Tax News

No Pay-No Drive: New York Suspends Licenses for Back Taxes

It’s no secret, many states are broke and looking for ways to recoup revenue. Of course, most states have a long list of taxes owed by residents. New York state – which actually has an impressive collection rate of 96% — is in hot in pursuit of the those who haven’t paid up. The remaining 4% are on a list of 16,000 residents who each owe in excess of $10,000 in back taxes. Combined, they owe $1.1 billion. To collect, Governor Andrew Cuomo is pulling out a big hammer: he’s suspending their driver’s licenses until they make good on their tax debts.

This is part of the current year budget initiative passed by the state legislature back in March. It’s expected to increase collections this fiscal year (ending March 31, 2014) by $26 million, and another $6 million annually in subsequent years.

Governor Cuomo said in a press release: “Our message is simple: tax scofflaws who don’t abide by the same rules as everyone else are not entitled to the same privileges as everyone else. These worst offenders are putting an unfair burden on the overwhelming majority of New Yorkers who are hardworking, law-abiding taxpayers. By enacting these additional consequences, we’re providing additional incentives for the state to receive the money it is owed and we’re keeping scofflaws off the very roads they refuse to pay their fair share to maintain.”

Say what you will about equity, it’s a money thing. After all, not everyone who owes taxes drives a car, and not everyone who drives a car owes taxes.

“As more and more states experience cash shortfalls, they’re looking for ways to replenish their coffers,” observed CPA Robert A. Raiola. Raiola heads the Sports & Entertainment Group for the New Jersey–based accounting firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC. “As a result, we may see more states following New York’s lead with stricter enforcement of existing laws.”

How the Suspension Works

Round one of warning notices gives recipients 60 days to pay up. For those who do not respond, round two warnings will be issued, with 15 days to comply. After that, the taxpayer’s license is suspended.

Anyone caught driving on a suspended license will pay a mandatory fine of $200 to $500, depending on the circumstances, and could face jail time or probation up to 30 days. Those caught in a second offense could be subject to much stiffer penalties, including the loss of a vehicle.

New York Commissioner of Taxation and Finance Thomas H. Mattox said in a press release: “It’s in every taxpayer’s best interest to pay all tax bills in full. If you can’t pay in full, our staff is available to help you arrange a payment plan that will satisfy your debt.”

Some may also be able to obtain restricted licenses which will allow them to continue commuting to and from work.

What’s the lesson?

Whether it’s a matter of a government desperate for revenue or out to achieve equity… states have big hammers. Nobody has to get to this point, but you’ll probably need the help of a trusted tax adviser early on.

Photo:  aftab

Bill seeks to extend state tax relief for mortgage debt forgiveness – Will It Happen?

One of the near-casualties of the Fiscal Cliff earlier this year was the Mortgage Debt Forgiveness Relief Act, which expired on December 31st, 2012. However, on January 3rd, 2013, President Obama signed The American Taxpayer Relief Act, which extended the deadline of the Mortgage Debt Forgiveness Relief Act one more year to December 31st, 2013.

The Mortgage Debt Forgiveness Relief Act was originally enacted in 2007 to accommodate the rising number of homeowners who had to do short sales as a result of the housing crisis.

A short sale occurs when a lender allows the homeowner to sell their home at a price that is lower than what is owed on the mortgage. The difference between the amount owed and the sales price is “forgiven” by the lender.

As with most forms of debt relief, the amount forgiven by the lender has been historically treated as taxable income by the IRS (adding insult to injury for the home seller).

When the housing crisis began to unfold, Congress and the Legislature decided not to consider canceled housing debt as income. This applied to canceled debt from foreclosure, the refinancing of a home loan or the short sale of a primary residence up to $2 million.

The California state law providing more relief, the Mortgage Debt Forgiveness Relief Act of 2007, expired at the end of 2012. This excluded up to $500K from taxable income in the form of debt forgiveness.

In California, AB 42, a bill that seeks to extend state tax relief for mortgage debt forgiveness was presented by Assemblyman Henry Perea, D-Fresno earlier this month. AB 42 would mirror the federal law and extend state income tax relief for debt forgiveness up until the end of 2013.

The Franchise Tax Board estimated the local impact to be a $50 million reduction in state income tax for 2013.

Since California’s mortgage debt forgiveness bill could affect state revenues, the measure was set aside until further analysis could take place regarding next year’s budget projections.

Brenda Harjala is a staff writer for Optima Tax Relief. Her mission is to help consumers stay financially savvy, and save some money with tax relief.

Study Says Even Savers Spend Their Refunds

Via LearnVest By Alden Wicker ~

tax refundThe refund checks are in the mail, and millions of Americans are feeling a bit flush this tax season.

(Still haven’t done your taxes? Start here.)

You might be one of the smart Americans who plan to use their refund to reach a financial goal. According to a TD Ameritrade survey released last month, of the almost half of Americans expecting a check, 47% plan to save some of it and 44% plan to pay off debt with the money.

Only 15% wanted to use the whole thing to splurge on something discretionary.

While the savers will mostly go through with their plan, TODAY reports that they still might treat themselves to something, even unconsciously.

Research shows that there’s an immediate, though small, bump in spending among people who receive tax refunds the week they get it, even if they planned on saving it. Then there’s another small bump in spending in August, indicating people might be using the money to augment their summer vacation.

So you might as well make it official. Set aside 10% of your refund to treat yourself, you deserve it for navigating that tax maze! Then use the rest to help reach a financial goal or two.

LearnVest is the leading lifestyle and personal finance website for women.

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