Hign Tax States Sue Federal Government
Wed, 18 Jul 2018 12:43:00 +0000
The high tax States, including New Jersey, are suing the Federal Government because of the Tax Reform Act. They are arguing the $10k cap on State and Local Taxes is somehow Unconstitutional. They will lose. There is no right to have a Federal Tax Deduction for local taxes. It would be surprising if the Courts side with the States. Here is a good article on the lawsuit from Thompson-Reuters:
NEW YORK, (Reuters) - Four U.S. states sued the federal government on Tuesday to void the new $10,000 cap on the federal deduction for state and local taxes, included as part of the President Donald Trump's 2017 tax overhaul.
The lawsuit by New York, Connecticut, Maryland and New Jersey came seven months after Trump signed into law the $1.5 trillion overhaul, which also lowered taxes for many wealthy Americans and slashed the corporate tax rate.
It also adds to the many legal battles between Democratic-led and -leaning states, including several that impose comparatively high taxes, and the Trump administration.
Andrew Cuomo, New York's Democratic governor, said in a statement: "The federal government is hellbent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it".
The U.S. Department of the Treasury, which along with Treasury Secretary Steven Mnuchin is among the defendants, was not immediately available for comment.
Taxpayers had before this year enjoyed an unlimited federal deduction for state and local taxes, or the SALT deduction.
But under the cap, individuals and married taxpayers filing jointly who itemize deductions may deduct only up to $10,000 annually for state and local income, property and sales taxes.
Critics say the cap disproportionately harms high-tax states, many of which lean Democratic.
Voters in New York, Connecticut, Maryland and New Jersey favored Hillary Clinton, a Democrat, in the 2016 presidential election.
According to the lawsuit, capping the SALT deduction will force New York taxpayers alone to pay an additional $14.3 billion in federal taxes this year, and another $121 billion through 2025, when the cap is scheduled to expire.
The states said the cap will depress home prices, spending, job growth and economic growth, and impede their ability to pay for essential services such as schools, hospitals, police, and road and bridge construction and maintenance.
They also said it "effectively eviscerates" a deduction that has been on the books since 1861, and unconstitutionally intrudes on state sovereignty.
The lawsuit was filed in the U.S. District Court in Manhattan.
In May, the Treasury Department said it would propose regulations aimed at states trying to circumvent the cap.
New York, Connecticut and New Jersey had already adopted measures allowing taxpayers to fund local governments by making deductible charitable contributions to specified funds instead of paying taxes. Read More...
How to Avoid the !00% (6672 VCivil Penalty) for Employment Taxes
Tue, 17 Jul 2018 20:47:00 +0000
How to avoid getting hit with payroll tax penalties
For small businesses, managing payroll can be one of the most arduous tasks. Adding to the burden earlier this year was adjusting income tax withholding based on the new tables issued by the IRS. (Those tables account for changes under the Tax Cuts and Jobs Act.) But it’s crucial not only to withhold the appropriate taxes — including both income tax and employment taxes — but also to remit them on time to the federal government.
If you don’t, you, personally, could face harsh penalties. This is true even if your business is an entity that normally shields owners from personal liability, such as a corporation or limited liability company.
The 100% penalty
Employers must withhold federal income and employment taxes (such as Social Security) as well as applicable state and local taxes on wages paid to their employees. The federal taxes must then be remitted to the federal government according to a deposit schedule.
If a business makes payments late, there are escalating penalties. And if it fails to make them, the Trust Fund Recovery Penalty could apply. Under this penalty, also known as the 100% penalty, the IRS can assess the entire unpaid amount against a “responsible person.”
The corporate veil won’t shield corporate owners in this instance. The liability protections that owners of corporations — and limited liability companies — typically have don’t apply to payroll tax debts.
When the IRS assesses the 100% penalty, it can file a lien or take levy or seizure action against personal assets of a responsible person.
“Responsible person,” defined
The penalty can be assessed against a shareholder, owner, director, officer or employee. In some cases, it can be assessed against a third party. The IRS can also go after more than one person. To be liable, an individual or party must:
When it comes to the 100% penalty, prevention is the best medicine. So make sure that federal taxes are being properly withheld from employees’ paychecks and are being timely remitted to the federal government. (It’s a good idea to also check state and local requirements and potential penalties.)
If you aren’t already using a payroll service, consider hiring one. A good payroll service provider relieves you of the burden of withholding the proper amounts, taking care of the tax payments and handling recordkeeping. Contact us for more information. Read More...
New Tax Law Qualified Business Income Dedcution
Mon, 16 Jul 2018 17:00:00 +0000
Close-up on the new QBI deduction’s wage limitThe Tax Cuts and Jobs Act (TCJA) provides a valuable new tax break to noncorporate owners of pass-through entities: a deduction for a portion of qualified business income (QBI). The deduction generally applies to income from sole proprietorships, partnerships, S corporations and, typically, limited liability companies (LLCs). It can equal as much as 20% of QBI. But once taxable income exceeds $315,000 for married couples filing jointly or $157,500 for other filers, a wage limit begins to phase in.
Full vs. partial phase-in
When the wage limit is fully phased in, at $415,000 for joint filers and $207,500 for other filers, the QBI deduction generally can’t exceed the greater of the owner’s share of:
Let’s say Chris and Leslie have taxable income of $600,000. This includes $300,000 of QBI from Chris’s pass-through business, which pays $100,000 in wages and has $200,000 of QBP. The gross deduction would be $60,000 (20% of $300,000), but the wage limit applies in full because the married couple’s taxable income exceeds the $415,000 top of the phase-in range for joint filers. Computing the deduction is fairly straightforward in this situation.
