Don't Mess With Taxes

State + federal health tax = 50%-plus rate

2009-07-15T12:45:00-05:00

This post has been updated with new information.
If you read it earlier today, give it another look now. Thanks

Healthcare reform begins in earnest now that House Democratic leaders have officially introduced a $583 billion bill to pay for the overhaul.

Money, as usual, has been the biggest hurdle so far. Lawmakers have been struggling to come up with ways to pay for expanding medical coverage to the nearly 46 million uninsured Americans.

Details of H.R. 3200, America's Affordable Health Choices Act of 2009, were revealed on Tuesday. It would raise the necessary revenue in large part via a graduated surtax on higher-income earners.

In 2010, the House bill would institute a:

1 percent surtax on joint filers with adjusted gross income (AGI) between $350,000 and $500,000 (between $280,000 and $400,000 for single filers);
1.5 percent surtax on couples filing jointly who have AGI between $500,000 and $1 million (between $400,000 and $800,000 for single filers); and
5.4 percent surtax on joint filers with AGI greater than $1 million (greater than $800,000 for single taxpayers).

Don't forget state rates: But those percentages are just the added federal tax bite.

Calculations by the nonpartisan Tax Foundation indicate that if the maximum 5.4 percent surtax is enacted, the wealthiest taxpayers in 39 states would face a combined federal-state rate of more than 50 percent.

"That means government would be taking more than half of every additional dollar from high-income taxpayers," said Tax Foundation President Scott Hodge.

The problem for these higher-income earners is that states, facing budget crunches of their own, have been raising taxes on them.

Five hardest hit states: Residents in Oregon would be hit the hardest, according to Tax Foundation figures. The combined top rate in the Beaver State would be 57.54 percent.

Joining Oregon on the top five list with the highest effective marginal tax rate on wealthy residents would be Hawaii, New York, California and Rhode Island.

The Tax Foundation breaks out the rates for residents of those states in the table below if the 5.4 percent surtax becomes law. The calculations also assume that the current state and local income tax rates will remain through 2011 and that the top federal taxable income rate rises as scheduled to 39.6 percent.

State	Avg. Local Rate	Top State Rate	Top Federal Ordinary Rate	Health Care Surtax	Medicare Tax	Combined Top Rate
Oregon	0.36%	11.00%	39.6%	5.4%	2.9%	57.54%
Hawaii	0.00%	11.00%	39.6%	5.4%	2.9%	57.22%
New York	1.70%	8.97%	39.6%	5.4%	2.9%	56.92%
California	0.00%	10.30%	39.6%	5.4%	2.9%	56.58%
Rhode Island	0.00%	9.90%	39.6%	5.4%	2.9%	56.22%

You can see where the other states rank under the House bill's surtax in the Tax Foundation's summary of its findings.

If you want to download a copy of the research in PDF format, check out the organization's Fiscal Fact 178.

Remember, this is just the beginning, but with the introduction of the H.R. 3200, the issue has once again picked up speed.

House Committee markups are scheduled for this week and the Senate Health, Education, Labor and Pensions (HELP) Committee, which had been struggling to piece together its version of healthcare reform, agreed on a proposal (but still just one of many to come) on Wednesday.

Sotomayor on taxes redux

2009-07-14T17:05:52-05:00

While I've been concentrating on ways to improve the IRS at my Taxpayer Advocacy Panel meetings this week, the real world has been continuing on its merry way outside our conference room.

One event of note is the Senate questioning of Supreme Court nominee Sonia Sotomayor. I haven't been able to watch any of the hearing, but The Caucus has been live blogging the proceedings.

In connection with her nomination to the country's highest court, I also wanted to remind you of my June 29 post on the judge's dearth of tax rulings, Supreme Court reverses Sotomayor case.

Yeah, I know, writing about the lack of tax rulings is not the most exciting bit of information, but hey, it's my goal to keep y'all up to date on any possible tax connections to as many things as possible!

On this same topic, my fellow tax blogger taxgirl has come to the same conclusion in her post today, Sotomayor Supreme Court Hearing: Where's the Tax?

And who knows? Maybe before the Sotomayor confirmation hearing wraps up, we might get some tax-related queries. We can always hope!

