Last year, my home state of California had to delay refunds to taxpayers because of budget problems, and many have been worried that the same would happen again this year. However, State Controller John Chiang has put everyone’s worries to rest by announcing that the state’s revenue is higher than what the governor had predicted and that there would be no reason to withhold taxpayers’ refunds.

According to this Reuters article, California's revenue in February was $480 million or 8.7 percent above the estimate in Governor Arnold Schwarzenegger's state budget plan.

There had been some talk in the state capital of Sacramento that tax refunds could be delayed, as they were temporarily last year, to help the state government preserve cash while Schwarzenegger and lawmakers tackle closing a state budget gap of $20 billion.

The state's cash position, however, is better than expected, according to Chiang's office.

"Revenues came in above projections for the third month in a row, continuing a positive trend that shows California is on the road to recovering from the recession," Chiang said in a statement.

"Given February's numbers and recent action from the Legislature to improve the state's cash flow, Californians should expect to receive their hard-earned tax refunds on time," Chiang added.

The controller, as he routinely does, urged a speedy budget agreement that balances the state government's books, something that Wall Street rating agencies, which have the state's credit rating just a few notches above "junk" status, would also like to see.

One of the most discussed parts of Obama’s health care reform lately has been possible affects on the Medicare tax. Currently Medicare taxes are only taken out of payroll wages, but Obama has proposed levying Medicare taxes on investment income as well. CNN Money wrote a great, in-depth piece on the proposed tax, and what it would mean for Americans, checkout a section of their article below.

Since its conception, the Medicare tax has always been tied to payrolls. Every paycheck, employers and employees each chip in 1.45%, regardless of how much someone makes. Under Obama's proposal -- which should be very close to what Congress winds up enacting -- a Medicare tax would now be applied to investment income too: Individuals who earn more than $200,000 and couples over $250,000 would pay an additional 2.9% surtax on unearned income from interest, dividends, annuities, royalties and rents.

Two things happen here. The first one is that the Medicare tax would go from being a payroll tax (like Social Security) to an income tax.

"You can certainly make the argument that [payroll is] really not appropriate anymore and we may as well tax all income," says Howard Gleckman, a senior research associate at the Urban Institute and editor TaxVox, the center's tax and budget policy blog. "But this is kind of a back-door way to do it."

From USNews.com:

Earlier this week, Greek Prime Minister George Papandreou traveled to the United States to promote a message: We're in this together. The debt crisis that has threatened the Greek economy and the stability of the European Union's monetary policies "very much involves America's interests," Papandreou stated in a speech at the Brookings Institution in Washington.

The prime minister—who was born in St. Paul, Minn.—even connected the current crisis to the Great Depression as well as the Great Recession. "If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago," he said.

But the path from a Greek crisis to a U.S. crisis is not a direct one. The European Union is hoping it can contain Greece's debt crisis before the problems spread across the continent—threatening the stability of all countries that use the euro, or the euro zone—and then over the Atlantic.

The crisis began shortly after the election last fall of the new socialist government led by Papandreou. State officials revealed that Greece's budget deficit was at 14 percent of GDP—almost twice what the official Greek government statistics had reported. Two months later, Moody's downgraded Greece's debt to A2, raising the possibility of Greece defaulting on its debt.

Fearing that reform was taking to long to come to fruition, Senator Christopher J. Dodd - chairman of the Senate Banking Committee – announced that he would unveil his own financial overhaul plan on Monday. However, what makes this announcement even more surprising is Dodd’s intention to unveil his plan was without negotiation with other members of the Republican party.

Mr. Dodd suggested that he was acting out of a sense of urgency. The House adopted a regulatory overhaul — a priority of the Obama administration — in December on a largely party-line vote. But bipartisan negotiations in the Senate have repeatedly faltered over several critical points, notably the creation of a consumer financial protection agency to regulate mortgages, credit cards and other products.

In an unusual turn, Senator Richard C. Shelby of Alabama, the ranking Republican on the Banking Committee, has found himself largely shut out of the negotiations, while another Republican, Senator Bob Corker of Tennessee, has been directly negotiating with Mr. Dodd.

At a news conference later Thursday morning, Mr. Corker called Mr. Dodd’s plan to proceed with a bill without further negotiations “very disappointing.”

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In this new press release, the IRS explains the tactics they are using to assist “unemployed taxpayers and others,” however as one of the attorneys at my law firm pointed out some of the statements they make are nearly identical to ones they made in this press release—published a year ago.

