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TaxBarron Report
September/October 2008
Autumn is the time of year in the northern hemisphere when clocks are put back an hour, leaves may turn red and golden and the weather often becomes crisper and cooler. 'Tis the season for calm and studied reflection as the year winds down. This year, however, the attention of the world is riveted on the global economic crisis and the upcoming presidential election in America. Moreover, as world leaders search for quick fixes and peoples everywhere for skilful leadership, the immediate future, despite the best efforts of statesmen, appears grim indeed. This autumn season may therefore symbolize, to those who ponder, the falling leaves of bankrupt economic system. For previous issues of the TaxBarron Report, click here.
In This Issue
Undeliverable Refunds and Stimulus Payments
2009 Social Security Adjustments
Emergency Stabilization Act
On 3 October, President Bush signed into law the Emergency Economic Stabliization Act. Mentioned in the media as the bailout bill, the Act authorizes the federal government to purchase so- called troubled assets such as residential and commercial mortgages, and related financial instruments from financial institutions. Further, standards have been set to limit the compensation paid out to CEOs, CFOs and other executives as well as recover unearned bonuses previously paid out. The Act also allows specified financial institutions to treat losses as ordinary when incurred on the sale of Fannie Mae or Freddie Mac preferred stock.
As part of the package, Congress has extended the Mortgage Forgiveness Debt Relief Act of 2007 on discharges of up to $2m in indebtedness secured by principal residence, which the tax code generally treats as taxable income. The FDIC insurance amount on deposits is temporarily increased to $250,000 from $100,000 to 31 December 2012.
Other tax breaks for individuals extend an additional standard deduction for real property taxes, the deduction for state and local taxes, for qualified higher education expenses, for teacher classroom expenses, and for tax-free distributions from IRAs for charitable purposes.
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In August Barron's International Tax Service - the TaxBarron - relocated to near Pau, France. We continue to serve American expatriate clients in Europe, Asia, Africa, South America and North America.
If you missed the 15 October tax filing deadline, you have also missed the chance to apply for the economic stimulus rebate. The rebate for most qualifying single taxpayers was $600 and most couples $1,200 (plus $300 for each dependent child under age 17). To qualify, a tax filer must have had at least $3,000 in earned income, Social Security, Veteran's disability and survivor benefits, certain Railroad Retirement benefits, or nontaxable combat pay. However, since the rebates were created for 2008 tax returns, tax filers who missed out on 2007 may be eligible next year.
Tax Quiz
ANSWER TO LAST MONTH'S QUIZ: Yes. The gain from the sale can be excluded under Section 121. However, the depreciation he claimed in 2005 and 2006 is considered unrecaptured Section 1250 gain and is not eligible for the exclusion. This portion of the gain is reported and taxed at a maximum rate of 25% on Schedule D.
THIS MONTH'S QUIZ: Does the transfer of mortgaged property to a controlled corporation result in no gain or loss recognition even if the liabilities assumed by the corporation are more than the property's adjusted basis? (NATP)
Undeliverable Refunds and Stimulus Payments
IRS has $266 Million in Undeliverable Refunds and Stimulus Payments. The IRS is urging taxpayers to make sure their mailing addresses are up-to-date. If a taxpayer has moved since he or she last filed a tax return, Form 8822, Address Change Request, should be filed with the IRS. It is critical that taxpayers who are due a stimulus check update their addresses with the IRS before year-end, because by law, economic stimulus payments must be sent out by December 31 this year.
2009 Social Security Adjustments
Beginning January 1, 2009, the maximum earnings subject to social security tax withholding increases to $106,800, up from $102,000 in 2008. The earnings needed for one quarter of coverage is $1,090.
American expatriates of long standing may not realize that to qualify for Social Security benefits, they must have paid into the system for 40 quarters or 10 years.
The quarterly payment is based on earnings. Earn too little in a quarter and miss qualifying for that quarter. Each year the minimum required earnings increases. In 1978, $250 per quarter were required; in 1988, $470; and in 1998, $700.
While Social Security states that average earnings over one's working years determine the amount of monthly benefit, expatriates, lacking the required 40 credits, may earn those credits as long as they reside iin a country that has a Totalization Agreement with the United States.
PONDERABLES
My problem lies in reconciling my gross habits with my net income. - Errol Flynn
...Repeated cycles of boom and recession, the instabilities in international economic relations, and the resulting crises that have shaken nations and whole regions, show our imperfect understanding and management of economic systems. - Arthur Lyon Dahl, The ECO Principle
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