The global recession has put millions of American out of work in 2009. If you are one them, you need to know the answer to the following federal tax questions:

1. Are there tax breaks or tax exemptions for unemployment compensation when filing my 2009 Federal income tax return?

2. Where can I get the tax help to answer this federal tax question?

To get the answer you could search the IRS website, contact an IRS agent for federal tax help, consult an income tax attorney, talk to your tax accountant or wade through the 2009 federal income tax manual and get the answer yourself.

Or you can get this important tax information below:

Yes, there is a tax benefit for those who received unemployment compensation in 2009.

The first $2,400 of 2009 Unemployment Compensation is TAX-FREE.

This is a one-year federal income tax exemption granted by the stimulus act.

Unemployment benefits above the $2,400 limit will still count as taxable income.

source: smartmoney

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

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

Now that the tax season is official underway, I thought it’d be a good time to give a little advise on what to avoid when looking for a tax preparer.  Here are 5 of the top reasons to avoid choosing a tax preparer:

1.  Make certain to avoid tax preparers who claim they can obtain larger refunds or guarantee refunds. Also be careful to avoid any tax preparer who base their fees on a percentage of the refund. 

2. You want to avoid any tax preparer who completely closes their offices immediately after tax day, April 15th, every year.  If there is any doubt in your mind, speak to a trusted friend. A personal reference is a better way than choosing one blindly.

3. Absolutely avoid any tax preparer who try to persuade you to say something on your tax return that is not true, regardless if you will get a bigger refund.  Although the tax preparer completes your forms, you are ultimately responsible and will be held liable for your federal income tax return.

4. Never, ever choose a tax preparer that asks you to sign a blank return or requires the refund be sent directly to them. This should automatically send up a red flag as a possible scam.

5. You want to avoid a tax preparer who pressures you into buying additional products and services.

Other Notes:
Make sure your preparer fully explains every form you are asked to sign. In addition, ask your preparer about the use and disclosure of your personal tax return information.  The information on your tax form is sensitive, and in the wrong hands, could lead to identify theft - and then you will be confronted with a whole load of very serious problems.

In closing, use your common sense.  If you don’t feel completely comfortable with your tax preparer, find someone else.  And when in doubt, talk to a trusted friend for a personal recommendation.

Well, what are you waiting for, April 15th is not that far away!