GAS PRICES RISING

Q.  With gas prices rising, will IRS raise the standard mileage rate at midyear? 

A.  Actually gas prices have decreased lately so I doubt if we will see any changes. If we do see increases in the future it might be a possibility. Most analysts see prices staying low especially with an election coming up.

When the price of gasoline spiked in the first half of 2008 and 2011, the Service boosted the standard mileage rate by 8 cents per mile and 4.5 cents per mile, respectively, effective for the final six months of those years.

We will keep you posted.

THE TAX SYSTEM EXPLAINED IN BEER

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this...

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that from every body's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man, "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!"

"That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

SELF EMPLOYED AND HEALTH INSURANCE

Self-employed taxpayers can deduct their health insurance. Not as a business expense but as a other deduction which is on page one of the tax return. In defining what is deductible you are allowed to include Medicare Part B and D  premiums. The question always was "what about the spouse?"

The IRS has just revised their thinking on the deduction for spouses of self employed taxpayers. Publication 535 this year says that Medicare premiums have to be paid in the name of the self-employed person to qualify for the deduction. IRS has informally said that the revision was made to make it clear that a spouse’s Part B and D premiums don’t count if the spouse isn’t self-employed.

Strangely this is just in the publication but not in an official guidance.

TAX QUESTION ON EDUCATION CREDIT AND CLAIMING CHILD

Q: Hey how are you doing sir? I was wondering if you could help me out with some doubts I have about a college form I got, a tuition statement. Not sure how I can put it on my taxes. Also, I have a two-year old whom her mom claimed her so I am wondering if I can claim her on my taxes or just write down the child sup. I paid for the year? Can I just print the form from irs.gov to file and send it to them?

 A: The tuition form most likely tells how much tuition you paid that qualifies for the education tax credit.  Here are resources from www.irs.gov pub 970 on the tax credits for education:  American Opportunity Credit

As for your other question- Since the mother claimed the child then you are not eligible to claim.  I am presuming that the mother has custody.  If you had custody for over 6 months let me know and I will comment further.

Sorry, but child support is not deductible. 

 Good luck!

ILLEGAL IMMIGRANTS RECEIVED BILLIONS FROM THE IRS

Q: Does the IRS pay billions in tax refunds to workers who are in the U.S. illegally?

A: Yes. The Treasury Department’s Inspector General determined that $4.2 billion was paid in 2010, up from less than $1 billion in 2005. Leading Democrats are resisting a bill that would stop future payments.

This is a rare case of an Internet rumor with some substance to it. In fact, it’s shaping up as a major dogfight in Congress. At issue here are the federal child tax credits that can be claimed by persons with dependent children under age 17. Some Democrats are already defending these child tax credit payments that have gone to those without a valid Social Security number, accusing Republicans who want to end them of a heartless attack on children.

Several different versions of this viral email all cite a recent investigative story by an Indianapolis television station, but WTHR-TV is far from the first to notice. The Washington Post and others reported on this last year when the Treasury Department’s inspector general for tax administration issued a report on July 7, 2011. The title of the report summed up the IG’s finding: Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits.

The credits currently amount to $1,000 per child, and they are “refundable,” meaning that parents may receive refunds even when they do not owe any tax.

The IG report stated that more than 2.3 million persons who did not have Social Security numbers valid for working in the U.S. got an average of roughly $1,800 each in 2010 in child tax credit refunds. That included 9,000 illegal immigrants who each got a total of $10,000 or more by retroactively claiming credits for tax years prior to 2010.

This from www.factcheck.org

LARRY THE CABLE GUY

1. Cows
2. The Constitution
3. The Ten Commandments

COWS: Is it just me, or does anyone else find it amazing that during the mad cow epidemic our government could track a single cow, born in Canada almost three years ago, right to the stall where she slept in the state of Washington?  And, they tracked her calves to their stalls.  But they are unable to locate 11 million illegal aliens wandering around our country.  Maybe we should give each of them a cow.

THE CONSTITUTION: They keep talking about drafting a Constitution for Iraq. Why don't we just give them ours? It was written by a lot of really smart guys, it has worked for over 200 years, and we're not using it anymore.

THE 10 COMMANDMENTS: The real reason that we can't have the Ten Commandments posted in a courthouse is this:  you cannot post 'Thou Shalt Not Steal,' 'Thou Shalt Not Commit Adultery,' and 'Thou Shall Not Lie' in a building full of lawyers, judges and politicians, it creates a hostile work environment.
GET 'ER DONE!

BEWARE OF THE $494 BILLION TAX HIKE COMING SOON

The Heritage Foundation is a conservative think tank but I found their recent column quite true.  I have been trying to warn people that if Congress and the President don’t act taxes are going to increase dramatically.  While the President and Congress appear content to put off ’til the 11th hour what they can and should do today, those who will have to pay the higher tax burden are waiting to see what the future holds. It appears that many businesses are waiting to see what will happen and this may be slowing job creation.

In their analysis, they write "Brace yourself.  In (less than 270) days, you and your fellow Americans will be hit with a tax hike the likes of which this country has never seen," if Congress does nothing by year's end.  "The Washington Post aptly called the unprecedented $494 billion tax hike 'Taxmageddon.'"  According to the analysis, "almost 34% of the tax increase" is from the expiration of the 2001 and 2003 Bush tax cuts, while "another 25% of Taxmageddon comes from the expiration of the once-temporary payroll tax cut."  The expiration of the patch on the Alternative Minimum Tax accounts for 24% of the total potential 2013 tax increase.  The rest of the tax increase "comes in part from new taxes under Obamacare, the expiration of tax cuts in the 2009 stimulus, the expiration of a group of policies known as 'tax extenders,' changes in the current policy on the death tax (in 2013, it will rise from 35% today to 55% and the exemption will fall from $5 million to $3.5 million), and the expiration of businesses' ability to fully expense new capital investments."