April 18 is Tax Day, and income tax returns are due to the Internal Revenue Service. Photo Credit: Saturnism/Flickr.com/CC-BY-SA

Federal income tax returns are due on April 18, 2011, and most Americans will dutifully fulfill their obligations to do so. There has been a lot of discussion about how large a tax burden is actually placed on the taxpayers, and how oppressive the income tax is. Nearly 50 percent of income tax filers will not owe the government a dime.

55 percent of Americans pay income tax

Tax Day 2011 falls on April 18 rather than April 15. This year nearly 45 percent of households will not have to pay any taxes on their 2010 income, according to Bloomberg. Low-income households receive exemptions and deductions, such as the Earned Income Credit and the Making Work Pay Credit. Those who pay no income taxes are very low income or living on a fixed income such as Social Security or disability income. People who have children but make very little also commonly pay no income taxes. The average tax refund, according to CNN, was $3,003 last year.

Wealthy paying less

The tax burden for the wealthiest taxpayers, according to Daily Finance, has been falling for some time. In 1992, the 400 returns with the highest reported incomes averaged a tax bill of 26 percent of their income, but that figure was 17 percent in 2007. Though the wealthiest 10 percent account for more than half the nation’s tax revenue by dollar amount and the wealthiest 5 percent account for 44 percent, the more lucrative tax breaks, such as for charitable contributions, are available to the rich. There are more than $1 trillion in tax breaks in the current U.S. tax code, enough to get an $8,000 refund per taxpayer per year. However, trying to catch the Internal Revenue Service napping is not a good idea. The IRS is more likely to press charges now than at any point in the past decade, according to USA Today.

Americans pay lower taxes than most developed countries

Though many people protest the U.S. tax system for myriad reasons, most technical literature reveals that Americans pay very little income tax compared with the rest of the developed world, according to MSNBC. The Organisation for Economic Co-operation and Development, or OECD, maintains data on taxes in the developed world. The OECD estimates that Americans average 24 percent of income paid in taxes, compared to 48 percent for Danes, 42 percent for the French, 37 percent in Germany and 27 percent in Australia.

Sources

Bloomberg

CNN

Daily Finance

USA Today

MSNBC

Children are legitimate tax deductions. Adult magazines are not. (Photo Credit: CC BY-SA/J.K. Califf/Flickr)

Monday, April 18 is tax day 2011, and some Americans will attempt to slip some very creative tax deductions by the IRS. From flattop haircuts to human sperm donations, auditors have seen it all. In the spirit of the occasion and prefaced with the warning not to try this at home, here are some of the craziest tax deductions enterprising U.S. taxpayers have attempted.

Holy travel and entertainment deductions, Batman!

Dallas CPA Ken Sibley told Bankrate of one client – a minister – who attempted to claim travel and entertainment expenses as tax deductions. Apparently, the minister was looking for real estate investment properties but never found his promised land after years of trying. Hence, it could not qualify as a business expense.

He was charitable enough to marry her

Deducting wedding expenses is a no-no, even under the category of business travel and entertainment expenses. Just because you invite business clients doesn’t make the wedding a business expense, a Massachusetts CPA said. And remember: your betrothed is not a charity, so you can’t count wedding expenses as charitable donations, either.

That’s a 30-year plan

New Jersey CPA Don Meyer spoke of the business manager of a famous entertainer who arranged for the purchase of a $2 million office building. The idea was that it would be deductible as a business expense, and the business manager was expecting to deduct the entire expense in the same tax year. Unfortunately, Meyer had to tell the business manager that it would take more than 30 years to recover the complete expense. Even a suitcase full of money and an ominous admonition to “make it work” couldn’t change the tax law.

Securing a lifetime of tax money

A home-based business can produce legitimate tax deductions, but claiming pets as security expenses won’t fly. Home security systems in general don’t fly with the IRS, either, says the Hunter Group of Fair Lawn, N.J. One client tried to declare a security system under the rationale that if her home was invaded and she was slain, she’d no longer be able to pay taxes.

Risky business

Dues and subscriptions for professional and trade publications may be listed as tax deductions, so long as you are a professional in an approved field. The deduction would fall under miscellaneous deductions if it meets the 2 percent floor rule (2 percent or more of total adjusted gross income), writes Quizlaw.

However, if you’re a self-employed real estate professional who is attempting to write off adult magazines under the dues and subscriptions deduction rule, take a long, hard look in the mirror and reconsider, says another Massachusetts CPA.

On a related note, Don Meyer once had a client who happened to be a prostitute. She wanted to declare her income, and listed “public relations” as her job.

