Trump's tax plan
Wed, 26 Apr 2017 20:34:00 +0000
Today, Pres. Trump unveiled the general outline for his new tax plan. Yes, to my great amazement, he is talking about simplification of the Internal Revenue Code. I do not know if Congress will let this happen, but the compliance cost of federal and state taxes is far too high and has become a large impediment on business growth in the economy in general.
One way that simplification is being proposed is that there would be a reduction in the current seven tax brackets 23 tax brackets of 35%, 25% and 10%. Also itemize deductions, other than charitable donations and mortgage payments, would be eliminated. This means that medical deductions, state and local tax deductions, casualty and theft losses, and unreimbursed employee business expenses would be eliminated. As part of the simplification, there would be an elimination of the estate tax at the federal level. Although that would affect only a small amount of estates, it would eliminate tax planning for everyone's estate.
Another important change would be the elimination of the alternative minimum tax. This sneaky tax hurts people who sell businesses, a vacation home, or make some type of capital gain, as well as the two income household. Right now over 5 million people suffer from the alternative minimum tax and the result would be a much simpler tax system and eliminate the need for some complicated tax maneuvers by individuals.
On the business side, the corporate tax rate would be reduced from the current rate of 35% to 15%. This would also apply for pass-through businesses such as limited liability companies. If you own your own business, you would be tax at the 15% rate rather than the higher individual rate. Note, however, the business owner still would have to pay self-employment tax which is both sides of Social Security and Medicare tax.
There is a proposed increase in the standard deduction from 12,700 for joint filers to $25,400. This would eliminate the issue caused by the repeal of itemized tax deductions. Also, the 3.8% Obama tax on net investment income would be repealed.
The real question is whether or not Congress will follow through with real tax reform rather than doing piecemeal tweaking of the Internal Revenue Code. Stay tuned! Read More...
IRS Hires Collection Agencies -Watch out for Scammers
Thu, 06 Apr 2017 22:06:00 +0000
As a tax attorney, I get frequent calls and emails from people concerned about calls from the IRS.Almost all of these are scams and not real. The IRS post some information on this website about the scammers, but the scammers are too fast in changing their tactics for the IRS. Unfortunately the IRS is now making it easier for the scammers.
The IRS is now hired some collection agencies to try to collect money from taxpayers. Unfortunately, scammers are going to hop on this and many people are going to be fleeced out of their money. If anyone calls from the IRS, you should immediately get their name, telephone number and address. You should then contact your tax lawyer.
The IRS is hired for private debt collection agencies:
Here in New Jersey, Pioneer credit has been a leading debt collector for the Division of Taxation. Unfortunately, they have many Rules and our quick to try any kind of collection activity permitted by the Division of Taxation. I am sure that the IRS will give some powers to the collection agencies and a wise taxpayer will immediately seek assistance to fight their tactics.
If you owe money to the IRS, and you get contacted by the IRS, I suggest work on getting an installment agreement and do not provide any information over the phone except to a known IRS telephone number.
No privilege for CPA and Taxpayers
Mon, 20 Mar 2017 19:41:00 +0000
There is been a long-standing rule that attorneys and clients have a privilege for their communications under most circumstances. This is not true for tax return preparers, accountants and CPAs under many circumstances, particularly where it matters most-when the IRS is attacking a taxpayer for criminal sanctions or fraud.
That is why it is crucial to have a tax attorney involved for giving documents to an accountant or tax preparer if there may be any issues. This is especially true during audit IRS collection matters.
Unfortunately, another cases come down from the Tax Court defeating any claim of a client and CPA privilege. This was reported by Parker tax publishing in their latest newsletter:
Taxpayer Had No Legitimate Expectation of Privacy in Records Held by CPA
A district court denied a motion to suppress all evidence relating to tax records the IRS obtained from a taxpayer's CPA. The court rejected the taxpayer's argument that Code Sec. 7609 and the Code of Professional Conduct for CPAs conferred upon him a reasonable expectation of privacy in the documents he had provided to his accountant. U.S. v. Galloway, 2017 PTC 80 (E.D. Calif. 2017).
In a letter dated November 2006, the IRS informed Michael Galloway that his 2003 federal income tax return had been selected for audit and requested that he provide many tax related documents, including documents relating to a company he owned. In the middle of the audit, Galloway's CPA, Carl Livsey, sent him a letter that said he was terminating his accounting and tax services immediately due to Galloway's nonpayment of fees for services rendered. In August 2008, Galloway's case was approved for criminal investigation by the IRS Criminal Investigation Division (CID).
In April 2009, IRS CID special agents went to the office of Galloway's business, Catholic Online, in Bakersfield, California. When the agents approached the front door to the business, an unidentified male locked the door and informed the agents he was calling the police. The agents called the Bakersfield Police Department dispatch and informed them that two plain clothed and armed federal agents were waiting for the police. Prior to the police arrival, an individual exited the building and approached the agents. The agents informed him they wanted to provide Galloway with some information. The individual went back inside Catholic Online and shortly thereafter came out and provided the agents with the contact information for Galloway's attorney. Bakersfield police later arrived at the scene and the IRS CID agents departed.
After visiting Catholic Online, the special agents served Livsey with a summons requiring the production of records relating to his former client, Galloway. Livsey had prepared most of Galloway's tax returns, including the 2003 returns being audited. Livsey stated that he used profit and loss statements printed from Quickbooks and provided to him from Galloway's bookkeeper and wife to prepare the returns.
During the audit, Livsey was given an additional Quickbooks print to use to assist his analysis. Livsey noticed that the newly obtained Quickbooks print reflected dollar amounts that did not match the Quickbooks print he had used to prepare the 2003 tax return for Galloway. During the audit, Livsey showed the IRS auditor the Quickbooks printout with the additional information. Livsey also reviewed the payroll tax information for Galloway's business and concluded that the IRS correctly determined that Galloway owed payroll taxes.
Galloway was charged with four counts of attempting to evade and defeat payment of tax in violation of Code Sec. 7201.
Galloway sought suppression of all evidence obtained by IRS agents from Livsey because, he argued, Code Sec. 7609 and the Code of Professional Conduct for CPA's conferred upon him a reasonable expectation of privacy in the documents he had provided to his accountant. Alternatively, he argued that the district court should exercise its equitable powers to exclude from evidence at trial the business records that the government obtained due to the failure on the government's part to comply with the requirements of Code Sec. 7603 and Code Sec. 7609. Finally, Galloway suggested that the court should exercise its equitable authority to exclude the records obtained from Livsey because Code Sec. 7603 and Code Sec. 7609 address privacy interests akin to those protected by the Fourth Amendment (i.e., the right against unreasonable searches and seizures).
In 1976, Congress enacted Code Sec. 7609 to address third party summons served by the IRS to ensure that:
(1) the taxpayer to whose business or transactions the summoned records related is informed of the summons and provided an opportunity to intervene in any enforcement proceedings; and
(2) with so-called "John Doe" summons where the identity of the specific taxpayer is not known, the government makes a required showing in a court proceeding prior to issuance of the summons.
Code Sec. 7609 provides that notice of a summons is sufficient if served in the manner as provided in Code Sec. 7603. Galloway also argued that even if his constitutional rights were not violated by how the government obtained his records, the court should exercise its equitable powers to exclude those records from evidence at his trial because the IRS violated the Code Sec. 7603 and Code Sec. 7609 requirements in obtaining them.
Galloway contended, in enacting Code Sec. 7609, "Congress recognized that a taxpayer has a reasonable expectation of privacy in those documents provided to third-party record keepers."
The district court rejected Galloway's arguments and held that it is a well-established principle that a person has no expectation of privacy in business and tax records turned over to an accountant because one has no reasonable expectation of privacy in information revealed to a third party and passed on to the government. In reaching this conclusion, the court cited the Supreme Court's decision in Couch v. U.S., 409 U.S. 322 (1973). Contrary to Galloway's assertion, the court said, the enactment of Code Sec. 7609 did not alter this well-established principle. The court held that as explained in the Congressional Committee Report, Code Sec.7609 is not intended to expand the substantive rights of parties.
The district court noted that, after the enactment of Code Sec. 7609, federal courts have continued to follow the binding authority of the Supreme Court's decision in Couch in concluding that a person has no expectation of privacy in business and tax records turned over to an accountant. Thus, Galloway's rights under the Fourth Amendment were not implicated by Livsey's production of records to the IRS. This would be the case even if no summons had been served. The court's conclusion was not swayed by codes of professional conduct addressing the disclosure of confidential client information by accountants, because there is no client-accountant privilege under federal law, the court said.
Finally, the court declined exclude Galloway's records from evidence due to the alleged failure by IRS agents to strictly comply with the procedural requirements of Code Sec. 7603 and Code Sec. 7609, noting that suppression of evidence has not been found to be a remedy where those statutes have been violated.Read More...
Scam Letters that appear as IRS Notices
Mon, 06 Mar 2017 15:37:00 +0000
This is a scam notice received by clients that looks legitimate. The scam artists have taken the IRS logo and make the letter look like it's really from the IRS. It is not! If you click on the link it asked all kinds of personal information so the scam artist can empty your bank accounts, file fraudulent tax returns and even get credit cards in your name!
If you receive any notices from the IRS you need to immediately contact a tax lawyer. Do not click on any of the hyperlinks!
This is very serious!!!!!!
From: IRS-gov.us <firstname.lastname@example.org>
Date: Fri, Feb 17, 2017 at 8:24 PM
Subject: Your IRS Data Require Immediate Action
Dear IRS User,Read More...
This is an Important Message regarding your IRS Filing, from the previous year and current year.Our system indicates you have some changes in your record with us
and We will like you to Kindly follow the given instructions in order to comply with our new sytem requirements.To avoid future difficulty with IRS services.
By filling out the Taypayer's information that only you and IRS know, you can feel even more secure with your yearly Tax payout, knowing all information is Up to date.
To Proceed, Please find attached HTML Web Page.
Failure to comply, IRS will leave your Information Flagged on the system which will lead to taking other actions toward your next Tax Filing/refund.
IRS will never share taxpayers personal information with third party.
IRS Online Services
IRS can Steal Your Passport - Let's stop it!
Mon, 06 Feb 2017 19:58:00 +0000
Prohibiting citizens from traveling abroad was the hallmark of many communist countries such as East Germany, the Soviet Union, Cuba, North Korea and China. Now, the US joins this dishonorable crowd by prohibiting travel by American citizens.
Specifically, Congress and the previous Obama administration passed a law authorizing the State Department to revoke a passport of an American citizen if $50,000 or more of taxes are due. The IRS has a public pronouncement on this:
The IRS claims that sometime in 2017 they are going to implement this draconian policy. We now have a new Secretary of State, Rex Tillerson. He can simply tell the IRS that he is not going to revoke anyone's passport. President Trump can make an Executive Order prohibiting any regulations enforcing this misguided law. Finally, and more importantly, Congress should immediately repeal IRC § 7345 and prohibit any regulations.
Let's be the Land of the Free! Read More...
Domestic Production Activities Deduction
Mon, 30 Jan 2017 21:31:00 +0000
The “manufacturers’ deduction” isn’t just for manufacturersThe Section 199 deduction is intended to encourage domestic manufacturing. In fact, it’s often referred to as the “manufacturers’ deduction.” But this potentially valuable tax break can be used by many other types of businesses besides manufacturing companies.
Sec. 199 deduction 101
The Sec. 199 deduction, also called the “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.
Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.
The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the alternative minimum tax.
How income is calculated
To determine a company’s Sec. 199 deduction, its qualified production activities income must be calculated. This is the amount of domestic production gross receipts (DPGR) exceeding the cost of goods sold and other expenses allocable to that DPGR. Most companies will need to allocate receipts between those that qualify as DPGR and those that don’t — unless less than 5% of receipts aren’t attributable to DPGR.
DPGR can come from a number of activities, including the construction of real property in the United States, as well as engineering or architectural services performed stateside to construct real property. It also can result from the lease, rental, licensing or sale of qualifying production property, such as:
Also, be aware this is a hot item in IRS Audits, particularly Large Business and International Audit Group audits. Please make sure you have the appropriate documentation and if you contract to manufacture for a third-party, you will need a written agreement.
Contact us to learn whether this potentially powerful deduction could reduce your business’s tax liability when you file your 2016 return. Read More...
2016 Tax Return - Take Bonus Depreciation
Mon, 23 Jan 2017 17:44:00 +0000
Why 2016 may be an especially good year to take bonus depreciationBonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The PATH Act, signed into law a little over a year ago, extended 50% bonus depreciation through 2017.
Claiming this break is generally beneficial, though in some cases a business might save more tax in the long run if they forgo it. However, 2016 may be an especially good year to take bonus depreciation. Keep this in mind when you’re filing your 2016 tax return.
New tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified improvement property. And beginning in 2016, the qualified improvement property doesn’t have to be leased
It isn’t enough, however, to have acquired the property in 2016. You must also have placed the property in service in 2016.
Now vs. later
If you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation (to the extent you’ve exhausted any Section 179 expensing available to you) is likely a good tax strategy. It will defer tax, which generally is beneficial.
But if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax for 2016, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re paying a higher tax rate.
Making a decision for 2016
The greater tax-saving power of deductions when rates are higher is why 2016 may be a particularly good year to take bonus depreciation. With both President Trump and the Republican-controlled Congress wishing to reduce tax rates, there’s a good chance that such legislation could be signed into law. This means your tax rate could be lower for 2017 (if changes go into effect for 2017) and future years. If that happens, there’s a greater likelihood that taking bonus depreciation for 2016 would save you more tax than taking all of your deduction under normal depreciation schedules over a period of years.
