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D. Frank Norton: More tax benefits with more tax return complexity

It’s Your Money

Posted: December 23, 2009 9:35 p.m.
Updated: December 24, 2009 4:55 a.m.
Well, it seems we have more tax benefits coming our way when we file our tax returns for 2009. Along with those benefits come more tax forms, more phaseouts of tax benefits to calculate and more all-round frustration regarding filing.

For instance: We have many tax credits and forms to add to our returns. Make Work Pay Credit, First Time Homebuyer Credit, Retirement Savings Contribution Credit, Health Coverage Tax Credit, Mortgage Interest Credit, Residential Energy Credits, Vehicle Credits (alternative motor vehicles, plug-in electric vehicles) and American Opportunity Credit. All of these tax credits have their own tax forms that need to be completed and added to our tax returns.

Let's not forget the Tuition and Fees deduction, the Savings Bond Interest Exclusion and the Discharge of Indebtedness which also have forms to be completed.

Then there is Schedule L to be attached to those returns not using itemized deductions. If you have a net disaster loss, state and local real estate taxes, and/or purchased a new vehicle, you will need to file Schedule L to deduct some, if not all, of these expenditures. These all increase your standard deduction. Doesn't it seem like "standard deduction" is becoming a misnomer?

For those of you who are unemployed and receiving unemployment compensation, the first $2,400 of unemployment received is no longer taxable. And if you were lucky enough to sell your principal residence for a "reasonable" price and had rented it out in the past 5 years, you now have to pay tax on some of the gain. That is, if you had any gain of course, which is no sure thing these days.

There are a number of other tax laws enacted that can have a substantial effect on the outcome of your tax returns for 2009. Suffice it to say that all of these changes make for what I affectionately call the Tax Accountants Assured Employment Act.

One last unrelated item of business: I did take note of a recent column (November 25, 2009) penned by my liberal leaning friend, Gary Horton who presented some rebuttal comments regarding my last column "Escape From California Looks Reasonable"(November 19, 2009).

I was merely pointing out that, just perhaps, we might be shooting ourselves in the foot here in California as a result of our extremely high tax rates for both individuals and businesses.

After all, we are seeing California's tax brackets being reduced for 2009, which means that our tax rates increase at a lower income level than they did last year.

The top tax bracket has been increased from 9.3% to 9.55%. And the standard deduction has been reduced for taxpayers, most of which, are taxpayers who are in lower income levels. Horton did point out that we have some of the best schools in the nation.

However, tuition for those institutions has been increased dramatically while enrollment has been reduced considerably, thus allowing fewer students to take advantage of those hallowed halls.

Horton, from what I understand, runs a very successful business. I applaud him for that and for many good things he has done for our community over the years.

I have one concern regarding his welfare as we proceed forward in this state. That is: He may find himself the last successful business still functioning here in California once all of the other successful businesses have moved out of this fine state of ours to more business friendly states with much lower taxes. I wonder if he, and his business, can support the state tax burden solely on their own? He just might.

In any event, I had my bags all packed and sitting out on the front porch, ready to load into our SUV (the fuel-efficient kind), and head for Texas. I was gone only for a few minutes and returned to find my bags missing. Horton, you didn't perchance, have anything to do with the disappearance of my bags?

I know how much you want me to stay, for which I am grateful. And I most certainly will stay, once I can get my taxable income down to zero. With this economy in such bad shape, especially in California, and with unemployment hovering around 15% or more, I seem to be getting closer to that not so elusive zero, thank you very much.

D. Frank Norton is a money manager and financial planner in Santa Clarita. "It's Your Money" appears Thursdays and rotates between a handful of the Santa Clarita Valley's financial professionals. His column represents his own views and not necessarily those of The Signal.


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