Kiplinger recently offered some interesting tips about what you can do to improve your situation in terms of taxes by taking cues from Newt Gingrich and Mitt Romney. Some of the suggestions include:

• Invest in muni bonds: There are tax advantages associated with municipal bonds, including tax-free interest at the federal level. Both Gingrich and Romney invest in municipal bonds, although Gingrich takes better advantage of the opportunity.
• Donate appreciated assets: When you donate some of your assets to charity, you can get a deduction for the fair market value. Provided you have had the asset for at least a year, you can take this deduction when you donate an appreciated asset to charity. Make sure you understand the rules associated with the deduction. However, as long as you donate the asset, neither you nor the charity is required to pay taxes on the appreciation. You get the full value of the deduction, using it to offset your income.
• Tax loss harvesting: You can also harvest your stock losses, and carry over what you don’t use this year to another year. After you offset your capital gains with losses, you can offset other income. However, you are limited in the amount you can deduct against other income. So, you can carry it forward.
• Watch out for underpayment: Newt Gingrich underpaid one year — and was hit with a penalty. Make sure you have sufficient withholdings, and make sure that, if you pay estimated taxes, you are doing so in a sufficient amount. There are ways to avoid the penalty, by paying 90% of what you owe, or paying 100% of what you paid the year before.
• Get back overpaid Social Security tax: Only a certain amount of your income is subject to Social Security tax. However, if you have more than one source of income, you might have extra money withheld from the different sources. Add it all up, and if you have overpaid on your Social Security tax, you can reclaim it.
• Medical expenses: If you pay out of pocket for medical expenses, you can deduct the amount beyond 7.5% of your AGI. This is one way to offset some of the high cost of health care.

Double Check Your Deductions

Make sure that you double check your deductions. You want to make sure you can get what you are entitled to. You certainly don’t want to do anything illegal or evasive, but you can do your best to ensure that you aren’t paying more than you are legally required to.

Various tax prep software programs can help you check your deductions, and you can also get help from tax professionals who keep up with the latest changes to the law. In some cases, getting the help of a professional can be worth it, since the savings from your taxes can offset what you paid.

(Photo: alancleaver_2000)

What Can Newt Gingrich and Mitt Romney Teach You About Taxes? from personal finance blog Bargaineering.com.

Direct Deposit

I recommend using direct deposit whenever you can. The IRS has gotten savvy and now give you the option to send your refund to up to three separate accounts. Several years ago, it was a big deal when they let you direct deposit into two accounts! However you decide to do it, make sure you key in the proper routing and account number, which can be found on your checks, or your refund can be delayed. Direct depositing your refund is the fastest way to get your refund without paying any additional fees.

Buying Series I Paper Bonds

In addition to specifying which bank(s) to send your tax refund, Form 8888 can also be used to purchase up to $5,000 in Series I paper savings bonds across at most three savings bonds. This purchase does not count towards your annual limit of $10,000 in Series I Savings Bonds. The value of each bond has to be in increments of $50. If you don’t enter it in increments of $50 then they won’t be able to process the request and you’ll get your refund as a check. If you enter more than one name under 5b, 5c, 6b, 6c (where they only want one name), they won’t process it and will issue your refund as a check. Finally, if there’s a math error and your refund is decreased, they’ll issue a check instead.

Paper Check

A paper check is the slowest way to get paid but if you don’t have a bank account and don’t want savings bonds, a paper check is your only other option.

If you complete your return with tax preparation software, you won’t have to fill out this form. If you opt to do things by hand, the Form 8888 is the best and only way to split up your refund into numerous places.

What is the Form 8888? from personal finance blog Bargaineering.com.

During fiscal year 2011, the IRS audited 1 in 8 millionaires. That number represents an increase in enforcement, and an effort to catch millionaires underreporting their taxes that hasn’t been seen since 2004. In a world where many are disgruntled about the 1%, many of the 99% can rest a little easier knowing that the IRS is stepping up its efforts to make sure that millionaires are paying what they owe.

The IRS also stepped up efforts to catch offshore tax evaders in 2011, and audited 1 in 25 of those making more than $200,000 a year, rather than the 1 in 32 that were audited in 2012. If you make less than $200,000 a year, though, there is only a 1 in 98 chance that you will be audited. That means that, when you think about it, there is a fairly small chance that you will actually be audited.

