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Don’t let a divorce be more taxing than necessary

If you’re going through a divorce, taxes may be the last thing on your mind. But divorce involves many potential tax traps and pitfalls. Here are some things to know.

  • Alimony and child support. Alimony is taxable income to the person who receives it and deductible by the person who pays it, as long as it meets certain specific tax requirements. Child support is neither taxable nor deductible. A divorce agreement should clearly spell out the difference between alimony and child support.
  • Property settlement. When a divorcing couple agrees to a property settlement, there are no immediate tax consequences. But when it comes time to sell the property, one of the parties could be in for a nasty tax surprise. That’s because each spouse receives property with its original tax basis, and a low tax basis may trigger a large capital gain down the road. A truly equitable property settlement should consider the tax basis of assets, not just current market value.
  • Children. After divorce, the parent who has custody of a child for the greater part of a year generally has the right to claim that child as a dependent. However, the custodial parent may transfer the dependency exemption to the other parent by signing the appropriate IRS form. Why would you ever give away a deduction? Because it may be worth more to your ex-spouse. In exchange for the dependency deduction, you may be able to bargain for more alimony or a larger property settlement.
  • Tax filing. As a married couple, you probably have been filing a joint tax return. But during divorce proceedings, you may be better off filing separately or, if you qualify, as head of household. Once the divorce is final, your filing status will be either single or head of household. To qualify as head of household, certain requirements for dependents must be met.

Marital status is an important factor in the amount of taxes you will pay. Be aware that in divorce situations some planning might cut your taxes significantly.

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New! Small Business Medical Leave Credit

There’s a new business tax credit that partially reimburses employers for providing paid family and medical leave for select employees. But small businesses should be break.informed before they try to use this new Family and Medical Leave Act (FMLA) tax

Basics of the new credit

Employers who provide at least two weeks of paid family and medical leave to employees who earn $72,000 a year or less can claim the FMLA credit to offset some of the cost of that paid leave . some details:

The credit ranges between 12.5 percent to 25 percent of the cost of the leave, depending on whether it pays 50 percent salary to a full salar

At least 50 percent of salary must be paid during the leave for employers to claim the credit

Employees must have worked for at least a year.

Up to 12 weeks of leave are eligible for the credit.

The $72,000 salary cap in 2018 will rise with inflation every year.


This credit comes as the result of a law requiring companies with 50 or more employees to provide up to 12 weeks of leave every year. The leave is intended to give employees time to address serious health issues, adapt to new additions to their families from births or adoptions, and to handle family military deployments.

However, small businesses with less than 50 employees aren’t covered by the FMLA, though they can voluntarily adopt a leave policy as an employee benefit and claim the new credit.

Considerations for small business owners

  • The credit currently expires after the 2019 tax year. Congress’ intention is to test adoption of the credit and later make it permanent if it’s popular with employers.
  • It requires administrative setup. You’ll have to draft a leave policy separate from your policies for regular vacation, personal, medical and sick time off.
  • It may create an employee expectation. If you haven’t provided a paid leave benefit before but assess it’s worth it due to the credit, it may be a letdown if the credit expires and you no longer offer the benefit to your employees.

Given the uncertain nature of the life of this new credit, if you plan to offer this benefit to your employees, please be prepared to know what you will do if the credit is not extended past next year.

As always, should you have any questions or concerns regarding your situation please feel free to call.{212-760-1125}

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Overlooked Business Metrics

Revenue, gross margin, net profit — these are the basic metrics every small business owner watches closely. But there are also some often-overlooked metrics that can deepen your insight into your business and inform your decision-making. Here are a few:

Customer acquisition cost. Divide the total amount of money you’ve spent on marketing over a set period by the number of new customers you’ve gained. The result is your cost per new customer, also known as your customer acquisition cost. To get an even better read, divide your marketing costs into two buckets; one you spend on current customers and one for money spent to acquire new ones. Now your calculation of customer acquisition costs is even more accurate. Compare this figure against prior years to see if you are becoming more efficient.

Lead-to-client conversion rate. For many businesses, generating leads is an integral part of the selling process. If this is true for your business, clearly define each step of the sales funnel from lead to purchase. You can judge how successful your sales efforts are over time by calculating how many qualified leads are converted to sales. Remember to use these measures to refine and improve your selling process. Even a tried-and-true conversion process can get tired, but if you are not measuring it you may not know until it is too late 


To go a step further, look at how much each new customer spends on average compared with how much it cost to acquire them. Knowing your rate of return for each new customer can help you revise your marketing strategy


Website traffic. Use tools such as Google Analytics to find out who is visiting your website, from where, and what they spend the most time on while they’re there. You can learn a lot about your potential customers and your market by keeping notes on how your website traffic changes over time and how it reacts to new content

Seasonality. Understanding and keeping track of the seasonal trends in your business is crucial to managing cash flow and making the most of both busy and slow periods. Examining year-to-date metrics for sales and web traffic can help you prepare inventory and staffing for the busy season. It will also help you time the scheduling of technical upgrades and equipment repairs for expected down periods
Cash burn rate. Keeping a close watch on your cash flow statement as well as your income and balance sheet is the key to keeping your business afloat. Not managing cash flow well is one of the most common reasons for new small businesses to fail. Simply subtract how much cash you have at the start of the month from what you have at the end of the month. You can then divide your reserves by your cash burn rate to see how many months you can sustain that rate.
The key to this measurement is maintaining a forward-looking financial forecast for the next 12 months. This will help you take timely actions to avoid a cash crunch, such as cutting costs, improving sales or collecting accounts receivable
As always, should you have any questions or concerns regarding your situation please feel free to call {212-760-1124/25

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Avoid the 50% Penalty! Understanding Required Minimum Distribution (RMD) Rules


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Every year thousands of taxpayers are hit with a heavy 50% penalty for not withdrawing enough money from their retirement plan(s). Here is what you need to know to ensure this does not happen to you or someone you know.

