Free state tax e-filing options

IRS’ Free File. The federal agency runs a partnership with 13 tax prep companies that offers free federal and state filings for Americans whose annual income is $62,000 or less. Forms are free regardless of tax complexity. While most companies in the program support free state filings, the IRS warns that “some may not.”

Credit Karma. The San Francisco-based company, known for free credit reports, will introduce free federal and state tax filing options on its site in 2017. It will not charge extra for complex IRS forms or other fees, and users will not be required to input their credit card number, says CEO Ken Lin.

For now, Credit Karma is placing interested users in a reservation queue. “We don’t know if we’re going to get a million users or hundreds of millions,” Lin says. “We hope we can cover everyone.”

Credit Karma makes money by suggesting its users consider new mortgage loans, credit cards and other financial products that match income data.

H&R Block. Known for its brick-and-mortar stores, H&R Block introduced last week its first free online state filing option for customers who file federal returns using 1040EZ and 1040A, which are simpler forms. Consumers with additional complexities will have to pay more for other forms.

TaxAct. The company said this week that its TaxAct's Online 2016 Free Edition allows users who file simple federal returns (1040 EZ/A) to file state returns for free. "Bait and switch tactics have become a common pattern in the do-it-yourself online tax preparation industry,” says Rob Gettemy, TaxAct’s COO. “It is not customer-friendly.”

TurboTax. Owned by Intuit, TurboTax runs its Absolute Zero program, which lets consumers file federal and state taxes online for free if they use the simple federal returns (1040 EZ/A).

While free e-filing options are convenient, personal information submitted to tax software companies is more sensitive than other online transactions, says Chi Chi Wu, staff attorney of the National Consumer Law Center. "Look for (the site's privacy policy) carefully and don’t just click, click, click,” she says. "There’s a lot of rich information. Think about if you want to share.”

With more free online options, the IRS also warns of proliferating phishing scams, in which a person claiming to be a tax company rep may seek personal information. More than 400 fraudulent tax-related domains were registered between Jan. 15 and Feb. 14, 2016, according to Online Trust Alliance.

Earlier this year, the nonprofit group performed an online security audit of the 13 tax prep companies in the IRS Free File Alliance and found that six failed in "either consumer protection or site security.

The IRS says collection notices are sent via traditional mail. It never calls to demand immediate payment using a specific payment method or ask for credit- or debit-card numbers over the phone. It also never demands that you pay taxes without an opportunity to appeal.

CME Group: Duffy says he would have no choice but to move CME if tax passes

(Bloomberg)—A proposal for Illinois to tax trades on exchanges in the state is “ridiculous,” according to the executive chairman of Chicago-based market operator CME Group Inc.

The suggested levy—which would charge $1 or $2 per contract, depending on the product—would make many transactions uneconomic, forcing the exchange to leave the state because customers would stop buying and selling, CME Chairman Terry Duffy said. The bill, designed to increase revenue in the financially troubled state, is in early stages and faces long odds of approval.

CME has the flexibility to leave the state, skirting the tax. Earlier this year, it sold its main data center outside Chicago to CyrusOne Inc. Much of CME's business is conducted there electronically, not in old-school trading pits, so the exchange could simply shift to a data center located outside Illinois. Other facilities “would welcome me with open arms,” Duffy said.

Duffy said CME doesn't allow spoofing, a form of manipulation, and has technology designed to detect the practice. “We've never, ever supported anybody spoofing in our marketplace,” he said.

The U.S. government has accused futures trader Igor Oystacher of spoofing on markets including CME's. Oystacher's former business partner, Edwin Johnson, has said in a court filing that Duffy was among those who gave “false assurances” that “Oystacher's trading practices were legal and legitimate” -- something CME has previously denied.

IRS Announces 2012 Mileage Rates

The IRS has issued the 2012 optional standard mileage rates used for deducting the costs of operating an automobile for business, charitable, medical or moving purposes. They are:

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

Chicago: Cullerton's measure to cut CME, CBOE taxes hits bump

(Crain's) — A plan to cut state income taxes on Chicago’s big trading exchanges hit a bump late Monday when Illinois Senate President John Cullerton abruptly cancelled a vote on a bill he’d submitted earlier in the day to slash their tax liability 50% and perhaps more.

