December 2007 Archives
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Late in December Congress passed the Alternative Minimum Tax “patch" which means for another year families who made too much money would not be subject to filing under this system which disallows certain credits and deductions.
The tax laws give preferential treatment to certain kinds of income and allow special deductions and credits for certain kinds of expenses. The alternative minimum tax (AMT) attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax. Because when the law was enacted they didn't index it for inflation - more and more Americans are impacted by this separate tax system.
The AMT is a separately figured tax that eliminates many deductions and credits, thus increasing tax liability for an individual who would otherwise pay less tax. The tentative minimum tax rates on ordinary income are percentages set by law. For capital gains and certain dividends, the rates in effect for the regular tax are used.
You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount. For 2007 the exemption amount is $44,350 ($66,250 if married, filing jointly)
BUT I DON'T MAKE THAT MUCH - WHY SHOULD I CARE?
1. If you still paper file, the forms you receive in the mail WILL NOT be correct since they were printed in November and the changes in tax law were made in late December.
2. If you are eligible for certain credits that were included - those returns won't be processed until at least February 11 (See below for additional details)
3. If you NEED your money because you overwithhold and aren't using the Advanced Earned Income Tax Credit) and you use a commercial preparer to purchase a REFUND ANTICIPATION LOAN you will incur higher interest fees due to the longer time between taking out the loan and your refund coming in.
"The February delay caused by the AMT patch will affect taxpayers using any of these five forms:
Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.
While these five forms require significant additional reprogramming due to the AMT patch, the IRS has been able to reprogram its systems to begin processing seven other AMT-related forms, including Form 6251, Alternative Minimum Tax – Individuals. Taxpayers filing these seven forms should not experience delays in filing, and the IRS expects to begin processing those returns starting on Jan. 14.
Electronic returns involving those five forms will not be accepted until systems are updated in February; similarly, paper filers should wait to file as well. All other e-file and paper returns will be accepted starting in January. The IRS urges affected taxpayers to file electronically in order to reduce wait times for their refunds. E-file with direct deposit gets refunds in as little as 10 days, while paper returns take four to six weeks.
In addition to filing electronically, the IRS urges taxpayers to take simple steps to avoid problems:
Taxpayers filing electronically should make sure to update their tax software in order to get the latest AMT updates.
Taxpayers with $54,000 or less in Adjusted Gross Income can use Free File to electronically file their returns for free. Free File will only be available by visiting the official IRS web site at IRS.gov. In all, 90 million taxpayers qualify for this free service.
Taxpayers who use tax software to print out paper copies of tax forms should make sure they update their software before printing out forms. Taxpayers using paper forms can also visit IRS.gov to get updated copies of AMT forms.
The IRS has created a special section on IRS.gov to provide taxpayers with additional information and copies of updated forms affected by the AMT. In recent days, the IRS has posted updated copies of all forms affected by the late enactment of the AMT patch by Congress.
The IRS also reminds taxpayers that printed tax packages, which will begin arriving in the mail around New Year’s, went to the printer in November before the AMT changes were enacted. The packages reflect the law in effect at the time of printing. The tax packages include cautionary language to taxpayers that late legislation was pending." - from IRS Press Release IR-2007-209, Dec. 27, 2007
Pretty shocking concept, don’t you think?
After housing, transportation is the second largest expense a family faces. For many families, financing cars is an accepted means of obtaining transportation. Here’s a process that, if carefully followed, can assure you a new car every three years, with no interest payments. In fact, this technique depends on you earning interest! No, there is nothing illegal about this strategy, but it does require self-discipline.
A new $12,000 car financed at eight percent interest for three years has monthly payments of $376 for an overall cost of $13,536, 13 percent of which ($1,536) is interest. Once paid for, most families find somewhere else to spend the money normally allocated to car purchases. Instead, continue to pay the $376 monthly payments, not to the finance company, but to yourself. Set up a money market fund where after three years at five percent compounded annually, you will have accumulated $14,935, less taxes.
This amount, plus the trade-in value of your now six-year-old car should allow you to purchase your next car without financing!
By continuing to make monthly payments to your money market account, in another three years you will have enough set aside to trade your three-year old car toward a new one and continue trading every three years throughout your life and never finance a car again!
Because your monthly set aside includes the initial interest you were paying plus the interest earning capacity, over time you will be able to upgrade the type of vehicle you are purchasing. As time passes, if your family grows or your tastes mature, you can afford a larger, more accommodating vehicle.
Even though inflation will cause the cost of vehicles to rise, the compounding of these two interest factors is enough to maintain and even exceed your present buying power. Over time, you could reduce the amount you set aside each month because your payment to yourself doesn’t need to include the finance charge. The interest earned on the account should keep up with taxes and inflation and still maintain your buying power.