Who is subject to Required Minimum Distribution (RMD) rules?

  • Anyone who participates in a qualified retirement plan like IRAs (traditional, SEP, SARSEP, and SIMPLE), Roth 401(k), 401(k), 403(b), 457(b) and profit sharing plans AND
  • is 70 ½ years or older,*
  • who is generally retired OR
  • who is the beneficiary of a plan

Exception To determine the amount that must be withdrawn each year you need to go to the correct life expectancy table published by the IRS in Publication 590IRS in Publication 590. There are three tables:

  • : Owners of qualified Roth IRA accounts

The confusion of multiple tables

  1. Joint & Last Survivor.

When to use: Your spouse is the sole beneficiary AND your spouse is more than 10 years younger than you.

  1. Uniform Lifetime Table.When to use: Your spouse IS NOT more than 10 years younger than you OR your spouse is not your sole beneficiary

  1. Single Life Expectancy.

When to use: You are a beneficiary of another account

How much do I need to take out and when?

Once you find the correct table, determine your life expectancy and divide the result by the balance in your account as of December 31st of the previous year.

  • The amount must be withdrawn by December 31st of the year. Exception: in your initial RMD year you have until April 1st of the following year to withdraw the funds.
  • Thankfully, many retirement account administrators will make the RMD calculation for you. But it is still your responsibility to ensure the calculation is correct.
  • The deadlines are strict so don’t miss them. The 50% penalty can be applied each year, so the impact can be dramatic over time. On the other hand, if you are penalized and have a defensible reason you did not take the RMDRMD, you should try to get the penalty reduced or eliminated.
  • Remember to conduct the calculation each year. Not only do life expectancy numbers change as you age, so does the balance in your retirement savings accounts.

Some Tips to Help Never Forget

Want to make sure this doesn’t happen to you? H

ere are some tips.

  • Calculate the RMD for each account in early January each year. Set up automatic periodic withdrawals from the account to accommodate the RMD.
  • Make a review of your accounts part of your tax planning each year.
  • Ask for help. At first, finding the correct life expectancy table and determining the correct calculation can be overwhelming. Have someone review your calculations until you feel comfortable with the process.
  • Connect your RMD to a key event like your birthday or anniversary. Then give yourself the additional gift of a payday out of your retirement account.

* Can be later if you are still actively working. If, however, you are a 5% or greater owner of the business sponsoring the retirement plan you must take an RMD when 70 ½ whether retired or not.

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IRS Warns Taxpayers Using Premium Tax Credit

File your tax return or else

In order to continue receiving a Premium Tax Credit in 2017 you must file income tax returns as soon as possible. Any delay could stop eligibility for advance payments of this credit during 2017. Remember, these payments help reduce each month’s health insurance premium. It could also generate notices from the IRS to pay back some or all 2016 advance payments of the credit.


Those who use the Affordable Care Act to purchase health insurance on the Marketplace are often eligible to reduce their insurance premium using the Premium Tax Credit. Many had the credit sent directly to their health insurance company each month to reduce their premium. This is called “advance payments of the premium tax credit” by the IRS.

Current Situation

The IRS is now reviews payments of the Premium Tax Credit. To continue receiving the credit in 2017 you must file tax returns. If you filed an extension and do not plan to file your tax return until October 15th, you could be ruled ineligible for the credit in 2017 because you have not yet filed your tax return.


Your insurance premiums could increase in 2017 if you are ruled ineligible for the advance premium credit payment. This could cause financial hardship. You may be asked to repay 2016 Premium Tax Credit Payments as well.


If you received any Premium Tax Credit or expect to do so in the future, you must file tax returns as soon as possible per the IRS.

Call if you need a review of your situation.

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2018 Health Savings Account Limits Time to plan your 2018 deductions?

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The savings limits for the ever-popular Health Savings Accounts (HSA) are now set for 2018. The new limits are outlined here with current year amounts noted for comparison purposes.

What is an HSA?

An HSA is a tax-advantaged savings account to pay for qualified health care costs for you, your spouse, and your dependents. When contributions are made through an employer, they are made on a pre-tax basis. There is no tax on the withdrawn funds, the interest earned, or investment gains as long as the funds are used to pay for qualified medical, dental, and vision expenses. Unused funds may be carried over from one year to the next. To qualify for this tax-advantaged account you must be enrolled in a “high deductible” health insurance program as defined by HSA rules.

The limits

Annual HSA limits for 2018

  • $3,450 self
  • $6,900 family
  • add $1,000 for age 55+ catch-up provision

Note: To qualify for an HSA you must have a qualified High Deductible Health Plan (HDHP). A plan must meet minimum deductible requirements that are typically higher than traditional health insurance. In addition, your coverage must have reasonable out-of-pocket payment limits as set by the above noted maximums.

Not sure what an HSA is all about? Check with your employer. If they offer this option in their health care benefits, they will have information discussing the program and its potential benefits.

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IRS Tax Tools You’ll Definitely Want to Know About

If you’re convinced the IRS is out to get you, we’re here with good news: They’re actually on your side when it comes to filing your taxes. IRS.govhas plenty of awesome tax tools to speed up and smooth out the filing process.

We’ve picked out a few of our favorite IRS tax resources, specifically for filing prep, credits and deductions, trouble paying taxes, and checking on your refund status.

Before you file

Tax Records Transcript –You have to know your prior-year AGI (for this season, your 2015 AGI) to file your taxes online, so if you don’t have a copy of last year’s tax return, you can get your AGI amount and other key information by requesting a transcript. This free printout is usually available for the current year and the past three years. Keep in mind, though, that an actual copy of a filed tax return will cost $50.


Credits and deductions

Exempt Organizations Select Check – Most non-profits will clearly identify themselves as qualified tax-deductible organizations, meaning that you can deduct the funds you donated to them. However, if you want to double check, this site allows you to confirm a charity’s official 501(c)(3) tax exempt status. Also, you can verify how much of your contribution is tax deductible.