The first option for the wage limit calculation is $50,000 (50% of $100,000). The second option is $30,000 (25% of $100,000 + 2.5% of $200,000). So the wage limit — and the deduction — is $50,000.
What if Chris and Leslie’s taxable income falls within the phase-in range? The calculation is a bit more complicated. Let’s say their taxable income is $400,000. The full wage limit is still $50,000, but only 85% of the full limit applies:
($400,000 taxable income - $315,000 threshold)/$100,000 = 85%
To calculate the amount of their deduction, the couple must first calculate 85% of the difference between the gross deduction of $60,000 and the fully wage-limited deduction of $50,000:
($60,000 - $50,000) × 85% = $8,500
That amount is subtracted from the $60,000 gross deduction for a final deduction of $51,500.
That’s not all
Be aware that another restriction may apply: For income from “specified service businesses,” the QBI deduction is reduced if an owner’s taxable income falls within the applicable income range and eliminated if income exceeds it. Please contact me at (856) 665-2121 to learn whether your business is a specified service business or if you have other questions about the QBI deduction. Read More...
Back from my Cruise - Frequent Flyer Miles Not Taxable!
Mon, 16 Jul 2018 13:25:00 +0000
Does Your Online Business Need to Collect Sales Tax>
Mon, 02 Jul 2018 18:13:00 +0000
Does your business have to begin collecting sales tax on all out-of-state online sales?
You’ve probably heard about the recent U.S. Supreme Court decision allowing state and local governments to impose sales taxes on more out-of-state online sales. The ruling in South Dakota v. Wayfair, Inc. is welcome news for brick-and-mortar retailers, who felt previous rulings gave an unfair advantage to their online competitors. And state and local governments are pleased to potentially be able to collect more sales tax.
But for businesses with out-of-state online sales that haven’t had to collect sales tax from out-of-state customers in the past, the decision brings many questions and concerns.
What the requirements used to be
Even before Wayfair, a state could require an out-of-state business to collect sales tax from its residents on online sales if the business had a “substantial nexus” — or connection — with the state. The nexus requirement is part of the Commerce Clause of the U.S. Constitution.
Previous Supreme Court rulings had found that a physical presence in a state (such as retail outlets, employees or property) was necessary to establish substantial nexus within a particular State. As a result, some online retailers have already been collecting tax from out-of-state customers, while others have not had to.
What has changed
In Wayfair, South Dakota had enacted a law requiring out-of-state retailers that made at least 200 sales or sales totaling at least $100,000 in the state to collect and remit sales tax. The Supreme Court found that the physical presence rule is “unsound and incorrect,” and that the South Dakota tax satisfies the substantial nexus requirement.
The Court said that the physical presence rule puts businesses with a physical presence at a competitive disadvantage compared with remote sellers that needn’t charge customers for taxes.
In addition, the Court found that the physical presence rule treats sellers differently for arbitrary reasons. A business with a few items of inventory in a small warehouse in a state is subject to sales tax on all of its sales in the state, while a business with a pervasive online presence but no physical presence isn’t subject to the same tax for the sales of the same items.
What the decision means
Wayfair doesn’t necessarily mean that you must immediately begin collecting sales tax on online sales to all of your out-of-state customers. You’ll be required to collect such taxes only if the particular state requires it. Some states already have laws on the books similar to South Dakota’s, but many states will need to revise or enact legislation. Some States, such as Connecticut already have a new law requiring some online vendors to collect sales tax.
Also, keep in mind that the substantial nexus requirement isn’t the only principle in the Commerce Clause doctrine that can invalidate a state tax. The others weren’t argued in Wayfair, but the Court observed that South Dakota’s tax system included several features that seem designed to prevent discrimination against or undue burdens on interstate commerce, such as a prohibition against the retroactive application and a safe harbor for taxpayers who do only limited business in the state.
Note: There are many planning opportunities to limit or eliminate your company's exposure to this disastrous ruling. It requires immediate action. Please call me at 856 665-2121.
LLC vs. C Corporation vx. S Corporation under the new Tax Cuts
Mon, 25 Jun 2018 15:01:00 +0000
Choosing the best business entity structure post-TCJA
For tax years beginning in 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) created a flat 21% federal income tax rate for C corporations. Under prior law, C corporations were taxed at rates as high as 35%. The TCJA also reduced individual income tax rates, which apply to sole proprietorships and pass-through entities, including partnerships, S corporations, and, typically, limited liability companies (LLCs). The top rate, however, dropped only slightly, from 39.6% to 37%.
On the surface, that may make choosing C corporation structure seem like a no-brainer. But there are many other considerations involved.
Under prior tax law, conventional wisdom was that most small businesses should be set up as sole proprietorships or pass-through entities to avoid the double taxation of C corporations: A C corporation pays entity-level income tax and then shareholders pay tax on dividends — and on capital gains when they sell the stock. For pass-through entities, there’s no federal income tax at the entity level.
Although C corporations are still potentially subject to double taxation under the TCJA, their new 21% tax rate helps make up for it. This issue is further complicated, however, by another provision of the TCJA that allows noncorporate owners of pass-through entities to take a deduction equal to as much as 20% of qualified business income (QBI), subject to various limits. But, unless Congress extends it, the break is available only for tax years beginning in 2018 through 2025.