Have your say on tax preparer regs

2009-07-14T16:14:47-05:00

I'm at a Taxpayer Advocacy Panel (TAP) meeting in Nashville, and my colleagues and I just got some great news.

The IRS has announced a series of public forums at which it will solicit comments about development of tax preparer performance standards.

As soon as IRS Commissioner Doug Shulman put out the word in early June that his agency is looking at creating formal standards for tax preparers, the tax pro community has been abuzz.

The goal, says Shulman, is to help ensure tax preparers are qualified, ethical and provide a high level of service. Everyone can agree on that.

But there's been a lot of debate over just how to best do that.

The arguments for, against, how to implement and how much tax preparer regulation is appropriate will become official on July 30 in Washington, D.C. That's when the IRS will hold its first public meeting on the matter.

"These public meetings will be an important part of the dialogue as we move toward a set of comprehensive recommendations by the end of this year," Shulman said today in announcing the hearings. "We want an open discussion on how to strengthen the overall integrity of our tax system."

Mark your calendar: Two panels will meet on July 30.

The first gathering will give consumer groups an opportunity to provide recommendations. This will be representatives of AARP, Consumer Federation of America, Center on Budget and Policy Priorities, National Community Tax Coalition and Low Income Tax Clinics.

The second panel will be made up of tax professional groups, including the American Institute of Certified Public Accountants, the National Association of Enrolled Agents, the National Association of Tax Professionals and the National Society of Accountants.

The two panels will convene at the Ronald Reagan Building amphitheater in the nation's capital starting at 9 a.m. on that last Thursday in July. If you'd like to attend, send an e-mail to that effect to CL.NPL.Communications@irs.gov.

More meetings to come: The IRS will also meet with other constituent groups later this summer and fall.

At these subsequent meetings, Shulman and his staff will be seeking input from:

Federal and state organizations,
Unaffiliated and individual tax preparers and groups,
Private firms that support tax preparers, and
IRS advisory groups.

TAP supports some regulation: That last segment is what's got TAP members so jazzed. The IRS specifically says it wants to know what we on TAP think about the proposal.

The consensus is that we agree with the National Taxpayer Advocate that there should be some standards and some type of licensing.

Our leadership has already been working on this issue in preparation for a private meeting with Shulman. I'm sure an official statement of what we recommend will be delivered to him for inclusion in the record of comments received on this matter.

Other tax-related advisory groups that also have been asked for their opinions include the Internal Revenue Service Advisory Committee (IRSAC), the Information Reporting Program Advisory Committee (IRPAC), the Electronic Tax Administration Advisory Committee (ETAAC) and the Advisory Committee on Tax Exempt and Government Entities (ACT).

Comments from Forum attendees, too: In addition, the IRS says that small groups of tax preparers will be able to meet with IRS representatives to talk about tax pro regulations while they are attending Nationwide Tax Forums.

The Forums at which the tax pro standards will be a focus group topic are scheduled for Aug. 4-6 in Orlando; Aug. 25-27 in New York; Sept 8-10 in Dallas; and Sept. 22-24 in Atlanta.

If you'd like to attend any of these Forums, be sure to check out my earlier post on these annual events. It has info on what you can expect (in addition to telling the IRS what you thing about tax pro regs), as well as provides the early registration deadlines so that you can get the best deal on the Forum fee.

Possible deduction for Chinese drywall

2009-07-14T06:51:54-05:00

Owning a home is the American pain. I mean dream. Wait, no. I mean pain.

Don't get me wrong. The hubby and I have been homeowners most of our married life. We bought a small condo in suburban Maryland soon after we were married and over the year bought and sold four other homes.

We loved each of our houses; still love the one we're in. But we also hated the upkeep and repairs that come with every home, including the one we're in.

Then there are the catastrophic cases where we've had to call on our property insurer for help, like back in the fall of 2004 when our Florida house was in the path of two hurricanes within three weeks. In these kind of disasters, homeowners also might be able to get some help from the IRS in th form of a casualty deduction.

Not an automatic write-off: There are, of course, some limitations to such tax help. Your tax break isn't a dollar-for-dollar write-off of your loss amount.