The bill, introduced Monday morning by Mr. Cullerton, had been scheduled for a vote in the normally compliant Senate Executive Committee. The measure specifically would help CME Group Inc., and CBOE Holdings Inc., both of which have threatened to move some operations out of state because of allegedly unfair Illinois taxes.

But Mr. Cullerton Monday evening postponed any vote. His spokeswoman said there was a need to “tweak the bill” and “tighten some language” — both in regard to the exchanges and to a separate clause in the bill that would revive the state’s recently expired corporate research-and-development tax credit for five years.

The R&D clause had been added as an apparent sweetener to get non-Chicago lawmakers to vote for the bill.

It was not known whether a vote also was held up because initial reaction to the proposal was poor, but Senate Republicans withheld support, at least for the moment. Their spokeswoman said the caucus appreciates the CME's and CBOE's problems but was shown the bill only an hour before it was introduced.

But, shortly after the bill was submitted, House Majority Leader Barbara Flynn Currie suggested that the bill may not be needed at all, and certainly needs full vetting.

“I’d like to see the details,” said Ms. Currie, like Mr. Cullerton a Chicago Democrat. “If there is an essential unfairness (in current state corporate income-tax law), I’d like to end it. But I don’t know if there is an essential unfairness.”

House Speaker Michael Madigan has recused himself on any CME legislation, making Ms. Currie the senior House Democrat on this measure.

Mr. Cullerton's office said both CME and CBOE would get a 50% cut "as currently drafted," but added, "Things are changing." Other Springfield sources said they weren’t sure exactly what the savings would be.

As introduced, both exchanges generally would pay state corporate income tax only on 27.54% of receipts from transactions “matched or executed by means of an electronic transaction system.” Such trades represent the vast bulk of CME and CBOE's transactions.

A minority of trades — those attributable to the traditional “open outcry” system on exchange floors — would be 100% taxable in Illinois, if they occurred in Illinois. But such trades make up a relatively small share of the exchanges' overall business, and much of the CME's open outcry trades occur at its New York Mercantile Exchange unit in New York.

Both Gov. Pat Quinn and House Democrats have been supportive of the idea of helping the exchanges, but it was not immediately clear if they are endorsing Mr. Cullerton's bill.

"We’re reviewing the proposal,” a spokeswoman for the governor's office said Monday evening.

The exchanges have loudly complained in recent months that they paid a disproportionate share of the state’s corporate income taxes, because almost all of their income was attributed to Illinois sales despite their world-wide customer base. Other states reportedly have made significant financial offers to the exchanges to get them to move their headquarters out of Illinois.

CBOE now threatens to leave Illinois over taxes

(AP) — The Chicago Board Options Exchange has joined the CME Group in threatening to leave Illinois because of higher corporate taxes.

In a statement, the CBOE contends "economic realities," referring to Illinois' boost of corporate taxes earlier this year, could force a move, although it prefers to stay put.

The statement went on to point out trading has become increasingly electronic and can be "easily redirected to competitors in other cities through the flip of a switch."

CME Group, which owns the Chicago Mercantile Exchange and the Chicago Board of Trade, said this week it is studying a possible relocation because of corporate taxes. The announcement came a couple months after manufacturing giant Caterpillar Inc. said it had been courted by other states. Caterpillar has since said it is staying put.

IRS Audit Rate Almost Doubles for Richest U.S. Taxpayers

(Bloomberg) -- The Internal Revenue Service audited 18.4 percent of taxpayers reporting income above $10 million last year, up from 10.6 percent the previous year.

Audit rates increased in 2010 for all income groups, except for people with no adjusted gross income, according to data released today in Washington for the fiscal year that ended Sept. 30.

Highest earners had the sharpest increases in audit rates. The IRS audited 11.6 percent of taxpayers reporting adjusted gross income between $5 million and $10 million, up from 7.5 percent the year before. Taxpayers making between $75,000 and $100,000 faced the least chance of an audit, with a 0.64 percent rate.

Through its voluntary offshore disclosure programs and court cases involving Swiss banks, the IRS has gotten a better understanding of how wealthy people in non-corporate businesses manage their assets, said George Clarke, an attorney at Miller & Chevalier Chartered in Washington.