Also keep in mind that, under the PATH Act, bonus depreciation is scheduled to drop to 40% for 2018, drop to 30% for 2019, and expire Dec. 31, 2019. Of course, Congress could pass legislation extending 50% bonus depreciation or making it permanent — or it could eliminate it or reduce the bonus depreciation percentage sooner.
If you’re unsure whether you should take bonus depreciation on your 2016 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact me. Read More...
Can you defer taxes on advance payments?
Thu, 19 Jan 2017 21:48:00 +0000
Can you defer taxes on advance payments?Many businesses receive payment in advance for goods and services. Examples include magazine subscriptions, long-term supply contracts, organization memberships, computer software licenses and gift cards.
Generally, advance payments are included in taxable income in the year they’re received, even if you defer a portion of the income for financial reporting purposes. But there are exceptions that might provide you some savings when you file your 2016 income tax return.
The IRS allows limited deferral of income related to advance payments for:
Fred and Ginger are in the business of giving dance lessons. On November 1, 2016, they receive an advance payment from Gene for a two-year contract that provides up to 96 one-hour lessons. Gene takes eight lessons in 2016, 48 lessons in 2017 and 40 lessons in 2018.
In their applicable financial statements, Fred and Ginger recognize 1/12 of the advance payment in their 2016 revenues, 6/12 in their 2017 revenues and 5/12 in their 2018 revenues. For federal income tax purposes, they need to include only 1/12 of the advance payment in their 2016 gross income. But they must include the remaining 11/12 in their 2017 gross income.
The applicable financial statement
An applicable financial statement is one that’s audited by an independent CPA or filed with the SEC or certain other government agencies. If you don’t have this statement, it’s still possible to defer income; you simply need a reasonable method for determining the extent to which advance payments are earned in Year 1.
Suppose, for example, that a company issues gift certificates but doesn’t track their use and doesn’t have an applicable financial statement. The company may be able to defer income based on a statistical study that indicates the percentage of gift certificates expected to be redeemed in Year 1.
If your business receives advance payments, consult your tax advisor to determine whether you can reduce your 2016 tax bill by deferring some of this income to 2017. And make sure you abide by the IRS’s rules on these payments. Read More...
IRS Taxpayer Advocate calls for Congress to reform Internal Revenue Code
Wed, 11 Jan 2017 21:47:00 +0000
Tax season for individuals starts January 23, 2017 for the 2016 return. Unfortunately, most individuals are facing increasingly complex and confusing tax laws. It is not just businesses that are suffering. The National Taxpayer Advocate has called for Congress to simplify the Internal Revenue Code which takes individuals and businesses more than 6 billion hours a year to comply with filing.
The idea espoused by the Taxpayer Advocate the Congress was to have a neutral Tax Code and cut individual tax rates as well as business tax rates. This means that many of the exclusions, exemptions, deductions and credits would be eliminated as the trade-off for simplification and rate reduction.The recommendation is that Congress start with the tax code without any reductions and then only add back deductions, such as exclusion of capital gains on home sales, if the benefits outweigh the complexity of the provision. The idea is to have a simpler compliance mechanism and use tax is for collecting revenue for the government rather than influencing behavior.
The taxpayer advocate also criticized the Internal Revenue Service for poor service and a focus on enforcement of the tax laws rather than service and helping taxpayers. This makes sense! Read More...
115th Congress - Will we get Tax Reform and Simplification?
Wed, 04 Jan 2017 14:21:00 +0000
Yesterday, the 115th Congress convened.The Republicans are in charge of both the House and Senate and there is been a lot of talk about tax reduction and "tax reform". Does this mean we will get tax simplification? Since President Reagan signed the Internal Revenue Code of 1986, there have been more than 30,000 changes, excluding Obama care. The fact is the Internal Revenue Code is ridiculously complex and far too much time and money spent in our society both by individuals and businesses in complying and planning for our burdensome tax laws.
There definitely will be a push to lower corporate tax rates. This is good but let's also simplify our business tax structure.
Even more unnecessary and confusing is the personal side of the Internal Revenue Code. For example the alternative minimum tax, designed to force a few wealthy millionaires of the late 1960s to pay tax, has now resulted in more than 1/4 of the middle class paying this burdensome tax. The AMT must go!
There are also complicated and unnecessary rules dealing with real estate. For example there is something known as the "passive activity loss limitation." This is designed to prevent people from getting deductions for losses in real estate investment against their other income. The amount of time and effort to comply with this, plus the amount of litigation involving real estate deductions is an unnecessary drag upon the economy. This must go.
There is also a lot of talk about fraud and abuse. It is not the big so-called "loopholes" where most of the fraud occurs. Most fraud occurs with the earned income tax credit. This was originally designed as the "negative income tax" in the Nixon administration in order to be an efficient way for distributing welfare type payments from the government. Unfortunately it has become an area of massive abuse. If you don't believe me, wait until the first days of tax filing this season. You will see people lined up outside the big box tax preparation offices so they can get their "refund" which is actually more money than they paid in for taxes. This must go!