There’s no one-size-fits-all answer when deciding how to structure a business. The best choice depends on your business’s unique situation and your situation as an owner.
3 common scenarios
Here are three common scenarios and the entity-choice implications:
1. Business generates tax losses. For a business that consistently generates losses, there’s no tax advantage to operating as a C corporation. Losses from C corporations can’t be deducted by their owners. A pass-through entity will generally make more sense because losses pass through to the owners’ personal tax returns.
2. Business distributes all profits to owners. For a profitable business that pays out all income to the owners, operating as a pass-through entity generally will be better if significant QBI deductions are available. If not, it’s probably a toss-up in terms of tax liability.
3. Business retains all profits to finance growth. For a business that’s profitable but holds on to its profits to fund future growth strategies, operating as a C corporation generally will be advantageous if the corporation is a qualified small business (QSB). Why? A 100% gain exclusion may be available for QSB stock sale gains. If QSB status is unavailable, operating as a C corporation is still probably preferred — unless significant QBI deductions would be available at the owner level.
These are only some of the issues to consider when making the C corporation vs. pass-through entity choice. I can help you evaluate your options.
Sales tax Disaster for Small Online Businesses
Thu, 21 Jun 2018 21:39:00 +0000
Supreme Court issues an Opinion Allowing States to Force online US Retailers to Collect Sales Tax
What a disaster for US online businesses! In SD v. Wayfair, the US Supreme Court slapped online retailers the burden of collecting Sales Tax on sales out-of-state. This means small businesses must comply with thousands of state and local sales tax rates and the different laws of each jurisdiction. This was backed by the big online companies such as Amazon, Apple, Walmart, as well as the big storefront retailers.
Compliance will be next to impossible with expensive services and will drive small US online companies out of business, jacking-up prices for consumers. The large online companies and non-US companies will have a big advantage. Starting a new online business means many people will choose a foreign entity and complicated ownership structures to remain competitive.
The full case:
Key deadlines for businesses and other employers
Mon, 18 Jun 2018 15:48:00 +0000
2018 Q3 tax calendar: Key deadlines for businesses and other employers
Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.
Midyear - Tax and Financial Checkup
Fri, 15 Jun 2018 16:04:00 +0000
Hardship 401(k) Withdrawals
Tue, 12 Jun 2018 17:43:00 +0000
Tax Law changes that may affect your business’s 401(k) plan
When you think about recent tax law changes and your business, you’re probably thinking about the new 20% pass-through deduction for qualified business income or the enhancements to depreciation-related breaks. Or you may be contemplating the reduction or elimination of certain business expense deductions. But there are also a couple of recent tax law changes that you need to be aware of if your business sponsors a 401(k) plan.
1. Plan loan repayment extension
The Tax Cuts and Jobs Act (TCJA) gives a break to 401(k) plan participants with outstanding loan balances when they leave their employers. While plan sponsors aren’t required to allow loans, many do.
Before 2018, if an employee with an outstanding plan loan left the company sponsoring the plan, he or she would have to repay the loan (or contribute the outstanding balance to an IRA or his or her new employer’s plan) within 60 days to avoid having the loan balance deemed a taxable distribution (and be subject to a 10% early distribution penalty if the employee was under age 59½).
Under the TCJA, beginning in 2018, former employees in this situation have until their tax return filing due date — including extensions — to repay the loan (or contribute the outstanding balance to an IRA or qualified retirement plan) and avoid taxes and penalties.
2. Hardship withdrawal limit increase
Beginning in 2019, the Bipartisan Budget Act (BBA) eases restrictions on employee 401(k) hardship withdrawals. Most 401(k) plans permit hardship withdrawals, though plan sponsors aren’t required to allow them. Hardship withdrawals are subject to income tax and the 10% early distribution tax penalty. You can withdraw the money but you will pay a big tax penalty!
Currently, hardship withdrawals are limited to the funds employees contributed to the accounts. (Such withdrawals are allowed only if the employee has first taken a loan from the same account.)
Under the BBA, the withdrawal limit will also include accumulated employer matching contributions plus earnings on contributions. If an employee has been participating in your 401(k) for several years, this modification could add substantially to the amount of funds available for withdrawal.
Nest egg harm
These changes might sound beneficial to employees, but in the long run they could actually hurt those who take advantage of them. Most Americans aren’t saving enough for retirement, and taking longer to pay back a plan loan (and thus missing out on potential tax-deferred growth during that time) or taking larger hardship withdrawals can result in a smaller, perhaps much smaller, nest egg at retirement.
So consider educating your employees on the importance of letting their 401(k) accounts grow undisturbed and the potential negative tax consequences of loans and early withdrawals. Please contact me at (856) 665-212 if you have questions.Read More...
Put Children on the Payroll
Wed, 06 Jun 2018 01:44:00 +0000
Putting your child on your business’s payroll for the summer may make more tax sense than ever
If you own a business and have a child in high school or college, hiring him or her for the summer can provide a multitude of benefits, including tax savings. And hiring your child may make more sense than ever due to changes under the Tax Cuts and Jobs Act (TCJA).
How it works
By shifting some of your business earnings to a child as wages for services performed, you can turn some of your high-taxed income into tax-free or low-taxed income. For your business to deduct the wages as a business expense, the work done must be legitimate and the child’s wages must be reasonable.
Here’s an example: A sole proprietor is in the 37% tax bracket. He hires his 20-year-old daughter, who’s majoring in marketing, to work as a marketing coordinator full-time during the summer. She earns $12,000 and doesn’t have any other earnings.
The father saves $4,440 (37% of $12,000) in income taxes at no tax cost to his daughter, who can use her $12,000 standard deduction (for 2018) to completely shelter her earnings. This is nearly twice as much as would have been sheltered last year, pre-TCJA, when the standard deduction was only $6,350.
The father can save an additional $2,035 in taxes if he keeps his daughter on the payroll as a part-time employee into the fall and pays her an additional $5,500. She can shelter the additional income from tax by making a tax-deductible contribution to her own traditional IRA.
Family taxes will be cut even if an employee-child’s earnings exceed his or her standard deduction and IRA deduction. Why? The unsheltered earnings will be taxed to the child beginning at a rate of 10% instead of being taxed at the parent’s higher rate.
Avoiding the “kiddie tax”
TCJA changes to the “kiddie tax” also make income-shifting through hiring your child (rather than, say, giving him or her income-producing investments) more appealing. The kiddie tax generally applies to children under age 19 and to full-time students under age 24. Before 2018, the unearned income of a child subject to the kiddie tax was generally taxed at the parents’ tax rate.
The TCJA makes the kiddie tax harsher. For 2018-2025, a child’s unearned income will be taxed according to the tax brackets used for trusts and estates, which for 2018 are taxed at the highest rate of 37% once taxable income reaches $12,500. In contrast, for a married couple filing jointly, the 37% rate doesn’t kick in until their taxable income tops $600,000. In other words, children’s unearned income often will be taxed at higher rates than their parents’ income.
But the kiddie tax doesn’t apply to earned income.
Other tax considerations
If your business isn’t incorporated or a partnership that includes nonparent partners, you might also save some employment tax dollars. Contact me at (856) 665-2121 to learn more about the tax rules surrounding hiring your child, how the kiddie tax works or other family-related tax-saving strategies.Read More...
Bitcoin and Digital Currencies are Taxable Property in the US
Mon, 04 Jun 2018 16:56:00 +0000
What businesses need to know about the tax treatment of bitcoin and other virtual currencies
Over the last several years, virtual currency has become increasingly popular. Bitcoin is the most widely recognized form of virtual currency, also commonly referred to as digital, electronic or crypto currency.
While most smaller businesses aren’t yet accepting bitcoin or other virtual currency payments from their customers, some larger businesses are. And the trend may trickle down to smaller businesses. Businesses also can pay employees or independent contractors with virtual currency. But what are the tax consequences of these transactions?
Bitcoin has an equivalent value in real currency and can be digitally traded between users. It also can be purchased with real currencies or exchanged for real currencies. Bitcoin is most commonly obtained through virtual currency ATMs or online exchanges.
Goods or services can be paid for using “bitcoin wallet” software. When a purchase is made, the software digitally posts the transaction to a global public ledger. This prevents the same unit of virtual currency from being used multiple times.
Questions about the tax impact of virtual currency abound. And the IRS has yet to offer much guidance.
The IRS did establish in a 2014 ruling that bitcoin and other convertible virtual currency should be treated as property, not currency, for federal income tax purposes. This means that businesses accepting bitcoin payments for goods and services must report gross income based on the fair market value of the virtual currency when it was received, measured in equivalent U.S. dollars.
When a business uses virtual currency to pay wages, the wages are taxable to the employees to the extent any other wage payment would be. You must, for example, report such wages on your employees’ W-2 forms. And they’re subject to federal income tax withholding and payroll taxes, based on the fair market value of the virtual currency on the date received by the employee.
When a business uses virtual currency to pay independent contractors or other service providers, those payments are also taxable to the recipient. The self-employment tax rules generally apply, based on the fair market value of the virtual currency on the date received. Payers generally must issue 1099-MISC forms to recipients.
Finally, payments made with virtual currency are subject to information reporting to the same extent as any other payment made in property.
Deciding whether to go virtual
Accepting bitcoin can be beneficial because it may avoid transaction fees charged by credit card companies and online payment providers (such as PayPal) and attract customers who want to use virtual currency. But the IRS is targeting virtual currency transactions in an effort to raise tax revenue, and it hasn’t issued much guidance on the tax treatment or reporting requirements. So bitcoin can also be a bit risky from a tax perspective.
The other issue of concern is the repaid fluctuation in value. If the amount of Bitcoin received has the value of $100 on the day received, and only $90 on the day it is disposed of, the business has income of $100 even though it has $90 in assets. There may be some tricky accounting and tax questions for the treatment of gain or loss.
To learn more about tax considerations when deciding whether your business should accept bitcoin or other virtual currencies — or use them to pay employees, independent contractors or other service providers — contact me at (856) 665-2121. Read More...
Australians lose freedom of choice and pay higher costs due to tax law changes
Fri, 01 Jun 2018 20:10:00 +0000
The Australian government is attacking its own citizens with a new sales tax designed to harm international sales.
The Australian government has the equivalent of a sales tax, known as the Goods and Services Tax, on international online sales of less than $1000. The purpose of this tax is to prevent Australians from purchasing a wider range of goods at cheaper prices from online services such as Amazon. As part of its protectionist policy to boost local retailers, Australia is imposing this unwieldy tariff. As a result, Amazon had no choice but to block sales to Australia from its main site. Australians will have less choice, and pay more for it, to subsidize local business.
This is another way of hurting the consumer and limiting free choice.