All told, the IRS reports that 1.6 million tax returns (for the year 2010) were audited in 2011. It is worth noting, though, that 75% of these tax audits were conducted through the mail. For most audits, all the IRS is looking for is documentation to prove that you are entitled to a tax deduction or tax credit. In most cases, this is handled fairly quickly and easily — as long as the person being audited has the documentation, of course.

Other Tax Time Tidbits

Interestingly, the number of refunds being issued is dropping. The total number of refunds issued by the end of 2011 was 0.04% less than the number issued by the end of 2010. It’s not a big change, though. The average is also dropping. At the end of 2010, the average amount of a tax refund was $3,003, while at the end of 2011 the average refund amount had fallen to $2,913.

More taxpayers are embracing technology and convenience when it comes to filing their tax returns. There were 13.6% more e-filers by the end of 2011 than by the end of 2010. Additionally, the popularity of e-filing is increasing amongst those filing their own taxes, as well as those having professionals file for them. One of the reasons e-file is so popular is that this convenient method of filing also helps speed up the refund process.

You can also speed up the refund process if you agree to direct deposit. Have your refund directly deposited into your bank account, and, if you e-file as well, you can get your refund in as little as seven days. There were 74,590,000 direct deposit refunds in 2010, and 79,146,000 direct deposit refunds in 2011. That represents an increase of 6.1%.

Now that the 2012 tax season (for 2011 taxes) is underway, whole new numbers will be crunched, and new statistics will be released. Hopefully, you won’t be one of those that are audited. However, being part of the statistic of e-filers and direct deposit refunds might not be a bad thing at all.

(Photo: alancleaver)

1 in 8 Millionaires Audited Last Year, and Other Tax Trivia from personal finance blog Bargaineering.com.

Cutting Taxes

Romney’s tax plan would cut taxes for many, reducing them for the wealthiest. Romney wants the so-called Bush tax cuts to remain in place beyond their set expiration at the end of this year. In either cases — whether the cuts expire or not — Romney’s plan calls for some small changes to the current tax system. Some of those include:

• Cutting the corporate taxe rate from 35% to 25%
• Repeal taxes levied against the top earners in the 2010 health care reform bill
• Get rid of the estate tax
• Lower the gift tax rate to 35%
• Eliminate taxes on dividend income, interest and long term capital gains for those earning less than $200,000 a year

The tax plan advanced by Romney does not upend our marginal tax rate system right now. What he does do, though, is promise that at sometime in the future he wants to move toward a flatter tax. So, Romney does propose changes, but these changes are relatively small, at least from the standpoint of some of the grandiose plans to dismantle the IRS and change the system completely to a flat tax, or even a fair tax.

What about the Deficit?

According to the Tax Policy Center, Romney’s tax plan would result in an increase to the deficit. That, of course, assumes that the cuts in revenue aren’t balanced by significant cuts to spending. In order for any tax cut plan to work, serious cuts to government spending would need to be made.

All of the debate over taxes, though, tend to overlook an important point: What do we, as a nation, want to pay for? Many politicians talk about cutting spending, but when it comes time to make the cuts, it’s difficult. Maybe, before we talk about reforming the tax code, we need to have a national discussion about funding priorities, and what we want to pay for. Is education important? Do we want to fund projects in rural areas? Could our national budget be smaller if we didn’t send military aid to other countries? Do we want a social safety net of some sort (like Social Security and Medicare) to help us as we age?

These are questions that we should probably try to answer before we start reforming the tax code. Unless we know what we, as a nation, are willing to pay for, we’ll have a hard time figuring out where spending should be cut — and if it’s even possible for us to handle the loss of large amounts of tax revenue.

Romney’s plan is a solid middle ground. It appeals to some who want to see changes to the tax system, but isn’t so radical that it will turn everyone off.

(Photo: World Affairs Council of Philadelphia)

Mitt Romney’s Tax Plan: More of the Same? from personal finance blog Bargaineering.com.

Kiplinger agrees and that’s why they posted some of the most overlooked tax deductions. Some are overlooked because they apply to a small portion of the population but here are the deductions that I thought had the widest appeal. In the end, regardless of which IRS tax bracket you’re in, every deduction counts.