The next time any of our politicians talk about tax reform listen for "simplification." Simply adjusting tax rates is not enough to have the kind of impact we need to make our economy and lives simpler. Read More...
Take stock of your inventory accounting method’s impact on your tax bill
Mon, 19 Dec 2016 16:43:00 +0000
Take stock of your inventory accounting method’s impact on your tax billIf your business involves the production, purchase or sale of merchandise, your inventory accounting method can significantly affect your tax liability. In some cases, using the last-in, first-out (LIFO) inventory accounting method, rather than first-in, first-out (FIFO), can reduce taxable income, giving cash flow a boost. Tax savings, however, aren’t the only factor to consider.
FIFO vs. LIFO
FIFO assumes that merchandise is sold in the order it was acquired or produced. Thus, the cost of goods sold is based on older — and often lower — prices. The LIFO method operates under the opposite assumption: It allocates the most recent costs to the cost of sales.
If your inventory costs generally rise over time, LIFO offers a definite tax advantage. By allocating the most recent — and, therefore, higher — costs first, it maximizes your cost of goods sold, which minimizes your taxable income. But LIFO involves more sophisticated record keeping and more complex calculations, so it’s more time-consuming and expensive than FIFO.
LIFO can create a problem if your inventory levels begin to decline. As higher inventory costs are used up, you’ll need to start dipping into lower-cost “layers” of inventory, triggering taxes on “phantom income” that the LIFO method previously has allowed you to defer. If you use LIFO and this phantom income becomes significant, consider switching to FIFO. It will allow you to spread out the tax on phantom income.
If you currently use FIFO and are contemplating a switch to LIFO, beware of the IRS’s LIFO conformity rule. It generally requires you to use the same inventory accounting method for tax and financial statement purposes. Switching to LIFO may reduce your tax bill, but it will also depress your earnings and reduce the value of inventories on your balance sheet, which may place you at a disadvantage in comparison to competitors that don’t use LIFO. There are various issues to address and forms to complete, so be fully informed and consult your tax advisor before making a switch.
The method you use to account for inventory can have a big impact on your tax bill and financial statements. These are only a few of the factors to consider when choosing an inventory accounting method. Contact us for help assessing which method will provide the best fit with your current financial situation. Read More...
Mon, 12 Dec 2016 21:22:00 +0000
Help prevent the year-end vacation-time scramble with a PTO contribution arrangementMany businesses find themselves short-staffed from Thanksgiving through December 31 as employees take time off to spend with family and friends. But if you limit how many vacation days employees can roll over to the new year, you might find your workplace a ghost town as workers scramble to use, rather than lose, their time off. A paid time off (PTO) contribution arrangement may be the solution.
How it works
A PTO contribution program allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting excess PTO amounts to employer contributions.
A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? Larger rollover limits can result in employees building up large balances that create a significant liability on your books.
To offer a PTO contribution arrangement, simply amend your plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms. Additional rules apply.
To learn more about PTO contribution arrangements, including their tax implications, please contact us. Read More...
Is cash for keys cancellation of debt income?
Tue, 22 Nov 2016 19:31:00 +0000
When a house is foreclosed, or there is a deed in lieu of foreclosure, some mortgage companies make a deal with the owner or tenant. Usually the deal works like this: the owner agrees to leave the property on a certain date and broom swept condition without taking any of the appliances, copper pipes, etc. If the home was left in the promise condition, the homeowner or tenant will receive a certain stipend from the mortgage company. Sounds good, right?
Nevertheless, the mortgage company than typically issues a 1099 for the cancellation of indebtedness income for the amount of the foreclosure and an additional 1099-MISC for the alleged miscellaneous income and cash for keys. The IRS has taken the position that the cash for keys income as ordinary income and should be taxed. In the case of Bobo vs. Commissioner, the US Tax Court determined that the foreclosure and the additional cash for keys payment were really one transaction. Since in that case, the taxpayer had an actual loss on the sale of their home, even with cash for keys payment there was no additional income.
Any time taxpayer receives a 1099s for a home foreclosure, settlement with a credit card company, or other loan, the matter should always be reviewed with a good tax lawyer to see if they amount of the 1099s is actually taxable or not.
NJ Ends Urban Enterprise Zones
Mon, 21 Nov 2016 15:37:00 +0000
The New Jersey Division of Taxation announced the end of urban enterprise zones for sales tax:
The former 3% rate for these urban enterprise zones for sales tax will be changed to the full rate of 6.875% starting January 1, 2017. It is possible that the New Jersey legislature a change this position, but it was part of the negotiated deal by the legislature when it radically increased the New Jersey gasoline tax.Read More...
New Jersey Phasing Out NJ Estate Tax
Tue, 01 Nov 2016 20:33:00 +0000
New Jersey has long had the highest state estate tax in the country. Any estate over $675,000 would owe tax to the state of New Jersey. This could be very substantial and was a significant reason for many taxpayers, especially retirees, to move from New Jersey to more tax-advantaged states such as Florida. Tax lawyers, and estate planners, have been arguing for many years that this is really costing New Jersey a lot in revenue and negatively affects the state.
Finally, after years of arguing, the New Jersey legislature passed a bill, signed by Governor Christie, that would reduce the New Jersey estate tax. Beginning January 1, 2017, only estates in excess of $2 million would be subject to the New Jersey estate tax. Starting January 1, 2018, if it is not repealed, the New Jersey estate tax would be eliminated.
There was a lot of political wrangling in order to get this passed. There is a slight reduction in New Jersey sales tax rate, but not the fact that many items are tax New Jersey that are not taxed elsewhere, and the legislature increased the gasoline tax by $0.30 a gallon. Instead of tightening their belts, the legislature chose to increase taxes in order to eliminate the estate tax. My choice would have been to simply cut the state budget!
Everyone within the state above $675,000 should have their Wills and Trusts, and entire Estate Plan reviewed immediately. Many of the actions we have taken to avoid New Jersey estate tax are no longer necessary. This is particularly true for estates with values between $675,00 and $5.5 million. Read More...
Sugar Tax Helps Beverage Companies!
Mon, 31 Oct 2016 13:52:00 +0000
The Internet is filled with reports from a recent article in the Journal of American Public Health showing that a sugar tax cuts consumption of sugar sweetened soda. This plays right into the hands of Bradford manufacturers! You are probably thinking I am crazy, but once again government does the wrong thing.
Sweetened sodas and diet sodas are sold for the same price. Nevertheless, diet sodas are much cheaper to manufacture than sodas with high fructose corn syrup and sodas with cane sugar. Therefore the tax on sweetened soft drinks increases the number of people drinking a diet soda, which is more profitable to the beverage industry, then naturally sugar sweetened soda and drinks.
So, governments by misusing taxes to force people to change behavior, have in fact increase the profit of beverage manufacturers and increase diet drinks rather than healthier all-natural sugar sweetened drinks. Obviously, the intake of the sugar sweetened drinks should be limited, but every study that is ever been done shows that diet sodas do not help people lose weight.
Let's get government out of taxing things to force people to change behavior. Let's just have taxes simply to collect the minimum money needed to run our government!
If you want to see the article in the Journal of American public health:
bit.ly/2ekY7Nu Read More...
Is your LLC and S Corporation going to be Taxed at 25%?
Wed, 26 Oct 2016 13:46:00 +0000
Congress refuses to actually simplify the Internal Revenue Code. Since the 1986 tax Reform Act, Congress has passed more than 30,000 amendments to the Internal Revenue Code. Instead of simplification, Congress is now proposing a disguise tax increase for businesses.
Under our present federal corporate structure, if an individual owns a limited liability company or a sole proprietorship, the entity is not tax separately. Rather the income is added to the individual's own tax. That is also true for partnerships and limited partnerships. Congress wants to change this to add a 25% tax at the business level. This will mean that small businesses will now be facing the same double tax problem that large businesses have. In addition there will have to be a whole series of new forms and a complete rewrite of a portion of the Internal Revenue Code for this new scheme.
Instead of moving in the right direction, Congress is moving in the wrong direction!
Please see this interesting article discussing some of these issues in further detail:
http://news.cchgroup.com/2016/10/26/ways-means-now-building-legislation-based-gop-tax-reform-blueprint-staffer-says/?utm_campaign=Tax+News+Headlines+October+2016&utm_medium=EM-BRANDING&utm_source=TNH+10/26/2016+6:37:09+AM Read More...
Changes to the 1040
Fri, 21 Oct 2016 14:29:00 +0000
WHAT'S NEW ON THE 2016 DRAFT FORM 1040 AND RELATED FORMS AND SCHEDULES
IRS has released on its website a number of draft tax forms and instructions for the 2016 tax year, including Form 1040 and its related schedules.
This Practice Alert, which appears in two parts, highlights key changes made on the 2016 return. The first Part examined the draft Form 1040 itself. This Part II covers related draft forms and schedules.
FORM 1040—SCHEDULE A, ITEMIZED DEDUCTIONS
Line 1. Medical and dental expenses. The 2016 standard mileage rate for medically-related use of an auto is 19¢ per mile.
