Are U.S. States unfairly burdening smokers by taxing cigarettes to cut budget deficits?  Historically, states have used part of the revenues from cigarette sales to help smokers quit or to pay for their health care. But now, many states are proposing an additional cigarette tax to bail them out of the fiscal crisis without earmarks to help people stop smoking.

Sure, smokers are an easy target. There is little political opposition and health advocacy groups consider it a bane to society.  But does it make it right? Are they being singled out?

In more than 20 states, budget shortfalls are pushing more to look to tobacco for revenue. Even the tobacco-producing states are considering it.

According to the New York Times, “in the South, where such taxes have been lower than in the rest of the country, Arkansas has nearly doubled its tax, to $1.15 a pack, and Kentucky’s will double, to 60 cents, on April 1.

Increases are also under consideration in other tobacco-growing states like North Carolina, South Carolina and Georgia. With estimated state budget shortfalls nearing $50 billion, opponents of smoking see an opportunity to make headway with the most reluctant lawmakers.

A 10 percent increase in the price of cigarettes reduces consumption by 3 percent to 5 percent, according to the Centers for Disease Control and Prevention, and deters young people from picking up the smoking habit.

Tobacco industry representatives have argued that tobacco taxes unfairly burden smokers, who are mostly working class or poor, and jeopardizes jobs at retailers like convenience stores, where more than 30 percent of total sales can come from cigarettes.

“Many of these states are asking the very definition of Main Street to bail out state capitals,” said Frank Lester, a spokesman for Reynolds American, which makes Camel and other major brands. “It’s just another bailout.”

States whose cigarette taxes are already high are also considering increases. In Oregon, now at $1.18 a pack, Gov. Theodore R. Kulongoski has proposed a 60-cent increase. In New Jersey, Gov. Jon Corzine is asking the Legislature for a 12.5-cent increase over the current $2.58. New York has the highest state tax on cigarettes, $2.75 a pack.

In Mississippi, cigarette tax increases in surrounding states have helped dampen fears that people would cross state lines to buy cigarettes. After a tax study commission appointed by Governor Barbour recommended an increase, he reversed his opposition but warned that the tax should be viewed as a matter of health policy, not a generator of revenue.

Bill Phelps, a spokesman for the Altria Group, the parent company of Philip Morris, argued that states often overestimated revenues from cigarette tax increases. From 2003 to 2007, there were 57 state tax increases, Mr. Phelps said, and in 41 cases they fell short of projections.

“We don’t think it makes a lot of sense to fund what are often important government programs with a revenue source that is in decline,” he said. “Just in the last 10 years, sales have declined an average 3 percent a year.”

But Frank J. Chaloupka, an economist and director of the Health Policy Center at the University of Illinois, Chicago, said cigarette taxes had not reached the threshold of diminishing returns. “We haven’t yet seen a case where if you raise taxes you don’t raise revenues,” Mr. Chaloupka said.

New Jersey did see a decline in revenue after its last tax increase, he said, but other factors, like a comprehensive smoke-free-air law that went into effect before the increase, drove down consumption.”

On top of all this, a 62-cent increase in the federal cigarette tax will go into effect in April.  The tobacco industry believes this will overburden smokers and drive down state collections. But the federal increase does not seem to have derailed state efforts, in part because smokers cannot avoid it by crossing state lines.

The debate will continue but the bottom line is that states will come down to the last day of the session, when they realize they have to get the budgets down and they need X dollars.”

What vice will be taxed next?  Beer, Wine, Liquor?

source: NY Times

April 15, the federal income tax filing deadline, is coming upon us fast. And this year, the economic conditions may pose serious problems for those who owe federal income taxes but don’t have the money. If you end of up owing federal income tax and can’t afford to pay the tax, here is some essential information you need to know about the IRS collection process and payment alternatives:

1. What is the collection process?
If you do not pay the taxes you owe in full when you file your income tax return, or if the IRS examines your tax return and makes an assessment based upon an examination, you will receive a bill from the IRS. This bill begins the collection process. The IRS may take action to collect the money if you do not pay on time or do not make arrangements with the IRS to pay over time.

The first bill you receive will request payment in full. If the IRS has changed the amount you owe, the bill will explain the change.

It is in your best interest to pay the tax as soon as possible because the IRS will continue to charge you penalty and interest. If you cannot pay the full amount of taxes you owe by the deadline, you should still file your return by the deadline and pay as much as you can to reduce penalties and interest.

2. How can I pay my taxes?The Internal Revenue Service will accept check or money order made out to the Department of Treasury – write your Social Security number or ITIN, the tax form, and tax period on the check.
Electronic Federal Tax Payment System (EFTPS) – EFTPS is a free tax payment system. You can transfer money from your bank account to pay your taxes by phone or online. For details, visit www.eftps.gov or call 1-800-316-6541.
Credit Card – these companies charge finance fees. To pay by credit card, here a contact number of one of the service providers: Link2Gov Corporation: 1-888-PAY-1040 (1-888-729-1040).

