President Obama has proposed creating a tax incentive for small businesses that hire new employees even as Congress tries to figure out how such a deal would work.

There is no question that creating a tax incentive for small businesses that hire workers or increase payroll would help the economy.

Lawmakers on Capitol Hill have been working for months on ways to develop small business tax incentives and give small businesses tax help in a way that it won’t be abused.

Obama and Congress have both been vague on how the tax break would work and how it would be administered.

“I believe it’s worthwhile to create a tax incentive to encourage small businesses to add and keep employees and I’m going to work with Congress to pass one,” Obama said.

With the 2009 year ending, Congress is running out of time to pass a jobs package this year, and the process will be even more complicated if the administration doesn’t come up with details. Moreover, the Senate is preoccupied with the health care debate, making any action less likely.

The Obama administration is expected to propose extensions and enhancements tax credits and tax breaks that were part of the federal economic stimulus package passed in early 2008.

Obama also proposed eliminating capital gains taxes on small business stock, if it is purchased in 2010 and held for at least five years, expanding a tax break enacted in the stimulus package.

While Obama and the Democrats focus on health care reform, Republicans believe the focus should be on getting Americans back to work. Unemployment rates currently stand at 10 percent.

Tax experts ponder how a small business tax break for hiring working would work. Do you give a tax break just for hiring more employees, or do companies have to simply increase payroll? How long do the companies keep the workers? How do you enforce the requirements?

“You’re trying to subsidize people for doing things they wouldn’t otherwise do, but we don’t know what they would otherwise do,” said Eugene Steuerle, a Treasury Department official in the Reagan administration who is now co-director of the Tax Policy Center, a Washington think tank.

John H. Bishop, an economist and a professor at Cornell University, has a proposal for extend tax credits to companies that increase payroll subject to Social Security taxes. Since only the first $108,600 of a worker’s pay is subject to Social Security taxes, executives couldn’t get the credit by giving themselves big bonuses, he said.

Bishop’s small business tax credit proposal would help the economy if companies either raise the pay of existing workers or hire new workers. Bishop’s proposal, modeled after a similar tax credit enacted in the 1970s, has been circulating on Capitol Hill for several months.

“It does exactly what we want,” Bishop said. “It focuses on hiring Americans to work now.”

source: The Associated Press 2009

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

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 Senate Republicans and Democrats came together today in offering tax relief to Americans looking to buy homes in 2009. If approved, the Senate proposal would give a tax credit up to $15,000 for anyone buying a house.

How is this good for the American home buyer? Currently, there is a $7,500 tax credit for home purchases - but the money must be repaid.

The proposal was pushed by Republicans who favored targeted tax credits over no-strings rebates. The Senate measure, if it becomes law, would provide a credit of 10% of the home purchase price, up to a maximum credit of $15,000.

Real estate industry groups have backed such a credit as a way to spur demand for homes.

The reason for the proposal is obvious, to stimulate the home housing market which would then help generate new jobs and trigger the economy.

The homebuyer tax credit offered by GOP Sen. Johnny Isakson would apply to any home purchased as a main residence and would cost taxpayers $19 billion. Senators approved it by a voice vote, adding the idea to President Barack Obama’s economic recovery bill.