Regardless of whether your loss is from a major disaster, like a hurricane, or some other "run of the mill" incident (more on this in a minute), if you have insurance, you must take that into account. You have to subtract any coverage payments you receive from your loss amounts.

Then you do the calculations to see just how much of a deduction you can claim on your Form 1040 Schedule A.

The event that caused your loss also must meet certain IRS standards to be classified as a deductible loss. Specifically, the loss you incur must be from the complete or partial destruction of property resulting from a sudden, unexpected and unusual identifiable event.

What qualifies: Natural wear and tear on a property doesn't qualify. Taking care of things like damage to woodwork because you didn't paint as regularly as you should have is just one of the many, and sometimes expensive, joys of homeownership that you just have to cover all on your own.

But property loss from plenty of other unwelcome occurrences qualify, such as:

Fires, either started by, for example, an electrical short or a lightning strike;
Storms, such as tornadoes, ice, hurricanes and the like;
Floods or, in some cases, droughts; and
Earthquakes and mudslides.

Even burglaries, thefts and vandalism could get you some tax help from Uncle Sam.

And now, thanks to the involvement of four Congressmen, so might property losses caused by a type of imported drywall used in some U.S. homes.

Arguing for drywall damage deduction: Virginia's two U.S. Senators, Jim Webb and Mark Warner, along with their fellow Old Dominion State federal legislator Rep. Glenn Nye and U.S. Sen. Bill Nelson from Florida, say that thousands of their constituents have suffered costly property damage due to the dangerous effects of Chinese drywall used in their homes.

And these homeowners, some of whom have been forced to relocate and pay those costs in addition to the mortgages on their tainted houses, should be able to claim those associated losses as casualty tax deductions, argue the four Democratic lawmakers.

They made their case in a letter they sent last month to the IRS. Floyd Williams, national director of IRS Legislative Affairs, wrote back that the IRS might indeed allow such claims, depending upon the outcome of the investigations by some other federal agencies.

Drywall's unexpected damage: You may have seen the stories on the questionable drywall. The Chinese-made construction product reportedly emits putrid odors that have, based on consumer complaints, cause irritated and itchy eyes and skin, difficulty breathing, bloody noses and headaches.

The noxious fumes also are cited by homeowners with corroding their structures' pipes and electrical equipment, as well as damaging the workings of air conditioners and other appliances. A main fear here is that the corrosion could lead to fires.

The U.S. Consumer Product Safety Commission (CPSC) has received complaints about the questionable drywall from more than 600 property owners, mostly from residents of Florida, Louisiana and Virginia.

But property owners in Alabama, Arizona, California, Georgia, Indiana, Kentucky, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Tennessee, Texas, Washington, Wisconsin, Wyoming and the District of Columbia also have reported problems they say are associated with the Chinese-made drywall.

Lab results could mean tax deduction: In response to the complaints, the CPSC, Environmental Protection Agency (EPA) and other federal agencies are collecting samples of the drywall from affected homes. Lab analysis is expected to be completed my mid-September.

The results of these studies could prompt the IRS to allow casualty loss claims by the affected homeowners.

"If it is determined that Chinese-made drywall emits an unusual or severe concentration of chemical fumes that cause the extreme and unusual damage you [the Members of Congress] describe, affected taxpayers can qualify for a casualty loss deduction," wrote Williams.

"For those who have been affected by these harmful materials, this news will give them some financial relief," said Webb in announcing the IRS reply. "I look forward to hearing more from the U.S. Consumer Product Safety Commission on how to remedy this problem and prevent it from happening in the future."

More property loss deduction info: If you own a home and you suspect you have the allegedly tainted drywall, contact the CPSC if you haven't already. Then stay tuned for IRS word on whether it will let you the tax laws to help repair your property.

And anyone who's suffered an eligible casualty loss can check out the rules and how to get some when you file your tax return in this tax tip and story.

The IRS provides additional details in Publication 547, Casualties, Disasters and Thefts, as well as in Publication 2194, Disaster Losses Kit for Individuals.

And don't miss this post on Financial and tax tips for storm season.