First-Time Homebuyer Credit Account Look-up – If you qualified for and received the First-Time Homebuyer Credit (FTHBC), here’s where you can come to check the status of your FTHBC. The lookup page is online and available 24/7 for information on your repayments and account balance.

Sales Tax Deduction Calculator – If your state and local sales tax is higher than your state and local income tax, you can deduct those sales taxes on your federal return. This deduction is especially more common in states that don’t have a state income tax.


An iPad open to, ready to file your taxes.

After you file

Where’s My Refund? – And here you are, all said and done, with money on the way. But just how “on the way” is it? The “Where’s My Refund?” tracker tells you the status of your refund: Processing, Awaiting Payment, or so forth. Check “Where’s My Refund?” 24 hours after you’ve e-filed your return or four weeks after you mailed in a paper return. This tool is updated once a day, so keep that in mind when checking on your refund status.

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The 2018 IRS Refund Schedule Chart

Here is a chart tax design  of when you can expect your tax refund for when the return was accepted (based on e-Filing). This is an estimate based on past years trends, but based on early information, does seem accurate for about 90% of taxpayers. Also, as always, you can use the link after the calendar to get your specific refund status. Untitled design (1).jpg

Now, when to expect my tax refund!

Date Accepted Direct Deposit Sent Paper Check Mailed
Jan 29 – Feb 4, 2018 Feb 17, 2018 Feb 24, 2018
Feb 5 – Feb 11, 2018 Feb 24, 2018 Mar 3, 2018
Feb 12 – Feb 18, 2018 Mar 3, 2018 Mar 10, 2018
Feb 19 – Feb 25, 2018 Mar 10, 2018 Mar 17, 2018
Feb 27 – Mar 4, 2018 Mar 17, 2018 Mar 24, 2018
Mar 5 – Mar 11, 2018 Mar 24, 2018 Mar 31, 2018
Mar 12 – Mar 18, 2018 Mar 31, 2018 Apr 7, 2018
Mar 19 – Mar 25, 2018 Apr 7, 2018 Apr 14, 2018
Mar 26 – Apr 1, 2018 Apr 14, 2018 Apr 21, 2018
Apr 2 – Apr 8, 2018 Apr 21, 2018 April 28, 2018
Apr 9 – Apr 15, 2018 April 28, 2018 May 5, 2018
Apr 16 – Apr 22, 2018 May 5, 2018 May 12, 2018
Apr 23 – Apr 29, 2018 May 12, 2018 May 19, 2018

If, for some reason, you didn’t receive your return in the time specified above, give or take a few days, you can always use the IRS’s tool called Get Refund Status.

Once you enter all your information, it will tell you what is going on with your refund. Remember, if you input the wrong SSN, it could cause an IRS Error Code 9001, and might make your return be held for Identity Verification.

Also, many people are concerned because they received a Reference Code when checking WMR. Here is a complete list of IRS Reference Codes. Just match up the code with the one in the list, and see what the problem could be. For more another information visit us at

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Foreign Bank Accounts & Fatca

Foreign bank accounts that peak over $10,000 in a given tax year have to be reported too. The amount isn’t taxed, but it must be reported. A Statement of Foreign Assets (8938) also needs to be filed when you own foreign assets over a certain value.Foreign banks accounts include many types of financial accounts and also accounts that you have signed authority over.Untitled design

We provide an FBAR filing process  when we also prepare your Federal tax return.Considering all types of foreign bank accounts including those that you may only have sigining authority over.When it comes to reporting the FATCA 8938 Statement of Foreign Assets, add up the value of all these accounts; remember to consider the highest value during the tax year.

  • Foreign trusts, bank & security accounts
  • Business ownership and partnerships
  • Stockholdings & pensions
  • Securities, mutual funds, hedge funds, life insurance

If you file as an individual, you need to file the 8938 along with your tax return if you are residing out of the United States, then you need to check if the total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.


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Does the new federal budget help or hurt clients?

Given today’s contentious legislative environment, it’s not often that Congress passes anything. So when a bill actually is on track for approval, various members of Congress often try to tack on a number of provisions. Such was the path of the new federal budget (H.R. 1892), passed by President Trump in February. Though it was intended primarily to avoid a government shutdown, buried within were a number of tax-related provisions — some temporary, others permanent — that have the potential to impact both high- and low-income households.



Consequently, as we’re now in tax season, it’s worth dissecting the provisions individually to better understand how they may or may not impact our clients.

Since 2006, the Medicare Modernization Act has required that certain high-income individuals pay an Income-Related Monthly Adjustment Amount, or IRMAA, as a surcharge on their Medicare Part B premiums. In 2018, the surcharge starts at an extra $53.50/month but can rise as high as an extra $294.60/month on Medicare Part B, and applies to those whose modified adjusted gross income exceeds $85,000 for individuals, or a MAGI above $170,000 for married couples.

The ultimate objective of these IRMAA surcharges is to increase the total percentage of Part B costs that are covered by premiums, from 25% — that is, the amount covered by the base $134/month Medicare Part B premium — to as high as 80% for those paying the full $134 + $294.60 = $428.60/month premium.

Kitces IRMAA Trump Budget
Under the new Bipartisan Budget Act of 2018 though, an additional tier of surcharges is being introduced for 2019 at a MAGI threshold of $500,000 for individuals, or $750,000 for married couples. Notably, the threshold for married couples is only 150% of the threshold for individuals, introducing a sort of marriage penalty for high-income couples on Medicare. The new tier is intended to lift the Part B premium coverage from 80% to 85% for those high-income earners.

It’s also important to note that the new IRMAA tier for 2019 stacks on top of the changes to IRMAA tiers that just took effect in 2018 as a part of the Medicare Access And CHIP Reauthorization Act of 2015, which had already reduced the top IRMAA tier — i.e., where the 80%-of-costs threshold kicks in — from $214,000 in 2017 to only $160,000 in 2018, with thresholds doubled for married couples.

