Help!!!!

I can't stop spending! I've tried the whole "control your spending" thing, but it just isn't working. I'm $10 trillion in debt and I only make $2.5 trillion per year, and now this Bernanke jerk put me on the hook another $1.5 trillion! My boss is breathing down my neck and China is threatening to repossess all my stuff.

Please, what can I do?

Calm down, Jim. You too can escape from debt by following a few basic budgeting principles. Let's take at look the government's budget and see if can't benefit from some personal finance wisdom.

Take the scale down a couple thousand notches and the United States Government is like a divorced father working to make ends meet. The poor guy makes about $30,000 per year and grapples with a seemingly inescapable debt of $90,000. Instead of paying down the debt's principle, he spends slightly beyond his means, about $32,880 each year, ensuring that that his coffers won't overflow anytime soon.

Each year, he sits down and writes out a detailed five-year budget that always puts him in the black towards the end. He promises to start paying down the debt then, but in practice, the extra cash never materializes. It's not that he doesn't have good intentions. His spending is just too unwieldy.

He has two types of expenditures: personal and court mandated. His personal expenses are the basics. He pays for rent and food, and the occasional beer at the neighborhood bar. Nothing too extravagant. It's becoming tougher to justify those little luxuries as his other expenses have grown. By order of the court, he must pay his ex-wife significant alimony, plus child-support for their growing kid. He could save money by eating out less or watching the game from home instead of heading to the bar for a pint, but those unpopular choices wouldn't make anybody happy.

These are the pretty much the choices facing the U.S. government, but on a drastically larger scale.

How Much Do We Owe?

The U.S. debt is huge. The interest payments alone cost more than $400 billion. China is our Master Card and Japan is our Visa. As a society, we owe them $2 trillion, plus interest. And every single day, we borrow another $1.5 billion.

What's All This I Hear About A Deficit? Is That The Debt?

No. The deficit is our yearly contribution to the debt. When politicians talk about slashing the deficit, they mean that *this year* we will still add to the national debt, but maybe not as much as we thought. Presidents habitually propose "balanced" budgets that slash deficits year after year, ending with a balanced budget after five years. Ignoring the fact that Presidential terms are four years, those proposals mean that the government will continue to add to the debt for every year except the last, when we will contribute nothing to debt, but won't do anything to reduce it either.

When the government spends less than it receives, we have a surplus. This is rare. Surpluses come with the same choices as holiday bonuses. You can blow them on iPods (or F-22 Raptors,) or pay off your student loans and credit card bills (or Social Security.)

Why Is The Planet's Wealthiest Nation In Debt?

Just like our hypothetical divorced father, the U.S. has two types of expenses: discretionary and mandatory. Discretionary spending accounts for one third of our budget and funds all the those nice little things that we want, but aren't required to fund. This encompasses most agencies you know about, like the Pentagon and the Departments of Agriculture, Education, State, Labor, Justice, Transportation, Commerce, and Homeland Security. All of it is nice, but if Congress wanted, it could quickly swing the legislative mace and kill off the FBI and the Navy.

Discretionary spending is also the source of those pork barrel projects that get Senator McCain in such a huff. Technically, pork barrel projects benefit the residents of one Congressional district—think of that spiffy new park down the street—rather than further any national aim. In a budget of nearly $3 trillion, they cost around $18 billion.

The vast majority of the federal budget is eaten up by the mandatory spending that funds our social safety net. The big entitlements are Social Security, Medicare, and Medicaid. The cost of entitlements is driven by the number of eligible citizens, rather than the annual Congressional appropriations process. To our divorced father, they are the court-ordered child support payments.

Congress has the ability to tweak entitlement program eligibility, or scrap them altogether, but politicians don't like futzing with our entitlements because it's one of the easiest ways to get fired.

Don't Mention The War!

You may have noticed, we're at war. The wars in Iraq and Afghanistan add to our national debt, but not to our deficit. How? Emergency spending. Congress doesn't have a rainy day fund like most responsible families. When the United States' car breaks or we have an unexpected health scare, Congress waives its few existing budget rules and appropriates emergency funds, adding to the debt like any normal expense. For those keeping track, the wars have added almost half a trillion dollars to the debt.

Even in peacetime the Pentagon guzzles nearly half a trillion dollars annually for its operating budget. The defense budget is so large that it was one of the only points of reference for the recent $700 billion bailout.

Ok, Debt Is Bad. How Do We Reduce It?

If our hypothetical divorced father can reduce his debt, so can the government.

Keep A Budget: Well at least this one is covered. We have a budget and we know exactly where our money goes. See, here's the President posing with his newfangled "E-Budget." To make your own slightly less fangled version, read our post on How To Build Your Own Budget .

Acknowledge The Problem: Hmm, well, we kinda have this one covered. Maybe you remember that Perot fellow, the one with the ears and the oil who loved talking about our debt? He got it. Some of our politicians get it, but Oh! New Program! WANT!

-sigh-

Stop Digging: This means balanced budgets. The government won't ever pay off its massive debt unless it stops sending more than it takes in year after year. Balanced budgets are only the first step. We really need more money.

Make Small Cutbacks: Um, yeah. Whole think tanks devote their time to finding "small cutbacks" that might save a little cash. If the government really was a divorced father, we'd point him to our post: 5 Expenses You Can't Afford If You Have Credit Card Debt.

