The Internet Gambling Regulation, Consumer Protection and Enforcement Act introduced by Rep. Barney Frank announced this week that 50 members of Congress signed on as co-sponsors of the legislation.

“Reaching this milestone illustrates that momentum is growing for a shift in U.S. policy and a rewrite of U.S. Internet gambling laws,” said Jeffrey Sandman, spokesperson for the Safe and Secure Internet Gambling Initiative. “The list of supporters will continue to grow as more representatives are educated on the subject and increasingly hear from their constituents that Internet gambling regulation presents the only viable way to protect consumers, since attempts to prohibit the activity have completely failed. We also expect an increased spotlight on Internet gambling as a way to augment federal revenues and help cover the cost of necessary policy initiatives.”

Gambling Bill Said to Protect Consumers

The bill would establish a framework to permit licensed gambling operators to accept wagers from individuals in the U.S. and mandates a number of significant consumer protections, including safeguards against the following:

• compulsive gambling
• underage gambling
• money laundering
• fraud
• identify theft

Additional provisions in the legislation reinforce the rights of each state to determine whether to allow Internet gambling activity for people accessing the Internet within the state and to apply other restrictions on the activity as determined necessary. The legislation also would allow states and Native American tribes with experience in regulating gambling to play a role in the regulatory process.

But Is It All About the Tax Revenue?

An analysis shows that collecting taxes on regulated Internet gambling would allow the U.S. to capture much-needed revenue in an amount ranging from $48.6 billion (excluding online sports gambling) to $62.7 billion (including online sports gambling) over the next decade.

That kind of cash could pay for a lot of stimulus.

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This week Amazon.com Inc. sent a letter to California legislators threatening to sever business relationships with affiliates in the state if they passed a law forcing the Seattle based company to collect and remit California sales tax.

Last week Amazon sent letter to North Carolina and Hawaii as they got closer to passing similar legislation. The states are looking to require e-commerce companies with online affiliates in their state to collect tax. These affiliates receive commission from sales that are the result of links on their own websites. According to the WSJ, the letter sent to California Gov. Arnold Schwarzenegger and leaders in state government called the proposed law, AB 178, unconstitutional and said it ”ultimately would require sellers with no physical presence in California to collect sales tax merely on the basis of contracts with California advertisers” .

Geoffrey A. Fowler reports:

Assemblywoman Nancy Skinner, a Democrat, said that the law could raise nearly $150 million in revenue for the state when she proposed it in February. The California law is based on one passed by New York last year, which Amazon and Overstock.com Inc. have challenged in court. Ms. Skinner’s bill is still pending its first hearing in committee.

Aside from desperately needed revenue for the State of California, the new tax law is hoped by some to ‘level the playing field’ between brick and mortar stores and online retailers. They cite boarded up store fronts and struggling local economies.

I don’t know about you, but when I buy online, it’s not because I’m saving the 10% sales tax (yes, where I live it’s just under that). It’s because shopping online is convenient. It’s time efficient. Sure I might save a little on with the discounts and tax savings, but I make up for it in impulse purchases and shipping costs.

Do online retailers really have a competitive advantage, and if so, does it have anything to do with sales taxes?

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The Times of India reports on how Microsoft will move employees offshore if President Obama’s plan to outlaw tax breaks for offshore companies passes:

US tax rules let companies defer paying corporate rates as high as 35 per cent on most types of foreign profits as long as that money remains invested overseas. Obama says he wants to end such incentives to keep foreign profits tax-deferred so that companies would invest them in the US. While the rules were designed in 1997 to protect US companies from paying excessive tax to other governments, Obama administration officials say it has evolved into a way to duck US liabilities.

Ballmer said that, while the Obama proposals would preserve expense deductions related to research and experimentation costs, the overall deduction limits for companies that defer tax on foreign profits would raise the cost of employing US workers. Fiduciary responsibility to shareholders would require Microsoft to cut costs, he said, meaning many jobs would be moved out of the country.

Obama also needs to propose reducing the corporate tax rate at home. Otherwise, companies have no incentive to stay here.

Happy April 15th! If you haven’t yet filed your taxes, there are several ways to file for an automatic 6-month extension. Don’t be late!

• Send in Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by mail by midnight tonight. Click, print, scribble, run to post office. Do it now. 
• E-file an extension using tax preparation software on your own computer or with just about any retail tax preparer.  
• Use Free File Fillable Forms to file for an extension online.

Note: If you ask for an extension via computer, you can also choose to pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account.

Warning:

Remember – an extension gives you extra time to get your paperwork to the IRS. It does NOT extend your time to PAY your taxes. Sounds crazy but it’s true. You’ll owe interest on any amount not paid by the April deadline, plus a late payment penalty if you haven’t paid at least 90% of your total due by that date.