Stimulus rebate confusion continues

2009-07-13T06:52:20-05:00

April 15 is a distant memory for most taxpayers, but as the IRS works through the millions of tax year 2008 filings it has received, some folks are learning their rebate claims are causing problems.

You remember the rebates. They were the $300 to $600 checks that were approved in February 2008, sent out that spring and were supposed to jump start the economy.

The amount of those checks was based on 2007 income, but they actually were "prebates" that were accounted for on 2008 returns as the Recovery Rebate Credit.

And that's where the trouble started.

Folks who didn't get a full (or any) rebate check last year could possibly get the money when they filed their 2008 tax returns this year.

But unfortunately for some taxpayers, the rebate claim process hasn't worked out too well.

Rebate hassles redux: In this month's Tax Fireworks Carnival, personal finance blogger The Sun's Financial Diary brought up the issue in Did TurboTax Miscalculate My Recovery Rebate Credit?

Specifically, Sun says:

"It never makes me feel good when receiving a letter from the IRS because most of the time, it's not going to be a good news (luckily I haven't got into any trouble with the IRS so far). So when I saw the letter from IRS in my mailbox today, I was first kind of a little nervous when opening up the envelope, then a little relieved once I finished with the letter.

The letter was a notice to let us know that we now owe the IRS $485.07 because 'We [the IRS] changed the amount of the recovery rebate credit you claimed on Line 70 of your Form 1040 because the amount entered was computed incorrectly.'

While it isn't as bad as an audit letter, it still made me feel that I did something wrong with our tax return, whether it's my fault or not."

But Sun isn't the only blogger to run into, and recount, a problem with the Recovery Rebate Credit.

The Wandering Tax Pro, in a special "tax buzz" post, points to RapidTax.com's roundup of writings on the rebate ruckus.

Everybody's talking about rebates: Some folks are not getting as much as they thought they should. Others, like Sun, have had to send some money back to the IRS.

And all are trying to figure out why the discrepancies.

Obviously, these reports of 2008 returns and associated rebate problems have generated a lot of blog comments.

The remarks range from blaming TurboTax (which prompted several of the software company's folks to get involved in the online conversations) to admitted taxpayer mistakes to offsets that ate into (or totally consumed) the expected rebate amount.

In one case, the IRS even blamed, wait for it, the IRS!

Why I hate rebates: The common thread in all the discussions is just plain confusion.

That's usually the case when D.C. enacts a special tax break. The IRS shifts into high gear to get the forms and regs in order. Software companies scramble to incorporate the changes. And taxpayers get all jazzed about the free money they (might) get from Uncle Sam.

But typically, the rules on these one-off breaks are more convoluted than usual and a good number of filers end up at best disappointed and at worst just plain madder than hell at everybody involved.

Personally, I hate these gimmicky tax breaks.

Politicians -- and yes, I use that word pointedly -- make most of these changes primarily for political gain, not because it's good tax policy. And the electorate encourages them, by clamoring for such immediate money-back options.

But as the rebate confusion so clearly demonstrates, too many filers pay a big price, if not in actual dollars, then in frustration of having to deal with these special tax breaks.

Instead, federal lawmakers should get serious about making real, constructive and permanent changes to our tax system, like, for example, eliminating the alternative minimum tax. This parallel tax system has been tripping up more taxpayers every year for, uh, forever it seems, but every year, Congress can only seem to manage a temporary fix.

Sure, writing good tax policy is not an easy job, but it's not an impossible one either. And that's what Congress should be doing instead of crafting legislation that's designed simply to get them perpetually reelected.

Expect the same in 2010: A word of warning about the 2009 return you'll submit next year: the Making Work Pay credit could cause similar problems.

So far, there's not been a big problem with the credit. That's because this cornerstone of the 2009 American Recovery and Reinvestment Act, aka the stimulus act, is being accounted for via workers' paycheck withholding.

But there are some special considerations to this credit, too.

Some people aren't eligible for the credit. In those cases, the taxpayers who get the credit this year will have to pay back the money on their 2010 return.

It doesn't take a crystal ball to see the chaos, and taxpayer anger, this credit is going to cause next filing season.

