tax news, tax info and tax policy

Taxpayer asks:


Aloha

Do I have any liability if I issue a 1099 to a contractor but they fail to report it or file their taxes?

Thanks for your input.

Taxgirl says:

Nope. Your job is done so long as you properly and timely issue the form 1099 to the independent contractor and file the associated paperwork (in most cases, a form 1096).

If the taxpayer fails to file, that’s on him (or her). The same would be true for an employer who issues a form W-2.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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Taxpayer asks:


my friends told me that the IRS is deducting the stimulus check money from your 08 return! I thought it was free money! And now we have to give it back?

Taxgirl says:

Deep breaths. You don’t have to give it back.

Here’s the confusion… The last set of stimulus checks in 2001 were advances against credits on the 2002 returns. That meant that you did have to “give it back” when you filed in 2002. When the new stimulus package for 2008 was announced, many folks assumed that it would work the same way as the last. CNN even reported it that way initially. But these rebate checks are different.

I’ve taken a peek at the 2008 form 1040 and instructions and it confirmed my earlier report. The “Recovery Rebate Credit” is clearly marked as a credit available for those who did not receive a rebate check in 2008. You do not claim the credit if you have already received your check in the proper amount - and as a result, your 2008 taxes are not affected.

Let me say that one more time, with feeling: if you received your full rebate check in 2008, your 2008 taxes will not be affected.

Don’t be scared by the word “credit” - it’s really just a technical way of making adjustments for folks who might not have received a check in 2008 or if income from 2007 resulted in a smaller check than a taxpayer was really entitled. In other words, the credit can only help, not hurt you, at this point. If you’ve received your check, cashed it and spent it (as the government hopes you have), you’re fine. You don’t have to give anything back with respect to your rebate. I can’t vouch for the rest of your return - that’s on you!

By the way, this is my second most popular question so far in 2009 (#1 is when are we getting a second stimulus check?).

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! - Now on Facebook!

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Taxpayer asks:


I deliver newspapers. Wondering if the Christmas money I receive is taxable. Also, why are lotto winnings taxable? How are you working for that money?

Taxgirl says:

I believe that the money that you receive at Christmas is taxable. It is not really a *gift* (read more about gifts and bonuses here). It’s an acknowledgement of good service. In that way, it’s like a bonus or a tip. And it would be taxable.

Regarding the lotto winnings, I know it’s an irritating rule but there’s nothing in the tax code that says income has to be “earned.” Both “earned” and “unearned” income are taxed.

No disrespect to my readers with fat investment accounts, but dividends and interest aren’t really the fruits of your labor either. But the IRS doesn’t care.

You can think of income tax as a tax on your “accession to wealth” (wouldn’t it be nice if we were all acceding to wealth a little more quickly?). Increases in your wealth - whether through your own efforts or not - are generally taxable.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! - Now on Facebook!

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Taxpayer asks:

there is a lot of talk that we the people will be getting another stimulus check. Is that true?

Taxgirl says:

I know that folks want the answer to this question to be different… I know this because I receive several variations on this question per day - including a recent email from a reader berating me for not “being fair” because I won’t give her a second stimulus check. Folks, I don’t make the policy, I just report it!

But the answer is no. So far, there is no plan for an additional stimulus check.

Specifically, President Elect Obama just released more information about his upcoming economic stimulus plan - and while there are plans for tax credits (the specific details are still being worked out) - there was no mention of an additional check. Buzz words like “tax credits for working families” have been bandied about, words which may find their way onto 2009 tax forms (if they hurry), but so far, the stimulus package largely focuses on jobless benefits, Medicare and infrastructure.

So, no check. Not yet. If this changes, I swear, you’ll be the first to know. Ok, not really the first. But as darn close as I can get.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! - Now on Facebook!

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There has been a lot of discussion lately about increasing the national gas tax. In fact, a proposal to increase the tax, which currently stands at 19 cents per gallon, has been touted as recently as last week. The National Surface Transportation Infrastructure Financing Commission (NSTIFC) has reported that the current infrastructure is dated and needs significant improvements - all of which will cost money that the Treasury doesn’t have.

The NSTIFC has suggested a 10 cent per gallon increase in the federal gas tax to raise revenue - a measure that may actually pass now that gasoline prices have tumbled back down after reaching historic highs in 2008. Time may also be on their side. Congress has not raised the federal gas tax since 1993, more than 15 years ago.

If the feds raise the national gas tax, what will that mean for the states? Will they follow suit? I’m betting yes - with a twist.

Not all of the states are planning a traditional gas tax increase. Oregon leads the nation in a quest for a different kind of tax, a mileage tax. The mileage tax is sort of consumption tax on roads. The idea is that drivers would be taxed on how far they drive rather than how much gas is consumed. Mileage would be calculated using GPS installed in newer cars (older cars would continue to be taxed using the gas tax).

Why change? Almost everyone agrees that the bridges and roads need work. And as cars become more fuel-efficient (we hope) and the price of gas stabilizes (we hope), this means that revenues from the gas tax will not be enough. In other words, those who drive the most miles - and thus use the roads the most - are not necessarily paying the most. Some feel this needs to change.

Oregon isn’t alone. Rhode Island and Idaho are considering a similar tax though based on a self-reporting system rather than the GPS. Chatter about a mileage-based tax has also spread through Colorado, Florida, Minnesota, North Carolina and Pennsylvania.

Congress has given this kind of system some thought, too, though we are clearly years away from seeing anything like this on the national scene.