Thus, in the span of two years, the depth of the top IRMAA tiers has been expanded rapidly, while the bottom three IRMAA tiers have become compressed — albeit still with an individual threshold of $85,000 for individuals, or $170,000 for married couples, which means it only applies to a limited number of households.

For much of the past decade, a handful of individual tax incentives have been regularly subject to a series of short-term extensions, after which they would lapse until/unless they were reinstated and extended again. In practice, this happened so often that they literally became known as the Tax Extenders.

In the Protecting Americans from Tax Hikes (PATH) Act of 2015, a number of popular Tax Extenders became permanent, including Qualified Charitable Distributions from IRAs, the deduction for State and Local Sales Taxes — albeit now subject to the overall $10,000 SALT deduction cap from TCJA 2017 — and the American Opportunity Tax Credit that replaced the old Hope Scholarship Credit back in 2009.

However, a handful of popular individual tax breaks were not made permanent under the PATH Act, and instead were only extended temporarily for two years, through the end of 2016, and lapsed as of December 31 of that year. Accordingly, the Bipartisan Budget Act has reinstated those provisions retroactively for the 2017 tax year, including the above-the-line deduction for tuition and fees, the deductibility of mortgage insurance premiums, and the ability to exclude discharged primary residence mortgage debt from income.

The above-the-line education deduction for tuition and fees allows taxpayers to deduct up to $4,000 of tuition and enrollment fees for college for themselves or their dependents. Any expenses claimed for the Tuition and Fees deduction cannot have been paid from an already tax-favored 529 college savings plan, a Coverdell Education Savings Account or via tax-free interest from a savings bond.

The Tuition and Fees deduction is partially phased out from a $4,000 maximum down to only $2,000 for individuals with modified adjusted gross Income above $65,000, or $130,000 for married couples, and is completely phased out once income exceeds $80,000 for individuals, or $160,000 for married couples.

Notably, the Tuition and Fees deduction also cannot be claimed on behalf of any student who already claimed the American Opportunity Tax Credit, or Lifetime Learning Credit, in the same tax year. And since the American Opportunity Tax Credit is actually a dollar-for-dollar credit for the first $2,000 of expenses, and 25 cents on the dollar for the next $2,000, it is always better to claim the AOTC where available — generally, the first four years of college — especially since it has higher income phase-out limits anyway.

In practice, the reinstatement of the Tuition and Fees deduction will be primarily beneficial for:

  • Students who are beyond their first four years of undergrad education or are in graduate school;
  • Students/families with income above $56,000 when filing as individuals, or $112,000 for married couples, but under $80,000 and $160,000, respectively, where the Lifetime Learning Credit will be phasing out faster than the Tuition and Fees deduction;
  • Families with multiple students beyond the first four years of college, where the Lifetime Learning Credit can only be claimed once per tax return — i.e., per family with multiple students. Meanwhile, the Tuition and Fees deduction can be claimed across multiple students as long as the family remains below the income phase-out threshold.
    However, the reinstatement of the Tuition and Fees Deduction is only for the 2017 tax year, and has already implicitly re-expired at the end of 2017, which means it is not currently available for the 2018 tax year. In addition, because the Tuition and Fees Deduction was just reinstated retroactively for 2017 as of February 9, some tax reporting software may not yet be updated for the retroactive change for 2017 tax filings. Though fortunately on Form 1040 for 2017, it appears it can still be claimed on Line 34 where it was previously claimed, albeit on a line that is currently marked as “Reserved for Future Use.”

Under IRC Section 163(h), mortgage interest is deductible as an itemized deduction, and since 2007 the tax law has also permitted those who pay mortgage insurance premiums — e.g., Private Mortgage Insurance on a mortgage that had a less-than-20% down payment — to deduct them as mortgage interest as well. The deduction began to phase out once Adjusted Gross Income exceeded $100,000 for individuals and married couples, and fully phased out by $110,000 of AGI.

This deduction for mortgage insurance premiums was one of the tax extenders that was repeatedly extended, lapsed, extended again and lapsed again over the span of a decade, having last been extended under the PATH Act through the end of 2016.

Kitces IRMAA Trump Budget
With the Bipartisan Budget Act of 2018, the mortgage insurance premium deduction is retroactively reinstated for 2017. This means that those who had already paid mortgage insurance premiums will simply find they can deduct them on the 2017 tax return as a part of their mortgage interest deduction on Line 13 of Schedule A, where a placeholder for the mortgage insurance premium deduction was retained.

Notably, the reinstatement for deducting mortgage insurance premiums has no relationship to the new rules limiting mortgage interest deductibility, including the elimination of deductions for home equity indebtedness, under the Tax Cuts and Jobs Act, as those rules only apply for the 2018 tax years and beyond, while the mortgage insurance premium deduction is only reinstated retroactively for 2017.

#makemytaxes #online tax service makemytaxes



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More US Firms Announce Investments after Tax Cuts

One month after the US slashed its corporate tax rate to 21 percent, 287 companies have announced wage hikes or plans to expand their investments in the US, according to Americans for Tax Reform.

Chief among those surfacing in recent days were announcements from The Home Depot, Starbucks, FedEx, and Exxon Mobil.

The Home Depot has announced plans to provide a new one-time tax reform cash bonus for US hourly associates of up to USD1,000. “This incremental investment in our associates was made possible by the new tax reform bill,” said Chairman and CEO Craig Menear in a January 25 statement. Although the company estimates additional net tax expense of approximately USD150m for the fourth quarter of fiscal 2017, primarily related to taxes on unremitted offshore earnings, it currently estimates that the net impact of tax reform on its 2018 tax provision and cash taxes paid will be beneficial.

Starbucks on January 24 announced a series of perks for employees, including a wage increase for all US hourly and salaried employees and a new employee and family sick time benefit, along with a commitment to create more than 8,000 new retail jobs and 500 manufacturing jobs in 2018. “These offerings will total more than USD250m for more than 150,000 [employees] and are accelerated by recent changes in the US tax law,” said the company on January 24.