Start An Emergency Fund: Lockbox, anyone? This was one of the original ideas behind Social Security and Medicare: start a separate fund with a separate funding stream, and keep the big bad mess away from our annual operating budget. It didn't take Congress long, those naughty little rascals, to figure out that the big box labeled "COOKIES - DO NOT TOUCH" was filled with yummy, yummy cookies, on which they've been feasting ever since. Now the trust funds, as the President likes to point out, are filled with IOUs. Whoops! You, however, are more disciplined than Congress, and have no excuse for failing to fund a rainy day fund.

Snowball: You have an edge over the government in that you can start a debt snowball, paying off your smallest balances first and then applying your newfound cash to payoff the larger balances. The government doesn't have "small" and "large" balances. They simply owe tons and tons of money. Revel in your superiority by reading our post: Use Snowball Method Spreadsheet To Pay Off Debts

Make More Money: This means raising taxes, the government's nearly exclusive source of income. Everyone, even people who want more government programs, hates paying taxes. There's nothing pleasant about it. But it's the only way the government can raise cash. We need to pay for all those nifty services like the Do Not Call List and the Pentagon.

Spend Less: This means cutting services, like that Do Not Call List and Pentagon thing we like so much. Rarely can we agree on what to fund, let alone what to cut. In a budget of $3 trillion, canceling the government's cable service doesn't amount to much. The big dollar savings come from staunching the future cost of entitlements or scaling back defense spending, but good luck getting the needed votes in Congress.

But Isn't Some Debt Ok?

Some debt is the natural byproduct of a healthy society that reinvests in its future. Just as student loans are investments to boost future earnings potential, the government funds projects that can improve society and the economy. We can all agree that the interstate system is rather spiffy.

Economists bicker over how much debt relative to income is healthy for the economy, but most everyone accepts that a reasonable amount of debt—however much that may be—is alright, much in the same way that carrying a mortgage isn't fundamentally bad.

Public policy is the constant, painfully entertaining struggle to provide the right services at the right tax levels. When you realize that cutting spending means fewer police officers or raising the retirement age, and that making more money means raising your taxes, you begin to understand why we have a $10 trillion debt.

What Can You Do To Reduce The Debt?

The most important thing you can do is to keep paying your taxes. If you are feeling especially charitable, you can make a donation directly to the treasury. Make your check payable to the Bureau of the Public Debt, and in the memo section, write: "Gift to reduce the Debt Held by the Public." Mail your check to:

Attn: Dept G
Bureau Of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188

Budget of the United States Government [Government Printing Office]
(Photo: Matt McGee)

If you have a friend who's working overseas, let her know to watch out for this:

I'd like to tip you about a scam going around Japan right now, and possibly Asia (I live and work in Japan), and maybe other places. It's a fax from being sent to foreigners, and in my case to schools. I've received it once and many of my friends have too.

The form is attached [pdf], claiming to be from "Internal Revenue Service IRS.gov", and prompts the recipient to complete form W-8BEN, which is a tax withholding form. Sure, sounds legit at first, but scroll to the 2nd page (page 1 of the fax) which has a W-8BEN "Substitute Form" that asks for personal info including your bank account number, SSN, and a copy of your passport among other things.

Then it asks the person to fax the form back to +1-206-888-1766 within one week to get a ficticious w-9095. Please inform your readers that this is a scam! I (nor my boss) don't know how this person got the fax numbers, and one of my friends recieved this even though she's from England so perhaps they are trying random numbers.

If you receive one of these faxes, report it to the Treasury Inspector General for Tax Administration at ustreas.gov/tigta.

The event, mischaracterized as an "Executive Retreat," was held by one of AIG's insurance subsidiaries for independent life insurance agents, not for AIG employees. These agents were top business producers for the company, and of the more than 100 attendees, only 10 were employees of the AIG subsidiary who were there to represent their company. No AIG executives from headquarters attended. The meeting was planned months before the Federal Reserve Bank of New York's loan to AIG.

AIG went on to say that they are reevaluating their costs, but stressed that business must continue as usual.

"AIG is focused on doing what is necessary to address our capital structure, repay the Fed credit facility and emerge as a healthy global insurer. In the meantime, our insurance businesses continue to operate normally and satisfy the needs of our policy holders."

To that end, AIG will be holding another event for brokers at a Ritz-Carlton hotel in northern California (shown above).

Bloomberg says:

The event, in Half Moon Bay in northern California, is designed to ``motivate and educate'' about 150 independent agents that sell AIG coverage to high-end clients, spokesman Nicholas Ashooh said. ``These sorts of sales meetings are an essential function,'' he said. ``We have them around the world all the time.''

About 50 AIG employees will also attend the meeting. Ashooh said he didn't know the cost of the event or whether the agents AIG is hosting would stay overnight.

Rep. Henry Waxman, who chaired the hearings on AIG and objected to the expenditures has not responded to AIG.

If you're interested in looking over the receipts from the first event, The Smoking Gun has them.

AIG plans meeting at California Ritz-Carlton Resort [Bloomberg]
AIG clarifies agent meeting [AIG]
Rock Out With Your Bailout [The Smoking Gun]

Your 401k Should Stop Free Falling

The bill was heralded as a way to calm the markets following the 778-point mini-crash the day after the original bill failed. That plan hasn't exactly worked. But! If the bill does eventually succeed in stabilizing the markets, everyone with a 401k, IRA, mutual fund, or plain old stocks will directly benefit.

New And Improved FDIC Insurance Limits

The FDIC has upped its insurance limits from $100,000 to $250,000. A couple can now stash half a million dollars in the bank, fully insured by the federal government. The new limits even apply to credit unions.

Technically, the FDIC insurance limits are only extended through 2009 to prevent banks from contributing added billions to the insurance fund that they need in their coffers. Congress will almost definitely make the increase permanent next year, giving banks plenty of time to save up cash to contribute to the reserve fund.