Here is a good article from Thompson-Reuters on the issue:
Amazon geoblocks Australia from US site as tax change kicks inBy Stephen Coates and Byron Kaye
SYDNEY (Reuters) - Amazon.com Inc said on Thursday it will force Australians to use its Australian website instead of its much larger U.S. site to avoid a new sales tax, setting the stage for a showdown with rival eBay Inc in the No. 12 economy.
The retail giant said it would subject Australians to the process known as "geoblocking" from July 1, when a 10 percent Goods and Services Tax (GST) applies to imported online goods worth less than A$1,000 ($756).
"While we regret any inconvenience this may cause customers, we have had to assess the workability of the legislation as a global business with multiple international sites", an Amazon spokesman said, adding that the firm was taking the measure to comply with the legislation and not to avoid paying tax.
The move will likely drive traffic to Amazon's Australian website, testing the patience of shoppers who have complained about its thin product range - a tenth the range of its U.S. site - and uncompetitive prices since it began taking orders in December.
It may also benefit Amazon's main rivals, from California-headquartered online market eBay to smaller Australian merchants which had campaigned to have the GST apply to all goods shipped from overseas.
National Retail Association CEO Dominique Lamb said Amazon's move was a surprise.
"You have to wonder if they are trying to funnel more traffic to its Australan website", she said.
An eBay spokesman said the U.S. company was working on a way to collect the Australian tax from sellers around the world without cutting access for Australians.
"eBay's GST solution ... allows imports to Australia to continue without any structural barriers, redirects or blocks to the buyer experience", he said.
Until now, GST has applied only to most goods sold in Australia and imported goods worth over A$1,000, making relatively low-cost imported items cheaper than their equivalents in local stores.
Australian Treasurer Scott Morrison announced the change in April 2017, eight months before Amazon opened its Australian unit.
"The second-biggest company in the world, run by the richest man in the world, shouldn't get a leave pass from paying tax in Australia", Morrison said in an email statement on Thursday.
"If multinationals aren't forced to pay their fair share of tax, they will have a competitive advantage over retailers here in Australia, on our own main streets and in our shopping centres."
Shares of local e-commerce site Kogan.com Ltd closed up 0.8 percent while shares of electronics retailers JB Hi-Fi Ltd and Harvey Norman Holdings Ltd, seen as direct Amazon competitors, closed up 2.2 percent and 1.4 percent respectively. The broader market rose 0.4 percent.
($1 = 1.3224 Australian dollars)
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Cherry Hill West HS Career Day
Wed, 30 May 2018 19:57:00 +0000
Cherry Hill West High School
May 31, 2018
How to Become a Lawyer and What Lawyers Do
How To Become A Lawyer:
1. You are required to obtain a bachelors degree. There is no such thing as “pre-law” although some schools have prelaw advisors. You can choose any major, but the key is to choose courses that require you to hone your skills in reading, and analysis and in writing. Since a lawyer’s job is to communicate with clients, courts, administrative agencies, and adversaries, the ability to write well and to communicate well orally are extremely important.
Majors That Can Be Particularly Useful Are:
A. Social sciences such as English, History, Political Science, Economics
B. Business so long as you are required to do a lot of writing.
C. Engineering or Science if you are contemplating Patent Law.
2. While you are in school, grades are exceptionally important. It is important to take a major that you are interested in and that you will do well so you can have a high GPA and class rank. Law schools pay a lot of attention to this. Also, activities are important such as Debate Team, Student Government and anything that improves your ability to negotiate. Journalism groups are also a good choice because they showcase your investigative skills.
3. The LSAT, also known as the Law School Admissions Test is very similar to the verbal portion of the SAT. Many schools have practical cutoffs of what they will accept for the LSAT. It is not uncommon for students to take prep courses for the LSAT.
4. You must attend law school which is generally three years and earn a Juris Doctorate (J.D.) Although lawyers customarily are not called “doctor” in the United States, in fact they earn a doctorate degree similar to physicians, dentists, veterinarians and other professionals. The law school you get into will be important for your future career.
5. Most lawyers are becoming specialized even though we do not hold ourselves out as “specialists” because of legal ethics. Tax lawyers generally receive the decree known as a LL. M. (Tax). It takes an additional year of full-time study plus a thesis.
6. After law school, you must pass a “Bar Exam” in the State where you wish to practice. There is a different test in each state and a common portion called the Multi-State Bar Exam and Professional Responsibility Exam.
Copyright 2018 - All Rights Reserved
Ronald J. Cappuccio, J.D., LL.M. (Tax)
What Do Lawyers Do?
1. The essence of being a professional is you have a “forensic” responsibility to find the issues and problems of your client, as well as creatively establishing a path to solve the problems and issues.
2. Most lawyers work in private practice although there is a very high percentage of lawyers that work for the government (such as prosecutors and lawyers for various governmental agencies) and as “in-house counsel” for businesses. The in-house counsel for a business can be as small as just one person working have very large teams of lawyers.
3. Some lawyers are sole practitioners, particularly if they are very specialized. Most lawyers work in law firms of two to three people although there are larger firms including firms above 2,000 lawyers.
4. A Lawyers main daily job is negotiating with adversaries, whether it is a governmental agency such as the IRS, large businesses such as banking financial institutions, or other private parties.
5. Typical areas of practice include:
Real Estate Lawyers
Family Law Lawyers
Estate Planning and Elder Law
Note: If you have additional questions about you becoming a lawyer or the practice of law you may contact me.