FedEx has confirmed plans to invest an additional USD3.2bn, made up of wage increases, bonuses, increased pension fund allocations, and expanded capital investment into the US as a direct result of the Tax Cuts and Jobs Act. Specifically USD200m is to be allocated to increasing employee compensation, a voluntary contribution of USD1.5bn will be made to the FedEx pension plan, and USD1.5bn will be invested in FedEx Express’s Indianapolis hub. “FedEx believes the Tax Cuts and Jobs Act will likely increase GDP and investment in the US,” said the company in a January 26 press release.

Most recently, Exxon Mobil on January 30 announced plans to invest more than USD2bn into terminal and transportation expansion and triple production in the Permian basin (a US shale oil field located across Texas and New Mexico) by 2025. “Recent changes in the US. Corporate tax rate create an environment for increased future capital investments,” said the company.

House Ways and Means Chairman Kevin Brady (R-TX) commented last week that economic growth figures for the fourth quarter also look promising, with the tax reforms expected to provide a boost to the economy over the coming year.

“With a new tax code built for growth, I’m confident our economy will continue to improve,” he said in a January 26 statement. “2018 is already off to a promising start. Every day, American businesses big and small are announcing plans to hire more workers, increase paychecks, and invest in our communities.”

The latest figures from the Bureau of Economic Analysis estimate that real GDP increased at an annual rate of 2.6 percent in the fourth quarter of 2017 and by 2.3 percent over the full year.

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4 reasons to file your taxes early this year

If you’re used to filing taxes, you’re probably aware that they’re due sometime around mid-April. Typically, tax returns must be submitted by April 15, but this year, you get a couple of days’ worth of leeway.

That’s because April 15 falls on a Sunday, but since the following Monday is Emancipation Day — a Washington, D.C., holiday — filers get until April 17 to get their returns over to the IRS.
That said, you can submit your tax return as early as Jan. 29 this year, and it pays to aim for that deadline, or one shortly thereafter, even if it means putting in some extra effort in the coming weeks. Here’s why.

1. You’ll get your money sooner
An estimated 80% of tax filers get a refund each year, and not a small one, either. In fact, last year, the typical refund was $2,763 — not exactly pocket change. If you have outstanding bills to pay, a vacation you’re looking to fund, or just a general desire to get your hands on the cash that’s rightfully yours, then filing early is the best way to do just that.

Keep in mind, however, that if you’re planning to claim the Earned Income Tax Credit or the Additional Child Tax Credit, the earliest you can expect your tax refund is late February. Why? Because of high levels of fraud associated with these credits in particular, the IRS is required to withhold associated refunds longer. Furthermore, this restriction applies to your entire refund, even the portion of it having nothing to do with these credits. But if you’re not planning to claim the Earned Income Tax Credit or the Additional Child Tax, and you file your return electronically without errors, you can typically expect to get your money back within three weeks’ time.

2. You’ll give yourself more time to address an underpayment
Though most tax filers wind up with a refund each year, you may land in that rare but notable category of workers who end up owing money on their taxes. And if that’s the case, you may be in trouble, especially if your underpayment is sizable and your savings are nonexistent. On the other hand, if you give yourself two and a half months to come up with a plan for paying your tax debt, as opposed to waiting until the last minute, you stand a better chance of avoiding the penalties that come with paying the IRS late.

Consider this: An estimated 39% of Americans have absolutely no money in the bank. If you’re one of them and realize in early April that you owe the IRS $1,000 by virtue of having underpaid your 2017 taxes, you’ll have limited resources at your disposal for coming up with that lump sum. But if you prepare your return in late January and make that discovery sooner, you’ll have the opportunity to, say, take on a second job temporarily to drum up that cash.

3. You can avoid tax fraud
Tax fraud is a major problem for filers of all ages, but believe it or not, filing your return early might actually help you avoid falling victim. What will typically happen is that a criminal will access your information, file a return in your name, and attempt to snatch your refund in the process. But if you file your return early enough, that’ll be a harder feat for someone to pull off.

See, the IRS has software that’s designed to flag duplicate returns, and so if it has one on file for you and someone else then submits a second one, it’s the fraudulent return that’ll get rejected. On the other hand, if a criminal beats you to the punch, it’ll be on you to get things sorted out, which could not only delay your refund but also constitute a major headache.

4. You want to lower your stress level
Let’s face it: The tax-filing process can be stressful to say the least, especially if your return is complicated and requires a lot of legwork (such as needing to calculate deductions or follow up on missing documentation). One final benefit of getting your return in early is having one less thing to worry about between now and mid-April. Once that return is out of your hands, you’ll be able to move forward and focus your efforts and mental energy elsewhere.

Though there are plenty of good reasons to file your taxes early this year, here’s one good reason not to: You’re missing key information that could compromise the accuracy of your return. While it’s helpful to get your taxes in ahead of schedule, if you don’t have the data needed to be precise, you’re better off waiting. Otherwise, you’ll increase your chances of getting audited, and that’s a whole other potential nightmare to contend with

Source:- Above Blog Was Published By Maurie Backman Of The Motley Fool on USA Today Website,Dated 25th Jan 2018.

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New Tax Legislation Requires Planning

As your mailbox fills up with the forms you need to file your 2017 returns, you may already be thinking ahead to how tax reform legislation will impact you in 2018. This newsletter outlines seven issues resulting from the Tax Cuts and Jobs Act to think about after the 2017 tax season. The new tax rules affecting small businesses are also explored in detail here, as well as some guidelines for virtual currencies like Bitcoin. Also included: a primer on the current world of crowdfunding, both for entertainment and for entrepreneurs who want to try it themselves.

Should you wish to review your situation please feel free to call. Also feel free to forward this newsletter to someone who may benefit from this information.

