New Jersey Governor Chris Christie’s proposal to cut  income taxes by ten percent will benefit the rich and not the middle class.

Christie’s plan would benefit taxpayers who pay a significantly higher income tax rate under the state’s current tax system.  But the plan doesn’t help middle-class who are struggling more with the property tax rate.

“We all want to cut taxes, but we want to cut the right taxes in ways that help those most in need and that provides the most benefit to the economy,” said Senator Paul Sarlo (D-Bergen), chairman of the Senate Budget and Appropriations Committee, which conducted the first of many expected hearings Monday on the tax cut proposal.

Republicans argue that the Democrats are rebuking the proposal too quickly.

“Democrats cannot have a knee-jerk reaction,” State Sen. Kevin O’Toole (R-Essex) said. “History shows that it will create more income tax revenue, attract jobs and more opportunities.”

O’Toole noted that when former Gov. Christine Todd Whitman, also a Republican, cut income taxes in the 1990s, overall income tax revenue increased as the economy expanded, incomes rose and jobs were created.

Under the proposal, a family earning $50,000 a year would save $80.50, and those making $100,000 would save $275, according to David Rosen, budget and finance officer with OLS. Families who make $1 million would save $7,265, Rosen said.

The Office of Legislative Services also did an analysis of the taxes paid in 2004 and found that NJ taxpayers who made less than $200,000 paid a greater share of their income toward property taxes than income taxes.  For example, a family that makes $80,000 paid about 6 percent of its gross income for property taxes and about 1.6 for income taxes.

Based on the analysis, it seems unlikely that Cristie’s income tax cut proposal will win approval. Expect the Democrats to offer a counter proposal that would emphasize property tax cuts for the middle class.

Yes, its true that the Obama tax cuts will reduce income tax rates and Alternative Minimum Tax (AMT). It will also provide tax relief by reducing employee-paid payroll taxes. It’s called the Payroll Tax Holiday.

The Payroll Tax Holiday provides tax relief by reducing the amount of Social Security tax employees pay on wages earned and self-employed individuals pay on all of their self-employment income (up to $106,800) by 2%. Under current law, employees pay a 6.2 percent tax and the self-employed 12.4 percent.

This tax holiday is only temporary however; it provides tax relief for one year. This means that during 2011, employees will pay only 4.2% on wages and self-employed individuals will pay only 10.4% on income in Social Security tax.

So, everyone should be happy, right? Not so fast!

Progressive advocates and many Democrats are concerned that the payroll tax cut will pose a threat to Social Security. Not because they don’t want workers to have extra cash in their pocket, but because they worry the temporary payroll tax rate will become the norm and leave Social Security competing with other programs for funding – and threatening Social Security benefits.

However, several top Republicans maintain they’re not interested in extending the payroll tax cut. Their “gut feeling” is the tax will be allowed to expire as planned.

Although the tax cut is only 2%, it represents a significant tax reduction of 32 percent. For instance, a worker currently earning $100,000 will pay $6,200 in payroll taxes in 2010, and $4,200 in 2011.

Good, tax relief for the working man, right? Nevertheless, consider…

The Congressional Budget Office estimates the cut will reduce federal revenues by $112 billion over the next two years. Because the tax package is not offset by changes elsewhere in the budget, the government will have to borrow to fill that hole in the Social Security trust fund.

Not so good, no relief for our national debt.

Sources: democrats.senate.gov, thehill.com, democraticunderground.com

The month of December is the time for small business owners to put together a year-end tax strategy and developing a tax plan for the tax season. But putting together a tax plan for the this tax season will be difficult due to open tax law issues, especially the status of the Bush tax cuts.

So how should the small business owners approach this year’s tax strategy? Business owners should develop a tax strategy based around on tax rules that will not change or be affected by tax law changes due to new regulations.

Here are a few year-end tax strategy tips for business owners this December:

Update Your Books
As a business owner, it is essential you know your company’s current financial state before any tax planning can be done. Knowing whether your company make or lost money for the year is critical to developing the right tax strategy.

Look Into A Retirement Plan
Profits can be sheltered in qualified retirement plans, and the 2010 rules remain relatively unchanged from 2009. For example, a corporate owner or self-employed person whose salary or net earnings are sufficient can contribute a maximum of $49,000 to a SEP (Simplified Employee Pension) plan, scoring a tax deduction while saving for one’s golden years.
Owners who don’t yet have qualified retirement plans for their companies need to complete the paperwork (provided by their financial institution or mutual fund) by Dec. 31. Then they’ll have until the extended due date of their 2010 return to make their contributions for the year.
It’s wise to discuss the wide range of plan options with a CPA or other financial adviser. Keep in mind, if you do miss the Dec. 31 for setting up a qualified retirement plan, you still have one plan option – the SEP – which can be set and funded as late as the extended due date of the return.
Remember Health Coverage
Owners (other than those with a C corporation) who pay for their health coverage can deduct it, but only as a personal expense rather than as a business expense. However, for 2010, if you are self-employed you can use the premiums to offset the amount of net earnings used to calculate self-employment taxes (which cover mandatory Social Security and Medicare contributions). Because of the tax savings, owners may want to reduce their estimated taxes. The last payment for 2010 is due on Jan. 18, 2011.
Those who use the cash-basis accounting method might also want to pre-pay their 2011 premiums to boost their write-off for 2010 while saving on self-employment taxes.
If the insurance qualifies as a high-deductible health plan, then you’re allowed a tax-deductible contribution to a Health Savings Account, or HSA, for 2010. (To be considered “high deductible” in 2010, the policy’s deductible must be at least $1,200 for individuals and $2,400 for families and meet certain other tests.) While the HSA 2010 contribution can be made as late as April 18, 2011, the sooner it is made, the more earnings you can build up on a tax-advantageous basis. Earnings will never be taxed if withdrawn to pay qualified medical costs.

Donate to charity
Business owners who have had a good year can share their good fortune with charities. The donations are tax-deductible within the limits allowed by law. For example, if you own a C corp, your charitable deductions are limited to 10% of taxable income.
For owners who record business income on personal tax returns (such as sole proprietors, or owners of S corporations or limited liability companies), it’s helpful to note a change for 2010: There’s no phase-out of itemized deductions for high-income taxpayers. That’s a shift from prior years, when contributors lost part of their charitable deductions when income exceeded a threshold amount.

Upgrade equipment
If you need to invest in new business equipment or upgrade old machines, now is a great time to act. Whether the business is profitable or not, there is a tax break to help.

• If the business is profitable, elect first-year expensing for the cost of equipment up to $500,000. (This dollar limit is up from $250,000 in 2009). If the cost is more than the dollar limit, you can also use 50% bonus depreciation and a regular depreciation allowance to effectively write off most of the cost of the purchase. The bonus depreciation option is set to expire on Dec. 31.
• If the business is not profitable, rely on 50% bonus depreciation to write off half the cost (plus a regular depreciation allowance on the other half). This write-off can create or increase a net operating loss, which can result in a carryback that can generate a cash refund.
• While first-year expensing can be used for new or pre-owned equipment, bonus depreciation is limited to new equipment. However, the purchase of equipment for both first-year expensing and bonus depreciation can be financed in whole or in part without any impact on the tax write-off.

One final tip regarding tax strategy is make to update your tax plan when the Bush tax cut and other tax credit issues are resolved in Congress