President Obama and his administration are seeking almost a $1 trillion tax increase over the next decade on US taxpayers earning more than $200,000. He also wants to take an additional $400 billion from businesses even as it retools a proposed crackdown on international tax-avoidance techniques; according to a Feb 2, 2010 Business Week article.

Believe it or not, the Obama income tax proposal would actually reinstate income tax rates enacted by former President Bush 10 years ago. The income tax rates for single Americans making over $200,000 or joint filers earning more than $250,000 would increase to 36% and 39.6% respectfully. The plan also calls for eliminating preferences for oil and gas companies, life-insurance products, executives of investment partnerships and U.S.-based companies that operate overseas.

“This set of tax reforms strikes a balance between targeted tax cuts to spur investments in job growth and innovation here at home, middle-class tax relief to make our tax system more fair, measures to crack down on abuses that send jobs overseas, and long-term fiscal discipline,” Treasury Secretary Timothy F. Geithner said in a statement.

Obama’s proposed $143.4 billion in new tax cuts for individuals who earn under $200,000. While the budget sets out $93.5 billion in gross tax reductions for businesses, overall they would face a net tax increase.

“The proposed budget’s $300 billion in tax relief over the next 10 years for individuals, families, and businesses is mostly targeted and limited, often to people who don’t have to pay any taxes,” said Senator Charles Grassley of Iowa, the ranking Republican on the tax-writing Senate Finance Committee. “The tax increases in the budget dwarf the tax relief.”

President Obama asked Congress to extend all of Bush’s tax cuts that apply to Americans earning under $250,000. He also proposes almost doubling a tax credit that helps Americans pay for child care and increasing federal subsidies for Individual Retirement Accounts.

The budget assumes the federal estate tax, which expired Jan. 1 and was replaced with a capital-gains tax, will be reinstated retroactively with a 45 percent rate applied when married couples’ estates exceed $7 million. If Congress doesn’t act, the estate tax in 2011 will be reinstated to a 55 percent rate applied to estates valued at more than $1 million.

Obama’s budget also assumes Congress will continue to index the alternative minimum tax for inflation. The minimum tax can impose higher rates on families earning between $75,000 and $500,000 when their deductions are too high relative to their income. It was originally intended to affect only millionaires and is now ensnaring people with lower incomes because it was never indexed for inflation.

The Obama tax budget proposal will most certainly face opposition from Congress.  This proposal will also be opposed by the influential and wealthy US taxpayers.  Is Obama’s tax proposal political hari-kari?

source: businessweek.com

Are you still thinking about purchasing a new car even though you missed out on the Cash for Clunkers program? Well, there is still some good news - potential new car buyers can still claim a 2009 federal tax credit on newly purchased vehicles up until December 31, 2009.

The “money back for new vehicle purchases” deduction, through The American Recovery and Reinvestment Act of 2009, is not an itemized deduction, said Sue Hales, IRS spokesperson for Illinois.

“Everyone can take this deduction,” Hales explained. “Most deductions you have to itemize.”

WHAT VEHICLES QUALIFY FOR THE IRS AUTO TAX CREDIT PROGRAM?
The tax credit is available for the purchase of NEW cars, motorcycles and light trucks. 

HOW IS THE TAX CREDIT APPLIED?
The tax credit applies to taxes and fees paid on the first $49,500 of the car purchase.

WHO QUALIFIES FOR THE IRS AUTO TAX CREDIT PROGRAM?
Joint tax return filers with modified adjusted gross incomes of $260,000 or less
Individual tax return filers with modified adjusted gross incomes of $135,000 or less

With a few months left in 2009, taxpayers can take advantage of other federal tax credit incentives including:

• First-time homebuyer credit for people who purchase in 2009, up to $8,000
• Education benefits
• Enhanced tax credits for the tax years of 2009 and 2010, including new details to the additional child tax credit and earned income tax credit

For more information go visit irs.gov

For 2008, the IRS has changed the personal exemptions and standard deductions to account for inflation adjustments. They include more than three dozen tax benefits that will affect virtually every taxpayer. Whether you file your own taxes or hire a tax professional, it is important to understand the key changes when filing your 2008 tax return in early 2009.

Here are the key changes to the 2008 tax changes as defined by the IRS:

1. The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
2. The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
3. Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
4. The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
    
   The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
5. The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500).  Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
6. The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
7. For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
8. Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007.  Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
9. Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007.  Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
10. The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.

In these economic times it is a smart idea to take advantage of all tax incentives that you possibly can.