Congress Set a Tax Bomb for 2009 and 2011

By Marvin Crowther

You may question why I call the coming federal tax increases a Tax Bomb? The reason is that he tax increases that are coming are going to impact individual households and the economy as whole in the same manner that the atom bomb impacted Japan at the end of World War 2.

Most Americans are so caught up with the current problems that are hitting us they don't have time to look ahead at what is coming.

The first tax bomb will impact us in 2009 when the reduction of capital gains taxes expires. Thousands of people that rely on stock dividends for their income will pay two to three times as much in taxes. Then in two years 2011 the tax bill will increase by half to double once again.

Why?

Currently dividends are taxed at a favorable capital gains rate but starting in 2009 dividends will be taxed as ordinary income.

If you have stock or real estate to sell the capital gains rate will double in 2009.

The reason for this is the economic stimulus package that was passed by congress to overcome the effects of the World Trade Center bombing of 2001 will start to expire at the end of 2008 and expire in 2010. In 2009 dividends will be taxed as ordinary income and capital gains and ordinary income rates will go back to 2000 level.

What does this mean to you as a taxpayer?

It means that unless you and I can convince congress to extend the favorable tax rates many of us are going to be paying a lot more tax than we ever imagined.

An example of the impact: say you are married two children 15 and 16 and you are making $50,000 at your job and have $5000 in dividends in 2008. Your federal tax bill in 2008 would be about $1,250 or less. In 2009 it will jump to $3,000 in 2011 the taxes will jump to about $6,000. Those that make more will see more dramatic tax increases.

Another example of the coming tax increases is a single person making minimum wage in 2008 will pay about $600 in federal tax. In 2011 his federal tax will increase to $1500.

A retired couple living on dividends of $50,000 will pay no federal tax in 2008 but in 2009 they will be taxed $4500 on the same dividends.

Are you ready for these tax increases?

There are a number of things that you can do to offset these taxes but you need to act pro actively now.

Things that you may want to ask your tax advisor about are:

A home based business such as an MLM.

A Self Directed Roth IRA.

Roth IRA's.

The best thing we can do is write our congressmen and convince them to make the tax cuts permanent or better yet just replace the people in congress with people that will not hide tax bombs in the tax code.

Watch for coming articles on MLM's and Self Directed IRA's.

Marvin Crowther is the founder of MCCrowther Tax Services and he has written a series of articles to help the public, his clients and subscribers save money on their taxes.
The web site for MCCrowther Tax Service is http://www.mccrowtherassoc.com you can email for further information or to subscribe to the newsletter at listings@mccrowtherassoc.com

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Can I Be Taxed on My Discharge of Debt?

By Mark Wyssbrod

In the current financial crisis many financial institutions may be forced to discharge debts of taxpayers. Taxpayers will be benefit (be extremely happy) by not having to repay their debtors. However, they may end up with a tax surprise.

Many taxpayers are unaware that a discharge of debt is considered (taxable) income. The taxpayer may be happy not to owe the financial institution the debt, but the may end up owing the Internal Revenue Service (IRS) tax.

Accounting to IRS regulations income from the discharge of indebtedness is includible in gross income unless it is excludable under Code Section 108. There are other provisions created by Congress besides Code Section 108 including special circumstances for Hurricane Katrina victims.

Taxpayers may exclude the forgiveness of debt income from tax in four ways. The first is exemption from including the discharge of debt in income is if the discharge is due to bankruptcy filed under Title 11 of the US Code in which the court granted.

The second method for taxpayers to exclude the forgiveness of debt income is for the taxpayer to be involvement outside of bankruptcy. The term "insolvent" refers to an surplus of the taxpayer's liabilities over the fair market value of taxpayer's assets immediately prior to discharge. The IRS is not too generous with the exclusion, for the excluded amount is limited by which the taxpayer is insolvent.

The final two exclusions are for qualified farm indebtedness and qualified real property business indebtedness. These area are more complicated as the income may be excluded from tax, however certain tax credits and basis in property may be affected.

The taxpayer will potentially need to file additional forms with their tax return. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) http://www.irs.gov/pub/irs-pdf/f982.pdf, will be filed by the taxpayer to report excluded income from the discharge of indebtedness.