Charitable Donations

You know that donations to popular charities, church, and other non profit organizations are eligible for a write off but there a lot more expenses that qualify. Did you purchase food for a church dinner or mail invitations for a school PTA event? All of these smaller expenses that you incurred on behalf of the non-profit are deductible. If it’s more than $250 you’ll need to have the organization document your donation and give you a letter or receipt but providing you have receipts to prove that you spend the money out of your personal funds, don’t forget to include these purchases.

Student Loans

Student loan deductions are hardly a secret but did you know that you, the student, can write off money paid towards your loans by your parents? Since the loan is legally your responsibility, any payments made are credited to you. They can claim the deduction unless you’re still a dependent of your parents.

Job Search

If you’re one of the many Americans currently looking for a new job, keep track of the money you spend while searching. If you have to travel, all of those expenses are deductible including airfare, lodging, and a rental car. Subscription fees for job search websites as well as the printing of business cards, resumes, and the costs of mailing those materials all count as a deduction.

Child Care

This is a little more complicated but worth the time to figure out because it’s a credit. A credit, unlike a deduction, is a dollar for dollar reduction in your tax liability. If you don’t have an employee sponsored plan that allows you to pay for child care expenses with pretax dollars, you may qualify for a credit of 20% to 35% of the money you spent for childcare while working. The employee sponsored plan is a better deal and since you can’t benefit from both programs, use the employee plan over the tax deduction in 2012.

Jury Duty

Many employers pay you as if you were working if you are called to jury duty. In exchange, they may ask you to hand over your jury duty paycheck to them in exchange for your normal pay but on your tax return, you still have to claim it as income. In order to deduct the money that you didn’t actually receive, head to line 36 on the 1040 form and deduct it there.

Baggage Fees

The idea of sticking it to somebody over those baggage fees may be exciting but unless you’re self-employed, this deduction doesn’t apply. If you do own your own business, add those baggage fees to your deductible travel expenses. It’s an easy one to forget since we would like to forget about those fees anyway.

The most overlooked tax deductions are the ones that you forgot about over the course of the year. If you’re not very good at keeping records, consider an excel spreadsheet to log deductions as they occur and use the Turbotax It’sDeductable free service to help. We have a moral obligation to pay what we owe but don’t let bad record keeping cost you more in taxes.

Six Tax Deductions You Don’t Want to Miss This Year from personal finance blog Bargaineering.com.

However, you can’t use these accounts as complete tax shelters. Indeed, there are limits on how much money you can contribute each year. On top of that, if you contribute to a Roth IRA, your contribution eligibility phases out according to your income. Every year, the IRS reviews economic conditions, and considers inflation, and makes a decision about whether or not to increase the contribution limits. For a couple of years, no changes have been made, but the IRS announced a few changes for 2012.

IRA Limits

The contribution limits for both traditional and Roth IRAs hasn’t changed. For 2012, the annual contribution limit is $5,000, although those 50 and older can contribute $6,000 as a “catch up.”

Your ability to contribute phases out as well, as your income increases. With a traditional IRA your tax deduction begins to phase out with your contributions. Even though you can continue to make contributions, up to the limit, at any income level, you won’t be able to tax the tax deduction. Those who are single begin phasing out their deductions with a modified adjusted gross income (MAGI) of $58,000, and those who are married filing jointly see a phaseout at $92,000.

You can’t get a tax deduction for contributing to a Roth IRA, and the phaseout levels are higher. Phaseouts begin at $110,000 MAGI for singles. At $125,000 a year, you can no longer contribute to a Roth IRA at all. The income limits for those married filing jointly are $173,000 to start, and the phaseout is complete at $183,000.

401(k) Limits

The contribution limits on a 401(k) plan are higher, allowing you to set aside more for your retirement in a year. For 2012, the contribution limit is higher, set to $17,000 for those under the age of 50. Those who are 50 and older can make the same catch-up contribution available in 2011 — an extra $5,500 for the year. Total contributions to a 401(k) — which include employer contributions (usually through a match program) — have been increased to $50,000.

A Roth 401(k) has the same contribution limits as the traditional version. However, there are no income phase outs, as with the Roth IRA. When you contribute to a Roth 401(k), you don’t have to worry about a higher income making you ineligible for the tax free growth that comes with a Roth account.

Health Savings Account Limits

It’s also worth noting that there are new Health Savings Account (HSA) contribution limits for 2012. You can contribute up to $3,050 for individuals, and $6,150 if you have family insurance. If you are over the age of 55, you can add an extra $1,000 as a catch-up. As long as you meet the eligibility requirements for a HSA, you can make your contributions and receive a tax deduction.