Related posts:

Tax audits from Hell for eternity

2009-07-12T00:16:00-05:00

While catching up on my tax reading this weekend, I came across a couple of reports from the Treasury office that keeps an eye on IRS activities. Admit it. You wish you had my life.

In defense of my free-time reading choices, the studies by the Treasury Inspector General for Tax Administration (TIGTA) were on a topic that morbidly fascinates every taxpayer: audits.

The first report, released on June 17, has some not so welcome news about those incredibly invasive information examinations, often referred to as audits from Hell.

That nickname originated when these random audits first appeared in the 1980s. Back then, they were part of the Taxpayer Compliance Measurement Program (TCMP). But the demonic name stuck because the "measurement" was a very thorough examination of a return, requiring the taxpayer to substantiate every single entry, line by line, and prove each deduction, regardless of how small.

Adding insult to this injury was the fact that the IRS didn't necessarily think those being audited were guilty of any questionable tax avoidance moves. Rather, the agency randomly selected returns so it could get as complete an understanding as possible of the taxpayer filing process.

I could give the IRS a Cliff Notes version of taxpayer thoughts when filling out Form 1040 et al, but I don't think a string of expletives is what the tax agency is looking for.

Tax Hell returns in 2007: These exams returned in October 2007, this time as the National Research Program (NRP).

That month, around 13,000 individual taxpayers were selected for this dreaded honor, with their 2006 returns getting the extra once over. At that time, the IRS said it would continue this "special audit project" for tax years 2007 and 2008.

Now TIGTA tells us "An Appropriate Methodology Has Been Developed for Conducting the National Research Program Study to Measure the Voluntary Compliance of Individual Income Taxpayers."

Yep, that's the report's unwieldy title, but I guess the cumbersome moniker is a perfect fit for the process. And as it indicates, TIGTA says the audits are doing their job.

These last three years of study should provide the agency with good statistical estimates that will improve the compliance and collection process, notes TIGTA.

So, says TIGTA, expect these random audits of individual income tax returns to continue indefinitely. That way, the IRS can further fine-tune the formulas it uses to select returns for audit. The data also will help with new Tax Gap figures.

Billions left on the tax table: Of course, that collection gap could be closed a bit if the IRS did a better job of going after some high-dollar delinquent accounts.

In the June 22 report "Collection Actions Could Be Accelerated on Some Large Dollar Balance Due Accounts," TIGTA says that by getting more aggressive with some taxpayers who owe $1 million or more, the IRS could potentially collect more than $1 billion in revenue.

Now this isn't to say the IRS is letting all millionaires off the hook.

TIGTA investigators found that as of Dec. 22, 2007, there were 2,454 individual taxpayers in the IRS' "potentially collectible inventory" (government speak for "you're on our list, sucker!"), each owing more than a million dollars in taxes, interest and penalties.

Of these delinquent accounts, the IRS was actively going after 2,006 taxpayers for the overdue money.

But the remaining 448 accounts, which were either not being actively pursued or had been shelved altogether, accounted for approximately $1.2 billion.

TIGTA discovered some programming issues that could be corrected or rejiggered to help get these unpaid accounts off the tax back burner. IRS officials agreed with the recommendations. Ya think?

Here's one more idea that might help. Take some of those auditors from Hell and turn them loose on these millionaire tax delinquents.

Related posts:

Film tax credit survives California $ woes

2009-07-11T13:03:00-05:00

California's budget crisis has all the elements of a major disaster movie.

There's the big-name ~~star~~ ~~politician~~ star, Gov. Arnold Schwarzenegger.

There are the continuing battles, no special effects needed, between Democrats and Republicans in Sacramento.

There's the supporting cast of millions, an electorate that propels the main money story line by voting for projects but against ways to pay for them.

And there's the unbelievable plot twist, a state paying its bills with IOUs.

Now all we need is a studio to green light the project. That shouldn't be too hard to find since, despite all it's money troubles, California has maintained its tax breaks for movies made in the state.

No money, but tax breaks: Yes, it's true. California's film incentive program is alive and well.

On July 1, the Californian Film Commission began accepting applications for the $100 million available to TV an movie producers in this the first year of the program.

