Income Tax

The bad news is that your investments went to hell in a handbasket last year. The good news -- at least at tax time -- is that these losses may provide you with plenty of deductions that can significantly reduce your income taxes. "Nobody wants losses, but as long as you have them you might as well make some use of them," said Philip J. Holthouse, partner at the Santa Monica tax law and accounting firm of Holthouse Carlin & Van Trigt. What can you do with investment losses?

The most obvious thing about the big, complicated tax reform scheme that will go to the Legislature this week is that millionaires would save an average of $109,000 a year. Taxpayers making between $40,000 and $50,000 would save $4. This is not a typo. The plan, still awaiting a final draft, is the work of the grandly named California Commission on the 21st Century Economy, which held its final official meeting last Monday. But it's been clear from the beginning that Gov. Arnold Schwarzenegger, in setting it up last fall, was aiming to do precisely that: enact big cuts for upper-income taxpayers and create what's become a pea-under-the-shell tax system to make up the lost revenue.

Gov. Arnold Schwarzenegger unveiled a plan today to radically alter the way Californians pay taxes, calling for a special session of the Legislature to enact changes this year that would take the state off the "roller coaster ride" of boom-and-bust budgets. The proposal immediately came under fire from all sides, including labor unions, business groups and some of the members of the special government commission that produced the report. upon which Schwarzenegger's plan is based.

SUE Carpenter pays about $6,100 a year in federal income taxes. But she might owe just half that amount if she had a mortgage, and nothing at all if she had minor children. The fact that Carpenter doesn't have these deductions makes her part of a dwindling group: U.S. taxpayers. An estimated 50 million Americans won't pay any federal income tax this year. That's nearly a third of all adults, up from 18% in 1980. To many, the shrinking tax base is not a big deal.

The Internal Revenue Service forgoes billions of dollars because the tax-collection agency doesn't try to reconcile income statements containing incorrect identification numbers with tax accounts. The IRS received about 3.8 million income statements worth about $150 billion that had incorrect information in 2004, the Treasury inspector general for tax administration, or Tigta, said in an audit report released Tuesday.

Last month I wrote about efforts in Congress to adjust the alternative minimum tax for inflation to keep that levy, originally intended for millionaires, from hitting middle-income taxpayers. There's another large group of taxpayers getting slammed by inflation: seniors. The tax on Social Security income has not been adjusted for inflation since it was enacted 23 years ago.

Anti-tax crusader and author Irwin Schiff was sentenced in Las Vegas to more than 13 years in federal prison for advising people that no U.S. law requires them to pay income tax. Schiff, 78, accused the government of trying to suppress the truth. Schiff's lawyer argued that his client was mentally ill. Schiff's earlier boast from the witness stand that he had helped thousands of followers avoid paying $2 billion in taxes was cited by the judge at sentencing.

They may be here illegally, but tens of thousands of undocumented immigrants are expected to abide by Uncle Sam's rules by filing tax returns -- with the hope of someday becoming U.S. citizens. Though there is no way of knowing how many people are filing taxes in response to the national debate on immigration, Southern California tax preparers are seeing a steady stream of clients eager to be on record as taxpayers.

Tyco International Ltd. still hasn't paid millions in federal income taxes from an allegedly false tax return filed by its chief tax advisor in 1999, the Internal Revenue Service says. The potential $50-million tax bill looming over the conglomerate came to light this week as Tyco's former vice president in charge of taxation, Raymond Scott Stevenson, was charged with filing a false tax return that failed to report more than $170 million in capital gains in 1999.

Aaron Russo's "America: From Freedom to Fascism" is essentially the filmmaking equivalent of an enraged blog on the Web -- pointed and provocative, but not exactly a comprehensive source for the issues it addresses. A former talent manager and film producer, designer of women's undergarments and promoter of rock 'n' roll shows who has more recently emerged as a libertarian activist, Russo begins his film as a study of the federal government's right to collect income taxes.