Leader Harry Reid and Senate Finance Committee Chairman Max Baucus. They are hoping to extend the rebate along with unemployment benefits at the same time.

One thing for sure is our current Government is committed to spending an unlimited amount to try and stimulate our economy. Our Leaders appear to be committed to short term gains at the expense of future generations. That said, extending the first time home buyer credit will certainly help encourage American’s to own their own home.

A lot of small business overlook the IRC Section 44 small business disabled access credit.

Essentially Section 44 provides a credit for up to one half of the costs to comply with the Americans with Disabilities Act (ADA). The maximum annual credit cannot exceed $5,000 and the costs must exceed $250. Businesses that have revenues of under $1 million or under 30 full time employees qualify for this tax credit. Most costs to purchase equipment or devices and to create or modify personal or real property are eligible for this credit if (1) they are reasonably necessary to comply with the ADA and (2) the primary purpose of complying with the ADA.

The Fifth Circuit Court of Appeals recently addressed Section 44 in Arevalo v. Commissioner. The Arevalo case provides an example of when taxpayers should not try to qualify for the Section 44 tax credit and it shows how the IRS approaches these tax credits.

Arevalo was yet another individual taxpayer who “invested” payphones with Alpha Telecom. Alpha Telecom purports to “sell” payphones as “business opportunities” and at the same time, if the “business owner” agrees, Alpha Telecom essentially manages and operates the payphones for the “business owner.” The courts have held that these transactions are “investments,” and not “businesses.”

Arevalo had claimed a Section 44 tax credit on his personal 2001 tax return because, apparently, the Alpha Telecom payphones were modified to be ADA compliant. The US Tax Court and the Fifth Circuit (just like the Sixth Circuit did with a different taxpayer) held that Arevalo was not entitled to the Section 44 tax credit.

In reaching this determination, the court held that (1) Arevalo could not show how funds were expended to make the payphones ADA compliant, because Alpha Telecom, apparently, did not disclose to Arevalo how the payphones were ADA compliant and (2) that the Section 44 tax credit is only available to the party that is subject to the ADA, which in this case was Alpha Telecom (and not Arevalo).

The court also denied Arevalo’s Section 167 depreciation deduction with regard to the payphones. In doing so, the court used the old “substance over form” analysis to show that Arevalo did not acquire enough of the ownership in the payphones for it to count as a business. If Arevalo were operating the payphones he would have been able to explain how the phones were modified to comply with the ADA and he would have been the individual that was subject to the ADA.

The problem for taxpayers is that many common transactions could fall prey to this analysis, such as leasing/sales arrangements and even sales/consignment arrangements.

Perhaps the lesson learned from the Arevalo case is that taxpayers should only claim the Section 44 tax credit (or even the Section 190 architectural and transportation barrier removal expense tax deduction) if they document the underlying transactions prior to filing the Form 8826. An experienced tax attorney can assist taxpayers in this regard.