Though many taxpayers appreciate the income tax cuts in the Tax Cuts and Jobs Act (TCJA) passed late last year, others are skeptical that it will simplify their tax planning. With every simplification, there are many more tax issues that still require planning to realize extra tax benefits. Here are seven of them:

1 Planning for all the moving parts
In many ways, the TCJA gives with one hand and takes away with the other. The “giving hand” provides a lower income tax rate structure and a higher standard deduction, while the “taking hand” gets rid of personal exemptions, suspends many itemized deductions and limits deductions that remain. There are many variables that determine whether you come out ahead or behind and a tax planning session can help you figure it all out. Seven Tax Reform Areas

2 Getting creative and flexible about itemizing
Many itemized deductions remain the same, others were eliminated completely and some have new limits. For example, while charitable contributions are still a qualified deduction, there is now a $10,000 combined cap on state, local and property tax deductions. The new constraints mean considering creative solutions to maximize these deductions. One idea is to make better use of the donation of appreciated stock as part of your charitable giving.

3 Dealing with new complexity in small business ownership
Small business owners and sole proprietors will have to do a complicated calculation to see how much of the 20 percent reduction to pass-through qualified business income they can take. It depends on your profession and your expenditures on capital and wages. This calculation can get complicated very quickly.

4 Understanding the newly changed “marriage penalty”
The disadvantage for married couples within the tax code is still very much in place, but it is changing. For instance, the marriage penalty that had given unfavorable income tax rates to married joint filers when compared to single individuals goes away in the TCJA for most income levels. But it rears its head again in the $10,000 combined state, local and property tax limitation, which does not double for married joint filers. This is something you’ll have to plan around.

5 Getting credit for your kids
There are many new tax benefits for parents in the TCJA. The child tax credit doubles to $2,000 and the phaseout threshold jumps to $400,000 from $110,000 previously for joint filers, making it available to more taxpayers. Dependents ineligible for the child tax credit can qualify for a new $500 per-person family tax credit. On top of that, distributions from 529 education savings plans can now be used to pay private school tuition for K-12 students.

6 Adjusting to disappearing tax breaks
If your tax planning was built on any of the following expiring tax provisions, you’ll have to change your plan: personal exemptions; miscellaneous itemized deductions; home equity interest; alimony deductions (expiring in 2019); the additional child tax credit; theft and casualty losses; and the domestic production activity deduction (DPAD).

7 Facing the old complexities
Many areas of the tax code remain largely the same and contain both potential pitfalls and opportunities to find tax savings: Managing capital gains and tax-loss harvesting; charitable activity deductions; and a tax-advantaged retirement strategy are just a few areas where you can unlock extra value with smart planning.
The big changes to tax reform this year may be disconcerting at first, but in change there is opportunity. After the dust settles on the 2017 tax season, get ready to take a detailed look at what 2018 tax reform means for you.

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Survey Results Indicate Importance Of Tax Reform To Small Business Owners

The results of a recent CNBC/SurveyMonkey Small Business Survey indicated that over 25 percent of the more than 2,000 respondents consider tax reform to be the most important issue facing them in the coming period.

The Trump administration is proposing parity for both small businesses and corporations in its plans to overhaul the tax code, which would bring the current top rate of 39.6 percent for individuals and 35 percent for businesses down to an even 15 percent.

House Speaker Paul Ryan also recently spoke in favor of overhauling the tax code, pointing out the uneven playing field for small businesses that file as pass-through entities, in comparison to their corporate counterparts.

“Here in America, 8 out of 10 businesses file their taxes as individuals,” Ryan said. “In fact, most of our jobs come from these … small businesses. Real tax reform … means creating a new lower tax, specifically for small businesses, so they too can compete on a fair, level playing field.”

It appears that while many small business owners agree with these statements, they also believe that the complexity of complying with the federal tax code is another challenge in addition to high tax rates. Jeremy Wanamaker, CEO of the 30-person IT services provider Waypoint Solutions Group, explains that he strategizes with his CPA in order to maintain competitiveness.

“We want to be as aggressive as we can while staying within the boundaries of the law,” Wanamaker said. “The tax code is too complicated. I think that small businesses are not able to reinvest money easily. The way we are taxed on our profits makes it difficult to reinvest. If we have a profitable year, we pay taxes on all of our profits, whether we use that money to take home or put it back into the business.”

Wanamaker believes that the Trump administration’s proposal for parity between large and small businesses would be a “very effective way” to encourage small businesses to hire and grow.

“If the tax rate on pass-through income was reduced, I could then take that money and reinvest it back into the business,” Wanamaker explained. “That means hiring more people, buying equipment and doing something that impacts the economy as a whole.”

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Trump’s Tax Reform Proposal Suggests Significant Cut For Small Businesses

President Donald Trump’s recent tax reform proposal is being seen by some small business owners as having the potential to help them prosper moving forward.

Trump’s plan would lower corporate tax rates to 15 percent from the current 35 percent. Additionally, it would reduce the business income rates paid by so-called pass-through businesses, which includes many small businesses formed as partnerships and limited liability companies as well as some larger entities like hedge funds, to 15 percent. These businesses’ incomes are then “passed through” to owners, who subsequently pay taxes based on the individual income rates, ranging from 10 percent to 39.6 percent.

Small business owners have continued to lobby for being treated equally in corporate tax reform, and Trump’s proposal may hold the potential to satisfy their interests.

“We’re pleased to see the 15% business rate,” said Brad Close, senior vice president of public policy and advocacy for the National Federation of Independent Business (NFIB). “We think it’s a great way to kick-start the small business economy.”

At the same time, will Trump’s proposal come to fruition? Experts point to the fact that tax cuts for pass-through businesses alone could increase the deficit by hundreds of billions of dollars, while Trump hasn’t provided details on how the government would handle this increase.

“It’s a whole issue sitting out there,” said Dean Zerbe, national managing director for tax advisory company alliantgroup. “This will be a case where you’re going to have a significant issue with tax revenue.”