“They learn things and then they roll those things out across the board,” he said.

The overall audit rate for income tax returns was 1.11 percent, up from 1 percent the year before. The IRS had previously reported some of this data without the breakdowns at the top of the income scale.

Concerted Effort

The increase in audits of people making more than $10 million is part of a concerted IRS effort to focus on the business dealings of the wealthiest individuals.

“Our goal is to better understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise,” IRS commissioner Douglas Shulman said in October 2009 upon discussing the formation of a group within the agency focused on “global high wealth” individuals.

“We cannot do this by continuing to approach each tax return in the enterprise as a single and separate entity,” he said. “We must understand and analyze the entire picture.”

Higher audit rates are designed in part to build public confidence in the tax system and encourage voluntary compliance by making taxpayers at all income levels think they may be audited, Clarke said.

“The government has an obligation and a duty to make people believe that everybody is paying their fair share,” he said. “And particularly with respect to the wealthy, there’s a view that they’re able to get out of their obligations.”

This Day in Wall Street History: 1913: Income tax amendment takes effect

In 1913, the notion of an income tax, though perhaps not palatable to all Americans, was hardly a novelty. The U.S. government levied an income tax during the Civil War, and although it was allowed to lapse after the war, it was deemed constitutional by the Supreme Court in 1881.

In 1894, legislators went after the tax again and passed a graduated income tax as part of the Wilson-Gorman Tariff Act. This time, however, the high court reversed course and deemed the tax unconstitutional on the grounds that the legislation, rather than providing for the redistribution of funds to the states, focused narrowly on one portion of the country.

Undeterred, pro-tax forces drafted and gained passage of the 16th Amendment to the U.S. Constitution in 1909. The amendment, which authorized the federal income tax, was ratified on Feb. 3, 1913, just a month before Woodrow Wilson was inaugurated as president.

The government was not shy about deploying the 16th Amendment and implemented the first graduated income tax later in the same year as part of the Underwood-Simmons Tariff Act.

Underwood-Simmons, one of Wilson's key early initiatives, slashed import duties as a means of promoting free trade and boosting the nation's industrial efforts. In turn, the tax was viewed as a necessary means of recouping some of the funds that the government would lose as a result of the tariff reform.

Source: www.history.com

Exchanges, Trading Firms Brace For Illinois Tax Rise

(Dow Jones)--Business leaders in the self-styled "derivatives capital of the world" on Wednesday criticized a planned rise in state taxes that they warned would hit jobs and growth in the financial exchange and trading community.

Terry Duffy, chairman of CME Group Inc. (CME), even raised the spectre of the world's largest derivatives exchange relocating business elsewhere as a broader corporate backlash grew against the planned raising of the state's corporate tax rate to 7% from 4.8%.

"To say we're disappointed would be an understatement," said Duffy in an interview.

He said that while CME maintains big, hard-to-move investments in the Chicago area - including a new data center supporting electronic trading - a potential move elsewhere for the company is "something we always analyze" with a view toward shareholders' best interests.

The planned tax raise would dent earnings at CME, CBOE Holdings Inc. (CBOE) and a raft of smaller listed companies in the trading sector, which is estimated to employ more than 120,000 people in the Chicago area.

Duffy, one of CME's government-relations heavyweights, said the move would put Illinois's corporate tax rate among the highest in the nation and make other companies think twice before relocating here.

The planned rise in the state's income tax to 5% from 3% could also hit Chicago's proprietary trading community, many of which operate as limited-liability companies. While servers for high-frequency trading would remain in Chicago-area data centers, closely connected to the trade-matching engines of the exchanges, strategy and programming could be done elsewhere, said industry observers.

However, Chicago has developed into a classic "cluster" economy where the proximity of technical, legal and financial support staff for the trading community would make any wholesale relocation less likely.

IRS extends tax-filing deadline to April 18

The Internal Revenue Service announced today that taxpayers will have three extra days to file their returns because of theEmancipation Day holiday celebrated in the District of Columbia.

