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November 2011

IRS follows tax court ruling and allows sex change costs as medical deductions

Someone alert Chaz Bono's accountant. Sonny and Cher's son might want to file an amended tax return since the IRS has decided that it will allow some sex change costs to be deducted as medical expenses. The IRS decision basically follows a U.S. Tax Court ruling last year in O'Donnabhain v. Commissioner. In that case, the Court held that the cost of hormone therapy and sex reassignment surgery qualified as deductible medical expenses. The IRS originally had disallowed the $5,679 medical expense deduction claimed by Rhiannon G. O'Donnabhain, who was born Robert Donovann, on her 2001 taxes as a cosmetic,... Read more →


The Joint Select Committee on Deficit Reduction is still struggling to meet its Nov. 23 deadline, but a lot of other lawmakers think they have the solution. The latest suggestion comes from Sens. Rand Paul (R-Ky.), Jim DeMint (R-S.C.) and Mike Lee (R-Utah), none of whom is on the super committee. The trio, however, says it has a plan the bipartisan panel of 12 can borrow if it decides it wants to "go big." How big? Paul, DeMint and Lee say their plan "includes real, sustainable spending cuts" that would come to more than $6 trillion over 10 years. But... Read more →


Democrats who control the New Jersey legislature are vowing to revive the state's millionaire's tax. The state's Republican governor releases data showing that higher taxes drive out New Jersey's top income earners. Coincidence much? No, politics as usual. Dr. Charles Steindel, the top economist for the N.J. Treasury Department, and two colleagues this summer surveyed financial advisers who subscribe to the state's online newsletter. Of the 200 that responded, nearly half said they had advised personal or small business clients about leaving the state. "The economic reasoning behind tax flight is straightforward: individuals respond to incentives, and they will choose... Read more →


Stop me if you've heard this before. Popular personal itemized deductions, including the mortgage interest tax break and write offs for charitable deductions, would be radically scaled back or eliminated in exchange for cutting income tax rates and leaving enough extra money to help reduce the deficit. That essentially was the Zero Plan proposed by the co-chairs of the special bipartisan deficit reduction panel, officially known as the National Commission on Fiscal Responsibility and Reform, created last year by President Obama. But when Alan Simpson, former GOP Senator from Wyoming, and Erskine Bowles, a Democrat who served as President Bill... Read more →


In 2008, Congress passed a farm bill that is the framework for most federal farm and food policies through fiscal year 2012. The bill covers federal support for commodity crops, horticulture and livestock, conservation, nutrition, trade and food aid, agricultural research, farm credit, rural development, energy, forestry and other related programs. It also includes tax-related provisions to offset some new spending initiatives in the rest of the bill. You'd think that all those ag subsidies would be prime cost cutting areas for the Joint Select Committee on Deficit Reduction. However, the leaders of the House and Senate Agriculture Committees, who... Read more →


Time to adjust your payroll withholding

The end of the tax year is coming up and if your withholding amount is off, you should submit a new W-4 now. Yes, as with last week's tax refund tracking Weekly Tax Tip, this week's tip is a repeat. Back in February, I suggested everyone evaluate their withholding as one of that month's daily tax tips. But there's no limit on how often you can change your withholding. Well, there's no limit by the IRS. Your payroll office might have other ideas, but that's between you and those folks. All kidding aside, if your withholding is too large or... Read more →


Around two dozen millionaires will be in Washington, D.C., today with a special message for the deficit reduction super committee: Tax us! The members of Patriotic Millionaires, a political activist group of, according to their website, "loyal citizens who now or in the past earned an income of $1,000,000 per year or more," kick off the day with a meeting with the Congressional Progressive Caucus and a press conference. From there they'll fan out on Capitol Hill for face-to-face talks with legislators and their staffs. They plan to talk with most of the members of the Joint Select Committee on... Read more →


First it was Fed Chairman Ben Bernanke who was the prime target of Republican presidential candidates. Now one of the surging Oval Office GOP wannabes has a new public enemy #1: the super committee. Newt Gingrich, the former Speaker of the House who has moved up in recent polls to challenge Herman Cain and Mitt Romney for his party's nomination, has become a big critic of the debt-reduction panel. Along the campaign trail Gingrich has called the Joint Select Committee on Deficit Reduction "maniacally stupid" and "an invitation to economic catastrophe." Why the harsh words? Gingrich believes there's a strong... Read more →


Subsidies of the Rich and Famous

The rich are different from you and me except when it comes to tax breaks. They claim as many deductions and credits as they can. That's the finding of Subsidies of the Rich and Famous, a new report by Sen. Tom Coburn. "The government safety net has been cast far and wide, with almost half of all American households now receiving some form of government assistance," says the Oklahoma Republican who's known on Capitol Hill as Dr. No for his fervent opposition to a wide variety of federal programs. "But most taxpayers will be asking why when they learn who... Read more →


Harry Truman is famous for, among other things, the sign on his desk proclaiming that "The Buck Stops Here." Buck passing, not stopping, is an area in which Congress is expert. Witness the Bush era tax cuts, designed so that the creators of the tax breaks wouldn't have to deal with their expiration. That's OK. That tax buck was passed along at the end of 2010 for two more years, meaning that some new Representatives and Senators will have to deal with them. Now we hear that the Joint Select Committee on Deficit Reduction might pass along some of the... Read more →