3. What if I cannot pay in full?
If you cannot pay your federal income tax in full, call the IRS at the phone number listed on your bill. Depending on your specific circumstances, you may qualify for an extension or an installment agreement.

Extension of Time to Pay – You can request an extension from 30 – 120 days depending on your specific situation.
Installment Agreement or Partial Pay Installment Agreement – Depending on the amount you owe , and your specific circumstances, you may apply for an installment payment plan or a partial pay installment agreement by applying online at www.irs.gov.

Be aware that for most taxpayers, the IRS generally charges a fee for setting up an installment agreement and interest and penalties continue to accrue during this time.

4. What if I cannot pay at all?
Call the IRS at the phone number on your bill. Because you will need to give the IRS complete financial information if you feel you cannot pay, before you call, make a list of your monthly expenses and monthly income, and be prepared to discuss those with the IRS. Be sure to consider your medical costs and transportation costs (e.g., gas, repairs, insurance, bus fares), as well as housing costs. For expenses that are not recurring on a monthly basis (like auto repairs), consider your total yearly costs and divide that amount by 12 to come up with an average monthly amount. If the IRS agrees that you do not have the ability to pay, it may temporarily suspend collection action. However, the amount you owe will continue to increase through additional penalty and interest charges.

5. What if I do not pay voluntarily?
If you do not pay your tax bill or contact the IRS to make arrangements to pay, the IRS will take action to collect, such as:

• Filing a Notice of Federal Tax Lien (NFTL) – The lien is a claim against your property. The lien will appear on your credit report and it may harm your credit rating. The IRS will release the lien once the taxes, penalty, interest, and recording fees are paid in full.
• Serving a Notice of Levy or seizing assets – The IRS can collect the amount you owe from your wages, bank accounts, Social Security benefits, retirement, or other sources of income. If the tax still isn’t paid and you haven’t made arrangements to pay, the IRS may seize your car, real estate, or other property. Prior to taking such action, you have the opportunity to request a hearing to resolve your tax payment issues.
• The IRS will also apply any future federal tax refunds that you are due to the debt. They may also take any state income tax refunds you are due.

6. What if I disagree with the IRS’ Collection Actions?
Depending on where you are in the collection process, you may be able to appeal the IRS collection actions through the Collection Due Process (CDP) or Collection Appeals Programs (CAP). For more information, see Publication 1660, Collection Appeal Rights. All Publications are available by calling 1-800-829-3676, or at www.irs.gov.

7. Will the IRS settle for less than full payment?
The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability. For most taxpayers, there is a fee for submitting a request for an OIC, and the IRS will generally not accept an OIC if you can fully pay the tax liability. For more information about OICs, see Publication 594, What You Should Know About The IRS Collection Process.

8. Where can I find more information about paying my taxes?
See IRS Publication 17, Your Federal Income Tax, for more information.

9. Whom should I contact if I need assistance?
If you have additional questions or concerns, contact the IRS at the phone numbers listed on your bill. If you do not have a bill, you can call IRS customer service at:

• 1-800-829-1040, or
• Visit the IRS website at www.irs.gov
• Taxpayer Assistance Center. Use this link to locate the closest IRS Taxpayer Assistance Center or visit www.irs.gov for a listing.
• You may also qualify for assistance from a Low Income Taxpayer Clinic (LITC). Information about LITCs can be found later in this toolkit.

source: www.irs.gov

With the economic times getting tougher, we all need to find ways to save money. The recent tax law changes may put extra money in your pocket when you file your federal income tax this year.  For example, If you’re not a first time homebuyer but your last home purchase was more than 3 years ago you may qualify for a new $7,500 tax credit for first-time home buyers.

Technically, it’s a tax-free loan that has to be repaid over 15 years but it’s still a great deal. Some new tax breaks have qualifying dates that don’t follow the calendar year. The home buyer credit applies only to purchases between April 9, 2008, and June 30 of this year. And many have income restrictions. For example, the home buyer credit is phased out at modified-adjusted incomes of $150,000 for married couples or $95,000 for singles.

Here are some other tax law changes that may affect your 2008 federal income tax return.

Kiddie tax
The “kiddie tax,” which taxes a child’s investment income beyond $1,800 at the parent’s tax rate, now covers some children until they turn 24. “People used to try to pay for college by transferring appreciated assets to their children to pay college expenses,” said Mark Luscombe, principal tax analyst at CCH, a tax publisher in Riverwoods, Ill. The children could then sell those assets and pay far less tax than their parents would have owed. “Now that no longer works,” Luscombe said. The rule applies to children who are enrolled in college or a trade school and who are still dependent on their parents for most of their financial support.