Last year, the IRS promised to provide assistance in the following areas:

• Postponement of Collection Actions
• Added Flexibility for Missed Payments
• Additional Review for Offers in Compromise on Home Values
• Prevention of Offer in Compromise Defaults
• Expedited Levy Releases

Then in this new release the IRS now promises to help taxpayers in the following ways:

• Postponement of collection actions in certain hardship cases
• Added flexibility for missed payments on installment agreements and offers in compromise
• Additional review of home values for offers in compromise
• Accelerated levy releases for taxpayers facing economic hardship

Is the IRS really putting extra effort into helping unemployed taxpayers, or just reusing an old press release? Either way, actions speak louder than words and I just have not seen any real action on these objectives.

The House of Representatives passed a bill today that would allow taxpayers to deduct Chile relief donations made by April 15th on their tax returns. The non-controversial bill, which should easily sail through the Senate, would also extend the deadline for Haiti donations to April 15th. Check out the following article on the new development courtesy of the Associated Press.

Under current law, donors would have to wait until next year, when they file their 2010 returns, to claim the deductions. The House bill would allow donations made by April 15 to be deducted on 2009 returns.

The House passed the bill Wednesday on a voice vote, with no opposition. It now goes to the Senate. Congress passed a similar bill for donations to Haiti quake victims made before the end of February. The bill would extend the deadline for Haiti donations until April 15 as well.

The House has passed a bill that would allow taxpayers to write off charitable donations to Chile earthquake relief efforts when they file their 2009 taxes this spring.

There has been a lot of debate in the Senate lately on whether or not to include a provision in a finance reform bill that would crack down on payday lenders and other finance companies that are not directly associated with banks. The New York Times posted a great article explaining the legislation. You can find a snippet of their post below or read the full text here.

Senator Bob Corker, the Tennessee Republican who is playing a crucial role in bipartisan negotiations over financial regulation, pressed to remove a provision from draft legislation that would have empowered federal authorities to crack down on payday lenders, people involved in the talks said. The industry is politically influential in his home state and a significant contributor to his campaigns, records show.

The Senate Banking Committee’s chairman, Christopher J. Dodd, Democrat of Connecticut, proposed legislation in November that would give a new consumer protection agency the power to write and enforce rules governing payday lenders, debt collectors and other financial companies that are not part of banks, Sewell Chan reports in The New York Times.

Late last month, Mr. Corker pressed Mr. Dodd to scale back substantially the power that the consumer protection agency would have over such companies, according to three people involved in the talks.

Mr. Dodd went along, these people said, in an effort to reach a bipartisan deal with Mr. Corker after talks had broken down between Democrats and the committee’s top Republican, Senator Richard C. Shelby of Alabama. The individuals, both Democrats and Republicans, spoke on condition of anonymity because they were not authorized to discuss the negotiations.

From the San Francisco Gate:

California's bond rating is the country's lowest. The state faces near unprecedented unemployment and underemployment. State government and most counties face deficits for the foreseeable future. The solution to this predicament, some Sacramento politicians believe, is more taxes.

The underlying assumption of such an approach is that taxes don't have much impact on economic performance and that tax competition among states is irrelevant. But both matter a great deal and lie at the heart of why the state's economy is struggling.

The first faulty premise pervading Sacramento is that taxes don't influence economic decisions and performance. Volumes of research show how taxes change behavior and how they affect the economy.

When we tax something, we get less of it. In other words, much of the foundation for a prosperous society, like work effort, savings, investment and entrepreneurship, is influenced by taxes. Unfortunately, California has gone out of its way to tax these very things.

According to the IRS the average tax refund last year was over $2,500. I always encourage taxpayers to do something smart with this money, and it is never too early to begin planning for next tax season. If you use your refund in one of the following ten ways, then you can get a head start on lowering your 2010 tax liability.

1. Put the Funds into a Traditional IRA

When you file your tax return you have the option to have your refund split between up to three different accounts. You can even have funds electronically transferred to a tax friendly traditional IRA. You can use these contributions to lower your adjusted gross income for the year.

2. Purchase Inflation-Adjusted Savings Bonds

In addition to transferring funds to a retirement account, the IRS has recently began allowing taxpayers to use a portion of their refund to buy inflated adjusted saving bonds, commonly referred to as I Bonds. The government makes this process easy, all you have to do is fill out IRS Form 8888 and designate how much of your refund you want to invest in I Bonds. They are exempt from state and local taxes, and federal taxes are deferred until you redeem the bond.