For 2012, savers are getting a bit of a break. Tax deductions have increased, and income limits have eased, depending on the accounts you have.

(Photo: urban_data)

IRA, 401(k), HSA Contribution Limits for 2012 from personal finance blog Bargaineering.com.

• Donate to charity – You can donate today with a credit card, claim the deduction for 2011, but pay it off when your statement is due in 2012.
• Make an extra mortgage payment
• Pay your property taxes
• Contribute to an IRA
• Take advantage of federal tax credits for energy efficiency
• Consider selling stock losers to offset winners (beware of the wash rule)
• Buy that new hybrid/electric car.
• Contribute to a 529 account

There you go, eight quick last minute tax moves that you can try with just a few days left to go. Hurry! (or not…)

Very Very Last Minute Tax Moves from personal finance blog Bargaineering.com.

Why are they going up? They don’t have any room to go down. A lot of effort has been made to keep more money in the American consumer’s pocket over the past decade. Add to that wars, recessions, and a drop in wages resulting in less tax revenue and that is why our national debt continues to rise nearly out of control. If we are to learn from countries like Greece, Italy, and Portugal, high national debt loads will eventually come back to nearly bankrupt a county. Although it would be nice to see lower taxes, the numbers don’t add up to make that a reality. And compare our current tax brackets with historical averages, we’re paying very low rates.

How will they go up? Rollbacks. The Bush era tax cuts which lowered the income tax bracket as well as dropped the rates on capital gains taxes will expire in 2013. There’s also the one year payroll tax cut and other tax advantages that are set to expire. Congress may extend some of them but many believe that we will see an end to those tax cuts. Also in 2013, higher income earners will pay an extra .9% to fund the new Obama healthcare law.

In light of what has happened in the Eurozone, there is growing sentiment to come up with a “go big or go home” solution and that will almost surely result in higher taxes.

What should you do? The obvious thing to do is to prepare for the worst and hope for the best. The worst would be no job but depending on your circumstance the more realistic worst case for you may be your same income level with a higher tax rate. This is the time to get serious about paying down debt and cutting expenses. For some people that’s extremely difficult right now but look for the small expenses that you could cut. (Starbucks?)

Here are a few other ideas:

Refinance

You can use one of the many financial calculators to see how much money you would save if you refinanced but along with higher taxes will come higher interest rates so the days of 4% mortgages are probably not long for this world.

Get a Roth

If you have a traditional IRA, consider converting it to a Roth IRA. With a traditional IRA you pay taxes on your gains when you reach retirement age and start withdrawing the money. With a Roth IRA, you pay the taxes now and withdraw tax fee at retirement. If you convert now, you’ll pay less taxes on the gains you have already made and if you’re young, you’re probably in a lower tax bracket than you will be when you retire. Of course you should talk to a financial adviser to see if that’s a good move for you.

Company Perks

If you have stock options through your company, consider cashing some of them out while the taxes on those gains are still low. Not all options are taxed in the same way but it’s worth exploring. Also remember that company stock options are part of your overall investing portfolio. If you have more money tied up in company stock options than you do your other investments, there’s probably something wrong with your asset allocation. Tax benefits aside, it may be appropriate to cash out a portion anyway. (By cash out I mean put the proceeds in an IRA or other saving vehicle)

Pardon my bias but being an American is a privilege and although most of us believe that our politicians could do a better job managing the nation’s money, I never want to lose sight of the fact that I have opportunities that others don’t simply because I’m an American. I’ll be annoyed if more of my money has to go to the government but I’ll quickly get over it. I don’t know about you but I don’t want my children living in a bankrupt America and I’m willing to pay a little more  to make sure that happens.

How to Prepare for Higher Taxes from personal finance blog Bargaineering.com.

Why do you want to know? The biggest reason most people want to know is for tax planning purposes. If you’re going to be in a higher tax bracket this year, it pays to accelerate your deductions (make larger donations this year, pay your mortgage a little early to get the interest deduction, etc.) into 2011 rather than wait until 2012. If you know you’re going to be in a higher tax bracket next year, it pays to delay them (assuming the time difference is not a factor). In the end, will it matter if you are in the 28% or 25% tax bracket? Not necessarily but we want to get as accurate as possible without going too deep that we get caught up in the minor details.