So is a mileage tax the solution to our infrastructure woes? Tests have gone well in Oregoon. But critics are concerned about potential privacy issues in having government track mileage - and the bigger concern that the tax might eliminate one of the financial incentives for buying a fuel efficient vehicles (though clearly, the gas savings outside of the tax would still be considerable).

What do you think? Keep the gas tax or ditch it for the mileage tax? And if you would keep the gas tax, would you support an increase at the pump if it meant better roads? Any other suggestions?

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Gosh, I can think of about a hundred smart comments for this one… A porn star goes to prison? But my mother could be reading. So just the facts.

Janine Lindemulder (a/k/a Janine James), a porn star who goes by the clever stage name “Janine”, learned her fate last week stemming from a guilty plea to tax evasion. Janine will spend six months in prison (plus one year of supervised release) after pleading guilty to a misdemeanor count of willfully failing to pay tax.

Janine’s adult film career started out predictably: she was a stripper. She appeared in Penthouse and was named as a Pet of the Month in 1987, eventually being named a runner up as Pet of the Year in 1990. Yet, despite those sterling credentials, she could not make it into mainstream film and television.

In 1992, Janine made her porn debut and eventually secured a contract with Vivid, the most famous of the adult film production companies. She “retired” from the adult film industry in 1999 to become - and I’m not making this up - a kindergarten teacher. She stayed “retired” from the industry until 2004 when she returned to the adult film business. That year, Janine signed a $350,000 contract to perform in more films and did not pay any of the outstanding taxes owed for prior years, despite being aware of the bill. At the time, she owed more than $200,000 in income tax. Part of her sentence includes restitution in the amount of tax due plus penalties and interest, totaling almost $300,000.

Janine claims that her ex-husband, Jesse James (of West Coast Choppers fame), turned her into the IRS following a bitter divorce. James, who left Janine to marry Sandra Bullock, denies the charge and claims that he agreed to a larger divorce settlement so that Janine could pay off her outstanding tax debts. Instead, she used the money to put a down payment on a new home.

The feds in this case recommended prison time due to Janine’s actions during the time that she had the outstanding tax obligations, including her dramatic spending. Assistant U.S. Attorney Christopher Cardani wrote in his pre-sentencing memo, comparing Janine to Wesley Snipes, that, “[w]hile Snipes failed to report far more income than defendant James, her tax defiant conduct is similarly offensive. She has demonstrated an attitude of greed and privilege, and has taken advantage of her status as a high profile figure, while at the same time wantonly ignoring her obligation to pay taxes. A meaningful sentence is necessary to get the message to her and others that no one is beyond the law and they must pay their taxes just like everyone else.”

PS - A word of caution: be careful if you Google this one. You’ve been warned!

(Hat Tip: Phil G from Slacker Manager - thanks, Phil!)

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Psst. You. Over there, near the computer. The one pretending to work today but really not in the mood because of the holidays? Yeah you. I need a favor.

Today is the last day to cast your vote for taxgirl in the ABA Journal Blawg 100. No registration required. All you have to do visit this link, scroll down to “taxgirl” and check the box, couldn’t be easier.

I’m totally out of the running for the top niche blog (sniff, sniff) but I think I can still end the day fairly respectably. And then you won’t have to listen to me whine anymore.

Thanks.

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Be always at war with your vices, at peace with your neighbors, and let each new year find you a better man. - Philadelphia’s own Benjamin Franklin

Happy New Year!

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It’s time for our annual review! Here are my picks for the top stories on taxgirl.com for the year:

10, Dancing With The Stars champ and race car driver Helio Castroneves is indicted on federal tax evasion charges. In a related story, my mother is stricken with grief and may never samba again (okay, I’m not sure that she sambaed before but I’m pretty sure that this will end any chance).

9, Prop 8 in California passes and prompts the promise of tax boycotts by the gay and lesbian community.

8, taxgirl endorsed Obama for President. I was both roundly cheered and jeered for my picks but stand behind my choice. One of my most controversial and commented posts of the year.

7, Tax evaders hit the slopes. A massive tax fraud investigation in Germany, the UK, the US and other countries points the finger at the tiny Alpine principality of Liechtenstein. I am elated to finally have a reason to prove that I can spell Liechtenstein.

6, After Congress says no, President Bush says yes and earmarks taxpayer dollars to save the Big 3 automakers. As a result, Fiat misses its chance to hit it big in the US.

5, Wesley Snipes is acquitted of tax fraud. Remarkably, the world did not end, though we will now be subjected to more of his movies.

4, Congress commits US taxpayers to a remarkable bailout package. Treasury Secretary Paulson is now more powerful than Oprah.

3, The “biggest tax fraud ever” tax trial finally reaches an end. Out of the original 19 defendants involved in the spectacle that was the KPMG trial, only 3 were eventually convicted.

2, Rebates, rebates and rebates. I probably posted the most - and received the most comments - about this year’s rebate checks. Taxpayers were confused about the amount of the check, set-offs, when checks might arrive and more. An overwhelming majority of Americans admitting to being as cynical about the chances of the checks stimulating the economy as they are about Paula Abdul “just being tired.”

1, taxgirl gets a nod by the editors of the American Bar Association in the ABA Journal Blawg 100 for 2008. In case you missed it before, voting by readers for the best of the blawgs runs through January 2 - just click to vote. And no, this tidbit never gets old (not for me, anyway)!

So those are my picks for the year. What did you like? What did you hate? And what did I miss?

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