3. Use the Money for a Down Payment on a House

We all know there are multiple tax advantages of homeownership. You can write off mortgage interest, deduct property taxes, and many homebuyers qualify for IRS credits of up to $8,000. If your refund is large enough, you could use it as a down payment on a house. If you do qualify for a new homebuyer credit then you can even use the funds to help cover your closing costs.

4. Make Energy Efficient Upgrades to your Home

If you already own your home then you might want to consider making energy efficient upgrades to your house. In addition to increasing the value of your property, many upgrades qualify for tax incentives. To find out the exact amounts, check out EnergyStar.gov.

5. Make a Donation to a Qualified Charity

You can easily donate a portion of your tax refund to a qualified charity to directly reduce your adjusted gross income. Even if you cannot afford to make a large monetary contribution all miles driven to, from and during volunteer work are deductible expenses, as well as any goods or supplies you purchased while volunteering.

6. Invest in Yourself

Instead of investing your money into a retirement account you could invest in yourself and take a class at a local university. Depending on your income level the American Opportunity Tax Credit could cover the cost of up to the first $2,500 in qualifying tuition and related expenses.

7. Buy a Qualifying Hybrid

Although popular cars such as the Toyota Prius no longer qualify for the Alternative Motor Vehicle Credit, there are plenty of vehicles that do—Including the Ford Fusion Hybrid, which qualifies for a $3,400 credit.

8. Open a 529 College Savings Fund

Contributing to a 529 College Savings Plan is another smart use for your IRS refund. Similarly to a Roth IRA, you do not have to pay taxes on the interest that accumulates in the account.

9. Buy New Office Computers or Equipment

If you are self-employed or own a small business then you can use your refund to purchase new office computers, furniture, equipment, or just about anything else that qualifies as a business expense. Just be sure to save all of your receipts!

10. Purchase a Health Insurance Plan

Those of you who are self-employed taxpayers can also take a deduction for your health insurance expenses. I recommend purchasing your plan now so that you can use your refund to pay for a majority of the yearly premium, which will lower your monthly payments.

The highly anticipated legislation that will extend unemployment insurance benefits, prevent doctors from absorbing cuts in Medicare payments and provide money to struggling state governments passed a significant hurdle in the Senate on Tuesday. It gained momentum after 60 new tax breaks for individuals and businesses were added to the bill.

The unemployment insurance alone — to provide weekly unemployment checks averaging above $300 to people whose core 26-week benefit package has run out — will cost $66 billion through December. In some states people are eligible to receive benefits for up to 99 weeks.

The bill demonstrates the difficulty Democrats face as they focus on jobs. It doesn't include new ideas for boosting jobs, but instead reprises elements of last year's $862 billion economic stimulus bill, which is earning mixed reviews from voters. Simply extending those provisions has produced a far more expensive measure than a separate so-called jobs bill that Democrats hope to soon send to President Barack Obama. That measure would boost highway spending and give tax breaks to companies that hire the unemployed and could clear the Senate for Obama's desk this week.

At a gross cost of about $148 billion, Tuesday's measure illustrates the extraordinary cost of the unemployment safety net as the economy inches out of the recession. Democrats say the unemployment benefits inject demand into the economy and say renewing the tax cuts helps preserve existing jobs.

The measure closes $29 billion of tax loopholes to help defray its cost, including one enjoyed by paper companies that get a credit from burning "black liquor," a pulp-making byproduct, as if it were an alternative fuel.

From CBSNews.com:

Jeremy Bray received an e-mail message this morning with an unwelcome surprise: Amazon.com told him it had canceled its affiliate program, which provides small payments for referring customers, for everyone in the state of Colorado.

The reason? A state law, which Democratic Gov. Bill Ritter signed last week, slaps onerous new restrictions on large out-of-state sellers like Amazon, which said it has no choice but to end its marketing program in response.

Bray, a blogger who has lived in Pueblo, Colo., for more than 20 years, told CNET on Monday that he's now trying to "bring as much attention to the issue as possible in hopes of getting Colorado to repeal" the new law.

Colorado is not alone. Fifteen other states have considered or are considering enacting laws targeting Amazon and other e-commerce companies that typically do not charge sales tax for shipments sent outside their home state, according to a report released Monday. Four states including Colorado have already enacted them.

It should come as no surprise that the number of millionaires in the country decreased in 2008 due to the market meltdown, and poor economy. However, I was surprised when I read that the number of millionaires actually increased by around 16% in 2009, according to this article on CNN Money. As it explains, the number of households in the U.S. worth $1 million or more grew to 7.8 million in 2009.

The firm's report, "Affluent Market Insights 2010," also found that the number of ultra high-net-worth households, worth $5 million or more jumped 17% to 980,000 in 2009.