AMT Extension

The dreaded AMT—the parallel tax system designed to snag at least a few tax dollars from the wealthiest Americans—will no longer impact almost 20 million Americans. Couples are now exempt up to $69,950 (an extra $3,700!), while singles are exempt up to $44,350 (an $1,850 increase!) The benefit fades out at $150,000 and $112,500, respectively.

A true fix would have involved indexing the AMT for inflation. Maybe next time.

Other Tax Credits

These apply to smaller subsets, possibly you!

• $8 billion in tax breaks for victims of natural disasters;
• $5 billion for college tuition deductions;
• $400 million to help teachers buy their own school supplies;
• $3 billion in deductions for residents who pay state and local taxes in states that don't have an income tax.

The bailout essentially doubles as an energy policy expanding and extending for eight years several energy credits that were set to expire.

• Homeowners can now claim a 30% tax credit for putting solar panels on their roofs without any limit;
• The same 30% credit applies to wind turbines and geothermal heat pumps;
• A one-year extension of breaks for energy efficient home improvements;
• Plus, the first 250,000 buyers of plug-in electric vehicles are eligible for a $7,500 tax credit.

The energy portions of the bill also throw a lot of money at companies looking to invest in clean, renewable energy, but this is about you, not them.

The bill almost failed again in the House because members of both parties wanted to pay for the tax breaks upfront. The Senate, however, only offset the energy portions of the bill. Remember to one day thank your grandkids for the tax breaks.

Mental Parity

Health insurers are now required to treat mental health issues the same as they would any physical illness. It also prevents health insurers from making their mental health benefits any more restrictive than other covered illness.

Most importantly, without mental parity, we wouldn't have a bailout bill at all. The Senate couldn't introduce a new bailout bill from scratch, so they cut and paste the bailout bill into the relatively uncontroversial mental parity bill. Creative, isn't it?

Homeowners

This is a housing bill, after all. The heart of the bill is the Troubled Asset Relief Program, or TARP. A team of mortgage specialists—possibly the people who got us into this mess but can now benefit from hindsight—will scoop up questionable mortgages held by banks. Toss out the skunk and the room won't stink anymore, right? Presumably, the theory goes, this will allow everybody to calm down and get back to business as usual. Banks will once again lend to businesses so they can meet payroll, consumers will be able to borrow money for cars, homes, and school.

Beyond buying up securitized mortgage, the government may also buy whole mortgages on a case-by-case basis. Even if the government doesn't own your home, the Treasury and other federal agencies have been empowered to modify loans to minimize foreclosures.

Many House members wanted to empower bankruptcy judges to rewrite predatory mortgages altogether, a proposal that was rejected by the Senate.

Homeowners who are able to reduce their mortgages won't owe tax on the difference, as they normally would. And if you're a renter living in foreclosed home, you can stay, so long as you stick to the terms of your lease.

If you are at risk of foreclosure, the Department of Housing and Urban Development has several tips for staying out of foreclosure:

1. Don't ignore the problem!
2. Immediately call your lender and try to work out a solution.
3. Open mail from your lender because it may contain useful information to help avoid foreclosure.
4. Start reading up on your rights and foreclosure laws.
5. You have options to help avoid foreclosure. Study them.
6. Call (800) 569-4287 to find a HUD-approved housing counselor.
7. Spend more on your mortgage, less on everything else.
8. Sell-off assets that you don't need, like that spare car or jewelry.
9. Don't pay anyone to help you avoid foreclosure. They are scammers.
10. Watch out for anyone promising to save your home if you sign a document. You are signing away your house to scammers.

We've written many posts expanding on these topics, including:
4 Things To Try Before Foreclosure
Consumers Are "Unaware" That Lenders Can Help Them Avoid Foreclosure
Lenders Freeze Mortgages Rates For Some
What To Do When Rental Gets Foreclosed?
Mother Saves Family From WaMu Foreclosure With Consumerist's Executive Contact Info
Halt Foreclosure Proceedings By Challenging Your Bank's Claim To Your House
New Ruling Means Banks Could Have Tough Time Foreclosing
32 More Foreclosures Dismissed For Lack Of Documentation
Freddie Mac: Don't Let Fraudsters Steal Your Home
Watch Out For Equity Stripping Scams
How To Save Your Home from Foreclosure
Beware The "Fannie Mae" Prize Draw Scam

HUD also has a new program that can help people transition from predatory mortgages to FHA-insured 30-year fixed mortgages. You qualify if:

• Your troubled home is your primary residence and you don't own a summer home.
• Your mortgage was born before 2008, and you have made at least six payments.
• You need help paying your existing mortgage.
• As of March 2008, the mortgage costs more than 31% of your gross monthly income.
• You haven't been convicted of fraud in the past 10 years or lied on your mortgage application.

Yes, This Affects You

There's been a lot written about the bailout and whether it will work. One article in particular from the New York Times captured poignantly the potential price of apathy and inaction:

In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.

A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again.

Frederic Mishkin — Meyer’s grandson and, until he stepped down a month ago, an ally of Ben Bernanke’s on the Federal Reserve Board — told me this story the other day, and its moral is obvious enough. Many people in Washington fear that the country is starting to spiral into a terrible downturn. And to their horror, they see the public, and many members of Congress, turning into modern-day Meyer Mishkins, more interested in punishing Wall Street than saving the economy.

Let's hope this thing works.