So, let’s figure this out.

2012 Tax Brackets

Until the official tax brackets are released, we have to use inflation statistics to project what the 2012 tax brackets will look like.

Here’s how you can figure out your tax bracket, simply take your annual income and subtract your personal exemption ($3,700 for 2011, you get one per person you support including spouse and dependents)and any deductions you have. This doesn’t have to be an exact number so you can approximate. I get the most recent paystub and calculate my annual salary after my payroll deductions (FICA taxes, retirement contributions). Then I think about my most common deductions – mortgage interest and property taxes, around $15,000 a year. Do a little math and I figure out I’m in the 28% tax bracket. It doesn’t need to be exact because I just need to have an idea so I can make proper decisions.

Now that I know that I’m in the 28% tax bracket, I know that every dollar I contribute to a 401(k) will put 28 cents into my pocket in lower taxes. I also know that a $100 donation, since I itemize, will put $28 in my pocket (and $100 into the pocket of the charity I support). If I think my income will go down next year and my taxes will be lower, I should opt to accelerate deductions today because I know my tax rate is higher.

Hopefully this can help you answer the question – What tax bracket am I in?

What Tax Bracket Am I In? from personal finance blog Bargaineering.com.

If you think you might have missed a check, use their Where’s My Refund tool to track it down. You will need your Social Security Number, Filing Status, and the Refund Amount – which you can get from your tax return.

While you’re at it, check out MissingMoney.com to see if you have any unclaimed property out there. If you haven’t looked in over a year, check again. I just checked and found a check from my alma mater (Carnegie Mellon) and I graduated over eight years ago (and the job I think I missed a paycheck for was at least ten years ago). So keep checking, things get turned over to the state all the time.

IRS: $153 Million in Undelivered Checks from personal finance blog Bargaineering.com.

Initially, Republicans spoke out against it, saying this hurts businesses, but eventually they backtracked and offered their own proposal. Again, I’m always surprised whenever anyone argues this point because these taxes are paid on profits, not income. Businesses hire people when they can earn more than the employee costs. Taxes on profits happen after that decision so it really has no bearing. Mark Cuban discussed this very issue several months ago (go down to 3. Taxes Vs Job Creation) and it boggles my mind why this keeps coming up. Anyone who has actually run a business knows this is true (I can understand not liking it because you have profits over $1 million and you don’t want to pay more taxes, but don’t hide behind job creation).

One thing I am pleased to hear is that the Republican party has backed away from the “we’re against anything the Democrats are against” strategy, at least on this point. I’m all for different opinions but nothing good comes out of “we’re anti-Obama so we can get our person elected.”

The Republican proposal puts a three-year freeze on federal civilian worker pay, reduce the size of that workforce by 10% through attrition, prevent millionaires (AGI over $1 million) from receiving unemployment benefits and food stamps, and make them pay full price for Medicare Parts B and D.

Last Thursday, both plans were predictably blocked but the two sides are working on a compromise that would get the tax cut done. Today, Democrats are set to come up with a new way to pay for the deal. We’ll have to see what that plan is.

As for businesses, this is a boost for self-employed workers as this means you’ll be getting a 6.2% pay bump (since self-employed workers pay both sides of Social Security payroll taxes) and small businesses will see a 3.1% trim in their payroll taxes. This won’t get our economy back to gangbusters growth but it’s not designed to, it’s designed to put a little extra cash in your pocket so you’ll spend it.

Democrats & Republicans Discuss New Payroll Tax Cut from personal finance blog Bargaineering.com.

But here’s what I was thinking about: Sometimes we don’t completely think through what it is that we want. For those who salivate at the idea of a flat tax system, have they thought through the goods and bads of it or are they stuck with the fair versus unfair argument? Let’s say that a true flat tax system went in to effect. Here are just a few of the deductions that you and I may no longer see.

Student Loans

We’ve heard a lot about how student loans are crippling those who have recently graduated and got an entry level job. I was happy to receive tax credits as a young teacher for my loans. It helped me get a sizable tax refund at a time when I really needed it.

Mortgage Interest

If you own a home you know that the deduction you get for mortgage interest is sizable especially if you’re in the early years of paying off your home.

Home Equity Loans

Along the same lines, under current laws you can write off interest paid on a home equity loan up to $100,000.