According to Commission Director Amy Lemish, as of last week about 60 productions had applied.

Most of the tax break applications are from filmmakers planning independent movies with budgets between $1 million and $10 million. But there also are studio projects with stars applying for the break. (Has anyone checked The Governator's calendar recently?)

So how does a state that's now forced to pay businesses and individual taxpayers with IOUs (officially, they're registered warrants), justify keeping such a large tax break in place?

The IOU issue doesn't affect the California film tax break, according to state officials, because unlike incentives in some states, the Golden State break is not a refundable credit. Production companies can use it only to reduce their tax obligations, or sell it to someone else who can do the same.

The thinking apparently is that while the film companies may not owe much, or any, taxes, the ancillary companies and people that it hires will. Plus, at least those folks will have jobs.

Light, camera, tax break ... maybe: Speaking of other states, some are rewriting their TV and movie making tax credits.

In recent years,states around the country have implemented tax breaks to get the productions to shoot within their borders.

But now that budgets are tight, Marketplace radio reports that some critics are raising new questions about the tax strategy.

The radio program, however, might want to do a follow-up story in Iowa. Tax Updates notes that Hollywood is flocking to the Hawkeye State's 50 percent filmmaker subsidy.

Related posts:

More money for IRS enforcement

2009-07-10T14:07:19-05:00

While there's still plenty of political sparring going on in Washington, lawmakers on both sides of Capitol Hill apparently can agree on one thing: The IRS needs more money to help it bring in more money.

The appropriations committees in both the Senate and House this week signed off on a fiscal 2010 budget of $12.15 billion for the IRS.

The House and Senate revenue panels also agreed that the IRS should get $5.5 billion this coming fiscal year to help it enforce our tax laws. That's a $387 million increase from last fiscal year's amount.

House Appropriations Committee Chairman David R. Obey (D-Wis.) noted in the bill's summary that "among other things, the increase is for the administration's initiative to target wealthy individuals and businesses who avoid U.S. taxes by parking money in overseas tax havens."

There are some slight differences in the bills, particularly in connection with the amount of money that would go toward the IRS' business modernization effort. This is a project that the IRS Oversight Board, a nine-member independent body charged to oversee the tax agency, says should be fully funded.

The modernization money, however, shouldn't be a big budget hurdle for House and Senate conferees to overcome. Congress is expected to reconcile the two funding bills before it takes its August recess

Just thought you should know about the added cash for tax examinations (that's the IRS' nicer word for audit) in case you were thinking about pushing the filing envelope a bit.

Ensign, his mistress and gift taxes

2009-07-09T19:34:19-05:00

So Nevada Sen. John Ensign's parents helped pay off his girlfriend and her husband. Can this story get any ickier?

Forget I asked that. Having watched for years politicians do incredibly stupid things, the answer is yes, it could get more sordid.

In today's Capitol Hill soap opera installment, we learned that Ensign's folks gave his mistress and her family a total of $96,000.

But before we go any further, here's a quick recap:

The married Ensign had an affair with Cindy Hampton.
She was a campaign staffer at the time.
Oh yeah, Cindy also was married when she had the fling.
And oh yeah, her husband, Doug, was Ensign's administrative assistant.

Plus, in true TV daytime drama fashion, the Ensign family and the Hamptons were "longtime friends."

That friendship, say Ensign apologists, is why the 96 grand that the Hampton family got from the Senator's family is no big deal.

Hey, where can I get me some friends like that?

Gift tax exclusion issues: This latest revelation about the Republican lawmaker's affair also raises an interesting tax issue. Yep, the tax code was a consideration in Ensign's adultery.

According to the Senator's lawyer, the $96,000 given to Cindy and Doug Hampton and their two kids was done in a way to comply with gift tax laws.

Specifically, the Hamptons got the money in $12,000 increments.

A tax code provision allows anyone to give anyone else up to a certain amount of money without causing any immediate tax concerns for the giver. The Ensigns' $12,000 gifts indicate that they gave the Hamptons the money in 2008. That was the gift tax exclusion limit last year. For 2009, it was bumped up to $13,000.