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Today is April 13, 2009. You know what that means–two days until the dreaded April 15. If you haven’t gotten your forms together yet, avoid stress by filing a tax extension, which gives you until October 15 to hand in your tax forms.

It beats filing late, which allows the government to charge you 5% of the total taxes you owe each month until you send your the return. After 60 days, they bump up the minimum penalty to $100/month or 100% of owed taxes–whichever is smaller.

You can find the tax extension form–cordially known as Form 4868–here, at the forms section of the IRS’ website.

Note that the IRS doesn’t let you off the hook for interest if you file a tax extension form, so try to delay sending in your taxes as little as possible.

You can also file by calling the IRS at 1-800-829-1040.

The countdown is on! If you haven’t yet file your 2008 tax return (or an extension), now’s the time to get busy. If you make a mistake in your rush to beat April 15th, the processing of your return could be delayed, which means you won’t recieve that refund as soon as you could have.

Lucky for you, those early filers have been making mistakes for weeks and you can learn from them. According to the IRS, these are the most common erros on 2008 tax returns:

• Recovery Rebate Credit - If you did not receive a stimulus payment in 2008 or did not receive the maximum amount, you may qualiy for a Recovery Rebate Credit. To calculate the correct amount of the credit, you must know the correct amount of the stimulus payment you received.
• Social Security Numbers - These nine digits are easy to transpose, but you must get them right. Enter SSNs exactly as they appear for each person listed on your tax return.
• Dependent’s Last Name – If you can believe it, a lot of people are misspelling their dependent’s last names.
• Filing Status – If you don’t choose the correct filing status for your situation, the IRS may delay processing of your return.
• Math  - When you file electronically, you don’t have to worry about math errors. However, a lot of people still file hard copies, and they make mistakes.
• Computation – Taxes are complicated. Mistakes are easy to make. If you’re doing your own taxes, take your time. The IRS is seeing a lot of mistakes this year in taxable income, payments, and various credits such as the Earned Income Credit, and the child and dependent care credit.
• Bank Account Numbers - Ouch, this could really hurt. Make sure you have the right financial institution routing and account numbers for your direct deposit refund.
• Signature and Date - Unsigned tax returns are not valid. Seems a little silly with all the electronic filing, but still. The IRS is serious about signatures – electronic or handwritten.
• Adjusted Gross Income – This is a little tricky. It comes into play when you file electronically for the first time. In order to allow you to ’sign’ the return using a personal identification number, the IRS system verifies your identity by requesting you to enter the AGI from you originally filed 2007 federal income tax return.  (If you filed electronically last year, you can use the PIN you used then.) Only the original AGI, and not one from an amended return or even one that is the result of a math error corrected by the IRS can be used for this purpose.

Use this list to double check the return, or better yet, have someone else do it for you.

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Ever give your friend a haircut in exchange for a free meal at her restaurant? Ever trade painting a wall for a month’s worth of dog walking? If so, you’ve generated reportable income – for both parties in the barter transaction.

The IRS says you must include the fair market value of the goods and/or services exchanged in reported income. To the IRS there is no difference if you bartered for the benefit or worked, got paid cash, and then spent it on the service. This means you’re subject to income tax and self-employment tax.

Whether you use a formal barter exchange or just trade between friend, you are supposed to declare that income. Formal bartering organizations should issue you a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions to you. This information is also reported to the IRS.

For full details, check out the IRS Bartering Tax Center here.

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A lot more of us are working from home these days, but does that mean you can (or should) take advantage of the home office deduction? Maybe. Read on to find out.

The Threshold to Claim the Home Office Deduction is High

You in fact may do a lot of business in your home office. I spend many hours a day in mine. But to qualify for the home office deduction, the IRS has set the bar high. Taxpayers must use part of the home for one of the following two reasons:

1. Exclusively and regularly as either: 
    - your principal place of business, (unless it is a separate structure not attached to your home – then it doesn’t have to be your principal place, but still used as part of it) OR
   - as a place to meet or deal with patients, clients or customers in the normal course of your business, OR
2. It is used n a regular basis for certain storage use, such as for or product samples, as rental property, or as a home daycare facility.

The IRS has a pretty clear cut definition of exclusive. It means ONLY, as in you ONLY use that room for business. If the room is used for any personal use, the deduction is not valid. It doesn’t have to be partitioned off, so it doesn’t necessarily have to be a separate room. It could be just a portion. In my case I’d have a pretty good argument that my desk area is used exclusively for my business.

You can generally deduct expenses prorated at same percentage that the office space is to the home. In my case it’s only about 1.5%, so to me it’s not worth holding onto the documentation and filing the extra form for a few hundred dollars of deduction. 

Taking the home office deduction may be worth it if you don’t mind keeping a lot of documentation. You may be able to deduct insurance, rent, insurance, repairs, utilities, security, and depreciation. But you’ll need to prove it. It comes down to weighing whether or not it’s worth it in your particular case.

