Since that time, the State of the Union speech has obviously become longer than seven handwritten pages, and so it can be difficult to understand what particular goals are being suggested. Last week, President Barack Obama gave the 220^th State of the Union address in Washington, DC, in which he mentioned taxes several times. But with other topics being covered, most people were discussing jobs and healthcare by the next day. So what new tax legislation did Obama suggest? And how does it affect our daily lives? Let’s break it down.

1. “If these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.”
   “A modest fee” refers to a tax. The President is recommending that we tax the largest firms to regain some of the taxpayer money that went into the bailouts. Admitting that the Troubled Asset Relief Program and other government assistance to financial institutions are as popular as a root canal, he said that these bailout programs were necessary to save the economy. Taxing those institutions that benefited from these bailouts would go a long way to recouping some of the taxpayer’s money used to rescue them in their time of need.
2. “Let’s also eliminate all capital gains taxes on small business investment, and provide a tax incentive for all large businesses and all small businesses to invest in new plants and equipment.”

  It seems that President Obama is suggesting that the capital gains tax rate for small business investment should be “0”, no matter what the income is. The purpose of this proposal is to encourage people to invest their hard-earned money in small business stocks and spur a lackluster economy to life. A capital gain is the money a person makes when they purchase something at one price and then sell it for more money. Traditionally, people are taxed for that money. An example of this would be a person buying an object for $50, and then selling it for $150. If that capital gain is short term, i.e, sold and bought within that year, then that person can be taxed over 35% for the profit. Obviously, going to 0% would be a big difference.

The President’s statement on providing a tax incentive for businesses to invest in new plants and equipment refers to extending the liberal write-offs of capital equipment that expired at the end of last year. These provisions allowed a Section 179 deduction in the year of purchase and a special depreciation allowance of 50 percent in the year of acquisition for capital investments.

1. “And, yes, it means passing a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America.”

When you hear somebody on Capitol Hill use the word “incentive”, then there is a good chance they are talking about taxes. It is very likely that President Obama is suggesting that either consumers of clean energy and/or those who manufacture clean energy products will have tax incentives such as credits.

1. “Let’s take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants. And let’s tell another 1 million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years.”

This suggestion is pretty straightforward. If you or your dependent goes to college, you can get tax credits. Like the clean energy incentives mentioned above, the student tax credit would be another incentive for people to invest in their own education. Deductions and credits are the two most popular tax incentives. Unlike a deduction, which reduces your taxable income, a tax credit is a literal, dollar-for-dollar reduction on how much you owe in your taxes.

1. “We will not continue tax cuts for oil companies, for investment fund managers and for those making over $250,000 a year. We just can’t afford it.”

President Obama is supporting extending tax cuts to those with income under $250,000.  On January 1, 2011, the tax cuts enacted under President Bush will expire, so it was expected that President Obama would mention his stance on their status during this speech. The current Administration favors the reinstatement of the pre-2001 36 percent and 39.6 percent tax brackets on income and the increase of the top tax rate on capital gains and dividends from 15 percent to 20 percent. This proposal is expected to increase income taxes for about 5 percent of all taxpayers with most of the increase geared towards those earning more than $250,000.

Of course, as enlightening as it is to see the direction that any branch of our government wants to head, the recommendations that a president makes in the State of the Union Address are just that – recommendations.  We can’t be sure of which goals the rest of our government will support or implement. If you have any questions about taxes or require a free tax consultation, please contact us at (866) 840-1829.

This question ultimately comes down to the reader. Each of decision depends on what the government can take out of your paycheck. But ironically, most people intellectually and emotionally involved with these polical issues are very careless about how they manage their own tax returns.  92% of individuals do not know where their tax dollars are going.  For this reason, people needlessly spend more on their taxes than they have to.  Before an informed decision can be made by the taxpayer on  macroeconomic decisions, it is important to understand how taxes affect their own businesses and/or families.  Knowing how to better strategize his or her own taxes can enable the tax payer (and voter) to make decisions on the political candidates that support the real intersts of the voter.

There are 8 tips The Tax Club offers to its clients to better understand their tax situation. Although The Tax Club does not take a stance on the personal politics of its customers, it does its best to enable the client to make the best decisions possible to save money on the existing tax code.  Their motto’s question always makes one think, “How Much Are you Overpaying in Taxes?”

1. Tax Reform – The current individual tax rates are expiring at the end of 2010 and there are talks that the government might increase the tax rate to as high as 49%. We can discuss the implications of elevated tax rates and how people can start preparing for this.
2. Business Entities – People always want to know if they should incorporate or just stick to their entity’s disregarded status. We definitely can give a lot of information on this.
3. Retirement Distributions – Because of the tough times, a lot of people are taking money out of their retirement accounts. We can give information on the tax implications on this.
4. Ponzi Scams – Because of the recent Madoff scandal, we can give information on whether victims of these elaborate scams can deduct their losses.
5. Offshore Tax Shelters – The IRS wants to narrow the tax gap and have trained their eyes on the foreign financial interests of the taxpayers. Everybody, including investment banks (UBS is very much in the news because of this) have to disclose information on any financial account in a foreign country if the aggregate value exceeds $10,000 at any time during the calendar year. The IRS has extended the filing deadline of the report from June 30 to Sept. 23. ( We don’t deal with this issue a lot so we may not be able to provide a lot of info on this one.
6. Cancellation of Debt Issues – Because of the tough economic times, a lot of people want to know if they can exclude their discharged credit card debt or mortgage loans on their principal residence and investment properties.
7. Homebuyer’s Credit – This expires on Dec. 1^st but a lot of people may still be interested in this.
8. Expiring Small Business Tax Credit and Refund Claims – The provision in ARRA that allows small business owners to carry back up to 5 years (instead of just two) their 2008 NOL will expire on Sept. 15^th and the Sec. 179 inflated deduction threshold of $250,000 (instead of the regular $135,000) expires on December 31^st.