Posts Tagged ‘Savers Credit’

Tax Roundup, 12/5/2013: Branstad floats optional income tax without federal tax deduction. And: is IRS hiding something?

Thursday, December 5th, 2013 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa Alternative Maximum Tax proposal revived?  Governor Branstad may push an optional income tax with lower rates and no deduction for federal taxes.  This plan looks like an attempt to improve Iowa’s byzantine income tax without provoking the wrath of Iowans for Tax Relief, the Muscatine-based advocacy group that strongly opposes efforts to do away with the deduction.  KJAN.com reports:

Iowa’s income tax rates higher when compared to most other states because Iowa offers a deduction that’s offered in only five other states. That deduction allows Iowans to subtract their federal income tax liability from their income before calculating their state income taxes.  “We don’t want to erode federal deductability,” Branstad says, “and that’s why we’re saying: ‘Give ‘em the option.’” By giving taxpayers the option to file their income taxes under the current system with that major deduction or under a new system with lower and flatter rates, Branstad might avoid the firestorm he faced from his fellow Republicans in the late 1980s when he proposed doing away with that deduction.

The Governor appears to plan to add a new twist to the plan, reports Kathie Obradovich:

Branstad indicated that he wouldn’t allow Iowans to “game the system” by changing their form every year. That means taxpayers who give up the federal deduction would have to stick with the choice even if the other option would result in lower taxes in a given year.

That means the new system would be a one-way street.  It no longer would be an “alternative maximum tax,” where taxpayers would always compute their tax both with and without the federal deduction and choose the lower amount.  That makes it even worse than the version passed by the Iowa House of Representatives last year, which would have allowed taxpayers to make the choice annually.  Unless the new system provides significantly better results in the great majority of circumstances, most taxpayers would want to retain the option to use the federal deduction.  That would stall the (presumably) desired transition to a simpler system.  Both the Branstad plan and the House plan significantly add to the complexity of the tax law.

While Iowa’s high stated tax rates — individual and corporate — don’t help, the ridiculous complexity of Iowa tax law is the real problem.  Iowa has a bunch of penny-ante credits and deductions that don’t apply for federal purposes.  These are too small to make a significant difference to taxpayers but also too small for the Department of Revenue to police.  There are also dozens of special-interest tax credits and deductions that take dollars from the rest of us on behalf of people with connections at the Statehouse.

It’s not in his nature, but the Governor ought to go bold and embrace the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  It strips the Iowa tax law to a very few deductions and repeals Iowa’s highest-in-the-nation corporation income tax while drastically lowering personal rates.  The Iowa Senate is unlikely to pass the Governor’s half-baked half-measure anyway; why not change the terms of the debate with a plan that actually makes sense?

Related:  The Iowa flat tax proposal: a good deal for middle class and up, but not for lower incomes.

 

taxanalystslogoChristopher BerginTax Analysts v. IRS: What Are They Hiding? (Tax Analysts Blog):

Back in August, I wrote about the lawsuit Tax Analysts had filed against the IRS seeking documents under the Freedom of Information Act. The documents being sought were training materials used to instruct and guide IRS personnel in the IRS exempt organization determinations office in Cincinnati. The big story then, and now, was generated by former EO director in the IRS Tax-Exempt and Government Entities Division Lois Lerner’s admission that the agency had used inappropriate means to determine which organizations qualified for tax-exempt status as social welfare organizations. The organizations singled out for extra scrutiny were mostly, if not entirely, conservative. Tax Analysts felt compelled to seek relief from the courts because we were getting nowhere with the IRS – other than the big stall – even though it had promised expedited treatment on our original request.

Several months later, the big stall continues — to the point that I have to ask myself whether the IRS just made a stupid mistake in targeting those organizations or whether something much worse is going on. 

They are using the “taxpayer confidentiality” excuse for their standard big stall.  Christopher isn’t buying it:

But I’ll say it again: Training materials, really? Why on earth would the IRS try to keep those secret? You’d think the training manuals would all be in a file cabinet somewhere, which hardly would require a search party of 100 lawyers and a scouring for tax return information.

Could it be that this time something is different? Could there be a smoking gun here? I’m not saying there is. I’m just saying it may be time to start asking that question. Because even for the IRS, this is darned peculiar behavior.