"This is largely attributed to the stock market rebound, since other assets including real estate and private businesses have not rebounded as dramatically," said George H. Walper, Jr., president of Spectrem Group.

The report comes one year to the day after the Dow and the S&P 500 closed at 12 year lows in the thick of the financial crisis.

Question #1: Can I still make donations to Haiti that can be counted on my 2009 tax return?

Unfortunately, no. The deadline to make deductions that can be counted on your 2009 tax return was February 28^th. However, if you have any extra money then you should still consider making a donation; you can claim the deduction on your 2010 return. To learn how you can make a contribution checkout this article on the top 10 options for donating to the Haitian relief efforts.

Question #2: If my husband and I start a new business can we classify it as a sole proprietorship or do we need to form a partnership?

You and your husband can classify the business as a sole proprietorship as long as you meet the following IRS conditions:

1. The only partners in the partnership are a husband and wife

2. They file a joint tax return

3. The husband and wife must materially participate in the trade or business.

4. Both spouses must elect qualified joint venture status on Form 1040 by dividing the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture and each spouse filing a separate Schedule C, C-EZ, or F accordingly, and, if required, a separate Schedule SE to pay self-employment tax.

According to the Congressional Budget Office, Obama’s proposed budget would add over $9.7 trillion to the national debt over the next ten yeas. They made the announcement on Friday, and claim that the President’s tax cuts for the middle class are the main reason for the shortfall.

The 10-year outlook released by the nonpartisan Congressional Budget Office is somewhat gloomier than White House projections, which found that Obama's budget request would produce deficits that would add about $8.5 trillion to the national debt by 2020.

The CBO and the White House are in relative agreement about the short-term budget picture, with both predicting a deficit of about $1.5 trillion this year -- a post-World War II record at 10.3 percent of the overall economy -- and $1.3 trillion in 2011. But the CBO is considerably less optimistic about future years, predicting that deficits would never fall below 4 percent of the economy under Obama's policies and would begin to grow rapidly after 2015.

Deficits of that magnitude would force the Treasury to continue borrowing at prodigious rates, sending the national debt soaring to 90 percent of the economy by 2020, the CBO said. Interest payments on the debt would also skyrocket by $800 billion over the same period.

As this article on USA Today.com explains, Federal employees earn higher wages than comparable workers in the private sector in more than eight out of 10 occupations. I have included a section of their article below, but you can checkout the full text – including a comparison chart – at USA Today.com.

Accountants, nurses, chemists, surveyors, cooks, clerks and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector.

Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.

These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.

From the Tax Professor Blog:

President Obama proposes to fund his health care bill in part by limiting the tax rate at which itemized deductions reduce tax liability to 28%:

The Administration proposes to limit the tax rate at which high-income taxpayers can take itemized deductions to a maximum of 28 percent, affecting only single taxpayers with income over $200,000 and married taxpayers filing a joint return with income over $250,000 (at 2009 levels). The proposed limitation would be effective for taxable years beginning after December 31, 2010.

I was recently quoted in a personal finance article in The Faster Times on how to “tackle your tax bill.” It explains every step you need to take to get your return filed, with strategic tax advice. You can check out an excerpt from their post below:

" 'Tis the season for all things taxes. You suspect you might have to pony up to Uncle Sam. Sorry about that. But the good news is: you still might be able to lessen the blow.

Be strategic

In light of the struggling economy, some families are choosing to live in multi-generational households. If you are supporting one of the ever emerging multi-generational households, you may be eligible to claim tax exemptions for the additional household members.

Exemptions reduce your taxable income, explains Roni Deutch, author of The Tax Lady’s guide To Beating the IRS.

Run the numbers

As part of last year’s stimulus package, many American’s received extra money in their paychecks. But approximately 15 million taxpayers will have to repay $250-$400 of the tax credit they received. To avoid getting a nasty surprise when you file, use the IRS Schedule M to determine whether or not you may have to repay Uncle Sam.

“Although this credit is meant for good, it may cause some harm to unsuspecting taxpayers because the credit was applied automatically to all tax withholdings whether the taxpayer qualified for it or not,” says Deutch. After you determine whether you have to pay this credit back for tax year 2009, you should get a head start and check your current withholdings because this credit extends to tax year 2010, she adds."

Charles Rangel – chairman of the tax-writing House Ways and Means Committee – stepped down yesterday after eight months of ongoing investigations. While numerous other House of Representative members had urged his resignation due to ethics complaints, ironically including unpaid taxes, while others feel his resignation came at the wrong time.

