Singles & Couples: Muni-Bond Tax Breaks Disappearing--Maybe

What may become part of the “fiscal cliff” drop—and if not, it will be on the 2013 agenda—is the elimination of municipal-bond interest tax breaks. Muni-bond taxes help cover the costs of local utility services, community parks, and more. Currently, about $1 trillion dollars is invested in municipal bonds by individual investors.

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Health Care Reform - How it Will Affect Our Taxes

 

Health care reform doesn’t come cheap. How do we pay for it? More and increased taxes, of course, both this year and in future years, along with certain credits for health insurance premium costs. This is an outline of the many tax law changes as a result of the new health care laws, organized by affected parties and implementation date:

Individuals:

·        Starting in 2011

o   Over-the-counter medications are no longer qualified expenses for Flexible Spending Accounts, Health Savings Accounts, or health reimbursement arrangements

o   20% penalty for nonqualified distributions from Health Savings Accounts, up from 10%

 

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NC 2011 Tax Return Due Date April 18

From the North Carolina Department of Revenue:

Taxpayers across the nation will have until April 18, 2011, to file 2010 federal returns, extensions, and payments that ordinarily would be due April 15, 2011. The extra time is provided because April 15 falls on Emancipation day, a legal holiday in the District of Columbia.

For individual income tax purposes, North Carolina will follow the April 18 extended filing date and consider any returns and payments that would have been due on April 15 as filed on time if they are filed and paid by April 18. The extended deadline applies to the following State forms and payments:

  • 2010 State individual income tax returns, whether filed electronically or on paper
  • First quarter 2011 individual estimated income tax payments
  • Partnerships
  • Estates and Trusts
  • Applications for extension for any of the above tax forms

The extended deadline does not apply to corporations that file franchise and corporate income tax returns due on April 15, 2011, or to first quarter 2011 corporate estimated income tax payments. 

NC residents will see a couple of new taxes next year

Starting tomorrow, North Carolina residents will pay sales taxes on certain digital downloads from the internet, and standard gasoline tax on ethanol.  The Triangle Business Journal has a brief article.

Governor Perdue's Tax Proposal

Yesterday North Carolina Governor Beverly Perdue revealed her proposed tax plan, which is designed to raise $1.6 billion in taxes.  Here are some of the highlights:

Income Taxes

  • Reduce individual income tax rates, except for a two-year "emergency surcharge" on single taxpayers with income over $500,000 and married taxpayers with income in excess of $1 million.
  • Reduce the corporate income tax from 6.9% to 5.9% beginning in 2011.
  • Increase the gross premium tax paid by insurance companies to 2.25%.
  • Stop the corporate income tax transfer to the public school capital fund.
  • Apply the franchise tax to limited liability companies.
  • Repeal privilege license taxes.

Sales Taxes

  • Increase state sales tax from 6.75% to 7.75% through September 2011.  Then rate would then decrease to 6.5%.
  • Tax warranties, installations, repairs and some personal services.
  • Tax recreation and entertainment, such as movies, concerts and amusement parks.
  • Tax more online sales, courier services, and storage fees.
  • Tax luxury services such as chartered jets and cosmetic surgery.
  • Increase cigarette tax by 50 cents a pack, to 85 cents.
  • Increase taxes on alcoholic beverages.

Tax Credits

  • Small business tax reduction
  • Expanded college savings credit
  • Create homebuyer's credit

Compare this plan to the Senate and House proposals. 

Text of N.C. Senate Bill 202 - Tax Increases!

Senate Bill 202, among other things, contains many tax increases for us in the Tar Heel state, to wit:

  • Increase top income tax brackets to 8.25% and 8.5% (currently 7.75%)
  • Raise the State sales tax from 6.75% to 7%
  • Apply sales tax to repairs, warranties, installation, movies, athletic events, amusement events/activities, courier and delivery services, and internet sales.
  • Require Limited Liability Companies to pay a franchise tax.
  • Increase the liquor tax by 1.5%.

You may wish to contact the following Legislators to let them know how you feel about this proposed law:

Representative Paul Luebke (Chair of the House Finance Committee)
(919) 733-7663

Senator David Hoyle (Chair of the Senate Finance Committee)
(919) 733-5734

If you don't support the bill, there's a petition to sign.  Make some noise, people!

 

NC House Finance Committee Proposes Tax Increases

Despite criticism from members of both parties, the North Carolina House of Representatives' Finance Committee approved a proposed tax package yesterday.  The proposal includes the following:

  • Increase top income tax brackets to 8.25% and 8.5% (currently 7.75%)
  • Raise the State sales tax from 6.75% to 7%
  • Apply sales tax to repairs, warranties, installation, movies, athletic events, amusement events/activities, courier and delivery services, and internet sales.
  • Require Limited Liability Companies to pay a franchise tax.
  • Increase the liquor tax by 1.5%.

