Obama’s Proposed Tax Cuts Total $300 Billion

In an earlier post, I asked ‘How Will Obama’s Tax Plan Affect Self Employed Americans?’.  Well, more details are emerging as Obama proposes $300 Billion in tax cuts.

Presidential Elect Obama is working with Congress on a tax cut proposal that would make up about 40% of a $775 billion economic stimulus package.

Cuts would be aimed at both individuals and businesses.  At the moment, these are just proposals, but here’s what’s being discussed so far:

• The largest piece of the tax relief package is a payroll tax break of $500 for individuals and $1,000 for couples aimed at low- and moderate-income workers.  I’m wondering if this will also apply to self employed people, but am unsure of the answer so far.
• Relief for businesses include a provision that would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years.  While businesses would have been able to claim most of the tax write-offs on future tax returns anyway, the proposal accelerates those write-offs to make them available in the current tax season.  This will help companies who are experiencing cash flow problems due to credit being unavailable.
• The Obama plan also proposes to increase the Section 179 deduction up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.  This probably won’t help most small businesses, but those that are expanding or need new equipment will benefit.
• Finally, businesses that create jobs here in the US or avoid future layoffs would receive a tax credit.  Hopefully this will reduce the amount that unemployment is expected to rise in 2009.

While I like the idea of the payroll tax credit, it really needs to apply to self employed people as well.  I’ve heard rumors that self employed people may get to reduce their 1st quarter estimated tax payment, and will confirm or deny as soon as more details become available.

Remember these are just proposals right now.  There will be lots of debate and changes before the final bill is approved.

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Are Prizes and Awards Taxable?

As I was entering the HGTV Dream Home Giveaway (the only sweepstakes that I enter regularly, can’t help it, these homes are so beautiful!), I wondered how I would pay the taxes if I actually won.

According to the IRS, awards, prizes, contest winnings and gambling proceeds (including lotteries) are taxable income which must be reported on Form 1040.  Which means if I am lucky enough to win the gorgeous HGTV Dream Home in Sonoma California, then I have to come up with the money to pay taxes on the value of the home and other prizes included.  Bummer, huh?

If you win a cash prize, such as gambling winnings or the lottery, sure it’s a bummer to pay the taxes, but at least you have the cash to do so.

When you win a non-cash prize, such as a vacation, a new car, or a house (such as in the case of the HGTV Dream Home Giveaway), then paying the taxes is an even bigger challenge because you have to come up with the cash to do so.

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Standard Deduction and Personal Exemptions Increased For 2009

The IRS adjusts key tax numbers each year, including personal exemptions and the standard deduction amounts.  These are cost of living adjustments required by law.

The effect of these adjustments is that the tax brackets widen (so you can earn more income before you jump into the next tax bracket).

Here are a few of the changes in effect for 2009:

• The personal and dependency exemption, available to most taxpayers, increased $150 to $3,650.
  Continue Reading Standard Deduction and Personal Exemptions Increased For 2009

Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement

Not many people are aware of the saver’s credit, which helps offset part of the first $2,000 that taxpayers contribute to IRAs , Roth IRAs, 401K and other retirement plans.  This credit is also known as the retirement savings contributions credit.

The saver’s credit is available in addition to other tax deductions and credits that a person may qualify for, so taxpayers who take a deduction for contributions made to IRAs, 401Ks and other tax-deferred retirement accounts, and who also qualify for the saver’s credit, essentially get a double tax break.

You still have time to make contributions to your retirement accounts and get the saver’s credit, if you qualify.  The deadline for setting up or adding money to IRAs and still get credit for 2008 is April 15, 2009.  But if you’re planning on contributing to your 401K or other employer sponsored plan, you need to get your contributions in by the end of the year.

Continue Reading Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement