Tax News

Want a quick tax refund? File your federal return online and have the refund deposited directly into your bank account.

The Internal Revenue Service launched its online filing system Friday with a promise that people who do their taxes electronically will get refunds in as few as 10 days.

For those who file paper returns, refunds are expected to take four weeks to six weeks, said David R. Williams, the agency’s director of electronic tax administration.

“We really encourage people to file electronically,” Williams said, adding that it’s fast, free and safe.

“We believe e-file is safe and secure and we work with the tax software industry to make sure it stays that way,” Williams said.

Tax season is approaching. Some workers already are starting to receive tax forms from employers and financial institutions. Individual income taxes for 2009 are due April 15.

For those who owe additional taxes, they can file electronically and pay later, as long as payments are received by April 15. Taxpayers can set a date to have tax payments automatically withdrawn from their bank accounts or they pay by credit card.

Last year, two-thirds of individual taxpayers filed their returns electronically. This year, Williams expects about 70 percent to file online.

Taxpayers can file their returns electronically whether they use a paid tax preparer or do it themselves. For families and individuals making less than $57,000, the IRS offers Free File computer software programs that help taxpayers prepare their returns at no charge. The software is similar to commercial programs that charge for their services, Williams said.

The software walks taxpayers through their returns by asking them a series of questions about their income, expenses and other financial transactions. Williams said the software is designed for taxpayers to get all the deductions and credits they are entitled to, as long as they accurately answer all the questions.

Those making more than $57,000 can still file their returns online at no cost, but they won’t get the additional free help.

Want to keep IRS auditors away? Keep your earnings under $200,000 and they won’t bother you 99 percent of the time.

IRS enforcement numbers, released Tuesday, show that returns under that amount have a 1 percent chance of getting audited.

Returns showing income of $200,000 and above have a nearly 3 percent audit chance. The percentage jumps to more than 6 percent for returns showing earnings of $1 million or more.

The percentages apply to both individual and joint returns.

The number of audits jumped 11 percent from 2008 to 2009 for returns with earnings of $200,000 or more, but rose 30 percent for returns showing earnings of $1 million or more. For those under $200,000 the number of audits remained steady.

The IRS conducted 1.4 million audits of individual returns in the financial year ended Sept. 30, with more than 1 million conducted through correspondence with the taxpayer. The others were conducted through face-to-face meetings with IRS auditors.

The IRS does not do random audits, but does conduct “research audits” that will test compliance in business tax categories. In 2010, the target will be payroll taxes, according to Steve Miller, deputy commissioner for enforcement.

What happens if you’re audited while unemployed? The IRS may give you a break.

“While our assessments were up, the ability to pay went down drastically” due to the economy, Miller said. “We have a series of tools. We can have them pay partially, over time. If the money is not collectible, it’s treated as non-collectible. It’s going to depend on each case.

“We have to ensure there’s a balance between our responsibility to collect taxes with economic realities. We give people more time and determine how fast they can pay and whether they can pay.”

The total revenue collected from IRS enforcement actions, $48.9 billion in 2009, is a drop from $56.4 billion in 2008 and $59.2 billion in 2007.

Miller said the higher numbers in 2007 and 2008 reflect collections from settlements of several major tax shelter cases and other enforcement actions.

In 2007, for example, the IRS resolved disputed tax issues with drug maker Merck & Co., Inc. and its subsidiaries. Merck has agreed to pay approximately $2.3 billion in federal tax, net interest and penalties to resolve issues that had been in dispute for tax years 1993-2001.

The resolution was one of the largest achieved in recent years by the IRS and a taxpayer through the examination process.

The IRS has stepped up its examination of tax-exempt organizations, checking the books of more than 10,000 groups in 2009 compared to 7,800 the previous year.

The number of business tax returns examined was down slightly in 2009 from the previous year.

Taxes are a part of our lives and there is no getting around that fact.

That said, there is no legal or moral reason for you to pay any more than you are legally required to pay. With some planning and fore knowledge, you can keep your tax bill for your stock investing to a minimum.

This is not an article on tax dodging or evasion, nor is it a substitute for competent tax counsel for complex tax issues. I have an agreement with my tax attorney friends – I don’t practice tax law and they don’t sue me. So far, it’s working out pretty well.

There are two main ways income or profits from investing in stocks may be taxed:

• Capital gains tax
• Dividend income tax

Both of these taxes may come into play and here is when and how they are different:

Capital Gains Tax

A capital gain occurs when you sell an asset for a profit. That asset could be a house, land, machinery, stock, or a bond. When that happens, the capital gains tax comes into play. Since we are discussing stocks, I’ll stick with how the tax applies to investing.

You figure the capital gains tax on the difference between your “basis” in the stock and the sales price. This difference is your profit or loss. The basis is usually what you paid for the stock, however if you inherit the stock, the basis is the price of the stock on the day the owner died.

If the difference between the basis and the sales price is negative, in other words, you lost money; you have a capital loss, which you can use to offset capital gains.

There are two types of capital gains:

• Long-term Capital Gains
• Short-term Capital Gains

Understanding the difference is very important.

Long-term Capital Gains

You must hold the stock at least one full year to qualify for the long-term capital gains rates. This is extremely important and I encourage you to make absolutely sure by holding the stock one-year and a day at least.

The tax on a long-term capital gain is currently 15% if you are in the 25% income tax bracket or higher and just 5% if you are in the 15% or lower tax bracket.

As you will see, qualifying for the long-term rates is important.

Short-term Capital Gains

If you hold a stock less than one year before selling it, the IRS classifies the sale as a short-term capital gain and taxes the profit as ordinary income. This means you could pay 25% or much higher of your profit in taxes.

Unless there is a compelling reason, hold on to the stock long enough to qualify for the long-term capital gains rates.

Dividend Tax

Companies that distribute profits through dividends create a taxable event for you. The IRS taxes dividends at 15%, but this is a tax-relief provision that could expire after 2011 if not renewed. Otherwise, dividends may be considered ordinary income and taxed at your current rate.

There is not much you can do to avoid some tax on dividends, unless you hold your stock in a qualified retirement plan and have a dividend reinvestment plan.

Tax Planning

If you have made sure all of your capital gains qualify as long term, your next possibility is to look at any losing stocks you may want to dump. You can take a capital loss in the same year you have a gain and offset it.

This is one of the reasons the stock market some times dips toward the end of the year as investors dump losing positions to offset gains. However, don’t sell a stock just for tax reasons. If there is good reasons to expect the stock will rebound, it doesn’t make much sense to sell it.

Wash Rule

The IRS has a rule in place to prevent investors from selling a stock in a losing position to offset a gain, only to turn around and buy the stock right back.

It is called the “wash rule” and it says you can’t sell a stock and buy it back within 30 days and claim a capital loss. If you sell a stock and buy it back within 30 days, the IRS will disallow the capital loss and you will lose the offset.

Conclusion

If you are careful you can keep the tax bite to a minimum, however always seek competent tax counsel with questions about complex tax questions.

With all the stimulus packages that have been passed left and right, everyone has gotten confused with the definition of Adjusted Gross Income or AGI. In order to qualify for many stimulus perks, your AGI, not the salary or after-tax take-home income, must be below certain limits. To complicate matters a bit further, our government has based your qualification for The Worker, Home Ownership, and Business Assistance Act of 2009, and this is the one which gives the home buyer tax credit, on something called Modified Adjusted Gross Income or MAGI. The ever confusing world of income taxes tries to make you miserable and guide you to the eager hands of accountants and financial planners. But things are not that bad.

Your Adjusted Gross Income is the total income for a year minus certain deductions and before the itemized deductions from Schedule A or personal exemptions are subtracted. It does include gains, losses and expenses from 6 other IRS forms as well Schedules B, C or C-EZ, D, E, F and SE. Now that you are confused even more, it is worth to mention that on Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. To be exact, it appears on lines 37 and 38 on Form 1040, and on lines 21 and 22 on Form 1040A. Form 1040-EZ shows AGI on line 4.

So to make it simple, Adjusted Gross Income takes into account pretty much everything including,
- wages
- salaries
- tips
- taxable interest
- ordinary dividends
- taxable refunds, credits, or offsets of state and local income taxes
- alimony received
- business income or loss
- capital gains or losses
- other gains or losses
- taxable IRA distributions
- taxable pensions and annuities
- rental real estate
- royalties
- farm income or losses
- unemployment compensation
- taxable social security benefits
- and other income
minus
- specific deductions including educator expenses
- the IRA deduction
- student loan interest deduction
- tuition and fees deduction
- Archer MSA deduction
- moving expenses
- one-half of self-employment tax
- self-employed health insurance deduction
- self-employed SEP, SIMPLE, and qualified plans
- penalty on early withdrawal of savings
- alimony paid by you

To determine Modified Adjusted Gross Income you need to tweak the numbers still a bit more. According to IRS, MAGI is Adjusted Gross Income without the following,
- any passive loss or passive income, or
- any rental losses (whether or not allowed by IRC § 469(c)(7)), or
- IRA, taxable social security or
- one-half of self-employment tax (IRC § 469(i)(3)(E)) or
- exclusion under 137 for adoption expenses or
- student loan interest
- exclusion for income from US savings bonds (to pay higher education tuition and fees)
- qualified tuition expenses (tax years 2002 and later)
- tuition and fees deduction
- any overall loss from a PTP (publicly traded partnership)

Modified Adjusted Gross Income is also used to qualify for Roth IRA contribution purposes. The good news are, Modified AGI limits for Roth IRA contributions increased in 2009. In a nutshell, you can contribute to a Roth IRA if your MAGI is less than
- $169,000 for married filing jointly or qualifying widow/widower
- $116,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year
- $10,000 for married filing separately and you lived with your spouse at any time during the year

A wealthy accountant convicted of filing a false tax return has been sentenced to a year of house arrest because of his extensive cooperation in the U.S. probe of Swiss bank UBS AG.

A Miami federal judge imposed the sentence Wednesday for 55-year-old Steven Michael Rubinstein, the first American charged in the UBS case. Rubinstein, also a South African citizen, pleaded guilty in June. Prosecutors say he hid $6 million.

Prosecutors say Rubinstein is cooperating fully and his case has sent a message worldwide about the risks of offshore tax evasion.

Several other UBS clients also face charges. Under U.S. pressure, the Swiss bank this year agreed to disclose the names of 4,450 additional suspected American tax dodgers.

If you’re like most Americans, you don’t have a secret bank account in Switzerland where you stash money to keep it out of IRS hands.

Being out of the foreign tax-shelter loop isn’t such a bad thing. Uncle Sam recently signed a new tax treaty with that Alpine nation that should help U.S. collectors crack down on tax-evading owners of foreign bank accounts.

But there still are plenty of legal tax havens for law-abiding taxpayers. Even better, most regular Joe and Jane taxpayers can easily take advantage of them.

Gimme Shelter

If you own a home, your actual shelter is probably your best tax shelter. Your house’s tax-cutting opportunities start as soon as you buy it and continue until you sell it.

You get deductions for all or part of your mortgage interest, points paid to get the loan, interest on certain home equity loans, and your annual property tax payments. These write-offs can help reduce your tax bill each filing season.

Then there is the profit on your home’s sale. That’s money the IRS can’t touch.

“The biggest thing in real estate that would apply to most people is the primary residence sale exclusion,” says Mark Luscombe, principal federal tax analyst at CCH in Riverwoods, Ill., a provider of tax information and services.

Under this tax code provision, up to $250,000 in sale profit for a single taxpayer, twice that for a married couple filing a joint return, is not taxed. “If you sell before your gain gets to that point, you can avoid ever having to pay tax on the residence,” says Luscombe.

The beauty of this home-related tax shelter is that it applies to every principal residence you ever own as long as you meet the IRS rules. The key requirement is that you live in the home two of the five years before you sell.

“There are instances where people will buy a fixer-upper and live there for two years while fixing it up and then sell it at a profit. And though a lot of that profit can be attributable to their sweat equity, they still qualify for home sale exclusion,” says Bob D. Scharin, senior tax analyst from the Tax & Accounting business of Thomson Reuters in New York City.

Investment Opportunities

Investment real estate also offers some tax-shelter opportunities.

“One thing with real estate that puts it in that tax category as a more conventional shelter is that you can make a small down payment on real estate yet base your depreciation deduction on the entire purchase price,” says Scharin.

Along with the depreciation on the investment property, you also get mortgage interest and real estate tax deductions, as well as a write-off for upkeep and maintenance costs.

Of course, when you sell investment real estate, you will owe capital gains on the profit. But you might be able to delay that bill by taking advantage of another tax law.

Exchange Advantages

Internal Revenue Code Section 1031 offers you a chance to postpone paying taxes on investment property by swapping it for another. Also known as a like-kind exchange, you sell a property and then use those proceeds to purchase another like one.

“Instead of recognized gain on the sold property, you roll it into new property and essentially reduce your cost basis in the new property by that gain,” says Dawn Greenberg, CPA and tax principal at Toms River, N.J.-based Cowan, Gunteski & Co.

When you eventually sell the new property, you’ll recognize the originally deferred gain plus any additional accrued since you purchased the replacement property. But if you don’t need the proceeds and just want to get rid of the property, says Greenberg, a 1031 exchange could help postpone an investment tax bill. In effect, you get an interest-free loan from Uncle Sam in the amount you would have paid in taxes.

While like-kind exchanges are often used by real estate investors, the technique is available for any investment or business property. If you’re interested in a 1031 exchange, consult an expert in the area. It can get complicated and there are strict rules, such as the requirement that any swap be made by a qualified intermediary rather than by the property owner. If you make a misstep in the exchange process, it could invalidate any tax benefits.

Municipal Bonds

If you prefer more traditional investments, there are some tax shelter opportunities there, too.

“If bonds fit into your financial plan, look at municipal bonds,” says Luscombe. These instruments are issued primarily by state or local governments, or state-related organizations.

The tax benefit? Some states don’t tax interest on bonds issued by their municipalities. As for the IRS, municipal bond income is not taxed at the federal level.

Business Tax Breaks

Business owners, including those who set up a sideline to supplement full-time wage income, can use several IRS-approved tax shelters.

Section 179 of the tax code allows you to deduct substantial costs of business property purchases in the tax year they are made. Without this provision, the costs of items such as furniture and other equipment special to your business would have to be recovered through depreciation over several years, says Scharin.

If you operate your business out of your home, you could be entitled to a home office deduction. With this tax break, you can convert some of the maintenance cost of your home to tax deductions.

“The insurance on your house or if you need a new roof, a percentage of these costs would be deductible,” says Scharin. The amount is figured using the percentage of space that your home office represents.

A business owner also can hire the spouse and kids as long as they do real work for the company. “That gets additional income to them and provides deductions to the business,” says Luscombe.

Workplace Benefits

You don’t have to be an entrepreneur to shelter income from Uncle Sam.

Greenberg says employees should take advantage of workplace benefits. Flexible spending accounts, to help pay child care costs and out-of-pocket medical expenses, allow workers to contribute money to the accounts before payroll taxes are figured. “You never pay taxes on that money,” says Greenberg.

That same pretax break is available for workplace 401(k) retirement plans.

Retirement Plans

Other outside-the-office retirement savings also can help you shelter income. Some traditional IRA owners might get an immediate tax deduction on their returns, along with a deferral of taxes on the IRA earnings.

A Roth IRA is great way for some folks to avoid tax. You don’t get any deduction for Roth contributions, but when you eventually take money out of the account, it will be tax-free.

And entrepreneurs have a variety of retirement plans — SEP and SIMPLE IRAs, Keoghs, Solo 401(k)s — that can help reduce their taxable business income as well as help prepare for eventual life after work.

With each of these various tax shelters, from your home to investments to your job to retirement savings, the IRS offers ways to hang onto more of your money. And when the tax man says it’s OK to keep money out of his hands, who’s going to argue?

The battered house on Sherwin Road was put to good use before the fire department burned it to the ground.

SWAT teams barged through the front door in an exercise on dealing with domestic violence. Rescue crews scattered mannequins around the house and blew smoke through the halls to simulate a meth lab explosion. Firefighters set fires in one room after another and practiced putting them out. Then, in one last drill, they torched the whole place.

Five years later, though, a dispute still smolders over the homeowner’s attempt to claim a $287,000 charitable tax deduction for donating the house to the fire department, which has burned down at least 32 such homes in Upper Arlington since 1988.

The Internal Revenue Service is trying to stop homeowners from claiming such deductions.

Lured by the prospect of free demolition, homeowners around the country sometimes offer their houses to the local fire department for training purposes. The department burns down the house, clearing the way for the owner to build a bigger and better home.

In court cases in Ohio and Wisconsin, the IRS is arguing that because such houses are already slated for demolition, donating them for fire training isn’t an act of charity.

The dispute adds a new element of controversy to the decades-old debate over whether the risks associated with “live burns” — more than a dozen firefighters have been killed in the past two decades — outweigh the training benefits.

Fire chiefs say live burns supply invaluable training for volunteer departments, which make up the bulk of the nation’s firefighters. And some fear that the tax disputes will discourage donors from coming forward.

Nobody tracks the number of live burns each year, but fire officials say they are increasingly rare because of mounting safety and environmental restrictions and because fewer homes are up for demolition in this slumping economy.

“We need to keep our skills current. Those opportunities are going to become fewer and farther between,” said Fire Chief Mitch Ross in Upper Arlington, the wealthy Columbus suburb where the Sherwin Road home owned by James Hendrix burned down in 2004.

Churches, corporations and cities with vacant properties also donate buildings for fire training. Sometimes it is a dilapidated old barn, other times a sprawling suburban house. (The Hendrix home, not including the land, was appraised at $287,400).

It’s impossible to know exactly how many people have tried to claim such deductions; the IRS would not comment.

Steven Willis, a professor at the University of Florida who studies income tax law, said a charitable deduction can be no greater than the value of whatever was donated, and a house given to a fire department has negative value, since the owner was going to have to pay somebody to get rid of it.

“The whole idea of a charitable deduction is that you give something to charity and you don’t get anything back, right?” said Paul Caron, a tax scholar at the University of Cincinnati. “When you give $100 to the Catholic Church, you don’t get anything for that $100.”

The IRS maintains in court papers in the Wisconsin case that the homeowners do not qualify for a deduction because they are donating only a “partial interest” in their home, rather than the entire property. The agency also says homeowners are letting firefighters only use the property, not donating it in full.

But a lot of work goes into preparing a house to be burned down, including a detailed inspection by environmental authorities, said Terry Grady, a lawyer representing Hendrix, who wants the IRS to refund him $100,590 in “erroneously collected” taxes. Hendrix built a new house on the property.

“They have to, in fact, pay their mortgage off. They have to make sure there’s no asbestos in the house,” Grady said. “And you know, conversely, the benefits to the fire department are just immense.”

Although the demolition is free, the homeowner is responsible for clearing away the debris.

ESPN commentator Kirk Herbstreit, who also lives in Upper Arlington, let firefighters burn his home in 2004. The former Ohio State football star’s claim of a $330,000 tax deduction was rejected a year later. Herbstreit declined to comment.

A case similar to the Hendrix dispute has also unfolded in Chenequa, Wis., where Theodore Rolfs filed for a $76,000 tax deduction on his lakefront home that was burned in 1998. The trial concluded in 2006. Rolfs is still waiting for a verdict.

Rolfs, who had been told it was common practice to receive the deduction, was taken aback when the IRS rejected his.

“Their arguments didn’t make any sense,” he said.

At Rolfs’ house, firefighters wheeled a truck down to the shore and practiced pumping lake water onto the flames, a crucial training exercise in Chenequa, which has no fire hydrants, said Rolfs’ attorney, Michael Goller.

Environmental laws in some states ban live burns. In other states, most fire departments adhere to safety guidelines that say windows should be boarded up, floors inspected for sturdiness and shingles and carpets stripped away.

Three firefighters were trapped by flames and perished in a 100-year-old farmhouse in Milford Township, Mich., during a controlled burn in 1987. In February 2007, a fire recruit was killed in a training exercise in a Baltimore rowhouse.

Nobody in the White House is going to call the president’s “mileage and pollution” plan what it is.

It’s a $1,300 car tax. On the working class. On the middle class. On everyone who has responded to the government’s consumption-mania incentives — loosened credit, tax deductions — and bought/planned to buy a new car without taking into account these unanticipated costs.

President Barack Obama wants drivers to go farther on a gallon of gas and cause less damage to the environment — and be willing to pick up the tab.

Obama on Tuesday planned to announce the first-ever national emissions limits for cars and trucks, as well as require a 35.5 miles per gallon standard. Consumers should expect to pay an extra $1,300 per vehicle by the time the plan is complete in 2016, officials said…

…Administration officials said consumers were going to pay an extra $700 for mileage standards that had already been approved. The comprehensive Obama plan would add another $600 to the price of a vehicle, a senior administration official said.

The extra miles would come at roughly a 5 percent increase each year. By the time the plan takes full effect, at the end of 2016, new vehicles would cost an extra $1,300.

That official said the cost would be recovered through savings at the pump for consumers who choose a standard 60-month car loan and if gas prices follow government projections.

Let’s all deliver a collective snort in response to yet another self-delusional bureaucrat’s promise that yet another massive government intervention will produce cost savings:

“[T]he cost would be recovered through savings at the pump for consumers who choose a standard 60-month car loan and if gas prices follow government projections.”

Totally missing from today’s discussion of imposing stricter mileage standards: the potentially lethal impact. For years, free-market analysts and government statisticians have warned of the deadly effect of increasing corporate auto fuel economy standards.

Sam Kazman at CEI explained in 2002: “[T]he evidence on this issue comes from no less a body than the National Academy of Sciences, which issued a report last August finding that CAFE contributes to between 1,300 and 2,600 traffic deaths per year. Given that this program has been in effect for more than two decades, its cumulative toll is staggering. CAFE has this impact on safety because it restricts the production of large cars. Large cars are less fuel efficient than smaller, similarly equipped vehicles, but they are also more crashworthy in practically every type of accident. The first major analysis of this issue came in a 1989 report from researchers at Harvard and the Brookings Institution; since then, a number of other analyses, by government and private researchers, have confirmed the conclusion that CAFE kills.”

Attention, House Republicans: Demand that Obama own up to tradeoffs. Demand that his administration make those costs transparent.

Digital Distribution Tax is spreading like wild fire lately. In fact,seventeen or more States have already adopted it, and more are considering it.

Back in the old days, consumers would download games such as World of Warcraft to avoid the sales tax from stores. Now it doesn’t make a difference whether you download or buy it from the store. The proposed tax is poised to increase the costs of downloading music, books, videos, games, and other similar content.

Wisconsin was the most recent State to adopt the tax law by adding 5% to all digitally distributed goods. State Rep. Scott Suder, commented, “it’s basically taxing students to fill in the Doyle budget shortfall, and I think that’s unfair.”

During these bad economic times its a really bad move for the States to tax the consumers. Also hurting the environment in a way. Steve Delbiano from NetChoice, which encompasses Ebay, Aol, Yahoo and many others, points out that this tax is anything but environmentally friendly.

“With global warming and a world that’s running out of oil, the last thing governments should do is add taxes on something that uses no oil and produces no carbon. A digital download is the greenest way to buy music, movies, and software, since it requires no driving to the store, no delivery vans, and no plastics or packaging.”

ECA which stands for Entertainment Consumers Association will be rallying in Washington, Mississippi and New York to protest DLC tax bills that are currently working their way through their respective state legislatures.

Probably like most of you, I’ve received a email today from eBay:

Tell Congress, “No New Net Taxes”

Internet Sales Taxes–Your costs go up. Your buyers’ costs go up. You are required to comply with the same tax laws as the nation’s largest retailers. This scenario could soon become reality.

The sales tax laws governing today’s Internet and catalog retailers are simple: If you sell something to a person living in your state, you collect sales tax. If that customer doesn’t live in your state, you don’t collect the tax. However, a number of state governments and the biggest retail giants in America are planning an aggressive lobbying campaign to change the law. They want to require small retailers to operate like the biggest retail chains, collecting taxes everywhere.

We all know times are tough and state governments are looking for more tax money. Likewise, big retailers see an opportunity to gain a competitive edge by imposing new costs and higher prices on their smallest competitors. Luckily, the tax ground-rules can’t be changed without congressional action. There’s still time to stand up and be counted. If you think adding a new tax burden on small Internet retailers is a bad idea, now is the time to make your voice heard. Click here to send a letter to your U.S. Representative and Senators today.

It won’t be easy. But together, Internet retailers like you can stop these new taxes.

Sincerely,

Tod Cohen
VP and Deputy General Counsel, Government Relations

President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.

The size of the proposed tax cuts — which would account for about 40% of a stimulus package that could reach $775 billion over two years — is greater than many on both sides of the aisle in Congress had anticipated. It may make it easier to win over Republicans who have stressed that any initiative should rely more heavily on tax cuts rather than spending.

President-elect Barack Obama and congressional Democrats are crafting a plan to offer as much as $310 billion of tax cuts.

The Obama tax-cut proposals, if enacted, could pack more punch in two years than either of President George W. Bush’s tax cuts did in their first two years. Mr. Bush’s 10-year, $1.35 trillion tax cut of 2001, considered the largest in history, contained $174 billion of cuts during its first two full years, according to Congress’s Joint Committee on Taxation. The second-largest tax cut — the 10-year, $350 billion package engineered by Mr. Bush in 2003 — contained $231 billion in 2004 and 2005.

Republicans and business leaders hadn’t seen specifics of the proposals Sunday night, but welcomed the idea of basing a bigger proportion of the stimulus plan on tax cuts. Their response suggests the legislation could attract relatively broad support, and it highlighted the Obama team’s determination to win backing from varied interests.

Some Republicans, including Senate Minority Leader Mitch McConnell (R., Ky.), have warned against a careless stimulus plan that enables unfettered spending.

The largest piece of tax relief in the new plan would involve cuts for people who pay income taxes or who claim the earned-income credit, a refund designed to lessen the impact of payroll taxes on low- and moderate-income workers. This component would serve as a down payment on the “Making Work Pay” proposal Mr. Obama outlined during his election campaign, giving a credit of $500 per individual or $1,000 per family.

On the campaign trail, Mr. Obama said he would phase out a similar tax-credit proposal at around $200,000 per household, but aides said they haven’t settled on an income cap for the latest proposal. This part of the plan is similar to a bipartisan initiative launched in early 2008, which sent out checks worth $131 billion.

Economists of all political stripes widely agree the checks sent out last spring were ineffective in stemming the economic slide, partly because many strapped consumers paid bills or saved the cash rather than spend it. But Obama aides wanted a provision that could get money into consumers’ hands fast, and hope they will be persuaded to spend money this time if the credit is made a permanent feature of the tax code.