New tax Law Changes Business Loss Deductions
Mon, 21 May 2018 16:02:00 +0000
TCJA changes some rules for deducting pass-through business losses
It’s not uncommon for businesses to sometimes generate tax losses. But the losses that can be deducted are limited by tax law in some situations. The Tax Cuts and Jobs Act (TCJA) further restricts the amount of losses that sole proprietors, partners, S corporation shareholders and, typically, limited liability company (LLC) members can currently deduct — beginning in 2018. This could negatively impact owners of start-ups and businesses facing adverse conditions.
Before the TCJA
Under pre-TCJA law, an individual taxpayer’s business losses could usually be fully deducted in the tax year when they arose unless:
The TCJA temporarily changes the rules for deducting an individual taxpayer’s business losses. If your pass-through business generates a tax loss for a tax year beginning in 2018 through 2025, you can’t deduct an “excess business loss” in the current year. An excess business loss is the excess of your aggregate business deductions for the tax year over the sum of:
For business losses passed through to individuals from S corporations, partnerships and LLCs treated as partnerships for tax purposes, the new excess business loss limitation rules apply at the owner level. In other words, each owner’s allocable share of business income, gain, deduction or loss is passed through to the owner and reported on the owner’s personal federal income tax return for the owner’s tax year that includes the end of the entity’s tax year.
Keep in mind that the new loss limitation rules apply after applying the PAL rules. So, if the PAL rules disallow your business or rental activity loss, you don’t get to the new loss limitation rules.
Expecting a business loss?
The rationale underlying the new loss limitation rules is to restrict the ability of individual taxpayers to use current-year business losses to offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains.
The practical impact is that your allowable current-year business losses can’t offset more than $250,000 of income from such other sources (or more than $500,000 for joint filers). The requirement that excess business losses be carried forward as an NOL forces you to wait at least one year to get any tax benefit from those excess losses.
If you’re expecting your business to generate a tax loss in 2018, contact us to determine whether you’ll be affected by the new loss limitation rules. We can also provide more information about the PAL and NOL rules. Please feel free to call me at (856) 665-2121
Ron Cappuccio Read More...
Reimbursements for Employee Business Expenses
Thu, 17 May 2018 19:18:00 +0000
Deducting Business Travel with Vacation
Mon, 14 May 2018 16:39:00 +0000
Can you deduct business travel when it’s combined with a vacation?
At this time of year, a summer vacation is on many people’s minds. If you travel for business, combining a business trip with a vacation to offset some of the cost with a tax deduction can sound appealing. But tread carefully, or you might not be eligible for the deduction you’re expecting.
Business travel expenses are potentially deductible if the travel is within the United States and the expenses are “ordinary and necessary” and directly related to the business. (Foreign travel expenses may also be deductible, but stricter rules apply than are discussed here.)
Currently, business owners and the self-employed are potentially eligible to deduct business travel expenses. Note: Under the Tax Cuts and Jobs Act, employees can no longer deduct such expenses. The potential deductions discussed below assume that you’re a business owner or self-employed.
Business vs. pleasure
Transportation costs to and from the location of your business activity may be 100% deductible if the primary reason for the trip is business rather than pleasure. But if vacation is the primary reason for your travel, generally none of those costs are deductible.
The number of days spent on business vs. pleasure is the key factor in determining whether the primary reason for domestic travel is business:
You should be able to claim business was the primary reason for a domestic trip if business days exceed personal days.
What transportation costs can you deduct? Travel to and from your departure airport, airfare, baggage fees, tips, cabs, etc. Costs for rail travel or driving your personal car are also eligible.
Once at the destination, your out-of-pocket expenses for business days are fully deductible. Examples of these expenses include lodging, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare. Expenses for personal days aren’t deductible.
Keep in mind that only expenses for yourself are deductible. You can’t deduct expenses for family members traveling with you — unless they’re employees of your business and traveling for a bona fide business purpose.
Substantiation is critical -REALLY!
Be sure to accumulate proof of the business nature of your trip and keep it with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or seminar, keep the program and take notes to show you attended the sessions. You also must properly substantiate all of the expenses you’re deducting.
Additional rules and limits apply to the travel expense deduction. Please contact me if you have questions.Read More...
IRS Audits of Businesses
Mon, 07 May 2018 16:01:00 +0000
IRS Audit Techniques Guides provide clues to what may come up if your business is audited
IRS examiners use Audit Techniques Guides (ATGs) to prepare for audits — and so can small business owners. Many ATGs target specific industries, such as construction. Others address issues that frequently arise in audits, such as executive compensation and fringe benefits. These publications can provide valuable insights into issues that might surface if your business is audited.
What do ATGs cover?
The IRS compiles information obtained from past examinations of taxpayers and publishes its findings in ATGs. Typically, these publications explain:
By using a specific ATG, an examiner may, for example, be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s normal for the industry or to identify anomalies within the geographic area in which the taxpayer resides.
What do ATGs advise?
ATGs cover the types of documentation IRS examiners should request from taxpayers and what relevant information might be uncovered during a tour of the business premises. These guides are intended in part to help examiners identify potential sources of income that could otherwise slip through the cracks.
Other issues that ATGs might instruct examiners to inquire about include:
For example, one ATG focuses specifically on cash-intensive businesses, such as auto repair shops, check-cashing operations, gas stations, liquor stores, restaurants and bars, and salons. It highlights the importance of reviewing cash receipts and cash register tapes for these types of businesses.
Cash-intensive businesses may be tempted to underreport their cash receipts, but franchised operations may have internal controls in place to deter such “skimming.” For instance, a franchisee may be required to purchase products or goods from the franchisor, which provides a paper trail that can be used to verify sales records.