Everyone agrees that the lack of jobs is a major problem for the U.S. economy. And most folks agree that the federal government can play a role in job creation. Those two concepts came together last week by a rare bipartisan Senate vote on a bill offering tax credits to encourage companies to hire veterans. The House is expected to approve the measure this week and send it on to the president for his signature. The bill is notable for three reasons. It could provide jobs for folks who've been out of work since completing their military service. It offered... Read more →


You knew this was going to happen. People are looking for ways around severe spending cuts as the super committee seems stalled in its efforts to come to an agreement. The Nov. 23 deadline for the members of the bipartisan deficit reduction panel to come up with a plan is bearing down. And both sides seem nowhere near making the concessions necessary to get a plan to their colleagues in the House and Senate. Without a plan, or even with one but Congress doesn't OK it by Dec. 23, then $1.2 trillion in automatic spending cuts to defense and domestic... Read more →


When the IRS ended its controversial private tax debt collection program in 2009, Commissioner Douglas Shulman echoed the belief of consumer advocates and many members of Congress that such a job was more properly suited to federal employees, not hired hands. "I believe this work is best done by IRS employees, and I believe we have strong support from the Administration and the Congress for increased IRS enforcement resources going forward," said Shulman back then. Apparently the commish was misinformed. A statistical sample of the previous private tax debt collection cases by the Treasury Inspector General for Tax Administration (TIGTA)... Read more →


Two Republican Senators told attendees at the Reuters Washington Summit last week that nearly half of the Senate is pushing for a deficit-reduction approach that would cause pain for both sides. For the GOP, that means accepting taxes in any deal. The big problem, however, is that the lawmakers talking taxes are not part of the Joint Select Committee on Deficit Reduction. Republican Sens. Lamar Alexander of Tennessee and Tom Coburn of Oklahoma told the Reuters gathering that a growing number of their party colleagues know that significant tax increases will be needed to strike a budget deal that also... Read more →


We're well into November. That means it's time to start thinking about Christmas and next year's taxes. Yep, getting ahead of ourselves was the theme of posts last week at my other tax blog. On Tuesday, the topic was the proposal to change the way Uncle Sam calculates inflation. Known as the chained inflation index, this methodology is opposed by senior citizens who say it will cut their annual Social Security benefits cost of living adjustments. But an inflation change could mean higher taxes for others, too. Now for the trend of skipping right back Thanksgiving to the next holiday.... Read more →


I love what I do for a living. But I'd love it even more if I could write just because I wanted to and didn't have to depend on it to pay the bills. The hubby shares my wish for quitting work sooner rather than later. And since our win the lottery retirement plan is probably not going to pan out, we contribute regularly to our post-career savings accounts. I can tell that my loving husband is really starting to think about our eventual exits from the 9-to-5 because this week he upped his 401(k) contribution. I am so proud!... Read more →


States sales tax collectors, get ready. A bipartisan group of Senators this week introduced legislation they say would level the playing field among online, catalog and bricks-and-mortar retailers. Sens. Mike Enzi (R-Wyo.), Dick Durbin (D-Ill.) and Lamar Alexander (R-Tenn.) say their bill, the Marketplace Fairness Act, would give states the option of collecting sales taxes they are owed under state law from out-of-state businesses. Currently, the states must depend on consumers to pay those taxes via state use taxes. The Senate bill is similar to the Marketplace Equity Act introduced in the House in October. The Senate's online sales tax... Read more →


The deficit reduction back-and-forth between Democrats and Republicans on the super committee continues. This Veterans Day week, Democrats suggested that savings from ending the Iraq and Afghanistan wars be used to pay for a new stimulus package, according to The Hill. A summary of the $2.3 trillion plan obtained by the Capitol Hill newspaper includes $200 billion in defense cuts and slashes $200 billion from other discretionary spending. Part of that savings, say the six Democrats on the Joint Select Committee on Deficit Reduction should go toward spending on infrastructure. The proposal also raises $650 billion in new federal revenue... Read more →


Veterans Day gift from Senate: tax credit for hiring those who served

The Senate yesterday unanimously approved a measure that offers businesses a variety of tax credits for hiring unemployed veterans. "This bill will make it easier for businesses to hire veterans and help make veterans more competitive in the job market," Sen. Max Baucus (D-Mont.), chair of the Senate Finance Committee, said in a statement following the 95-0 vote. Tax breaks for hiring veterans was part of Obama's overall jobs proposal. The president's overall measure quickly stalled on Capitol Hill, but Senators pulled the veterans' hiring section, dubbed the Vow to Hire Heroes Act of 2011, to consider separately. This latest... Read more →


Although America's national parks account for less than 1/13th of one percent of the federal budget, the open spaces that belong to us all are generally high on budget cutters' lists. The overall appropriation for the National Park Service is nearly $400 million less, or 13 percent smaller, than it was 10 years ago, according to the National Parks Conservation Association (NPCA). If the the Joint Select Committee on Deficit Reduction can't come up with a budget plan by Nov. 23, says the NPCA, national park budgets could be cut by as much as another 9 percent. And that, says... Read more →