50 Facts About the U.S. Economy

Here an article out of Yahoo that I through was very interesting.

Click here

Wall Street rallies on EU deal

The European Union reached a deal in principle.  No facts have been hammered out yet and they aren’t expected to be worked out for months.  The main focus of this new deal is for the EU members to adopt some form of balanced budget amendment.  The goal is for each country’s annual deficit to be not more than .5% of their Gross Domestic Product (“GDP”).  Some form of sanctions would apply if a country’s deficit exceeded 3% of GDP.

While I agree it is great long term news.  The problem is that in the near term, I don’t see how they can accomplish this.  The EU has numerous countries that are in financial hardship.  Its one thing to come up with a balanced budget plan, but it’s entirely different to put that plan in place.

Obviously, the United States isn’t part of the EU.  But let’s see how this budget plan would apply to us.  The US is estimated to have GDP of $15 trillion for 2011.  Based on the EU plan, our budget deficit would need to stay below $450 billion for ‘sanctions’ not to apply.  The US has had budget deficits in excess of $1 trillion for the past three years and the deficit is expected to reach $1 trillion again this year.  Our own ‘Super Committee’ couldn’t figure out how to cut $1.2 trillion from our budget over 10 years.  If they couldn’t come up with the equivalent of $120 billion in annual deficit savings, how in the world would we cut $550 billion out in one year to meet the EU plan?

How is the EU going to get 17+ countries to meet a threshold that the US has no chance of meeting?  Many of those countries are in worse financial shape that the U.S.  Even funnier, how do you sanction a country that is having financial hardship?  Do you assess them a fine that they can’t pay?  Do you impose a tariff on their imports or exports to further penalize their citizens?  How do you make a sanction work?

I’m left scratching my head, “why is Wall Street rallying on this new?”

0% Capital Gains Tax Rate

Here's a great planning tip to get a 0% capital gains tax rate.  The current long-term capital gains rate is 15%.  For those taxpayers with taxable income in the 10% or 15% brackets, the long-term capital gains rate drops to zero percent.  Who is fits in the 10% or 15% tax brackets?  A married couple with taxable income under $69,000 (that's gross income less your standard or itemized deductions and less personal exemptions).  Single individuals with taxable incomes under $34,500 would also qualify for the 0% rate.

If your income fits in these thresholds and you currently owns stocks with long-term capital gains.  You should consider taking advantage of the 0% long-term capital gains rate while it is available.

Tax Breaks Set to Expire After 2011

Following the "Super Committee's" recent failure to reach an agreement on deficit reduction, the fate of many significant tax provisions are currently scheduled to expire at the end of 2011. Here are a few of the individual tax breaks set to expire:
- The one-year payroll tax holiday which for 2011 reduced by two percent employees' payroll taxes.
- Election to deduct State and local general sales taxes.
- Above-the-line deduction for qualified tuition and related expenses.
- The deduction of mortgage insurance premiums as qualified mortgage interest.
- $250 for certain expenses of elementary and secondary school teachers.
- The Adoption credit.
- The increased AMT exemption amount is due to reset to original levels after 2011.

Home Energy Tax Credits

You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits.

The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.

• The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.

• The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.

• The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011.

• Qualifying improvements must be for your principal residence located in the United States before January 1, 2012.

Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.

• The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

• No cap exists on the amount of credit available except for fuel cell property.

• Generally, labor costs are included when figuring this credit.
Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Homeowners can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.

California Businesses Warned of Scam

California businesses have been receiving payment notices from the "California Labor Compliance Bureau" - which is NOT an actual California agency. The correspondence looks offical, but it's a scam. Read here for the full details.

Business Expenses - What Can I Deduct?

I get this question all the time. The IRS doesn't provide a list of 'allowable deductions' for businesses. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

As you are reviewing your business expenses for 2011, ask yourself these two questions:

1. Would other business in my industry also have this type of expense?
2. Is this expense necessary for my business to operate?

If you can answer 'yes' to both questions, then it's probably a valid business deduction.

Tax accountant video

Here is a humerous video of what it's like to be a tax accounant.

An Idiot's Guide to the Greek Debt Crisis

I wanted to share this as it's a good summary of the current Greek debt crisis.

http://news.yahoo.com/idiot-guide-greek-debt-crisis-163212268.html

Flat tax? Is it the right time?

The United State income tax code does more than just collect taxes to run our government. It is also there to incentivize certain behavior. The tax code provides specific tax benefits related to research, owning a home or energy efficient home improvements - just to name a few. If we move to a ‘flat tax,’ as proposed by some of the presidential hopefuls – there will be segments of our economy that will really suffer. If we lose the mortgage interest deduction, that will further cripple the real estate industry (think more people out of work and a drop in home prices). Cutting back on the research tax credit may cause that work to be shifted overseas or a loss of innovation in our country. The loss of charitable deductions would hurt non-profits and the individuals that they serve.

We currently have a very delicate economy facing numerous ‘head winds.’ While simplification of the tax code or a flat tax might sound good, I would rather see our leaders look to change the tax code during a period of prosperity. Going to a flat tax at this point, would just further hinder our economic recovery.

Could Greece's troubles wreck the American economy?

http://news.yahoo.com/blogs/lookout/could-greece-troubles-wreck-american-economy-200122503.html

Reporting capital gains for 2011 is going to be more complicated

You will now have to use two forms to report capital gains for 2011:  Form 8949 and Schedule D.  Basis reporting rules went into effect for securities bought after 2010 and sold in 2011 and later.  All sales will be listed on the 8949, and the totals will be carried to Schedule D.  Separate 8949s must be filed for sales where the basis is reported by the broker, for sales where the tax basis isn't reported and for any disposition where no 1099-B is received reporting the gross proceeds.