Charitable Donations

Not only would you be affected but you’ll be much less likely to donate to charities if you can’t write it off. Either would the high net worth individuals who are responsible for sometimes all of the funding for some charities. What would the non profit picture look like if we couldn’t write off charitable contributions?

Home Office Tax Deduction

If you’re a freelancer, you can afford to be self-employed, in part, because of deductions like these. You could make a good argument that this is more of a cost basis deduction where you’re simply subtracting out expenses but the IRS would be happy to get rid of it since it’s responsible for large amounts of filing errors.

Job Search Deductions

If you’re unemployed or making just enough to get by, you’re happy to deduct the costs of job searching.

Moving Expenses

With the amount of foreclosures, short sales, and general downsizing, a lot of people who need all of the deductions they can get may lose the moving expense deduction if the flat tax system was enacted.

Retirement Deductions

What if there were no incentives for retirement savings? No more tax advantages to IRAs, 401(k)s, 529s or other future savings vehicles.

Bottom Line

I’m not a flat tax expert nor am I smart enough to know how a system would work where we kept the best of what we liked and got rid of what we didn’t. What I do know is that the middle class benefits from our complicated tax system just like the rich. Maybe not as much but still, each of us are receiving our breaks.

Of course the argument would be that the flat tax would make up for the loss in deductions but would it? I haven’t seen how that would work. Have you?

Real World Problems with a Flat Tax System from personal finance blog Bargaineering.com.

How would either of these taxes impact you?

Cain’s 9-9-9 Plan

Herman Cain’s 9-9-9 plan has been drawing a lot of fire, especially since the Tax Policy Center pointed out that 84% of taxpayers would see a tax raise. Originally, the 9-9-9 plan offered no deductions and no loopholes, with the exception of a break for charitable donations. All earned income would be taxed (but not dividend, interest or capital gains) at 9%, businesses would all be taxed at 9%, and there would be a 9% national sales tax on all new goods. Some estimates pointed out that the poorest would see a significant percentage their income eaten up by taxes as they paid sales tax on items like food, and actually started paying the income tax.

The result of the outcry was some back-pedaling for Cain. He has since modified his plan to provide low-income tax breaks, and even exempt those at or below the poverty line from the income portion of the tax. Even so, for many folks, the Cain plan could still result increased costs due to the national sales tax, which would be added on top of state sales tax.

Additionally, some who already pay taxes would see an increase in their income tax bills under the 9-9-9 plan. I would. My itemized deductions and other breaks put me in a situation where paying my marginal tax rate now is less than what I would pay if I paid 9% of my income without deductions. Even with a deduction for charitable contributions, I would end up paying almost double in income tax under Cain’s 9-9-9 plan.

Perry’s Options 20% Flat Tax

Rick Perry, on the other hand, is offering voters a choice: Pay a 20% flat tax, or stick with the current system. Like Cain’s plan, taxes wouldn’t be levied against dividend income and capital gains, and the estate tax disappears. However, perhaps learning a lesson from the reception of the 9-9-9 plan, Perry has deductions built in. There’s an exemption for $12,500 of income. Each dependent results in a $12,500 deduction. And, for those with incomes of less than $500,000 a year, the mortgage interest deduction, charitable contribution deductions, and sales tax and state tax deductions all remain in place.

Oh, and Perry makes his plan optional. Run the numbers, and see what works best for you in terms of lower tax liability, and pick what you prefer. Like Cain’s plan, some might find that the lack of deductions means that paying 20% on a higher income could result in higher taxes than paying on a lower income in a marginal tax bracket with a higher percentage attached. Plus, Perry doesn’t make it clear whether this would be a permanent choice, or whether the choice would disappear over time.

What is clear, though, is that Perry’s plan would require massive cuts to government spending. While such a move might be welcomed, at the same time it would probably also mean cuts to programs that you might benefit from. And it could also make things difficult in terms of funding infrastructure projects and other projects that we come to associate with an elevated quality of life.

What do you think of these flat tax proposals? Do you like either one? Do you have a tax overhaul idea of your own?

(Photo: ChuckHolton)

Battle of the Flat Tax: Cain’s 9-9-9 vs. Perry’s Optional 20% from personal finance blog Bargaineering.com.