Lesson From a Crisis: When Trust Vanishes, Worry [The New York Times]
Rescue Sweetened With Tax Incentives [The Washington Post]
Bailout Brings With It Diverse Perks [The New York Times]
Details about the Bailout Plan [Daily Kos]
Tips for Avoiding Foreclosure [HUD]
Hope For Homeowners [HUD]

(Photo: Getty)

Newegg's official statement:

Earlier this year, New York State passed a law which potentially forces non-New York State internet retailers to collect and remit New York State sales tax if the retailer’s marketing affiliates engage in certain marketing activities targeted at New York residents.

In response to this law, on June 1, 2008 Newegg.com (“Newegg”) began collecting sales tax on its sales to New York State residents.

Since then, New York State tax authorities have issued additional guidance as to the circumstances in which internet retailers would be required to collect sales tax. Based on this guidance, Newegg has restructured its affiliate marketing program in an effort to ensure that Newegg is not presumed under New York State law to have to collect sales tax.

What this means to our New York State customers is that, effective 12:00 a.m. Eastern Time on August 21, 2008, Newegg will no longer charge sales tax on its sales to you. However, please be aware that you may still have an obligation to pay New York use tax on your purchases. (Use taxes are not charged or collected by Newegg but are paid directly by purchasers to the appropriate taxing authority.) Newegg cannot offer you any tax advice, so if you have any questions about whether you have to pay use tax, please consult an appropriate tax professional.

Disclaimer: Nothing in this email shall be deemed an admission that Newegg has ever been legally required to collect and remit New York State sales tax on its sales to residents of that state. Newegg continues to challenge the validity of section 1101(b) (8) (vi) of the New York State Tax Law.

Newegg stop collecting sales tax: Additional Details [Schiffner]

PREVIOUSLY: Hooray! Newegg Stops Collecting New York Sales Tax
(Photo: Matt & The Camera)

Dear Valued Newegg Customer,
As a result of recent changes in New York State tax law requiring certain out-of-state retailers to collect and remit sales taxes to the State of New York, we began collecting applicable sales tax for all orders shipped to New York addresses starting June 1, 2008.

After careful review and consideration, we are pleased to inform you that we have stopped collecting New York sales tax, effective August 21, 2008. This decision was driven by your direct and candid feedback and our continued commitment to you as our valued customers.

We appreciate your patience as we worked through this process, and would like to reiterate our commitment in offering our customers the broadest product selection, competitive pricing, fastest shipping, and award-winning customer service.

We look forward to continuing to provide you with the premier online shopping experience for all of your IT and consumer electronics needs.

Sincerely,

Bernard Luthi
Newegg.com
Company Spokesperson and
Vice President of Merchandising

Disclaimer: While Newegg no longer charges sales tax to its New York customers effective August 21, 2008, you may still have an obligation to pay New York State use tax on your purchases. Newegg cannot offer you any tax advice, so please refer to applicable law if you have any questions about use tax. Nothing in this email shall be deemed to approve the validity of any New York State law, including but not limited to section 1101(b)(8)(vi) of the New York State Tax Law, which purports to require Newegg to collect and remit New York State sales tax on its sales to residents of that state.

CNN says:

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 40% of their gross monthly income on all household debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.

Once the legislation passes, Rep. Barney Frank, D-Mass., one of the authors of the bill, says that help could come "within days of Bush signing the bill," because lenders are familiar with the details.

How housing rescue bill can help you [CNNMoney]
Homeowners to get aggressive bailout [Star-Tribune]
(Photo: Getty)

"I don't think that any bank that goes to the extent that UBS has gone through to avoid doing what their agreements with the United States require them to do, should be allowed to continue to do business unless they clean up their act," Levin said.

The Senator also revealed a list of "sneaky tricks" that the bank was using to skirt U.S. laws and provide services that it was not licensed to offer. Here's the list:

Tax Haven Bank Secrecy Tricks

• Code Names for Clients
• Pay Phones, not Business Phones
• Foreign Area Codes
• Undeclared Accounts
• Encrypted Computers
• Transfer Companies to Cover Tracks
• Foreign Shell Companies
• Fake Charitable Trusts
• Straw Man Settlors
• Captive Trustees
• Anonymous Wire Transfers
• Disguised Business Trips
• Counter-Surveillance Training
• Foreign Credit Cards
• Hold Mail
• Shred Files

Prepared by the U.S. Senate Permanent Subcommittee on Investigations, July 2008.

One UBS banker has already plead guilty and admitted to (among other things) smuggling diamonds purchased using a US client's Swiss bank account into the country by hiding them inside tubes of toothpaste. Classy!

Sen. Levin: Shut Down Giant Swiss Bank UBS
Investigation Reveals Secrecy Tricks Allegedly Used by Swiss Bankers [ABC News]

"H&R Block apologizes for gays' tax snafus" [Gay.com] (Thanks to Sharon!)

From ABCNews:

In court documents, federal prosecutors say UBS bankers helped set up many of the secret accounts in Liechtenstein and, overall, hid as much $20 billion belonging to US citizens.

"Sums are enormous and UBS appears to have been particularly aggressive in the way they marketed their activities in the US and elsewhere," said Christensen. "So UBS is extremely vulnerable to losing their license in the US."

One UBS banker, Bradley Birkenfield, pleaded guilty last month and admitted to smuggling cash and diamonds for Americans trying to hide their wealth from the IRS.

In federal court documents obtained by ABC News, federal prosecutors allege that Birkenfield's bank trained bankers traveling to the US in "techniques to avoid detection" by law enforcement authorities, "including training bankers to falsely state on customs forms that they were traveling into the United States for pleasure and not business".

There will be Senate committee hearing tomorrow and ABC says that "among those called to testify are foreign bank account holders, including one of the wealthiest men in Los Angeles," and that the tax dodgers could face criminal prosecution.