Likewise, for gas stations, examiners must check the methods of determining income, rebates and other incentives. Restaurants and bars should be asked about net profits compared to the industry average, spillage, pouring averages and tipping.
Avoiding red flags
Although ATGs were created to enhance IRS examiner proficiency, they also can help small businesses ensure they aren’t engaging in practices that could raise red flags with the IRS. To access the complete list of ATGs, visit the IRS website. And for more information on the IRS red flags that may be relevant to your business, call me at (856) 665-2121.Read More...
New Tax Act changes affecting Small Business
Mon, 30 Apr 2018 14:48:00 +0000
A review of significant TCJA provisions affecting small businesses
Now that small businesses and their owners have filed their 2017 income tax returns (or filed for an extension), it’s a good time to review some of the provisions of the Tax Cuts and Jobs Act (TCJA) that may significantly impact their taxes for 2018 and beyond. Generally, the changes apply to tax years beginning after December 31, 2017, and are permanent, unless otherwise noted.
This is only a sampling of some of the most significant TCJA changes that will affect small businesses and their owners beginning this year, and additional rules and limits apply. The combined impact of these changes should inform which tax strategies you and your business implement in 2018, such as how to time income and expenses to your tax advantage. The sooner you begin the tax planning process, the more tax-saving opportunities will be open to you. So don’t wait to start; contact me at (856)665-2121 with any questions. Read More...
How Long Should Businesses keep tax documents?
Mon, 23 Apr 2018 15:13:00 +0000
Tax document retention guidelines for small businessesYou may have breathed a sigh of relief after filing your 2017 income tax return (or requesting an extension). But if your office is strewn with reams of paper consisting of years’ worth of tax returns, receipts, canceled checks and other financial records (or your computer desktop is filled with a multitude of digital tax-related files), you probably want to get rid of what you can. Follow these retention guidelines as you clean up.
First, Scan everything! If your documents are not already kept in electronic format, scan everything into PDF files Scanners are cheap and so is storage. It is better to have it and not need it than need it and not have it!
Retain records that support items shown on your tax return at least until the statute of limitations runs out — generally three years from the due date of the return or the date you filed, whichever is later. That means you can now potentially throw out records for the 2014 tax year if you filed the return for that year by the regular filing deadline. But some records should be kept longer.
For example, there’s no statute of limitations if you fail to file a tax return or file a fraudulent one. So you’ll generally want to keep copies of your returns themselves permanently, so you can show that you did file a legitimate return.
Also bear in mind that, if you understate your adjusted gross income by more than 25%, the statute of limitations period is six years.
Always Keep Tax Returns
Most tax returns are prepared with software that can be given to you as a PDF. Make sure your tax preparer supplies you with a PDF of your return. If not, scan the return. KEEP TAX RETURNS FOREVER! The IRS has been know to misfile or lose returns and you might not find out for years later. If you have the return, it is easy to re-file.
Some specifics for businesses
Records substantiating costs and deductions associated with business property are necessary to determine the basis and any gain or loss when the property is sold. According to IRS guidelines, you should keep these for as long as you own the property, plus seven years.
The IRS recommends keeping employee records for three years after an employee has been terminated. In addition, you should maintain records that support employee earnings for at least four years. (This timeframe generally will cover varying state and federal requirements.) Also keep employment tax records for four years from the date the tax was due or the date it was paid, whichever is longer.
For travel and transportation expenses supported by mileage logs and other receipts, keep supporting documents for the three-year statute of limitations period.
Regulations for sales tax returns vary by state. Check the rules for the states where you file sales tax returns. Retention periods typically range from three to six years.
When in doubt, don’t throw it out
It’s easy to accumulate a mountain of paperwork (physical or digital) from years of filing tax returns. If you’re unsure whether you should retain a document, a good rule of thumb is to hold on to it for at least six years or, for property-related records, at least seven years after you dispose of the property. But, again, you should keep tax returns themselves permanently, and other rules or guidelines might apply in certain situations. Please contact me at (856) 665-2121 with any questions Read More...
Net Operating Losses can be useful at tax time!
Sun, 15 Apr 2018 02:55:00 +0000
A net operating loss on your 2017 tax return isn’t all bad news
When a company’s deductible expenses exceed its income, generally a net operating loss (NOL) occurs. If when filing your 2017 income tax return you found that your business had an NOL, there is an upside: tax benefits. But beware — the Tax Cuts and Jobs Act (TCJA) makes some significant changes to the tax treatment of NOLs.
Pre-TCJA law -the old law
Under pre-TCJA law, when a business incurs an NOL, the loss can be carried back up to two years, and then any remaining amount can be carried forward up to 20 years. The carryback can generate an immediate tax refund, boosting cash flow.
The business can, however, elect instead to carry the entire loss forward. If cash flow is strong, this may be more beneficial, such as if the business’s income increases substantially, pushing it into a higher tax bracket — or if tax rates increase. In both scenarios, the carryforward can save more taxes than the carryback because deductions are more powerful when higher tax rates apply.
But the TCJA has established a flat 21% tax rate for C corporation taxpayers beginning with the 2018 tax year, and the rate has no expiration date. So C corporations don’t have to worry about being pushed into a higher tax bracket unless Congress changes the corporate rates again.
Also keep in mind that the rules are more complex for pass-through entities, such as partnerships, S corporations and limited liability companies (if they elected partnership tax treatment). Each owner’s allocable share of the entity’s loss is passed through to the owners and reported on their personal returns. The tax benefit depends on each owner’s particular tax situation.