Zerbe called the 15 percent proposal for pass-through businesses “ambitious,” and he believes that it will end up being negotiated to a higher rate. “It’s more aspiration than realistic,” Zerbe said. “But it’s good for the administration to put a strong marker. Why not be aggressive with the opening bell?”

Others point out that tax cuts for pass-through businesses will benefit wealthy individuals as well as small business owners. “The very wealthy are doing pretty well in America,” explained Sen. Chuck Schumer (D-NY). “They don’t need another huge tax break.”

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New York Governor’s Proposed Online Marketplace Tax Could Hurt Small Businesses

New York Gov. Andrew Cuomo has proposed new regulations that would force “online marketplaces” with a value over $100 million to collect and remit sales taxes.

Research indicates that approximately 80 percent of Americans are online shoppers, so these regulations would result in new tax obligations for the majority of the country’s citizens. Additionally, this policy would affect many small businesses in New York who sell items on these platforms.

In the governor’s proposal, marketplace providers, including eBay, Etsy and Amazon, will become the ones playing tax collector. By requiring these companies to collect sales tax on every sale made to a New Yorker through those platforms, even if the seller has no property or employees in the state, it will result in complex tax-collection rules, which may make them less likely to want to sell to New York residents.

Additionally, the burden of being forced to play tax collector for the state would be cumbersome, while these platforms have helped open worldwide opportunities for New York-based small sellers.

Although those lobbying for the policy say it would “level the playing field” and aid struggling small businesses, others say that the playing field is already level. Under the current rules, all businesses with property or employees in New York state, whether they are brick-and-mortar or web-based, already collect the state’s sales tax.

It’s a complex situation. If Cuomo’s proposal is successful, New Yorkers who sell online could be subject to audits from states where they have never stepped foot. This could cause significant problems for local businesses who take advantage of convenient sales platforms like Amazon and Etsy.

Some analysts believe that this internet sales tax expansion would punish sellers and shoppers, and could result in small sellers avoiding using these platforms, in addition to new platforms choosing to not be located in New York.

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The Effect Of Trump’s Proposed Import Tax On Small Businesses

President Donald Trump’s moves to undo and redo the trade deals that the U.S. has forged with other countries has been a cause for concern for many American businesses.

Trump’s specific proposal to encourage more production in the U.S. by implementing a border-adjusted tax on imports has stirred trepidation among retailers and small businesses that rely on imported goods to be competitive.

“I am expecting disaster if they actually implement this plan,” Richard Woldenberg, CEO of Learning Resources, told The Wall Street Journal. Learning Resources is a company with 150 employees, which sells educational toys, most of which are made in China.

Woldenburg told The Journal that even with a lower corporate tax rate, which has been proposed alongside the tax, the new cost of imports would increase his tax bill by four or five times. Under the proposal, businesses would not be allowed to deduct the cost of imports, while exported goods would be exempt.

“Under a border-adjusted tax, a company that imported $200,000 of foreign made toys, spent $100,000 on domestic costs and sold the toys for $350,000, would only be able to deduct the $100,000 in local costs,” The Wall Street Journal reported. “It would then pay taxes – at a proposed lower tax rate of 20% – on $250,000. So its tax bill would be about $50,000. The same company could currently deduct the costs of imports as well as local expenses, and then pay 35% in taxes on $50,000. That results in a tax bill of about $17,500.”

However, proponents of the plan have argued that a strengthening U.S. dollar would compensate for changing tax bills, as a stronger dollar would mean that companies paid less to import goods. At the same time, if that strengthening fails to happen or doesn’t happen quickly enough, large companies that rely on foreign inputs would suffer, as would smaller businesses that typically have less power to negotiate deals or otherwise adjust to cost changes.

According to standards set out by the U.S. Small Business Association, companies in the wholesale or retail trade count as small businesses if they have 250 or fewer employees. According to 2014 Census data, over 95% of U.S. importers have fewer than 250 employees.

It’s a complex situation. Some small businesses see a higher barrier for imports as a welcome change, because it would make their products more competitive against imported goods, while the proposal is a cause for concern for others.

“We do not have the cash cushion to absorb this kind of tax,” Katherine Gold, whose company, Goldbug Inc., employs over 100 people distributing accessories like children’s shoes, told The Journal. “It would put us out of business if we can’t pass it on immediately.”

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Foreign Tax Havens Cost Small Businesses In The U.S.

A study by the U.S. Public Interest Research Group Education Fund indicates that small businesses in the United States on average pay an extra $5,128 in taxes to make up for revenue lost due to the use of offshore tax havens by multinational corporations.

Results of the study show that the federal government loses $128.5 billion in corporate tax revenue due to tax haven abuse. Every small business in the U.S. would need to pay an additional $4,481 in federal taxes to cover this lost revenue.

Additionally, offshore tax havens cost state governments an estimated $18.5 billion in lost tax revenue, according to the report, with U.S. small businesses needing to pay an average of an extra $647 to make up for the lost state tax revenue.

“The amount of cash corporations book to offshore tax havens is only growing, and it’s not because these businesses are conducting prolific amounts of business in the Cayman Islands,” explained U.S. PIRG tax and budget associate Alexandria Robins. “Our tax code is balanced in favor of big multinational corporations, and that means here at home we’re losing out on lower tax rates, more funding for public programs, or cuts to our national debt.”

The report referred to the use of foreign tax havens by some of the largest multinational corporations. For one, Microsoft is said to have five tax haven subsidiaries, while keeping $124 billion offshore, on which it would otherwise pay $39.3 billion in U.S. taxes. The report says that General Electric maintained 20 tax haven subsidiaries last year, and kept $104 billion offshore. Another example is drug maker Pfizer, which operates 181 subsidiaries in tax havens, holding $193.6 billion in profits abroad for tax purposes.

It’s a complex issue and one that many believe requires attention. Clark Gascoigne, deputy director of the advocacy group FACT Coalition, noted that the report comes at a time when the new administration and Congress are set to consider significant tax reforms.

