There can be no denying that the rise in popularity of republican presidential contender Herman Cain is due to his 9-9-9 flat tax plan. It’s also proof that American taxpayers strongly support a dramatic simplification of the federal income tax code.

Cain’s 9-9-9 tax plan is a brilliantly simple proposal to replace the extremely complex current tax code with a three part flat tax - 9% income tax, 9% corporate tax and a 9% national sales tax.

Steve Forbes, editor-in-chief of Forbes Media, estimates that the federal income tax code and all its attendant rules and regulations contain almost 10 million words.  It has changed 14,000 times since 1986; last year alone there were 500 changes to the federal income tax code.

IRS estimates that Americans spend more than 6 billion hours each tax year calculating and filing taxes.  By the tax year 2015, the cost to file taxes will cost Americans $483 billion a year.

Herman Cain’s 9-9-9 tax proposal, or flat tax, would replace all the current tax code with a single rate that would apply to all incomes after deductions.  His flat tax would eliminate taxes on savings, terminate the death tax. It would drastically cut the business profit tax and reduce tax loopholes.  Surprisingly, it would also do away with Social Security and Medicare payroll taxes.

Proponents of the flat tax say it would stimulate the economy and create jobs, would end crony capitalism and reduce lobbying in Washington.

Cain’s 9-9-9 tax plan has it’s challenges.  Introducing a national sales tax, on top of state and local taxes (that are already 9%) is a tough sale.  And if it did come to fruition, Washington politicians will always be looking for reasons to raise it.  This is already a problem in Europe, where some countries that already have their version of a national sales tax, called the Value Added Tax, have steadily increased the tax percentage.

Not everyone is gung-ho on the flat tax proposal.  Critics claim that the lack of the home mortgage interest deduction would hurt housing. They also point out that without a charitable contribution deduction, donations would plumment.

Both proponents and critics of a federal flat tax have to agree that the current federal income tax code is outdated, too complex, and too costly to continue.

Since Cain announced his 9-9-9 tax plan, other presidential contenders are coming with their own version of flat tax.

So what does all this mean?

The writing is on the wall, it’s just a matter of time before the flat tax replaces the current federal tax code.

You may be eligible for a few money making tax credits this tax year. A tax credit is a dollar-for-dollar reduction of taxes owed. It is even possible that you may receive a tax refund instead of owing taxes because some tax credit are refundable.

Here are four tax credits you should consider before filing your Federal Income Tax Return this year:

1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

There are other money making tax credits available this tax year.  So before filing your income tax, check for credits you may be eligible for.

You can get more information about tax credits by visiting the IRS website or by calling 800-TAX-FORM (800-829-3676).

source: irs.gov

Self-employed individuals should be aware of an important 2010 tax law change before they complete their 2010 federal income tax return. This tax change may be beneficial because it allows health insurance deductions to reduce Self Employment Tax.

Here’s what you need to know about the tax law change affecting the self-employed when you file your 2010 federal income tax return in 2011.

Health Insurance Deduction Reduces Self Employment Tax In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.

As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.

For further information about this change or if you need answers to tax questions, visit the IRS website.

source: irs.gov