I WON A CAR, HOW DOES THAT IMPACT MY TAXES?

Q: I recently won a car. How does this impact my taxes?

A: Congratulations on the win of the car. The fair market value of the vehicle will be ordinary income to you. There really isn’t too much you can do to reduce the tax consequences.

The following are some of the items involved:

• You will want to watch the fair market value of the vehicle that is reported on the 1099. Sometimes the value reported on the 1099 is considerably higher than the actual fair market value. This is especially true in the case of a vehicle where the sticker price is considerably higher than the real value. I would consider comparing the 1099 value to the Bluebook value. If there is a big difference, we might want to re-discuss this.
• You do not need to worry about any penalty for underpayment of estimates as long as the amount that you have withheld from your paychecks is greater than last year’s tax liability. If this is the case, you should not have to worry about underpayment penalties.
• If you are not in alternative minimum tax (AMT) and itemize deductions, you might want to consider paying your state income tax prior to the end of the year. This will allow you to have that itemized deduction in the 2012 year as opposed to 2013. In addition to this, there is some discussion of changing the tax code and eliminating the state income tax deduction. If this should happen, it would be best if you could pay that this year. It’s hard for me to give advice without seeing your actual tax situation regarding the AMT.
• This is considered gambling winnings so, therefore; should you have any gambling losses you should keep track, in that, they would be deductible. Keep documentation of your losses. There is a court case where tickets were disallowed because there were foot prints on the tickets. You will need to show that you actually had cash withdrawals to support the deduction.

Again, congratulations! Drive the new car proudly.

SHILLER’S FAVORITE FINANCIAL IDEA

The following article is from the July Forbes magazine. I thought you may be interested in what Robert J. Shiller, an economist at Yale University, view is on the American government. He predicted both the Internet and housing bubbles.

The American government should go public- literally. Here’s how it could work: The federal government would issue a trillion shares against our $15 trillion GDP and sell them to the public in an IPO. These so-called Trills would pay dividends in perpetuity or until the government decided to buy them back. Trill investors probably would accept relatively low dividends in expectation of future GDP growth, meaning America could refinance its debt at better rates. “Governments need to end their historic reliance on debt financing. Issuing shares in GDP is analogous to corporations issuing equity.” Shiller says. “Substituting Trills for conventional debt helps deleverage the government, something whose importance has become clear with the European debt crisis. Had European countries financed themselves with Trills in the past, there would be no crisis today.”

INVESTMENTS DO BETTER WHEN CONGRESS IS OUT OF SESSION

I just received a flier from Edward Jones Company talking about the performance of stocks and bonds under Democratic or Republican rule.

I found it interesting to note that the study found:

“more than 90% of the capital gains in the Dow Jones Industrial Average from 1997 to 2004 took place when Congress was out of session”

OCTOBER SURPRISE? U.S. COULD HIT DEBT LIMIT BEFORE ELECTION

The U.S. government's debt is nearing $15.8 trillion. And now there are reports that at the recent pace of debt growth, the U.S. will reach its $16.4 trillion statutory debt limit some time in October — just before the 2012 election. 
According to a report by Investor's Business Daily, the government can employ some accounting maneuvers to stay below the ceiling for a few months, giving lawmakers a grace period. But if the economy continues to weaken -- and federal tax receipts decline in growth -- the debt limit deadline could arrive just in time to play a large role "the super-charged environment of a presidential election." In addition to the debt limit, Congress must also decide what it wants to do about the pending tax increases -- which, collectively, would be the largest tax hike in U.S. history -- as well as the automatic spending cuts that were a part of last summer's debt ceiling deal.
Already, Fitch has warned that the U.S. will lose its AAA credit rating without a credible deficit-reducing plan. And "paired with last year's Standard; Poor's downgrade, a Fitch cut would add chaos in financial markets and raise U.S. borrowing costs," according to IBD.

NEBRASKA AGRICULTURE FLEXING ITS ECONOMIC MUSCLE

(Omaha World-Herald) -- Omaha.com reports, "The greater Omaha and Lincoln area is Nebraska's leading region when tabulating the total dollar impact of agriculture to the economy," according to a new UNL report.  The story notes that "agriculture and related industries represent about one-fourth of Nebraska's total economy — a percentage share that's unmatched anywhere except South Dakota, said Bruce Johnson, a UNL agricultural economist and an author of the report."  About "one of every seven jobs in the Omaha-dominated east region is tied to agriculture."  Agriculture and the food industry contributed $68.88 billion in total sales volume to Nebraska's economy in 2010, the latest year available.  "The report predicts continued growth for Nebraska's ag production complex, with exports likely to grow to China, India and elsewhere in Asia and Latin America. They also predict more growth in food processing, agriculture-oriented manufacturers, biotechnology companies and transportation."

To read more of the article: CLICK HERE

UPDATE ON SENATE FARM BILL

Here is an update on the Senate Farm Bill:

§ Eliminates Direct Payments, Counter-Cyclical Payments (CCP), Average Crop Revenue Election (ACRE) payments and Supplemental Revenue Assistance Payments (SURE) as of the end of the 2012 crop.  Beginning with the 2013, all of these payments will be eliminated.  This creates $15 billion in savings for deficit reduction over the five years of the Bill.

§ Payments will be capped at $50,000 per person or entity.

§ Payments will only go to farmers with an active stake in the farming operation.

§ A new program called Ag Risk Coverage (ARC) will be implemented that will complement current crop insurance programs.  It will protect against both yield and price losses.  Farmers can make a one-time choice between individual farm level coverage of county level coverage.

§ Payments will only be available when actual losses are experienced off of a benchmark revenue calculated using an Olympic average of the previous five crop years (throwing away the high and the low).  Payment rates depend on whether individual or county coverage is elected and will only be paid on acres planted.

§ Marketing loans will still be available.

§ CRP will be phased down from the current 32 million acres to 25 million acres

§ “Ends Farm Payments to Millionaires”.  This is the Senate’s heading on this part of the Bill, but it actually refers to payments not being allowed if the total AGI for the person or entity is $750,000 or more.

For farmers who are enrolled in ag programs with the FSA, there are currently three different levels of AGI (adjusted gross income) that affect whether they qualify to receive any payments from the FSA during the year.  These levels are:

§ $500,000 of non-farm income

§ $750,000 of farm income

§ $1,000,000 of non-farm income, but OK if 66.66% is from farm income

These levels were implemented with the 2008 farm bill and we are just now starting to see payments being disallowed.  In some cases, the disallowance is due to income earned before the farm bill was even implemented.

The Senate farm bill passed last week contains a provision that will only disallow payments due to AGI being more than $750,000 from all sources on a rolling three year average.  This provision will apply to 2013-2017 crops. 

SMALL BUSINESS TAX RELIEF POSSIBLE?

Q:  I have heard that Congress will pass tax relief for small businesses this year. True?

A:  I doubt it. I think it is all about election year posturing. The two parties like to point fingers at each other.

The House has approved a measure to allow firms with fewer than 500 employees to claim a tax deduction equal to 20% of their income from U.S. sources. The Senate takes a different tack, allowing companies that increase their payrolls in 2012 to get a tax credit of 10% of the additional wages, up to a maximum credit of $500,000. The Senate measure also reinstates 100% bonus depreciation for all of this year.

Normally, House taxwriters would be inclined to consider the Senate proposal, especially since they like the bonus depreciation change. But this is an election year, and the House GOP is wary of passing a bill that makes Senate Democrats look good.