Hundreds of Super Rich Under Investigation [ABCNews]

• See if the holiday applies to local taxes, too. Check with your state tax commission to see what your town offers before you hit the local mall.
• Check for exemptions. Find out which items the tax holiday excludes before putting together a shopping list.Review your receipt to ensure that you don't get charged.
• Shop online when your state is having a sales-tax holiday. Any retailer that charges sales tax for purchases shipped to your state must waive it, as long as the order is processed within the holiday time period.

Some States Extend Sales-Tax Holidays This Summer [Smart Money]

— FREE MONEY FINANCE

(Photo: ImNotQuiteJack)

Because retailers will be reimbursed for the cost of the DTV boxes, most states will require the retailer to collect taxes for the full amount of the transaction. Just to make things even more confusing, a few states appear to be making an exception to their tax laws for the DTV program... and... To make a long story short: If you live in Texas, Pennsylvania and Wisconsin — check your receipts, because Best Buy was incorrectly charging sales tax on the full amount and is now issuing refunds. If this issue is confusing enough that a large retailer like Best Buy got it wrong, it's likely that other retailers have also made some errors.

Reader and blogger M got a letter from Best Buy apologizing for the error, complete with a check for $3.30.

If you have any questions about the amount of tax you were charged for your DTV box, we recommend contacting your state's attorney general or your state's Comptroller's office. They should be able to explain the specific laws of your state.

Best Buy Letter [Texas Money Talk]
(Photo: classeamplifiers )

The absurdly hypocritical claims were made to weasel out of a British tax on potato crisps and other potato-based foods. London Justice Nicholas Warren ruled that Pringles were made, not of potatoes, but out of good 'ole fashioned American chemicals.

Potato chips "give a sharply crunchy sensation under the tooth and have to be broken down into jagged pieces when chewed," the Cincinnati-based company's lawyers argued. "It is totally different with a Pringle, indeed a Pringle is designed to melt down on the tongue."

Warren agreed. Pringles aren't "made from the potato" for the purposes of the tax office's exemption, he said. He didn't say what Pringles are, other than that they're tax-exempt.

What's that old adage about a duck?

Pringles are not potato chips, judge says in British tax case [L.A. Times]

IRS Increases Mileage Rates through Dec. 31, 2008 [Press Release]

(Photo: beebo wallace)

"A Primer for Young People Starting Their First Job" [New York Times]
(Photo: webg33k)

JK Harris wasn't just misrepresenting its services. It also made it very difficult for customers to resolve any questions or complaints:

According to Cooper's complaint, JK Harris regularly advertised it had more than 450 offices nationwide. However, the complaint contends that only the main office in Charleston handled consumers' files.

If a consumer wanted to meet with a JK Harris representative about their file they had to physically travel to Charleston.

The other offices were staffed only by sales representatives who could not help consumers with their tax problems.

JK Harris also claimed consumers' cases would be handled by "tax experts" or "ex-IRS agents" when in fact the people handling the cases did not fit those descriptions and did not have tax expertise.

JK Harris case managers changed frequently, and consumers complained they often had to provide the same information to the company several times.

Under the terms of the agreement, JK Harris now has to:

• pay refunds to customers if it can't help them with their tax debts, or if the IRS doesn't accept the OIC;
• provide accurate information on when a customer can qualify for an OIC and how frequently the IRS accepts such claims;
• stop lying with its advertising and sales practices;
• never offer or perform credit repair services.

If you know someone who lives in one of the following states, they should contact their attorney general's office for more information on how to qualify for a refund from JK Harris (we have the number for NC because that's where the article was published):

If you owe back taxes and aren't sure what to do about them, the best thing to do is pay a visit to an experienced and knowledgeable accountant for help. He or she should be able to help you figure out how much you owe (in some cases you may have actually overpaid, and simply filing the appropriate forms for the missing years will solve your problem) and help you set up a repayment plan that fits within your budget.

"'Pennies On The Dollar' Tax Relief Company Ordered To Pay Refunds" [Digtriad]
(Photo of sneaky snake: Getty)

"Where's my freakin' money?!" is what some people are wondering about their stimulus payment. Here's some bad news, you're getting your money later than you thought if you:

* Used a tax prep service, like TurboTax, to file your taxes
* AND had filing fees deducted from the refund, took out a Refund Anticipation Loan, or entered into any other loans
* AND had refund direct-deposited

When will you get your money?

In this case, you will get your payment on the paper check payment schedule. Why? Because the IRS is paying your tax prep service, and then the tax prep service pays you. Guess how the IRS is paying the tax prep service? With a paper check. (You still get yours direct-deposited, though.)

Here's the paper check payment schedule based on the last 2 digits of your social, and the relevant part of the IRS FAQ...

00 - 09 —-> May 16
10 - 18 —-> May 23
19 - 25 —-> May 30
26 - 38 —-> June 6
39 - 51 —-> June 13
52 - 63 —-> June 20
64 - 75 —-> June 27
76 - 87 —-> July 4
88 - 99 —-> July 11

Q. I chose direct deposit for my 2007 tax refund but also requested a refund anticipation loan (RAL) from my preparer. How does that affect my stimulus payment?

A. Taxpayers who use Refund Anticipation Loans (RALs) or enter into any other loans or financial agreements with a tax professional, such as agreeing to have return preparation fees deducted from their refunds, cannot receive their stimulus payments by direct deposit and instead will get paper checks based on the paper check distribution schedule.

Looks like it's Skippy and Sanka for you for a little while longer, boyo!