The holiday, marking the freeing of D.C. slaves by President Abraham Lincoln, falls on April 16, a Saturday, so that means the district takes the day off on Friday, the 15th. Because tax deadlines cannot fall on a weekend or holiday, filers will have until midnight April 18 to post or electronically send their returns.

The IRS had already announced that because of congressional tax changes, itemizers won't be able to file before mid- to late February.

Geithner Offers Hope on 20%Tax Rate for Capital Gains, Dividends

Treasury Secretary Timothy Geithner said the White House wants to keep the top tax rate on dividends and capital gains at a proposed 20%. The rate is 15%, so 20% would be a large increase, but it would be less than the 39.6% rate congressional Democrats want for dividends.

http://blogs.wsj.com/washwire/2010/07/08/geithner-offers-hope-on-20tax-rate-for-capital-gains-dividends/

Global bank tax loses momentum

Opposition to a global bank tax has grown, with Brazil and Switzerland joining countries that oppose the initiative. The U.S., Germany, France and the U.K. continue to back the idea, which would cover the cost of a financial meltdown. "Finalizing the proposed revisions to the Basel Accord by the end of this year will not give enough time to assess their wider economic consequences and make necessary changes," said SIFMA President and CEO Timothy Ryan.

* Britain, Germany, France favor new global bank taxes

* Tax idea not endorsed by G20 countries

* Coordinated approach to regulation needed-G20

http://www.reuters.com/article/idUSN2312678520100424

Taxes : Mark-To-Market Election

If you are a securities trader, you can make a “mark-to-market” election under section 475(f) of the tax code. Under this election, a trader reports all gains and losses from securities held in connection with a trading business as ordinary income (or loss), including securities held at the end of the year. Securities held at the end of the year are "marked-to-market" by treating them as if they were sold (and reacquired) at fair market value on the last business day of the year.

Generally, a securities trader has to make this election by the due date of the tax return for the year before the year in which the election becomes effective. In the year the election becomes effective, a trader reports all gains and losses from securities held in connection with the trading business, including securities held at the end of the year, in Part II of Form 4797.

If as a trader, you also hold securities for investment, you must identify those securities as investment securities in your records on the day they are acquired (for example, by holding the securities in a separate brokerage account). Securities held for investment are not marked-to-market.

Not Subject to Self-Employment Tax

Even though a trader is considered to be in the business of trading securities, gains or losses from the sale or disposal of securities are not taken into account when figuring net earnings from self-employment on Schedule SE. This is true regardless of whether a trader reports his or her gains and losses on Schedules D or Form 4797.

Investment Interest and Expenses

The limitation on investment interest expense that applies to investors (who must itemize deductions) does not apply to interest paid or incurred in a trading business. A trader reports interest and other expenses (except for commissions and other costs of acquiring or disposing of securities, which are used to figure the gain or loss) from a trading business on Schedule C (instead of Schedule A).

No wash sales. The wash sale rule doesn't apply to a trader who has made the mark-to-market election. There's a simple logic to this: if all your gains and losses are going to be flushed out on December 31, there's no reason for the tax law to be concerned about wash sales that may occur during the year.

Wash sales can be a significant headache for a trader even if they don't affect the amount of tax the trader has to pay. If you make hundreds of trades in the same stock, many of the trades are likely to result in wash sales. At some point, accounting for all the wash sales becomes nearly impossible. Eliminating this concern is a significant benefit of the mark-to-market election.

Ordinary income and loss. If you make the mark-to-market election, your trading gains and losses are converted to ordinary income and loss. You'll report the gains and losses on Form 4797 (sales of business property), not Schedule D (capital gains and losses).

This does not mean that your trading gains are now subject to self-employment tax. In a 1998 tax law, Congress clarified that although your trading income becomes ordinary income, it is not self-employment income. This also means you can't use this income to support a contribution to an IRA or other retirement plan.

Traders usually generate all or nearly all of their gains as short-term capital gains, which are taxed at the same rate as ordinary income. In most situations, changing to a system where the trader reports the gains as ordinary income will not have any tax cost. If the trader has capital losses from an investment that isn't part of the trading activity, though, the trader will lose the ability to offset those losses with capital gains from trading.