As for the recipients, they don't have to worry about the IRS. Gifts are not taxable.

So Ensign's mom gave Cindy, Doug and their two kids $12,000 each, totaling $48,000. And Ensign's dad gave Cindy, Doug and the two kids $12,000 each, totaling $48,000.

$48,000 + $48,000 = $96,000.

And I thought it was just today's younger parents who clean up after their wayward children way too much.

Gifts and estate tax planning: The gift tax exclusion is a valuable tax planning tool for folks with large estates like, apparently, Sen. Ensign's folks.

If you have assets that are greater than the federal estate tax exemption (that's $3.5 million in 2009), you could get your holdings down to or below that figure by giving away some your assets to family and friends while you're still around to get their gratitude.

You can continue this munificent process with as many lucky gift recipients in the allowable annual amounts until your aggregate gifts reach that previously mentioned $1 million amount.

Once you hit that figure, then you've got some other tax considerations.

Of course, if you have enough money to be doling out sizable chunks of cash to family, friends and your child's lover, then you probably have a good tax adviser and/or attorney on retainer.

If, however, you're like the hubby and me and just want to know more out of curiosity, you can read about estate and gift taxes in these articles from the IRS, Bankrate, Fairmark and SmartMoney. And this Don't Mess With Taxes item looks at possible estate tax changes (honestly, keep reading past the Michael Jackson stuff) expected later this year.

Fading 401(k) company matches

2009-07-09T01:19:12-05:00

An interesting question was raised the other day on Moolanomy Answers: Can you have both a 401(k) and a traditional IRA?

The short answer is yes, but check out the full discussion for additional retirement saving whys and wherefores. As you've probably already guessed, I was one of the folks offering my thoughts.

Retirement considerations are always timely. Everyone -- the sane among us at least! -- wants to be able to one day spend time doing what we want, rather than what an employer demands.

Given today's economic and workplace realities, the best, and sometimes the only, way to do that is to contribute to retirement accounts outside your job. So if you don't have an IRA, either Roth or traditional, think about opening one and contributing as much as your budget, and tax laws, will allow.

Roth vs. traditional IRAs: Generally speaking, a Roth is a good account for a younger person. While your contributions aren't tax deductible, when you eventually take the money out to pay for your retirement fun, you won't owe any taxes on it.

Traditional IRAs, however, still appeal to some folks, primarily because the contributions, or at least part of them, might be tax deductible.

As with every tax situation, you need to carefully evaluate your personal circumstances before deciding which IRA is best for you. You can find some tips on making the choice from Cash Money Life, Investopedia, Investing Guide, Green Panda and Get Rich Slowly.

Missing matches: IRAs also are becoming more important because many 401(k)s aren't as valuable as they used to be. The reason? As the economy has worsened, many employers have reduced or eliminated the matching money they used to put into workers' 401(k) accounts.

A recent survey by the global business consulting firm Grant Thornton found that 29 percent of polled U.S. companies have already modified, or intend to modify, the matching contribution feature in their 401(k) plans during the 2009 plan year.

It gets worse. Two-thirds of the companies, or approximately 20 percent of all respondents, say they will eliminate their 401(k) match entirely.

"Clearly, the economic downturn is causing many companies to reevaluate their 401(k) plan design carefully, and in many cases, rethink their 401(k) plan strategy," said Gary Gross, a Grant Thornton LLP Compensation and Benefits executive director and co-author of the survey. "The highest anticipated action reported by all respondents is the complete elimination of the match, which will generate the most cash savings for the plan sponsor."

For company employees, however, it will generate less retirement savings.

AARP also opting out: It's not just businesses that are cutting back on retirement plan contributions.

The largest nonprofit organization for older Americans, AARP, also has decided to suspend its 401(k) match for at least nine months.

"We were not immune to the economic crisis, and we needed to respond as well," David Certner, AARP's legislative counsel and policy director, told the New York Times. "We didn’t take this lightly."

What's your company's 401(k) match position? If you're unsure, stop by your benefits office ASAP.

You can see what other firms are doing courtesy of the Pension Rights Center's list of employers that have downgraded their 401(k) matches.

Also check out the group's tips for keeping track of your pension.