(Photo: Chad Beckerman)

Dealnews has a roundup of twelve different retailers that give shoppers discounts for cashing and spending their tax stimulus checks in-store. There's deals by Kroger, Safeway, ShopRite, SuperValu, Meijer, RadioShack, Sam's Club, Sears/Kmart, Staples.com, Wal-Mart, Rosenau Powersports, and Zonder.com. Dealnews breaks down what the specific deals are, as well as going into the fine print and limitations. Personally, we're spending our stimulus check at the bank but if you're already going to spend a big chunk at one of these stores, it might not be a bad idea to take advantage of some of the offers.

Make the most of your stimulus check: Stores that offer stimulus check bonuses [Dealnews]

Here's another common question...

Q. I have moved since filing my 2007 tax return. How will my payment reach me?

A. You should file a Form 8822 with the IRS and a change of address notice with the U.S. Postal Service. This will ensure your check is sent to your new address. Without your current address, the check could be returned to the IRS as undeliverable.

Economic Stimulus Payments: Most Frequently Asked Questions [IRS]

Where's My Stimulus Payment? [IRS] (Thanks to Josh!)
(Photo: Getty)

The New York Times explains:

The issue is not whether people should pay tax when they buy goods from out-of-state sellers like Amazon. For decades, the state has required them to pay sales or use tax.

The question is whether the vendors must collect that tax on behalf of the state. Generally, only those companies that have a physical presence — like an office or store — in the state where the purchase is made are required to collect the tax.

The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon has hundreds of thousands of affiliates — from big publishers to tiny blogs — that feature links to its products. The state law says that thousands of those have given an address in New York State, although the addresses have not been verified.

The law says that if even one of those affiliates is in New York State, Amazon must collect sales tax on everything sold in the state, even if it is not sold through the affiliate.

Amazon is challenging the constitutionality of this interpretation of the law and claims that the statue is "overly broad and vague," says the Times. They also claim that the law is unconstitutional because it was written specifically for Amazon, thus violating the 14th amendment.

Amazon Sues Over State Law on Collection of Sales Tax [NYT]
(Photo: Guillermo Esteves )

I have a question about the Stimulus Checks that we will all be receiving. If we owe money to the IRS from our 2007 tax year, will it be deducted from the stimulus check and the remainder passed on to me? In a normal situation, I would say yes. Considering that the IRS wants you to spend it all to boost the economy and not pay off debt with it, it also makes sense to give it all to me. Do you know what the correct answer is? Thank you for your time.

Well, Adam, the answer is "maybe you will get it and maybe you won't." The IRS has the right to withhold payments if you have certain kinds of debts. Student loans in default or unpaid child support, in addition to unpaid tax obligations, are cause for the IRS to confiscate your money and they are generally not too shy about doing so. Whether they are set up to withhold this special payment is anyone's guess. The IRS initially addressed this issue on their stimulus payment FAQ, but that question has been mysteriously deleted.

Phoung Cat Le at the Seattle Post-Intelligencer has a great tax rebate FAQ, for those of you who have more questions.

Answers to tax rebate questions [Seattle P-I]

So what do you do? The Tax Cat has taken a break from his vacation to let us know that those of you who were unaware that sending your tax refund to your IRA would send your stimulus check to the same account can withdraw the rebate without incurring any penalties:

To qualify for this relief, funds must be taken out by April 15, 2009, in most cases. Without this relief, taxes, penalties and other special rules would apply to amounts removed from these accounts. Regular refunds are not eligible for this relief.

Eligible tax-favored accounts include traditional and Roth IRAs, health savings accounts (HSAs), Archer MSAs, Coverdell education savings accounts (ESAs) and qualified tuition programs, also known as QTPs or 529 plans. Thus, for example, a taxpayer whose $1,200 stimulus payment is directly deposited into his or her IRA can take out anywhere up to $1,200 from the IRA, tax-free and penalty-free.

In general, the deadline for these withdrawals is the due date or extended due date for filing a 2008 return. This means April 15, 2009, for most taxpayers, or Oct. 15, 2009, for those who obtain tax-filing extensions.

Information on how to claim this relief will be included in your 2008 tax instructions.

Relief for Stimulus Payments Withdrawn from IRAs and Tax-Favored Accounts
[IRS]
Tax Cat [Facebook]

• Kill the [credit] card debt
• Add to it by getting a retailer bonus
• Buy an item that's good for the environment
• Save it in a retirement account
• Sock it away for college expenses
• Have needed medical work
• Take a vacation
• Give it away

CNN Money has similar advice:

• Spend it on environmentally-friendly items
• Get a retailer bonus
• Pay off debts
• Invest it in career development

As does Smart Money:

• Don't get a refund-anticipation loan
• Save it for your emergency fund
• Contribute to an IRA
• Pay off debt
• Save it for college expenses

MSN Money takes a different course and suggests you invest your rebate. But with all this advice, what will people do? As of this writing, an MSN Money poll of almost 150,000 people listed the following as what respondents planned to do with their rebates:

• Pay bills, mortgage, or rent — 24%
• Save it — 22%
• Pay down debt — 20%
• Spend it on food, gas or other essentials — 13%
• Spend it on non-essentials — 11%

That said, responses to the issue are very widely varied.

In the end, the prudent choice seems to be to pay down debt or save the money. The fun thing would be to blow it on a big screen TV or some other sort of purchase. There are certainly lots of choices — but what do you plan to do with your rebate?

— FREE MONEY FINANCE

From the AP:

New Jersey Gov. Jon S. Corzine said Tuesday he's open to using a "sin tax" to help provide funding for struggling hospitals.