For many traders, the flip side will be more important. Even good traders sometimes have losing years. When they do, the capital loss limitation rears its ugly head. A trader who has not made the mark-to-market election can deduct only $3,000 of net capital loss, with the excess loss carrying forward only, not back to earlier, profitable years. If you make the election, your trading loss isn't subject to this limitation, and can carry back as well as forward. The difference can be huge.

You're Stuck With It

Once you make the election, you have to continue to use the mark-to-market method for all future years. You can change the election only with the consent of the Internal Revenue Service, and they generally won't grant this consent if your reason for changing is simply that the election didn't turn out to your advantage. Be sure you know what you're doing before making the election.

Court tax ruling may prevent banker exodus from the UK, broker claims

The anticipated exodus of many bankers and finance professionals from the UK may be prevented by a tax ruling against a British entrepreneur, a broker has claimed.

Terry Smith, chief executive officer (CEO) at Tullet Prebon, told the UK’s Times newspaper that the company had offered its workforce the opportunity to escape new tax legislation via opportunities in Geneva and Zurich.

However, less staff than anticipated had agreed to take up the invitation, which the CEO blamed on a legal battle between entrepreneur Robert Gaines-Cooper and the UK’s tax authority HM Revenue & Customs (HMRC).

A recent ruling by the Court of Appeal stipulated that Mr Gaines-Cooper would need to pay UK taxes as, despite spending less than 91 days a year in the UK, “the centre of gravity of his life and interests” is still located there.

Mr Smith told the news provider that the ruling means the company does not anticipate many of its staff taking up the offer of working abroad.

“[They] don’t know now whether even coming back on a client visit would mean they would qualify as residents. I wouldn’t say that it’s not possible but it’s less feasible than it was before,” he explained to the Times.

The invitation followed an announcement by chancellor of the exchequer Alistair Darling in his pre-Budget report that a new 50 per cent tax is to be levied on all banker bonuses above £25,000.

Mr Darling had also unveiled plans to raise the top rate of income tax to 50 per cent.

This Day in Wall Street History 1913: Income tax amendment takes effect

In 1913, the notion of an income tax, though perhaps not palatable to all Americans, was hardly a novelty. The U.S. government levied an income tax during the Civil War, and although it was allowed to lapse after the war, it was deemed constitutional by the Supreme Court in 1881.

In 1894, legislators went after the tax again and passed a graduated income tax as part of the Wilson-Gorman Tariff Act. This time, however, the high court reversed course and deemed the tax unconstitutional on the grounds that the legislation, rather than providing for the redistribution of funds to the states, focused narrowly on one portion of the country.

Undeterred, pro-tax forces drafted and gained passage of the 16th Amendment to the U.S. Constitution in 1909. The amendment, which authorized the federal income tax, was ratified on Feb. 3, 1913, just a month before Woodrow Wilson was inaugurated as president.

The government was not shy about deploying the 16th Amendment and implemented the first graduated income tax later in the same year as part of the Underwood-Simmons Tariff Act.

Underwood-Simmons, one of Wilson's key early initiatives, slashed import duties as a means of promoting free trade and boosting the nation's industrial efforts. In turn, the tax was viewed as a necessary means of recouping some of the funds that the government would lose as a result of the tariff reform.

Source: History.com

This Day in Wall Street History 1862: The tax man cometh

On this day in 1862, the United States Congress gave the green light to the tax-centric "Revenue Act." The legislation, which was soon signed into law by President Abraham Lincoln, imposed a 3% tax on people with incomes between $600 to $10,000; and also called for a 5% levy on people with incomes reaching over $10,000.

However, the "Revenue Act" was perhaps more notable for creating the Bureau of Internal Revenue, a government agency that was charged with collecting the revenue generated by the new taxes.

Though the "Revenue Act" and its attendant package of taxes were allowed to lapse into legislative oblivion after the Civil War, the Bureau of Internal Revenue eventually came back to haunt America's taxpaying citizens in 1913, when the 16th Amendment was added to the Constitution.

Along with sanctioning the income tax, the amendment paved the path for the opening of the Internal Revenue Service, which, in its role as the official clearinghouse for the nation's taxes, proved to be the bureaucratic progeny of the Internal Revenue Service.

Source: History.com