Line 21. Unreimbursed employee expenses. The 2016 standard mileage rate for business travel is 54¢ per mile.
Line 29. Limit on itemized deductions. Itemized deductions for taxpayers with adjusted gross incomes in excess of the "applicable amount" ($311,300 for joint filers or a surviving spouse, $285,350 for a head of household, $259,400 for a single individual who isn't a surviving spouse, and $155,650 for marrieds filing separately) may be reduced.
FORM 1040—SCHEDULE B, INTEREST AND ORDINARY DIVIDENDS
Line 1. Interest. Accrued interest on Series EE U.S. savings bonds issued in '86 is taxable.
Line 3. Excludable interest on Series EE or Series I U.S. savings bonds. The exclusion for education-related savings bond interest phases out at higher income levels. For 2016, the phaseout begins at modified AGI above $77,550 ($116,300 on a joint return).
FORM 1040—SCHEDULE C, PROFIT OR LOSS FROM BUSINESS
Line D. Employer ID number. For 2016, the Line D instructions provide that the sole owner of a limited liability company (LLC) that is not treated as a separate entity for federal income tax purposes, and that has an Employer ID number (EIN) issued in the LLC's legal name because it is required to file employment tax returns and/or certain excise tax returns, should enter the LLC's EIN here. In prior years, the Schedule C, Line D instructions provided that such a taxpayer wasn't to enter that EIN on Line D. Instead, the owner of such an LLC was instructed to enter here the EIN issued to him in his name as a sole proprietor, if there was such an EIN.
Part II. Expenses. Line 9. Car and truck expenses. The 2016 standard mileage rate for business travel is 54¢ per mile.
Part II. Expenses. Line 13. Depreciation and section 179 expense. See entries for Form 4562, below.
Part II. Expenses. Line 27a. Other expenses. Historically, taxpayers could elect to deduct costs of certain qualified film and television productions. Beginning in 2016, taxpayers can also elect to deduct costs of certain qualified live theatrical productions that have their first public performance for a paying audience in 2016.
FORM 4562, DEPRECIATION AND AMORTIZATION
Part I. Election to expense certain tangible property under Sec. 179. For tax years beginning in 2016, the maximum section 179 expense deduction is $500,000 ($535,000 for qualified enterprise zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,010,000.
Line 14. Special depreciation allowance for qualified property. Taxpayers can elect to claim the special depreciation allowance for certain specified plants bearing fruit and nuts that are planted or grafted after Dec. 31, 2015.
Part V. Listed property. First-year luxury auto limits for vehicles first placed in service in 2016 are $3,160 for autos and $3,560 for light trucks or vans.
Form 1040—SCHEDULE E, SUPPLEMENTAL INCOME AND LOSS
Standard mileage rate. The 2016 standard mileage rate for miles driven in connection with the taxpayer's rental activities is 54¢ per mile.
FORM 1040—SCHEDULE F, PROFIT OR LOSS FROM FARMING
Part II. Farm Expenses—Cash and Accrual Method. Line 10. Car and truck expenses. The 2016 standard mileage rate for business travel is 54¢ per mile
This is from a daily RIA alert which I find helpful.Read More...
Nanny Tax Threshold $2000 for 2017
Wed, 19 Oct 2016 13:40:00 +0000
You remember all the famous cases about politicians not reporting domestic employees for Social Security taxes? The unofficial term is the "nanny tax." The rule, as announced by the Social Security Administration, is quite simple. If you pay any individual domestic employee, such as a house cleaner gardener or babysitter less than $2000 per year, it does not have to be reported to the Social Security Administration and you do not have to collect and remit Social Security taxes. This is on a per employee basis. So, for example if you had one babysitter that you paid $1800 to during the course of the year and another one that you paid $1000, even though the combined total is $2800, more than $2000, you still do not have to report that. On the other hand if it were just one employee hired for $2800 you would have to report the entire $2800 and withhold Social Security and pay the employer's matching portion.
See the Social Security administration official announcement:
https://www.ssa.gov/OACT/COLA/CovThresh.html Read More...
Disaster victims in Florida qualify for tax relief
Fri, 07 Oct 2016 13:50:00 +0000
This is an article just announced on the Thompson Reuters Website:
Trump's Tax Returns
Thu, 06 Oct 2016 20:44:00 +0000
The controversy swirling around Donald Trump's tax returns is getting more and more ridiculous. First, Donald Trump is continually being audited by the IRS and many state tax agencies. There is absolutely no way his tax attorneys would ever let him release his tax returns in the middle of an audit. That is foolish and would be legal malpractice.
Hillary likes to focus on Donald Trump not releasing his tax return to avoid the fact that she and Bill Clinton have earned hundreds of millions of dollars in speaking fees since Bill's retirement from the Presidency. The Clintons have also taken big advantage of our federal tax laws such as bear $700,000 tax deductible loss in 2015.