Taxpayers will need to be cautious when having debt forgiven. The taxpayers may end up having poor credit and triggering income subject to tax. Determining if the forgiveness of debt is taxable or meets one of the exclusions is complicated. You should contract your tax advisor if you have any specific questions.

CCH 2007 U.S. Master Tax Guide

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The Fallacies of the Mortgage Interest Deduction

By Mark Wyssbrod

For many taxpayers the mortgage interest deduction is an important tax deduction. The mortgage interest paid on an annual basis often allows taxpayers to benefit by using itemized deductions instead of the annual standard deduction.

Coded Section 163(h)(3) allows taxpayers to deduct mortgage interest which is paid during the tax year on the acquisition or home equity indebtedness with their primary residence. This is truly a blessing to many taxpayers who would not be able to afford a home without such a tax benefit. The mortgage interest amount usually is a large portion of the itemized deductions. Other itemized deductions include, but are not limited to, state and local taxes paid (state income tax, personal property tax, ad valorem tax, real estate taxes, etc.), medical expenses, charitable donations, investment advisory expenses and unreimbursed employee expenses. The combination of the itemized deduction is usually greater than the standard deduction (for 2008: $5,350 for single or married filing separately, $7,850 for head of household and $10,700 for married filing jointly).

Many taxpayers believe the benefit to the itemized deduction is the entire amount. However, the true benefit is much lower. A more realistic measure to value the actual benefit the taxpayer receives is the difference between their itemized deductions less their standard deduction multiplied by their average tax rate.

A traditional mortgage amortized over 30 years is financially structured to pay more interest than principle during the first 20 years (assuming a loan of $150,000, 6.5% compounded monthly). The payments are the same amount each month, however, an important concept to understand is the interest portion decreases over time and the principle portion increases over time.

Generally speaking, a taxpayer's income rises over their life time. Even if the taxpayer's income rises at the annual rate of inflation, the actual dollar amount will increase. This result in higher income levels over time subject to tax. For instance, if you currently earn $40,000 a year and over 30 years you receive an annual raise of 3% you will earn just over $98,000 in 30 years.

When combining these two trends, a taxpayer's tax deduction for mortgage interest is decreasing over time and their income is increasing over time. The two trends result in a troubling conclusion: when the taxpayer's wages are the lowest, the deduction for mortgage interest is the highest; and when the taxpayer's wages are the highest, the deduction for mortgage interest is the lowest.

The US tax system is currently a progressive tax system which means the higher your taxable income the higher your average tax rate is. The mortgage interest deduction allows for a large deduction when your taxable income is low and therefore subject to lower tax rates; and potentially increases your tax as your income increases over your life time and therefore subject to higher tax rates.

It is more than likely that the tax rules and regulations will change over time. However, this is an oversight by many taxpayers who have not integrated the financial aspect and long-term view of the mortgage interest deduction.

The mortgage interest deduction seems simple enough, but when you add in the long-range view and financial components it becomes more complex. We recommend discussing any questions with your tax advisor.

CCH 2007 U.S. Master Tax Guide; US Internal Revenue Code

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A Simple Guide To Personal Loans

By Warren Phillips

All monetary debts consist of two simple elements: The sum owed and the interest charged for the time during which it is payable over. This is added to the overall amount of debt owed. Although not seen as much these days one type of financial agreement ensures that the first payments made to clear the debt are in fact just the charges (or interest) on the sum owed - a bit like having an interest only mortgage the difference being you will pay it off in the end. Others will repay the debt in equal installment with the interest as part of this amount.

Acting as the provider is one of the principal tasks for financial institutions. For both companies and individuals, arranging a loan is a way to increase their cash flow for a regular monthly outlay. This is by far the simplest and most reliable means to raise finance.

Another common type of debt, particularly in the western world anyway is a mortgage and is the main way real estate is purchased, but this is all it can be used for. In this instance, the lender is given security on the money advanced in the form of the title deeds of the house until the debt is repaid and settled in full. With this type of loan, should the borrower fail to make payments on the loan or default, then the bank or other financial institution has the right to sell your property! Although selling the property is one option, keeping it as an investment is another.