These and other increases would bring in an estimated additional $784 million in revenue for the next fiscal year.

Depressing to contemplate, indeed, but at least a 9 cent per six pack increase in the beer tax was defeated!  At 53 cents per gallon, North Carolina still has one of the highest beer taxes in the nation.  And that doesn't count the sales tax!

North Carolina Has 4th Highest Beer Tax

As a beer aficionado, I was surprised to learn today that NC has the fourth-highest tax on beer in the nation, at 53 cents a gallon. And, of course, we also have to pay sales tax when we as consumers buy the beer.  

The highest tax is Georgia, at $1.01 per gallon.  The states with the highest tax are all in the South, with the exception of heavily Mormon Utah.  Wyoming, at 2 cents a gallon, is the lowest.  Beer Tax Map of the U.S. One thing about Wyoming, though, is that you have to buy beer in a liquor store or bar - it's not sold in convenience, drug or grocery stores.  I know that from personal experience after a long day's motorcycle ride this past August.

I guess I shouldn't be surprised about NC's high beer tax ranking, given our high gas tax.  Wonder if our DWI rates would go up if those two taxes were reduced?

IRS Allows Roth Conversions for Inherited Retirement Plans

In an unexpected announcement (Notice 2008-30), the IRS has stated that it will allow non-spouse beneficiaries of qualified plans (such as a 401(k), 403(b) or employer pension plan) to convert those funds directly to a Roth IRA. 

However, at least for the time being, beneficiaries of an IRA do not have this option.  Another issue is that the employer's plan must allow rollovers to a Roth, since they are not required to do so.

In most cases I recommend that employer plans such as 401(k)s be rolled over to IRAs when eligible, since IRAs generally offer better investment options and more liberal distribution rules.  In North Carolina IRAs are protected from creditors, at least for the original account owner, but this may not be true in all states.  Also, some states (not NC) offer Medicaid eligibility protection for qualified plans but not for IRAs.

The $100,000 income limitation for Roth conversions will disappear in 2010, and the tax due for the conversion can be paid in 2011 and 2012 (by including 50% of the income for the conversion in taxable income for each year).

Titling a Car in Your Living Trust

I often prepare Living Trusts for clients, who like the idea of avoiding the cost, time, and hassle of probate.  However, probate can only be avoided completely if there are no probate assets.  One type of asset that is often overlooked is vehicles.  If someone dies with only a $15,000 vehicle in his or her name, probate will often be required in order to transfer title. 

In the past clients have told me that when they have tried to transfer their cars to a living trust, the Division of Motor Vehicles requires them to pay the 3% highway use tax upon transfer in addition to the new title fee.

However, under North Carolina law, there should be maximum of only $40 due.  Thus, assuming you can get the folks at the local DMV office to agree, the cost of transferring a vehicle to a trust should be fairly reasonable, and certainly less than the cost of probate.

N.C. General Statutes Section 105-187.6 provides, in pertinent part (emphasis added):

(b) Partial Exemptions. – A maximum tax of forty dollars ($40.00) applies when a certificate of title is issued as the result of a transfer of a motor vehicle:

(2) To a partnership, limited liability company, corporation, trust, or other person where no gain or loss arises on the transfer of the motor vehicle under section 351 or section 721 of the Code, or because the transfer is treated under the Code as being to an entity that is not a separate entity from its owner or whose separate existence is otherwise disregarded, or to a partnership, limited liability company, or corporation by merger, conversion, or consolidation in accordance with applicable law.

NC Senate Proposes Reduction in Top Income Tax Rate

Last week the North Carolina Senate produced its version of the state budget, which included:

• Reducing the state sales tax and the top income tax rate each by 1/4 percentage point, eliminating the last of a 2001 increase in both taxes. This would bring the highest income tax rate down to 8%.  The top rate only applies to those with income over $120,000 per year. The House version of the budget did not reduce either.

        - While the sales tax cut would benefit everyone, a quarter percent would not provide significant relief for anyone.  A low-income person spending $10,000 annually on items subject to sales tax would only save $25 over the course of the year!  Likewise, the cut in the income tax will not produce appreciable savings for high income earners.  For someone with taxable income of $220,000 per year, there would be a savings of just $250.  A taxpayer with income of $150,000 would pay only $75 less.  Not that I'm complaining....

• No state version of the federal Earned Income Tax Credit and no funds to help counties pay their share of rising Medicaid costs. The House version did both.

 


Lawyer Fights NC Gas Tax Increase

Attorney Bill Graham of Salisbury is rallying folks against North Carolina's high gas tax rates.  Check out the story on the News and Observer website.  North Carolina has one of the highest gas taxes in the country, but there are valid arguments for keeping the tax as it is.  It is a "fair"  tax in that the persons who use the roads the most pay the most taxes.