Obama’s Coming Tax Hikes Will Cripple the Economy

Rather than be in the middle of a “recovery summer,” the U.S. economy is still flat on its back. It’s likely to get worse after the first of the year, thanks to the tax hikes the White House is planning.

Americans for Tax Reform, a nonprofit taxpayers’ interest group, reports that the Obama administration, with the support of congressional Democrats, “have said they want to raises taxes in the top two income tax rates in January 2011.” Under their plan, the group says, the current 33 percent rate will automatically rise to 36 percent and the 35 percent rate will increase to 39.6 percent, negatively affecting families and small business owners earning at least $200,000 per year.

The impact of these tax increases will be felt throughout the economy but particularly in the small business sector, where much of the nation’s job creation comes during an economic recovery. The reason for this is:

1. Unlike corporations, small businesses usually don’t pay their own taxes. Rather, business profits flow through to the business owner. The business owner pays taxes on their small business by adding the profits to the personal income tax forms. Therefore, personal income taxes are the same thing as small business taxes.

2. According to the IRS, most small business profits pay taxes in households making more than $200,000 per year. The IRS keeps track of two types of small business income: sole proprietors, and “pass-through” entities like partnerships and S-corporations.

3. Mature small businesses make a majority of the profits and employ a majority of the workers. The Census Bureau reports that the top 3 percent of small businesses employ a majority of everyone who works for a small business. Raising taxes on these most successful of small businesses will cost jobs.

According to a number of estimates, a majority of U.S. small business profits will face a tax rate hike under the Obama plan. Instead of putting profits back into the business in the form of equipment updates, new hires, and expansion, the small businessmen and women who make up the backbone of our economy will be called upon to underwrite, in the name of “raising taxes on the rich,” Washington’s addiction to overspending

As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.

Tax preparers regroup after IRS moves to limit refund loans

A decision from the Internal Revenue Service last week is to stop providing taxpayer-debt profiles comes as brick-and-mortar tax preparers already are struggling to hold on to their ground against electronic services, such as TurboTax.

Without the so-called "debt indications" from government data, tax preparers and banks will find it more difficult to front controversial loans known as refund-anticipation loans, or RALs, which are secured by a filer's expected tax refund.
Tax preparers face additional hardship as their banking partners that back the RALs drop out of the business.

Shares of H&R Block Inc. have lost 37% this year, while Jackson Hewitt Tax Services Inc.'s stock is off more than 80%. TurboTax owner Intuit Inc. on the other hand, has seen its shares rise 26% this year.

The long road to recovery

While consumer groups hailed the IRS move earlier this month as a step toward ending a predatory-lending practice, national chains such as H&R Block and Jackson Hewitt won't easily exit the lucrative business and say the effort may even backfire with higher fees, hurting consumers.

In reaction to the decision on the taxpayer-debt profiles, Jackson Hewitt founder John Hewitt said that a portion of the 8 million to 9 million RAL customers will no longer qualify for loans without the government data available.

Those who do qualify will face steeper fees; Hewitt sees tax preparers charging $100 to $110 more, or about a 60% jump, in RAL prices.

What's missing from the IRS announcement is that 40% of RAL recipients don't have bank accounts; only those able to receive direct deposits get refunds back in 10 days.

H&R Block extended 2.1 million RALs in 2010, each with an average amount of $3,000 issued for 10 to 11 days. Each RAL costs about $62, or 2.1% of the loan amount.

Expensive loans

The RAL-related fees siphoned $738 million from 8.4 million American taxpayers in 2008. People who seek such advances are often the working poor who are strapped for cash.

RAL taxpayers receive money on the spot, as opposed to having to wait for a refund check in the mail. But this convenience comes at a hefty price and costs the very taxpayers who need the money in the end. As you notice the companies who offer these types of loans haven’t gone out of business by doing so. Maybe these companies could actually offer these types of loans as a free service to help those very tax payers who have been faithful customers that they have been making several hundred million dollars off of them. Does the president/company actually have to make that much money in one year; couldn’t they not take a pay increase while several hindered thousand taxpayers don’t have that option in today’s economy?

As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.

Six Tax Tips for Recently Married Taxpayers

Are you or have you gotten married this summer? If you recently got married or are planning a wedding, the last thing on your mind is taxes. However, there are some important steps you need to take to avoid stress at tax time. Here are six tips for newlyweds to keep in mind.

1) Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and Social Security Number will match when you file your next tax return. Informing the SSA of a name change is quite simple.

2) File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.

3) Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from IRS.gov or order it by calling 800–TAX–FORM (800–829–3676). Or you can always ask myself or your tax professional for assistance.

4) Notify the U.S.Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.

5) Notify Your Employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.

6) Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amount from your pay.

As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.