Maybe a $376 monthly payment is too steep for you. Financing the same $12,000 for 48 months at eight percent interest drops your monthly payments of $292. Using the same strategy, financing the car for four years and driving it for six, your two years of monthly contributions to yourself will yield about $7,354 (less taxes) which, if used with your trade-in value, will greatly reduce the amount you need to finance on the second car. Assuming the amount you financial is just $3,500, your ongoing $292 payments could pay that off in a year. Continuing to save the $292 for the next three years will yield $11,598 (less taxes) plus trade-in value of a now four-year-old car should enable you to purchase your third car without financing. From this point on you should be able to trade-in every three years and never finance again.
If these numbers don’t seem realistic to you, use computer programs such as Quicken or Microsoft Money or internet-based financial planning calculators such as those found on bankrate.com to come up with a plan to fit your family transportation and budget needs. The dollar figures used in this example illustrate the concept of never paying finance charges again.
Variables not taken into account which impact the final actual dollar values include cost of vehicle plus taxes, title, current interest and inflation rates, and your marginal tax bracket.
This technique does take commitment, a change in attitude and behavior. Once you resolve to never pay finance charges again, and commit to making monthly transportation payments the concept of never financing a car again doesn’t sound shocking at all.
Over your lifetime, the car loan interest you’ve saved and interest earned can add up to tens of thousands of dollars. Changing how you handle transportation costs give you one more way to increase your net worth and assure your family a sound financial future.
Cameron County 486-2315
Glenn Feibig –Phillip Jones-JoAnn Smith
20 East 5th St.
Emporium, PA 15834
Elk County 776-1161
Ronald Beimel- Daniel Freeburg-June Sorg
Ridgway, PA 15853
McKean County 887-5571
Judith Church-Joseph DeMott-Al Pingie
P. O. Box 1507
Smethport, PA 16749
Potter County 274-8290
Paul Heimel-Susan Kefover-Doug Morley
1 East 2nd St.
Coudersport, PA 16915
PENNSYLVANIA STATE REPRESENTATIVES
State Rep. Martin Causer
(McKean, Cameron and Potter Counties)
District Offices Monday through Friday 9 a.m. to 4:30 p.m. Closed noon to 1 p.m.for lunch.
78 Main Street, 1st Floor
Bradford, PA 16701
2 Allegany Avenue
Coudersport, PA 16915
161A East Wing Building
Harrisburg, PA 17120
Senator Joe Scarnati Senate District 25
315 Second Avenue
Warren, PA 16365
292 Capitol Building
Senate Box 203025
Harrisburg, PA 17120-3025
Hon. Kathy L. Rapp
(McKean, Forest, and Warren Counties)
404 Market Street
Warren, PA 16365
Fax: (814) 728-3564
161B East Wing
PO Box 202065
Harrisburg, PA 17120-2065
Fax: (717) 787-5854
Representative Dan Surra 781-6301
(Elk and Clearfield Counties)
962C South Saint Marys Street
St. Marys, PA 15857
512 E Main Capitol Building
PO Box 202075
Harrisburg, PA 17120-2075
Fax: (717) 772-3072
Senator Arlen Specter (814) 453-3010
107 U.S. Court House, Erie, PA 16501
Senator Rick Santorum (814) 454-7114
1705 West 26th St., Erie, PA 16508
Rep. John E. Peterson (814) 726-3910
224 Liberty Suite 3, Warren, PA 16365
2 Allegany Avenue
Coudersport, PA 16915
For the fourth year, Penn State Cooperative Extension is partnering with the IRS to offer FREE Income Tax Assistance including e-filing of federal and state returns in the four-county area. To schedule an appointment download http://elk.extension.psu.edu/family/08/2008VitaFlyer.pdf for information on where appointments will be held and the intake sheet you should complete. Questions email me firstname.lastname@example.org or call 814-776-5330. VOLUNTEER TAX PREPARER are also needed. Let me know if you are interested
If passed in the upcoming weeks, HB 377 would create an Earned Income Tax Credit. Pennsylvania would join 23 other states who have implemented a state EITC. The bill under consideration could potentially help 765,000 Pennsylvanians as an alternative to the state's current Tax Forgiveness program. Pennsylvania's current SP or Tax Back program reduces or eliminated the Personal Income TAx owed by low-wage Pennsylvanians. For example, a family of four earning $32,000 would recieve 100% of state income tax forgiveness. At $34,250, the same family receives just 10% tax forgiveness. The proposed legislation would implement a state credit worth 30% of the federal EITC credit. Eligible families would determine their SP and state EIC amounts and be entitled to the larger of the two credits. To see detailed information about the proposal look for "A Hand Up: An Earned Income Credit Will Help Working Families", Pennsylvania Budget and Policy center at www.pennbpc.org