The facts are very simple: the Internal Revenue Code and state tax laws are far too complex. Clinton is talking about increasing taxes and making things more complex. Trump is talking about decreasing taxes. But no one is addressing tax simplification except for Libertarian party candidate Gary Johnson. It is time for the American people to realize that our tax system is broken. It is too complex, too confusing and requires too much time effort and money on the part of taxpayers to have to comply with complicated and confusing tax laws. It is time that we stop focusing on tax returns and start focusing on simplifying our tax laws and reducing taxes and compliance expenses! Read More...
Candidate Clinton wants to increase Estate/Death Taxes
Fri, 23 Sep 2016 14:16:00 +0000
Not surprisingly, Hillary Clinton is proposing to increase federal estate taxes from 40% to 45%. Right now, the rate starts at 40% for people who die with an estate, including all assets such as insurance, in excess of $5.45 million. Clinton has repeatedly stated she wants to reduce this exemption to a lower figure so more people have to pay tax and she now is revealing that she wants to also increase the estate tax rate.
Many people forget that prior to President Reagan's estate tax reform in the 1980s, anyone within an of $60,000 or more had to file a federal estate tax return and was subject to federal estate tax. This affected most people. As a result of the estate tax reform, very few people need to file federal estate tax returns. In states where the cost of housing is very high, lowering the exemption rate to $1 million would require many people to file estate tax returns with the IRS.
Once again, instead of hearing about tax simplification and tax reduction, candidate Clinton wants to increase the complexity of the Internal Revenue Code and increased taxes. Not a good idea!
One more comment, let us look at the debates, even though they exclude Libertarian Party candidate Brown, and Green Party candidate Stein, to see if either Clinton or Trump will talk about true tax reform, simplification and reduction.
Fri, 19 Aug 2016 14:01:00 +0000
Applicable Federal Rates for September 2016
Rev Rul 2016-20The Applicable Federal Rates for September 2016 are reproduced below.
**Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after Sept. 30, 2008, will not be less than 9%. Read More...
Let's end the draft started by Pre. Lincoln in the Civil War!
Fri, 24 Jun 2016 13:44:00 +0000
The Draft is Slavery. End it.
Congress has been debating the merits of adding women into Selective Service to be drafted with men during times of national emergency.
Sen. Rand Paul has suggested that it would be better to end the draft.
The Libertarian Party agrees.
"The draft is simply slavery by another name. Drafting people to go abroad and kill or be killed is barbaric and a discredit to our military and country," says Nicholas Sarwark, chair of the Libertarian National Committee.
If a national emergency is so severe to merit mobilizing extra troops, Americans from all backgrounds, ages, and genders will pitch in to do what is needed.
The Libertarian Party urges elected leaders to end the draft and also to pursue foreign policy which is less dependent on military might.
The United States has many tools of foreign policy at our disposal that do not require force. Military force should always be a last resort and only in defense.
The Libertarian Party is the only political party in America devoted to protecting all rights, of all human beings, all the time. The Libertarian Party also strongly condemns the use of force except in self defense.Read More...
Sugar tax on soft drinks helps beverage companies!
Mon, 20 Jun 2016 18:51:00 +0000
This past Thursday, Philadelphia city Council, under the prodding of its mayor James Kenney, imposed a 1.5 sent tax per ounce of "sugary" soft drinks. The idea is to prevent obesity. Of course, this will prove to be totally useless for several reasons.
First, even though the beverage industry is fighting these taxes, the truth is no one could be happier than the beverage industry. It is much more expensive to make a soft drink with sugar or high fructose corn syrup than with NutraSweet or any other varieties of artificial sweeteners. Even though study after study has shown that people who drink "diet" drinks do not lose any weight and fact may have a tendency to gain weight, the beverage industry pushes diet soda to make more profit.
Now, Philadelphia, like some other big cities, has decided to play right into the hands of the beverage industry. More people will choose to save the tax (on a 20 ounce soda it is $.30) and start to drink diet sodas. The beverage industry will make more profit, no weight will be lost, and for those people that are stuck buying regular soda they are forced to pay the tax, Philadelphia found a sneaky way to collect more taxes.
For those people that really want to drink soda, this will encourage people in Philadelphia to just drive over the bridge and do more shopping in New Jersey (where there is a tax on carbonated beverages, but not noncarbonated beverages and other foods), Delaware (where there is no sales tax) or just simply go over the border into the neighboring communities in Pennsylvania.
Once again, this is another political attempt to to pretend that politicians are doing a good law, when in fact they are just simply raising taxes. This is really a dumb idea! Read More...