And make sure you meet the exclusivity test before you even think about it! See your tax professional or read IRS Publication 587 to find our if you qualify.

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If you’re like me you’re just now starting to feel the pressure from the taxman looming overhead. My documents are due to the accountants today. So far I’ve gotten to the pulled-the-folder-out-of-the-cabinet stage. I look forward to a taxing evening. (Sorry, couldn’t help myself.)

But I will meet my deadline. Why? Because if I don’t, I’ll get hit with a penalty. The IRS imposes all kinds of penalties that run all the way from a simple monetary fine all the way up to imprisonment for criminal tax evasion. Here’s how to stay penalty free.

1. File Your Return and Pay Your Taxes on Time
This is a simple one. However, late filing and late payment penalties are the most common penalties levied by the IRS. If you file your return more than 60 days after the due date, the minimum penalty is $100 or 100% percent of the tax, whichever is less. Failure-to-pay penalties start at .5% of your unpaid taxes per month. This rate continues to increase to 1% per month once the IRS demands payment.

You’ll escape the late filing and late payment penalties if you if you pay at least 90% of your actual tax liability by the due date.

2. Have Enough Withheld From Your Check
When employees have taxes withheld from their paychecks, that money is remitted to the IRS to cover income tax and other taxes. If you don’t have enough withheld, you may be penalized. If you work for yourself, you need to make sure your are making the appropriate estimated payments to cover all taxes associated with self-employment.

3. Report All Your Income
If you understate the amount of income you made or overstate your allowable deductions, it’s going to result in a lower tax liability. If this understatement is 10% of the correct tax or $5,000, whichever is larger, you will be subject to understatement penalties. For corporations, the threshhold is 10% percent or $10,000,000, whichever is less.

4. Get Organized
Not understanding a complicated tax rule is one thing. Conveniently losing all your records is quite another. The IRS expects you to ‘make a reasonable attempt to comply with the internal revenue laws’ and to ‘exercise ordinary and reasonable care in preparation of a tax return’. This means keeping adequate and records.

5. Don’t Be a Con Man
Some of the world’s best bookkeepers are criminals. It’s easy to avoid this one: tell the truth. Fraud on a tax return can result in a penalty of 75% percent of the underpayment due to the fraud. So if you think you’re saving $1,000 by making up some bogus deductions, you might be surprised when your tax bill grows not by that $1,000, but by $1,750. Not a good use of your time and energy.

I hope this helps you understand that it’s actually pretty easy to stay out of trouble with the IRS as long as you tell the truth. With that knowledge, now you can focus on getting those forms in on time!

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If your home was foreclosed in 2008, you should have received Form 1099-C from the mortgage holder. Yes, on top of the loss of your home and the situation that caused it, now you have to deal with income tax ramifications.

Mortgage Forgiveness Debt Relief Act of 2007

The good news is that since December of 2007, homeowners who lose their homes due to foreclosure do not owe income tax on the amount the bank forgave. This thanks to the Mortgage Forgiveness Debt Relief Act of 2007. In the past any difference between the amount you owed and the amount the bank sold the house for was considered income, and therefore taxed to you – the possibly out of work former homeowner.

So far the relief is temporary. If you lose your home after 2012, the old rules will apply. Let’s hope we’re all keeping our homes by then.

Eligibility for Non-Taxable Status of Mortgage Debt Forgiveness

You must meet following for mortgage debt forgiveness to be non-taxable:

• The mortgage must have been for your principal residence. (Vacation, investment or other properties are not eligible.)
• No more than $2,000,000 of forgiven debt can be excluded from taxable income. ($1 million for married filing separtely.) 
• If part of the forgiven debt was a home equity loan used for purposes other than to build, buy or substantially improve your primary residence, that portion is still taxable.
• Short sales: If you were behind on payments and the lender agreed to let you sell the house for less than what was owed on the mortgage if all proceeds were turned over to the bank – you recieve the same favorable status.
• Forgiveness in the form of partial mortgage reductions or loan modifications that enabled the homeowner to remain in the home and continue making payments also qualify for the relief.
• You must claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the year.

What’s the Catch?

The current mortgage forgiveness relief is a huge benefit to struggling taxpayers today, but there will be a price to pay eventually. If a homeowner takes advantage of debt cancellation and keeps their home, they are required to reduce the basis (original price of the home) by the amount forgiven when they sell the home. This will create a larger gain in the future, possibly resulting in an increased tax bill.

Form 1099-C

Form 1099-C shows the amount of debt forgiven and the fair market value of any property foreclosed. Examine the information carefully and notify the lender if any of the information is incorrect. Pay particular attention to the amount of debt forgiven (Box 2) and the value listed for your home (Box 7).

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