the finance connection » Tax Credit

Value Added Tax (VAT) – What it means to us

admin — Sat, 11 Jul 2009 04:13:36 +0000

Value added tax (VAT), or goods and services tax (GST) is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). A VAT is an indirect tax, in that the tax is collected from someone who does not bear the entire cost of the tax.

A VAT taxes the transfer of goods and services every step of the way, from their manufacture or initiation to their final purchase. From a government’s point of view, a VAT is a wonderful tax because, as the Post story reports, “producers, wholesalers and retailers are each required to record their transactions and pay a portion of the VAT.” So, it’s hard to dodge. It punishes spending rather than saving, which would represent a U-turn for the American economy, which has been rewarding spending and penalizing saving for many years.

It is, of course, a terribly regressive tax, whose burden falls disproportionately on people struggling to make ends meet. That our lawmakers are reportedly intrigued with this kind of tax is a measure of their desperation. Of course, the advocates for a VAT argue that it would make possible the elimination of income taxes for the majority of voters. That really isn’t likely, though, given the proven bottomless appetite of governments for ever more money.

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IRS’s inflation adjustments for 2009

admin — Thu, 28 May 2009 14:25:56 +0000

Could your retirement nest egg use a boost?

This may be a good year tot increase your retirement plan contributions, thanks to the IRS’s inflation adjustments for 2009. Key changes include:

Contribution limits for employer-sponsored 401(k) and 403(b) plans climb from $15,500 to $16,500. Catch-up contributions for individuals age 50 or over rise to $5,500, a $500 increase over 2008.
The minimum contribution threshold for SEP (Simplified Employee Pension) plans increases from $500 to $550.
Contribution limits for SIMPLE (Savings Incentive Match Plan for Employess of Small Employers) jump from $10,500 to $11,500.
Contributions allowed for Roth IRAs will phase out for joint filers with incomes exceeding $166,000
For those covered by retirement plan at work, deductions for contributions to traditional IRAs begin to phase out at $89,000

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Making Work Pay Tax Credit may need to be returned

admin — Fri, 01 May 2009 05:29:27 +0000

Well, at least some of it.

WASHINGTON (AP) — Millions of Americans enjoying their small windfall from President Barack Obama’s “Making Work Pay” tax credit are in for an unpleasant surprise next spring.

The government is going to want some of that money back.

The tax credit is supposed to provide up to $400 to individuals and $800 to married couples as part of the massive economic recovery package enacted in February. Most workers started receiving the credit through small increases in their paychecks in the past month.

But new tax withholding tables issued by the IRS could cause millions of taxpayers to get hundreds of dollars more than they are entitled to under the credit, money that will have to be repaid at tax time.

At-risk taxpayers include a broad swath of the public: married couples in which both spouses work; workers with more than one job; retirees who have federal income taxes withheld from their pension payments and Social Security recipients with jobs that provide taxable income.

For more information and tax credit calculations you may use the IRS withholding calculator:

http://www.irs.gov/individuals/article/0,,id96196,00.html

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