In some instances this method of security can be used when taking out a loan on other large items such as a car for instance. When a car is purchased using this method, it then becomes the security for the amount borrowed. The duration of the loan period is often considerably shorter, usually corresponding to the standard life of the car. In this case money lent for a car will have a relatively short repayment period.

The marketing companies are very clever at disguising unsecured loans and the vast majority of people do not even realize they probably have one. Credit cards, bank account overdrafts and other forms of finance all fall into this category. Although it is difficult to provide any interest rates as they will differ greatly from one bank to the next, if you want to lose the highest interest rate unsecured debt you have here's a tip: cut up those store cards immediately!

Occasionally it is has been known for financial companies to apply direct and indirect pressure for someone to use one of their services so that the company will have a hold over you. This type of abuse is known as predatory lending. Criticism of some credit card suppliers in a number of countries is not a new thing as they issue cards to individuals at extremely high rates of interest in an underhand attempt to keep them paying off even small balances for stupidly long periods of time. It would be very wise of you to be wary of any loans, or indeed any financial arrangements for that matter that seem to good to be true, because they more than likely are.

It would be very wise of you to be wary of any loans, or indeed any financial arrangements for that matter that seem to good to be true, because they more than likely are.

Warren Phillips 2008

http://theguide-money.com/Loans.html

theguide-money.com is a FREE, simple resource giving helpful information and useful tips on personal finance, insurance, loans and debt all written from personal reviews and experiences.

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Credit Repair After Bankruptcy

If You Are Considering Credit Repair After Bankruptcy, You Definitely Need These Steps!
By Ann Born

Credit Repair After Bankruptcy

There is no doubt that credit repair after bankruptcy is the toughest type of credit repair there is. If you legally declare yourself bankrupt then it can take ten years to clear your credit history. Many people think it is impossible to recover from bankruptcy however this is not the case. It is possible to achieve credit repair after bankruptcy with some patience and persistence.

Once you are declared bankrupt then everything that is in your credit report will be very heavily scrutinized, even more so than with non-bankrupt people. Credit repair after bankruptcy is not a quick process but there are things you can do to get the ball rolling. Remember, doing something is better than doing nothing so you will want to take all the steps that you can to be on your way to credit repair.

Firstly you will need to visit your local credit bureau to obtain a copy of your credit report. Take note if there are any errors or discrepancies on the report which need to be investigated.

You should keep all existing accounts open when you are trying to repair credit after bankruptcy. This will allow you to pay the accounts on time and show you are capable of doing so. Of course, you will need to ensure that you are in a position to do this. These accounts can include home loan, credit cards, personal loans and more.

Once your income starts to increase and you are in a position to spend and save money, you can start slowly applying for new loans. You will probably have a hard time being approved, however many credit cards nowadays are not so hard to obtain. Remember you are not getting a card so you can go and max it out within a day. Ideally you will only want to use it mildly and pay the balance each month. The goal of this exercise is to show that you can meet financial commitments. This will go a long way to increasing your credit rating.

Credit repair services are able to assist you with repairing your credit after bankruptcy. You can also employ a credit repair counselling firm who can come up with budget plans and advice to get you on the road to rebuilding your credit score.

Credit repair after bankruptcy requires patience and perseverance but you can get there - many have done it before you so with a bit of common sense you can join them.

Get Tons of Credit Repair After Bankruptcy Tips at http://www.goodcreditforyou.com

All rights reserved. This article may not be reproduced without including the authors Bio.

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Dave Ramsey on Life Insurance

The advise on this video sounds really solid and if your able to do it, go for it.

Sexually Transmitted Debt

You can contract more than just disease by sleeping with the wrong person…watch out for sexually transmitted debt, which can creep into your sex life while you remain blissfully unaware. Your doctor won’t pick up on it; there is no blood test for this one. Your bank book and credit score though: they will bear the brunt of this contagious and insidious plague.



Scott & Sheila had a fiery and tumultuous relationship – one they both loved and hated. Communication was not one of their strengths, and they had very different relationships with money and respective financial backgrounds. Bank accounts aside, they shared many things, including Scott’s credit card, Scott’s credit rating, and Scott’s cash. Sheila never had any of the above, so when it came time to buy a car, a big tv, and any other assortment of elaborate toys at her beckon, Scott was the one to pony up the cash.

Read more at:Wisebread