Capital gains
Low-income households will pay zero tax on capital gains from assets they’ve owned at least a year. To qualify, your wages must place you in the bottom two income tax brackets, which cover taxable incomes up to $65,100 for married couples filing joint returns, or $32,550 for singles. Previously, people in these brackets had to pay a 5 percent tax on such long-term capital gains. Most higher-earning taxpayers will continue to pay a 15 percent tax on capital gains.

Luscombe said he thinks this change explains why the kiddie tax was extended to older offspring. Parents would have had even more incentive to shift investments over to kids who would pay zero tax on the gains. “Taxpayers really like the concept of a zero percent tax rate,” he noted.

Standard deduction plus
Nearly two-thirds of taxpayers claim the standard deduction instead of itemizing, according to the IRS. This year those using the standard deduction can claim an extra amount for state and local property taxes. Married couples filing jointly can claim up to $1,000 extra; singles can claim $500. This will benefit people such as retirees who have paid off their mortgages and don’t have enough deductions aside from their property taxes to make itemizing worthwhile.

Taxpayers also can claim an extra amount on top of their standard deduction to account for losses suffered from a federally declared disaster.

Forgiven mortgage debt
If you lost your home to foreclosure or a short sale (with the lender agreeing to accept sales proceeds that are short of what’s owed on the mortgage), that unpaid debt is technically considered income to you. For the tax years 2007 through 2012, the government is waiving any tax liability on that phantom income. The lender will send you — and the IRS — a copy of Form 1099-C, “Cancellation of Debt,” reporting that forgiven debt as income. To make sure you are not taxed on the amount, you will have to file Form 982, “Reduction of Tax Attributes Due to Discharge of Indebtedness.” (Forms can be downloaded free from http://www.IRS.gov.) If you’ve lost a home to foreclosure, be sure the bank and IRS have your current address (notify the IRS by mailing in Form 8822) so you receive important notices promptly.

This year-old change to the tax laws will affect more people this year, thanks to soaring foreclosure rates. Forgiven debt on vacation homes and rental properties is still taxable as if it were income.

Recovery rebate credit
Remember how last year’s economic stimulus payment arrived in your mailbox without you even requesting it? The credits were as high as $1,200 for married couples, $600 for singles and $300 for children, and you were automatically eligible if your income met the program’s limits. To get the stimulus checks in hand quickly, the IRS did the math for you, looking back to your 2007 reported income to estimate whether you would be eligible for all or part of the credit.

Now that you know how much you actually earned in 2008, it’s time to tidy up that math with this year’s tax return. If you got less than the full credit last year, you may qualify for the remainder now. Generally that will happen if your income in 2008 was lower than in 2007, or if you added another child to your household, who qualifies for a $300 credit.

This is already causing confusion with 2008 returns. The IRS reported that about 15 percent of people who filed in January made a mistake regarding the recovery rebate credit. To do it right, you will need to fill out a worksheet that comes with your tax return to calculate the dollar amount of rebate credit (if any) you are due. To fill out the worksheet correctly, you will you need to know exactly how much you received last year.

You do not have to pay tax on your economic stimulus payment, nor do you have to give any back if the IRS sent out a check that was too big in light of your actual 2008 income.

For more information on the tax changes for 2008 you can go to the IRS website at http://www.IRS.gov.

source: Washington Post

The Internal Revenue Service has offered answers to the four most frequently asked questions about Estimated Tax, they are:

1. Is an S-Corporation required to pay quarterly estimated tax?

Rarely does an S corporation make estimated tax payments.

An S Corporation must make installment payments of estimated tax if the total of these taxes is $500 or more:

The tax on certain capital gains,
The tax on built-in gains,
The excess net passive income tax, and
The investment recapture tax.

2. How do I know if I have to file quarterly individual estimated tax payments?

If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.

You must make estimated tax payments for the current tax year if both of the following apply:

You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
There are special rules for:

Certain taxpayers with higher adjusted gross income
Farmers and commercial fishermen
Aliens
Estates and Trusts

3. Do self-employment taxes need to be paid quarterly or yearly?

If you are required to make estimated tax payments, self-employment tax is paid by making quarterly estimated tax payments which include both income tax and social security tax.

4. When are the quarterly estimated tax returns due?

You only make estimated tax payments using payment vouchers. There is not an estimated tax return.
Your first estimated tax payment is usually due the 15th of April.
You may pay the entire year’s estimated tax at that time, or
You may pay your estimated tax in four payments that are due April 15th, June 15th, September 15th, and January 15th of the following year.
If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or legal holiday.

If you have a specific question about your Federal Tax return you can call the IRS and receive Live Telephone Assistance. Here are the particulars:

Telephone Assistance for Individuals:
Toll-Free, 1-800-829-1040
Hours of Operation: Monday – Friday, 7:00 a.m. – 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).

Telephone Assistance for Businesses:
Toll-Free, 1-800-829-4933
Hours of Operation: Monday – Friday, 7:00 a.m. – 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).

source: irs.gov