Congress should amend the taxpayer confidentiality rules to keep the IRS from using them as an excuse to hide its own dirty laundry.  It shouldn’t require a federal lawsuit to get the IRS to publicize internal non-taxpayer documents.

 

 

20130121-2Whither the Registered Tax Return Preparer Program?  Robert D. Flach argues that the RTRP designation that was part of the nearly-dead IRS preparer regulation power grab should be administered by the IRS on a voluntary basis.  I disagree.

Robert would like a way to distinguish the better class of “unenrolled” preparers from less-professional seasonal preparers.  I can understand that, but I don’t think that the IRS is the agency that should do this.  It would divert already strained IRS resources to do something the preparer industry could do on its own.  I agree with Jason Dinesen that if preparers want a government designation, they should take the Enrolled Agents exam, which is much more difficult than the RTRP literacy test.  The EA designation is sadly underappreciated in the market, and adding a new IRS-run designation would only make that worse.

 

The IRS reminds us that the “savers credit” can help lower-income taxpayers who contribute to a retirement plan.  This is a non-refundable credit of up to 50% of the amount contributed to IRAs or deferred to a 401(k) plan.  For parents, funding a young adult offspring’s retirement plan contribution is a tax-efficient way to help build a nest egg.

 

Don’t try this with your tax deadlines.   TIGTA: IRS Is Seven Years Past Statutory Deadline for Providing Online Account Access to Taxpayers (TaxProf).  From the TIGTA report:

The RRA 98 required the IRS to develop procedures to allow taxpayers filing returns electronically to review their account online by December 31, 2006. The IRS did not meet this requirement, and we determined that the IRS has not made adequate progress in allowing taxpayers to access tax accounts. Currently, taxpayers cannot review account information electronically.

In fact, the IRS is getting worse, having cut back electronic access for tax professionals.  That makes resolving even a simple IRS notice a tedious multi-week snail-mail slog.

 

Tony Nitti, The Definitive Questions And Answers On The New Net Investment Income Tax [Updated For Final Regulations] 

amazonCara Griffith It’s a Bird, It’s a Plane…It’s Amazon Prime Air? (Tax Analysts Blog).  Sales tax by drone.

Alan Cole, Report: Obamacare Premium Subsidies Will Need Fraud Protection (Tax Policy Blog).  No kidding.

TaxProf, The IRS Scandal, Day 210

 

Kay Bell, Tax e-filing continues to grow, hitting 122 million in 2013

TaxGrrrl, Will Congress Drive Up Gas Taxes In 2014?   

 

Um, because most commuters drive?  Why Does the Tax Code Favor Commuters that Drive? (Tax Justice Blog)

Going Concern, IRS’ Improved e-File System Is a Total Success Except For Two Jerks Who Foiled It

 

Don’t trust tax collectors, if you’re a tax collector:

The former tax collector of Plainville, who is also former treasurer of the Connecticut Tax Collectors Association, was arrested Monday morning and charged with first degree larceny, after being under investigation for possible embezzlement since June.

Debra Guerrette, of Bristol, was placed on administrative leave from Plainville’s Revenue office in June after Bristol police informed the town Guerrette was involved in a criminal investigation.

After an analysis of the financial records for the Connecticut Tax Collectors Association, and also Guerrette’s financial records, police said she had “misappropriated funds in excess of $50,000” between 2008 and 2013, into her personal account.

Will there be a special assessment of the collectors to make up the difference?

 

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Tax Roundup, 12/14/2012: I want to lose weight. And I want more dessert!

Friday, December 14th, 2012 by Joe Kristan

Flickr image courtesy seriousbri under Creative Commons license.

Cause and effect: the Iowa Chamber Alliance can’t quite put them together.  The umbrella group for Iowa’s chambers of commerce has issued its 2013 legislative agenda.  The Des Moines Register reports (my emphasis):

TAXES: Iowa’s tax system is among the highest for businesses, the alliance contends, and commercial and property tax relief are needed. In addition, the group supports addressing unfunded mandates, public employee pensions and other measures to help offset rollback effects on local governments. The alliance also supports efforts to simplify and reduce corporate income taxes, and to streamline the personal income tax code.