Sources

Bankrate

IRS

Quizlaw

On deducting haircuts and sperm donations

I propose that fewer Tea Party tax protests would be so angry if we all had a few more. (Image from Wikimedia commons)

My fellow Americans, it is tax time, and I note some of you are into this Tea Party thing, which has many people incensed against government and taxation.  Well, since Tax Day is passing and many of us are mailing painful checks to the IRS, I figured I’d let you all in on something I discovered about why so many people are angry about taxes.  You’d never guess this one, and I’m letting everyone in on it for free. You won’t need payday loans to rectify it either.

An odd correlation

Many Americans are stressed over taxes.  Some of us begin to wonder – do U.S. citizens give that much more in cash advances to our government? Actually, no – Americans pay some of the most reasonable taxes in the developed world.  Here are four tax categories and what Americans pay:

• Corporate Tax: 15 to 39% Federal, 0 to 12% State
• Income Tax: 0 to 35% Federal, 0 to 10.3% State
• Value Added/Goods & Services/Sales Tax: 0 to 10.25% State and/or local
• Payroll Tax: Up to 15.3% Federal

Consider the UK has income taxes of 40 to 50 percent, and a 23.8 percent payroll tax.  Denmark imposes an income tax of up to 59 percent of income. Sweden starts at almost 29 percent, and can go as high as almost 60 percent of income. It seems as though there aren’t the kind of tax protests there as here.

Why?

Well, for two reasons. One is that they may be OK with government providing services.  However, another statistic is far more telling:

They drink more and better beer than we do.

Oh yes, I went there. Average beer consumption per capita by Americans is 13th.  Almost every country in the ranking by beer consumption above us has higher taxes than us, and the average U.S. citizen puts away almost 82 L per year in beer. For instance:

• Spain: Almost 2 liters more per year, and up to 7% more in income tax
• Luxembourg: They pay almost 4% more, drink 3 L more
• Finland: Drink over 3L more, pay up to 60% in federal and local tax
• Denmark: Pays up to 14% more, drink 8 L more
• Belgium: Income tax up to 50%, and they put 11 L more away
• The UK: 50% income tax, they drink 17 L more per year
• Germany: Up to 45% income tax, and a liver killing 115 L per year
• Ireland: Income tax of up to 41% and they consume a pulverizing 131 L of beer every year.

Of the top 13 beer drinking nations, only Slovakia and the Czech Republic pay less income tax and drink more beer than us.

So what’s the point?

The point is that alcohol is a depressant.  You calm down.  Tea Party protests, do not seem calm.  (Granted, they aren’t violent – but very agitated.) Thus – I present the following argument:

• First – that people who indulge in more beer, responsibly, are calmer
• Second – that the majority of the countries that drink more beer than us pay more in taxes (10/12, in fact)
• Third – that they protest these taxes less
• Fourth – if drinking more beer leads to a more relaxed frame of mind, U.S. tax protests would happen less or with less vitriol if we as a nation started drinking more beer.

Remember, always indulge responsibly, legally and with a designated driver.

Sure, you were happy to get extra money back with Making Work Pay, but make sure you fill out Schedule M to receive credit for that tax credit! (Photo: ThinkStock)

Tax day is almost upon us, and many taxpayers are wondering what Schedule M is and whether they need to fill it out on their tax return. It relates to the Making Work Pay tax credit, where qualifying individual filers receive $400 and qualified couples receive $800. So that people could get that money as soon as possible, payroll withholding tables were adjusted to reduce the amount of federal taxes taken out of paychecks, says MSN MoneyCentral. Unfortunately, the few extra dollars per paycheck was small enough (not quite same day loans) to where many workers didn’t notice. Extra spending to stimulate the economy didn’t occur as politicians had hoped, and there also was some confusion regarding Schedule M as it relates to the Making Work Pay stimulus.

Taxpayers aren’t sure if they need to complete Schedule M

This is very important, says MoneyCentral: If you received the Making Work Pay tax credit, you must fill out Schedule M. Essentially, the Making Work Pay tax credit isn’t credited to you until you claim it on your return. This is something more than 4 million 2009 tax filers so far have gotten wrong, according to the IRS. They are fixing the mistake, which will slow down the overall process of reviewing returns. This in turn means that it will take longer for people to receive their refunds.

Where Schedule M applies on your tax return

Look at page 2 of your 1040 form. In the “payments” section (lines 61 through 71), the Making Work Pay tax credit amount belongs on line 63. It’s in a similar place on the 1040A form. On the 1040-EZ, you figure Schedule M on the back of the form, using the worksheet. Filers calculate the Making Work Pay tax credit amount on Schedule M and transfer the result to line 63, says MoneyCentral. It isn’t anything like payday loans, but it is something that was a welcome sight to millions of employed American taxpayers in need of relief during the recession.

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