As for the business tax package, a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. Obama aides note that businesses would have been able to claim most of the tax write-offs on future tax returns, and the proposal simply accelerates those write-offs to make them available in the current tax season, when a lack of available credit is leaving many companies short of cash.

A second provision would entice firms to plow that money back into new investment. The write-offs would be retroactive to expenditures made as of Jan. 1, 2009, to ensure that companies don’t sit on their money until after Congress passes the measure.

Another element would offer a one-year tax credit for companies that make new hires or forgo layoffs, which could be worth $40 billion to $50 billion. And the Obama plan also would allow small businesses to write off a broad range expenditures worth up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.

William Gale, a tax-policy analyst at the Brookings Institution think tank in Washington, said the scale of the whole package is larger than expected. He called the business offerings a true surprise, since most attention has been focused on the spending side of the equation, especially the hundreds of billions of dollars being discussed for infrastructure and aid to state and local governments.

“On the other hand, it was hard to figure out how they were going to spend all that money in intelligent ways, so it makes sense to do more on the tax side,” Mr. Gale said. His biggest question about the latest proposal concerns the credits for hiring new workers or refraining from layoffs. Much of that money would likely go to companies that would have hired more people anyway, he said, adding that it is impossible to know what firms would have done without such a credit.

Business lobbyists are pushing hard for Congress to allow companies that haven’t paid corporate income taxes to get a break, too. Start-up companies, alternative-energy firms and large corporations that have been swallowing losses for years — such as automotive and steel companies and some airlines — have already begun lobbying for such “refundability.”

They argue that a provision to claim losses on back taxes will have little effect on the economy if firms that need it most — struggling companies that weren’t obligated to pay any taxes — can’t benefit from a tax break.

Mr. Obama, however, doesn’t back payments to companies that haven’t paid taxes, aides said. Instead, businesses that haven’t been paying taxes would be able to get payments from tax credits they would have taken in 2008 and 2009 for incentives offered by Congress, such as the production tax credit offered to renewable-energy firms. These amounts would likely be relatively small.

“We’re working with Congress to develop a tax-cut package based on a simple principle: What will have the biggest and most immediate impact on creating private-sector jobs and strengthening the middle class?” said transition-team spokeswoman Stephanie Cutter. “We’re guided by what works, not by any ideology or special interests.”

As these details are being worked out, Mr. Obama and his family left Chicago during the weekend for Washington. He will be on Capitol Hill Monday, first to meet with House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Harry Reid (D., Nev.), then with the broader bipartisan leadership of Congress. The stimulus package will be front-and-center in those discussions.

Democratic leaders and Obama aides acknowledge that congressional Democrats’ initial goal of passing the recovery package before Mr. Obama’s Jan. 20 inauguration is unrealistic. Now, they hope for passage before the Feb. 13 congressional recess.

Republicans are already criticizing parts of the stimulus package. Sen. McConnell, speaking Sunday on ABC’s “This Week,” questioned one of the biggest items, which would send as much as $200 billion to states largely to expand the federal share of Medicaid, the health program for the poor. He suggested structuring that aid as a loan, saying it would encourage states to “spend it more wisely.”

An array of business tax cuts could help overcome such GOP opposition, enabling the Democrats to present their plan as a balanced mix of tax cuts and spending. It also would likely encourage business interests to lobby hard for its enactment.

Mr. Obama’s team has spoken of wanting to attract significant Republican support, not simply picking up votes from a Republican moderate or two.

Obama aides have already enlisted business groups to rally behind spending for public-works projects. Norman R. Augustine, a former chairman and chief executive of Lockheed Martin Corp., will testify before the House Democrats’ Steering and Policy Committee Wednesday in favor of an infusion of federal infrastructure spending. But the tax cuts may hold more sway with Republicans.