The TCJA changes
The changes the TCJA made to the tax treatment of NOLs generally aren’t favorable to taxpayers:
The differences between the effective dates for these changes may have been a mistake, and a technical correction might be made by Congress. Also be aware that, in the case of pass-through entities, owners’ tax benefits from the entity’s net loss might be further limited under the TCJA’s new “excess business loss” rules.
Complicated rules get more complicated
NOLs can provide valuable tax benefits. The rules, however, have always been complicated, and the TCJA has complicated them further. Please contact me at (856) 665-2121 if you’d like more information on the NOL rules and how you can maximize the tax benefit of an NOL.Read More...
If Your Tax Preparer does not Sign the return ....RUN!
Thu, 12 Apr 2018 13:44:00 +0000
IRS on April 10 cautioned taxpayers to avoid the dangers of working with so-called "ghost" tax return preparers.
As described by the agency, a ghost preparer is retained to prepare a return for a fee but does not sign the document as the paid preparer. "These phantom preparers who won't put their name on the tax return are a warning sign for taxpayers of a potential scam", IRS said.
Ghost preparers follow several patterns. In one method, they will print the paper return and instruct their client to sign and mail it to IRS. The second method is to prepare an electronically-filed return but they will not digitally sign them as the paid preparer. "By doing so, the tax return appears to be self-prepared, with no indication that a paid tax preparer was used in completing the tax return - helping keep the return preparer under the radar", IRS said. The agency stressed that anyone who preparers or assists in preparing federal tax returns for compensation must have a valid 2018 Preparer Tax Identification Number.
If your return was prepared by a "ghost preparer" please call me today. I will refer you to a real preparer to check your return for fraud and major errors. It is better to file an amended return correcting the errors now rather than waiting for an IRS or State audit. Read More...
IRS Audits and Collections down for 2016-2017
Fri, 30 Mar 2018 14:23:00 +0000
IRS Audits and Collections down for 2016IRS has issued the 2017 IRS Data Book, its annual publication containing statistical tables and IRS organizational information. One key figure in the Data Book is the rate at which IRS audited returns in 2017 – it dropped to 0.6%, the lowest rate since 2002.
Background. Each year, IRS issues the Data Book, which describes activities from the most-recently ended fiscal year and includes information about tax returns, refunds, examinations and appeals, illustrated with charts showing changes in IRS enforcement activities, taxpayer assistance levels, tax-exempt activities, legal support workload, and IRS budget and workforce levels compared to the previous fiscal year.
Interesting statistics in the 2017 book. Some of the interesting statistics from the 2017 book, which covers IRS activities conducted during the period from Oct. 1, 2016 to Sept. 30, 2017, include:
Tax Deadlines for 2018
Mon, 26 Mar 2018 15:17:00 +0000
2018 Q2 tax calendar: Key deadlines for businesses and other employers
Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.
Mon, 19 Mar 2018 14:49:00 +0000
Defer tax with a Section 1031 exchange, but new limits apply this year
Normally when appreciated business assets such as real estate are sold, tax is owed on the appreciation. But there’s a way to defer this tax: a Section 1031 “like kind” exchange. However, the Tax Cuts and Jobs Act (TCJA) reduces the types of property eligible for this favorable tax treatment.
What is a like-kind exchange?
Section 1031 of the Internal Revenue Code allows you to defer gains on real or personal property used in a business or held for investment if, instead of selling it, you exchange it solely for property of a “like kind.” Thus, the tax benefit of an exchange is that you defer tax and, thereby, have use of the tax savings until you sell the replacement property.
This technique is especially flexible for real estate, because virtually any type of real estate will be considered to be of a like kind, as long as it’s business or investment property. For example, you can exchange a warehouse for an office building, or an apartment complex for a strip mall.
Deferred and reverse exchanges
Although a like-kind exchange may sound quick and easy, it’s relatively rare for two owners to simply swap properties. You’ll likely have to execute a “deferred” exchange, in which you engage a qualified intermediary (QI) for assistance.
When you sell your property (the relinquished property), the net proceeds go directly to the QI, who then uses them to buy replacement property. To qualify for tax-deferred exchange treatment, you generally must identify replacement property within 45 days after you transfer the relinquished property and complete the purchase within 180 days after the initial transfer.
An alternate approach is a “reverse” exchange. Here, an exchange accommodation titleholder (EAT) acquires title to the replacement property before you sell the relinquished property. You can defer capital gains by identifying one or more properties to exchange within 45 days after the EAT receives the replacement property and, typically, completing the transaction within 180 days.
Changes under the TCJA
There had been some concern that tax reform would include the elimination of like-kind exchanges. The good news is that the TCJA still generally allows tax-deferred like-kind exchanges of business and investment real estate.
But there’s also some bad news: For 2018 and beyond, the TCJA eliminates tax-deferred like-kind exchange treatment for exchanges of personal property. However, prior-law rules that allow like-kind exchanges of personal property still apply if one leg of an exchange was completed by December 31, 2017, but one leg remained open on that date. Keep in mind that exchanged personal property must be of the same asset or product class.
The rules for like-kind exchanges are complex, so these arrangements present some risks. If, say, you exchange the wrong kind of property or acquire cash or other non-like-kind property in a deal, you may still end up incurring a sizable tax hit. If you’re exploring a like-kind exchange, contact me at (856)665-2121. I can help you ensure you’re in compliance with the rulesRead More...