His comments came after Amy Mansue, of Children's Specialized Hospital, suggested a fast food tax during a meeting between Corzine and hospital leaders on proposed state hospital and health care aid cuts.

Corzine called it "a constructive suggestion."

"We would be happy to examine that and debate that with the Legislature," Corzine said.

But Senate President Richard J. Codey said he wouldn't favor a fast food tax.

"That's a tax on poorer people and people with kids," said Codey, D-Essex.

Detroit weighed a 2 percent tax on sales at fast-food establishments in 2005, but the plan didn't become law.

A fast food tax to help NJ hospitals? Corzine open to idea [NJ] (Thanks, Andrew!)
(Photo:Morton Fox)

His celebrity could raise attention about tax defiance and deter protesters, said Assistant Atty. Gen. Nathan J. Hochman of the Justice Department's tax division.

"The three-year sentence Mr. Snipes received today sends a loud and crystal-clear message to the tax defier community that if they engage in this illegal conduct, they can and will go to jail," Hochman said.

Despite Snipes' claims that he was taken advantage of, Hochman said the actor was a "disciple" of the tax defiance movement who understood that his actions were illegal.

"It's more than just an accident. It occurred on numerous occasions over many different years," Hochman said. "This wasn't an innocent victim of 'jackals.' This is someone who willfully and knowingly participated."

Before his sentencing, Snipes told the judge that his wealth and celebrity attracted "wolves and jackals like flies are attracted to meat," and he called himself "well-intentioned but miseducated."

Snipes was convicted on three misdemeanor counts of failing to file tax returns for 1999-2001. His former "tax advisers," Douglas Rosile and Eddie Ray Kahn were respectively sentenced to 54 months and 10 years in jail.

The decision is a tragic setback for Tax Dog, and a reminder to always pay your taxes.

Wesley Snipes sentenced to 3 years in prison [L.A. Times]
(AP Photo/Phil Sandlin)

Tax rebates to start arriving Monday [CNN Money] (Thanks to Caren!)
(Photo: MBru)

A 2004 U.S. Government Accountability Office (GAO) study found that 61% of American corporations, including 39% of large companies, paid no corporate income taxes between 1996 and 2000. Last year, corporations shouldered just 14.4% of the total U.S. tax burden, compared with about 50% in 1940.

Stats from the Congressional Budget Office show a trend toward individual citizens paying more in the years to come, and corporate "citizens" paying even less:

The tax burden on individuals is expected to climb from $1.16 trillion in 2007 to $1.21 trillion this year, according to the Congressional Budget Office (CBO), while corporate tax receipts are expected to decline from $370 billion to $364 billion. By 2013, the CBO estimates, ordinary taxpayers' bills may climb to $1.86 trillion while corporate tax bills drop to $327 billion.

"Are You Paying For Corporate Fat Cats?" [Parade] (Thanks to Michael!)
(Photo: danperry.com)

From their press release:

"Grocery bills represent a significant expenditure for the average American family. In fact, the average family of four spends between $105 and $235 per week* on food purchased at a store and prepared at home," said David B. Dillon, Kroger chairman and chief executive officer. "Kroger's program allows our customers to stretch their grocery dollars further. We are excited about the opportunity to touch the lives of millions of families across the country by helping them extend their household budgets through this special program."

5. Myth: The tax rebate is taxable income and I'll have to pay taxes on it next year.

Fact: The rebate is a rebate. It is not taxable income. You will not have to pay taxes on this money.

4. Myth: People who aren't normally required to file a tax return can't get the rebate.

Fact: If you have at least $3,000 in certain types of income, you may be eligible for the economic stimulus payment. People who qualify include Social Security Recipients, Veterans Affairs Recipients, Railroad Retirement Recipients, and Low-Wage Workers.

3. Myth: The IRS will call or email you about your rebate check, and they can help you get it faster if you give them your bank account information.

Fact: The IRS is not going to contact you about speeding up this rebate check, and they never contact anyone via email. Ever. At all. Filers who used direct deposit will see their money more quickly, but no one can help you get it "faster." You will receive your money based on the last two digits of your social security number. You can check out the schedule by clicking here. Don't give out your banking info to scammers!

2. Myth: I don't qualify for the rebate because I'm a stay-at-home mom and don't make $3,000.

Fact: If you're married, filing a joint return, and have $3,000 in taxable income between you — you qualify for the rebate.

1. Myth: This is just an advance on next year's tax return! I'll get less next year!

Fact: This is incorrect. Marketplace's Tess Vigeland figured out where this silly little rumor was coming from: "the last time the federal government issued checks, back in 2001,the stimulus was indeed an advance, of sorts, on the Bush administration's tax cuts. The bottom line went from 15 percent 10 percent. So, maybe folks are assuming that it is the same this time. It is not. This is not an advance on next year's refund."

We know you're all sad that tax season is over, but you can always snuggle up to Tax Cat on Facebook.

(Photos:Chad Beckerman)

Here are some post offices that are open late in various metropolitan areas.

New York City: James Farley Post Office 421 Eighth Avenue and 31st Street Open 24 hours.

