Tax Policy News

*The payroll tax cut has been extended temporarily….again. Veronique de Rugy has a simple, straight-forward analysis explaining the problems with the approach politicians are taking with this policy.

*The Cato Institute’s Daniel Mitchell looks at President Obama’s proposals for corporate tax policy, concluding it’s the equivalent of kissing your sister. His graph comparing the US corporate tax rate to the average rate of European nations is pretty embarrassing.

2 Responses to “Tax Policy News”

  1. audedu Says:

    In 2009, I supplemented my teacher income by tutoring for a small company (that is now out of business) and earned less than $600. I was not given a W2 and was told by the tutoring company that the reason for this was because I made so little. There was a special tax form I was to fill out, a 1099… & I did. I was notified last year (2 years after the fact) that I owed the federal government nearly $500 in taxes because of that tutoring. I paid it even though I felt rather queasy about it (that meant I took all those hours away from my own family for less than $100 profit).

    Yesterday I got a statement in the mail from the state of SC, saying I owe nearly $500 to them too. I made around $34000 in 2009 from my regular teaching job. Did that extra little bit of money I earned tutoring push me into a different tax bracket? Why would I have to pay the federal government & the state government almost the same amount each? And why would the amount of tax I owe for that year exceed the additional income I earned from tutoring? I paid the federal government and will pay the state too if I truly owe this, but I feel like I’m essentially paying the government for the time I spent tutoring other people’s kids when I could have been at home helping my own 3 children.

    My husband wanted to use a small town tax preparation business that year, which I really regret (I feel much safer with H&R Block), but that being said, what can I do to make sure this is a legitimate charge and how I can keep from finding myself in this position again?

  2. Josh Says:

    My guess regarding why you owe so much from such a little amount of income is that the IRS and the SC tax collectors are tacking on ridiculous “penalty” fees for the alleged additional amount you “owe.”

    I’ve worked in accounting departments previously (not as a CPA), and the tutoring company was correct regarding the parameters for sending out the W2, as that $600.00 threshold is what I’ve always observed. Nevertheless, it sounds like you still took the proper measures by filing the 1099, but the government is disregarding this. Very unjust, especially over such a small amount that you’re talking about.

    Unfortunately, tax laws are so confusing and tax collectors can be so tyrannical, you’re facing an uphill battle if you challenge it. Taxpayers are usually guilty unless they can prove their innocence instead of the “innocent until proven guilty” standard.

    I don’t have any good advice on how to avoid this in the future. My preference is to use a CPA for my taxes, as I want a trained professional properly reporting my income. I’m leery of using TurboTax. My past experience with H&R wasn’t the greatest, but I did not have any problems from the IRS with the work they did.

    Best of luck to you.

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