Tax Legislation

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What does being "agnostic" about raising taxes really mean? Probably that our pockets are about to be emptied.

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Never let it be said that these aren't some interesting political times. Our federal government has been spending money faster than the printing presses can create it and the politicos have yet to figure out how they plan to pay for it all. Forget the debate of right or wrong on the spending, the fact is the bill will be coming due.

If you'd like to get an idea of what may be coming down the pipe for us, Bloomberg BusinessWeek had an interview with the President you really should read.

President Barack Obama said he is “agnostic” about raising taxes on households making less than $250,000 as part of a broad effort to rein in the budget deficit. Now that's a new way to be wishy-washy with an answer.

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Important reminder to most Californians; Don't forget to file new use tax filing due by April 15.

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The state of California is getting even more aggressive at collecting all the taxes the law allows — no matter how small. Use tax is the latest way for the state to look for cash. The Legislature has enacted strict new registration and filing requirements for businesses with gross income of $100,000 or more.

Use tax is like sales tax but you pay it directly to the state, rather than to the retailer. The rule of thumb is: You owe use tax if what you bought would have been subject to sales tax if you purchased it at a local store and you did not pay California sales tax. You generally owe California use tax when you use, store, or consume — in California — tangible personal property purchased from an out-of-state vendor. If the vendor does not collect the California tax on the purchase, the purchaser must pay the tax directly to the state. If you don’t report and pay your use tax in a timely manner, such as with your income tax return, the state will assess penalties and interest.

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Finally, some sanity on taxing unemployment insurance benefits

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Finally, some sanity on taxing unemployment insurance benefits; well, partial sanity for one year anyway. The American Recover and Reinvestment Act of 2009 give a one-year exclusion for unemployment benefits you receive, up to a point.

For 2009 only, you can receive up to $2,400 of unemployment insurance benefits free of tax. There are none of the usual limitations based on your gross income with this provision.

Another important note, the $2,400 is per person and does not automatically double on a jointly filed tax return.  For example, if you receive $5,000 of unemployment benefits and your spouse receives $500 you can exclude only $2,900. That is your full $2,400 and $500 of your spouse's benefits.

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New rules for divorced parents & depedent deductions

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The IRS issued in 2007 regulations addressing various issues pertaining to divorced parents and who can claim the dependent exemptions. These new rules take affect for most divorced parents with the filing of your 2009 income tax return.

Beginning for years beginning after July 2, 2008 (so 2009 for calendar year individual taxpayers) the IRS will no longer accept a divorce decree in lieu of Form 8332, Release of Claim to Exemption fro Child of Divorced or Separated Parents, even if the decree contains all of the information otherwise found on the Form 8332 and is not conditional in any respect (for example, conditioned on child support payments being current, etc.).

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New deduction for sales taxes on a new car purchase

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The American Recovery and Reinvestment Act of 2009 provides that for vehicles purchased on or after February 17, 2009 and before January 1, 2010 you can deduct, as an itemized deduction or as an addition to the standard deduction, sales taxes on the purchase of a qualifying new vehicle -- on the first $49,500 of the purchase price. Qualifying vehicles include the following.

  • A passenger car, light truck, or motorcycle the gross vehicle weight rating of which is not more than 8,500 pounds.
  • A motorhome.

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The Stimulus Plan and New Car Sales

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Last month, President Obama signed the "American Recovery and Reinvestment Act of 2009" -- otherwise known as the economic stimulus act. We're like most tax professionals in that we're still sorting through the Act's nearly $300 billion in tax cuts to see which will be most valuable for you. But we can tell you that it will take careful planning to make the most of the new rules. For better or for worse, the new administration doesn't seem to be making "tax simplification" much of a priority.

Take the new deduction for sales tax on new cars. The concept is simple enough. The auto industry is a huge part of our economy. Car sales have slowed to the point where General Motors stock costs less than a gallon of gas and carmakers are flirting with bankruptcy. Why not give car buyers a tax incentive to stimulate manufacturers?