Chicago: Cardiss Collins Postal Store 433 W Harrison ST FL Lbby Open 24 hours.
Los Angeles: Airport Station, 9029 Airport Blvd.;
Los Angeles Processing & Distribution Center, 7101 S. Central Ave.;
Long Beach Processing & Distribution Center, 2300 Redondo Ave.;
City of Industry Processing & Distribution Center, 15421 Gale Ave.;
Pasadena Main Post Office, 600 Lincoln Ave.;
Van Nuys Main Post Office, 15701 Sherman Way;
Santa Ana Processing & Distribution Center, 3101 W. Sunflower Ave; and
Santa Ana Main Post Office, 2201 N. Grand Ave (all open until Midnight)

San Francisco: Main Branch 1300 Evans St (Open Until Midnight)
Airport Branch (660 W. Field Road) (Open Until Midnight)

Dallas: Dallas Main Post Office, 401 DFW Turnpike - (Open Until Midnight)

Atlanta: Atlanta Main Post Office 3900 Crown Road SW (Open Until Midnight)
Boggs Road Postal Store 1605 Boggs Road (Open Until Midnight)
Athens Main Post Office 575 Olympic Drive (Open Until Midnight)
Decatur Main Post Office 502 W. Ponce de Leon Avenue (Open Until Midnight)
Sandy Springs Postal Store 227 Sandy Springs Place NE (Open Until Midnight)
Marietta Main Post Office 257 Lawrence Street (Open Until Midnight)

Cincinnati: 1591 Dalton Ave (Open Until Midnight)

Orlando: Orlando Post Office 10401 Post Office Blvd. (Open Until Midnight)

Richmond: 1801 Brook Road - (Open Until Midnight)

Pittsburgh: (North Side) 1001 California Ave. - Window open until 9 p.m. Final mail pickup at midnight.
(Downtown) 700 Grant St. - Window open until 6 p.m. Final mail pickup at midnight.

Massachusetts: (only one post office in Massachusetts will be staying open.) Fort Point post office in Dorchester near South Station (24 Hours).

Philadelphia: 2970 Market ST RM 134c (Open Until Midnight)

Seattle: Seattle, Riverton Station, 15250 32nd Ave S. (Open Until Midnight)

Tucson: 1501 S. Cherrybell Stravenue (Drop-off Until Midnight)

Add your own late night post offices in the comments and help your neighbors get their taxes in on time. Thanks!

(Photo:jenna_belle)

"Another $50 million will come from requiring online retailers like Amazon that do not have a physical presence in New York to collect sales taxes on purchases made by New Yorkers and remit them to the state.

Oddly, until now New York residents have been asked to voluntarily provide their total sum of online purchases on their state tax forms in order to estimate a tax payment, but InternetNews wrly notes it "evidently has fallen short" of the expected revenue goals set by the state.

Although there's likely to be a legal challenge to the law, it's also possible that other states will use it as a model to levy their own sales taxes whenever there's an affiliate presence in-state. In the near future, at least, it looks like New Yorkers will soon have to start paying sales tax on Amazon purchases.

"Legislators Back Spending Rise in State's Budget" [New York Times] (Thanks to Andres!)
"'Amazon Tax' Lands in New York" [InternetNews]

RELATED
"Amazon Doesn't Love New York Tax Plan" [InternetNews]
(Cat: izarbeltza)

From the P-I:

Earlier this week, one of my colleagues sat down at her computer to file her income tax return electronically using TurboTax. Twice, her return was rejected. The message she got back was startling: the IRS already had a tax return filed under her Social Security number.

How could this be? She hadn't filed yet.

Panicked, she called the Social Security Administration to make sure her name matched her Social Security number. It did. Then she called the IRS. A representative pulled up the tax return filed under her name and Social Security number, and asked to verify the address. It wasn't hers.

A thief had filed a fraudulent tax return under her name, and would likely get her $1,000 refund, not to mention her $600 economic stimulus payment. Thus began her tedious task of clearing her name: filing a police report, filing a complaint with the Federal Trade Commission, putting a fraud alert on her credit report and mailing in her tax return with copies of her driver's license, police report and other documents to prove her identity.

From the AP:

Douglas Shulman, who took over as IRS commissioner three weeks ago, said that by this fall the tax agency will have specially trained people on call to help victims of identity theft. He pledged that people with a problem will get through to a person who can help them.

"We understand the personal devastation that an individual feels when their identity has been stolen," he said.

When a thief steals your tax refund [Seattle P-I]
(Photo:BenPopken)

Gawker Media polls require Javascript; if you're viewing this in an RSS reader, click through to view in your Javascript-enabled web browser.

If you just remembered about this whole 'paying The Man' thing, don't fret, here's our tax advice from the past few months, much of it brought to you by our adorably knowledgeable helper, Tax Cat:

• 
  
• Tax Tip For Lazy People: How To Get An Extension On Your Income Taxes
• 
  
• Tax Cat: Help! I Owe The IRS Money And I Don't Have Any!
• 
  
• Tax Cat: Let's Learn About "Necessary And Ordinary Business Expenses"
  
• 
  
• Tax Tip: Mortgage Forgiveness Debt Relief Act of 2007
• 
  
• Avoid An IRS Audit
• 
  
• What to Do If You Can't File Your Taxes on Time
• 
  
• Don't File Taxes? You Gotta To Get A Stimulus Check
• 
  
• Choose A Qualified Tax Preparer
• 
  
• Tax Cat: Let's Learn About "Necessary And Ordinary Business Expenses"
• 
  
• 19 Free Tax Services Tested And Rated
• 
  
• What Do I Have To Do To Get My $600 Tax Credit?
• 
  
• Who's Afraid of Taxes? Not You!
• 
  
• What To Do If You're Missing Your W2
• 
  
• 2007 Federal Tax Law Changes
• 
  
• 6 Tax Credits That You Shouldn't Overlook
• 
  
• Low Income? You May Qualify For Tax Saver's Credit
• 
  
• Tax Tip: Home Offices Are Worth The Deductions If You Qualify
• 
  
• Self-Employed? Here's How To Do Your Taxes
•