Of course, all of this could become moot if Congress gets involved — which is what many retailers want. Many retailers, from small mom and pop shops to retail giants like WalMart, want online retailers to begin collecting sales tax, since being sales-tax-free is yet another advantage that online sellers have over their brick-and-mortar counterparts. All of this talk of Amazon, Internet sales tax and possible Federal involvement has many wondering what the rules are for Internet sales tax.

Who Has to Collect Internet Sales Tax?

Back in 1992, the Supreme Court ruled that mail-order retailers weren’t required to collect sales tax in states where they don’t have a physical presence. Online retailers took this to apply to them as well. So, if you buy something from an online store that doesn’t have a brick-and-mortar presence in your state, that store doesn’t have to collect sales tax to send along to your state. Some states are part of an alliance, the Streamlined Sales & Use Tax Project, that have made it easier to collect sales tax from merchants — and consumers, and many retailers collect sales tax as a result (even though they don’t have to in the strictest sense).

Of course, if you buy something online from someone with a physical presence in your state, you do have to pay sales tax on it. Right now, it’s the physical presence that matters (unless you live in a state that has an agreement with Amazon, and other other retailers, to collect sales tax).

Paying a Use Tax on Items You Buy from Out of State Sellers

Of course, sales tax is a big source of revenue for most states, and they don’t want to miss out on that just because you are buying items out of state. Just because the merchants aren’t required to collect sales tax doesn’t mean that you aren’t supposed to pay it. When a consumer reports the sales tax he or she should have paid on out of state items, it’s called a use tax. You will notice, on some state income tax forms, that there is a line for you to list what you owe so you can pay it.

Bottom Line

States want revenue from taxes related to online sales, and they are beginning to crack down — especially as online shopping grows in popularity. States know that it is tough to get individuals to report their online purchases and pay the use tax, so they are concentrating on big online retailers, and even hoping that the 1992 Supreme Court decision about a required physical presence to be overturned. Until something happens on the federal level, though, we are likely to continue to see sales tax agreements between Amazon on individual states, as well as efforts to encourage online retailers to collect sales tax on purchases.

(Photo: thisisbossi)

Internet Sales Tax: State Deals with Amazon Bring Up Questions of Who Should Pay from personal finance blog Bargaineering.com.

The Tax Foundation took a look the Consumer Price Index for urban consumers (CPI-U) and used it to adjust the tax brackets, standard deduction, and personal exemption to give us a good look at how our brackets will look next year.

CPI-U & Calculating Brackets

According to the Bureau of Labor Statistics, inflation from Sept 2010 through August 2011 was 2.43% – that what will be used to calculate the new tax brackets. As the Tax Foundation put it, the IRS uses a “somewhat complicated formula” that isn’t that complicated. In essence, the figure out how much CPI-U has grown from the base year and adjust the value accordingly, rounding down to the nearest $50. (it’s only complicated because 2012 taxes are calculated based on Sept 2010 to Aug 2011 inflation figures… because they need time to print the forms and instructions!)

So if we know this is what they’re doing, why are these “projected” figures? The BLS can revise the August 2011 figure in October 2011, but that adjustment is most likely not going to be large enough to affect these rates (since numbers are rounded down to the closest $50). However, they could change depending on the revision.

2012 Projected Tax Brackets

Here are the projected 2012 tax tables (here are the 2011 tax brackets for comparison):

Tax Preparation Packages

Company	Package	Price	Notes
Intuit	TurboTax Deluxe	$49.95	Free for 1040EZ &low income, Deluxe imports last year’s return, full Form 1040 filing. Free e-file. More
2nd Story Software	TurboAct Deluxe	$9.95	Free for 1040EZ & low income, Deluxe + State for $17.95, Deluxe includes all IRS forms. Free e-file. More
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Petz Enterprises	TurboBrain Deluxe	$39.95	1040EZ for $14.95, 1040 Deluxe for $39.95, Tax Expert available at $129.95. More

Other Notable IRS Tax Numbers

The standard deduction will increase for everyone as well:

• Single filers – $5,980 (increase of $150 from $5,800)
• Married filing jointly – $11,900 (increase of $300 from $11,600)
• Heads of household – $8,700 (increase of $200 from ($8,500)

So, plan your tax moves accordingly.

(Photo: davedugdale of www.learningDSLRVideo.com)

Sneak Peak at Projected 2012 Tax Brackets from personal finance blog Bargaineering.com.