There are dozens of items on the tax agenda, and many economists are worried that Rangel’s replacement (Sander Levin) may not be familiar with them. Earlier today, the Associated Press put together the following list of unfinished tax business that Rangel is leaving behind for Levin to handle:

• The top two marginal tax rates would increase, with the top rate going from 35 percent to 39.6 percent. The increase would affect individuals making more than $171,850 and couples making more than $209,250. President Barack Obama has asked Congress to limit the tax increases to individuals making more than $200,000 and couples with incomes more than $250,000.

• Tax rates also rise for just about every other income level. The lowest tax rate would rise from 10 percent to 15 percent. This year that 10 percent rate applies to taxable income under $8,375 for individuals and under $16,750 for couples.

• The child tax credit would be reduced from $1,000 to $500.

• The top tax rate of 15 percent on dividends would expire, leaving dividends to be taxed as regular income, with a top rate of 39.6 percent.

• The top capital gains tax rate of 15 percent would increase to 20 percent.

• The federal inheritance tax, which has been gradually phased out over the past several years, will return with a 55 percent tax on estates above $1 million.

From the WallStreetJournal.com:

Two Democratic senators were pushing for a vote Thursday on a measure that would levy a one-time tax on bonuses paid to executives at firms that received significant infusions of taxpayer cash during the economic crisis.

If Sens. Barbara Boxer (D., Calif.) and Jim Webb (D., Va.) are successful, it would bring the contentious issue of executive compensation back to the fore.

"It's a one-time amendment based on a unique situation in this country when the American taxpayers had to bail out our major companies in order to stabilize our economy," Mr. Webb said on the floor of the Senate Thursday.

The tax would be a one-off 50% levy on bonuses above $400,000 paid to executives at institutions that received $5 billion or more of taxpayer support.

It would apply to 11 institutions, all financial firms except for car maker General Motors Co., which has one of the largest outstanding debts to the Treasury. Housing guarantee agencies Fannie Mae and Freddie Mac would also be hit by the measure.

We have all heard about how healthcare reform legislation will affect patients, but few have spoken on the affect changes to the industry will have on doctors and nurses. CNN Money.com posted an interesting article examining how the proposed cut of Medicare payments will reduce the income of many doctors in this country. For those of which who are still paying off student loans, these reductions could lower their income to levels comparable of a minimum wage job.

When you think of low-paying jobs, doctor doesn't usually come to mind.

But with a 21% cut in Medicare payments slated to take effect later this month, physicians who say they are making an “OK” living may be reduced to income levels that no longer make their profession viable. That's especially true for those still paying medical school costs and other training.

"The cuts will hit me," said Dr. William Schreiber, a primary care physician based in North Syracuse, N.Y.

Schreiber sees 120 patients a week. About 30% of them are enrolled directly in Medicare, while another 65% have private insurance plans that peg their payments on Medicare's rates. Only 5% pay without the help of an insurance plan.

As a result, Schreiber expects the cuts to take away $3 out of every $5 he currently earns. And, as a primary care physician, he already wasn't earning anything near the salary of a specialist.

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Tax Audit Defense is one of those insurance products that you think you can do without, but when you get one of those large envelopes with the return address of the Internal Revenue Service you wish a thousand wishes that you had Tax Audit Defense. There are very few pieces of mail that you receive that makes your stomach flutter than getting anything from the IRS let alone an audit notice. If you have Tax Audit Defense Insurance and you get an audit notice, just fax or mail it to your insurer and they take care of the rest. You will not have to even correspond with the IRS. They do it all.

There are other advantages to having Tax Audit Defense insurance than just having protection in the event of an audit. First of all there is a tax hotline, where a number of tax professionals are standing by Monday through Friday every week of the year to answer any tax question that you have. You can ask as many questions as you like and call as many times as you like. The second major service of Tax Audit Defense is they will review your tax return for accuracy to make sure you are taking advantage of all the deductions available to you. They will also review your tax return to identify any audit triggers. They will not only review your most recent return, but they will review any return that you prepared in the last 3 years. Another advantage of Audit Insurance is a Quarterly Tax Bulletin. This quarterly publication provides you with current information on any IRS legislation that could impact your tax status. It helps you learn more about how to minimize your tax liability while enhancing your financial well being. It also offers helpful tips on avoiding tax audit pitfalls and lets you know what is happening within the IRS on an ongoing basis.

Tax Audit Defense Insurance is definitely a pay me now or pay me later proposition. Since it involves one of those things that make your stomach flutter and prevents you from sleeping nights, I think it is better to pay now. Believe me you will be glad you did.

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