So far, so good.  But then:

ECONOMIC DEVELOPMENT: The Iowa Economic Development Authority needs money for flexible incentives to compete for investments and jobs, the allliance said. It backs a variety of tax credits to retain, grow and attract investments in Iowa, including restoration of the $185 million cap on economic development tax credits.

Let’s spell this out: Iowa’s tax code needs simplification because it is larded with “economic development” provisions, including dozens of “economic development tax credits.”  The rates are high because if they weren’t, the special breaks would keep it from raising any revenue.  To say you want lower rates, a simpler tax code, and economic development credits is like saying you want to lose weight and you want some more cookies.

There is a better way: The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Fiscal Cliff Notes

Tax Offer for Firms Pits Big vs. Small (Wall Street Journal):

If ideas proposed by the White House take hold—a long shot—rates for big companies likely would fall next year while those paid by many small-business owners through the individual tax system would rise.

That potential gap could encourage more companies to organize as corporations. For now, the prospect is strengthening alliances between Democrats and big-company CEOs on the one hand, and Republicans and small-business groups on the other.

It’s Warren Buffett and Goldman Sachs vs. the entrepreneur — influence and pull vs. the rest of us.

Patrick Temple-West,  Tax offer pits big companies against small, and more (Tax Break)

Martin Feldstein,  The Tax Hike Canard (via Mankiw)

Janet Novack,  Will Your Retirement Be Thrown Off The Fiscal Cliff?

Howard Gleckman,  Why the Senate’s Tax Bill is No Way Out of the Fiscal Impasse

 

IRS reminds taxpayers of “Savers Credit” (IR-2011-121)  This non-refundable credit matches as much as 50% of taxpayer contributions to their IRA or 4o1(k) accounts.  It works on joint returns with incomes up to $57,500 and single filers with incomes up to $28,750.  Savings made when young can do great things when compounded over a career, and this credit makes it painful.  Giving your recent grad starting out in the world some cash to fund an IRA can help build a nest egg and net a nice tax refund.

 

Andrew Mitchel,  Doctrine of Constructive Receipt.  You can’t avoid the income this year by waiting until next year to cash the check.

Kay Bell,  Reindeer year-end tax tip games 2012: Dasher says use up your FSA funds

Paul Neiffer,  Some Interesting Ag Cooperative Facts.  Iowa leads the nation with total co-op sales of $22.4 billion.

Jason Dinesen,  This Accountant’s Idea for Eliminating Kickoffs in the NFL.  Without kicking, where does the “F” in NFL go?

The Critical Question:  When a Tax Argument is Nonsense, Why Not Say So? (Jim Maule?

Why not?   The 2012 Holiday Kitchen Gift Guide (Megan McArdle)

I can quit any time.  I just need six more drinks.  Wind Energy Association Says Industry Can Survive Without Tax Credit” (Tax Analysts, $link):

The wind energy industry could be self-sustaining over the long term if its primary federal incentive is renewed in 2013 and then gradually phased out over six years, the industry’s trade association said December 12.

Because the last 20 years of the tax credit just weren’t enough for a good buzz.

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Got a 401(k)? Maybe the IRS will match it

Monday, March 16th, 2009 by Joe Kristan

Employers aren’t the only ones that might match your 401(k) contribution. The IRS may match it too.
The “Savers Credit” provides a tax credit for individual contributions to IRAs or 401(k) plans. The credit can be up to $2,000 for joint filers. Eligible taxpayers in 2008 include:
* Married couples filing jointly with incomes up to $53,000;
* Heads of Household with incomes up to $39,750; and
* Married individuals filing separately and singles with incomes up to $26,500.
The credit isn’t refundable – it can’t take your tax below zero – but going to zero isn’t a bad thing.

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GET THE IRS TO MATCH YOUR 401(K) CONTRIBUTION

Monday, November 12th, 2007 by Joe Kristan

If you participate in a 401(k) plan at work, you know that many employers will match part or all of the amount you contribute to the plan from your paycheck. Did you know that for many taxpayers, the IRS will also match your 401(k) contribution – or your IRA contribution.
They do this through the ‘Savers Credit.” The IRS last week issued a news release explaining the credit. From the release:

The saver

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