“For too long, lawmakers in Washington have used the tax code to pick winners and losers,” Gascoigne said in a statement. “Sadly, the ‘winners’ have been multinational companies that shift jobs and profits overseas, while the ‘losers’ are small businesses and middle-class Americans who are stuck with the bill. We are about to have a very public debate on corporate taxes. It’s important to remember that fixing the problems should include changes that level the playing field between domestic businesses and multinational companies. Real change must not, as we have seen in some proposals, double down on a two-tiered system that favors multinational over wholly domestic companies.”

Many small business owners believe that the current situation is unfair, and that major tax reforms are necessary in order to fix these problems.

“Corporate tax dodging is a triple whammy for small business owners like me,” said ReShonda Young, owner of Popcorn Heaven in Waterloo, Iowa, and a member of the small business advocacy group Main Street Alliance. “First of all, along with all other taxpaying citizens, we have to fill the gaps when corporations avoid paying their fair share. That means paying more ourselves, suffering inferior services, watching the national debt climb – or some unfortunate combination of those options.”

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Survey Indicates That Majority Of Small Business Owners Seek Tax Reform

Results from the Staples National Small Business Survey indicate that 67 percent of American small business owners believe that business tax reform should be the top policy priority for 2017.

The survey was designed by Staples and conducted by Wakefield Research, among 502 U.S. small business owners in December 2016. The survey defined small business owners as those who had up to 10 full-time employees.

In addition to indicating that the majority of respondents are interested in business tax reform, the survey showed that 85 percent of small business owners are “optimistic” about the small business climate in 2017. Another sign of both short- and long-term positivity is that 67 percent of respondents plan to hire employees in 2017, while 91 percent would be likely to encourage their children to start their own business given the current state of the small business environment.

Overall, it appears that small business owners are very optimistic about the year ahead. Other interesting results include:

  • 93 percent of respondents believe that running a business results in the best kind of job satisfaction possible.
  • 97 percent of small business owners plan to increase investment in their companies in the coming year.
  • 72 percent of respondents plan to increase staff compensation in 2017.

“We’ve been a small business champion for more than 30 years, and are pleased that small business owners are hopeful and confident as we head into the new year,” said Frank P. Bifulco, Jr., executive vice president of global marketing, Staples. “We conducted the survey to better understand the pulse of small business owners and to further identify those priority product and service areas in which we can help our customers achieve success in 2017.”

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Professor Of Taxation Believes Small Businesses Are Disproportionately Audited

Donald T. Williamson, a professor of taxation at American University’s Kogod School of Business in Washington, D.C., believes that the I.R.S. disproportionately targets small business taxpayers for audits.

“Most audits are not random, i.e. the I.R.S. has a secret algorithm for determining how likely each taxpayer is to have unreported income,” Williamson wrote in testimony submitted to the United States House of Representatives’ Committee on Small Business.

The committee is currently investigating issues that small businesses encounter when they are audited by the I.R.S.

“Employing this calculus, the I.R.S. has concluded that small businesses are less likely to be paying their fair share of taxes relative to much larger enterprises, a surprising conclusion in light of frequent press reports of multi-national corporations allocating billions of dollars of profits to no or low tax jurisdictions to avoid U.S. income taxation,” stated Williamson in his testimony.

Williamson believes that small businesses are targeted disproportionately for tax audits because they receive most of their income in cash, which can be both difficult to identify and easily misreported.

Being audited can have a profound effect on small businesses. In his testimony, Williamson cited a National Taxpayer Advocate study that estimates that each year, small businesses spend approximately 2.5 billion hours preparing tax returns or responding to I.R.S. inquiries about the preparation of their returns.

“In meeting these requirements, 70 percent of small businesses employ tax professionals just to prepare their returns and represent their interests before the I.R.S. at a cost of more than $16 billion for the services of attorneys, accountants and other professionals,” wrote Williamson in his testimony.

He further explained that it is impossible for small business owners to be knowledgeable in all aspects of the country’s complex tax laws, which can impede their operations and get in the way of their ability to grow their business and create jobs. Williamson concluded his testimony by urging the I.R.S. to streamline and simplify the small business audit process to reduce the time and cost for owners.

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Bipartisan Legislation Aims To Help Small Businesses Utilize R&D Tax Credit

Earlier this month, U.S. Sen. Pat Roberts (R-KS) and U.S. Sen. Chris Coons (D-DE) introduced bipartisan legislation that would enable small businesses to take advantage of a new research and development (R&D) tax credit.

The Support Small Business R&D Act would require the Small Business Administration (SBA) and the IRS to collaborate on training materials that explain how entrepreneurs who invest in research could be eligible for the R&D tax credit to offset business expenses.

“The goal of the 2015 legislation is to make sure that small businesses and innovative startups, the major job creators in our economy, are able to easily access the R&D credit,” Roberts explained. “The R&D credit is complicated, so it is critical that small businesses and startups interested in the R&D credit have access to basic assistance from the Small Business Administration and the IRS to put them on the right track to claiming the credit. The bill we introduce today directs the federal government – at no new cost to taxpayers – to help our job creators to utilize the R&D credit, which will provide long-term benefit to the economy.”

Under the bill, the newly-drafted materials would be supplied to SBA programs as well as business development groups that partner with SBA programs throughout the United States to help make information about the tax credit more accessible to small businesses and startups.

“By including our proposal to expand the R&D credit to startups and small businesses in bipartisan tax legislation, Congress took a big step towards encouraging our small companies to innovate,” Coons said. “But our responsibility does not end now that this proposal is law. I am proud to work with Sen. Roberts to make sure that our startups and small businesses have the tools they need to take advantage of the R&D credit and continue to invest in advanced research.”

In 2015, Congress acted to expand access to the R&D tax credit and to make it permanent. However, small businesses currently lack the necessary information to use the credit to offset research costs. The Support Small Business R&D Act is intended to close that gap.

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Tax Foundation Report Ranks Business Tax Climate By State

According to the nonpartisan Tax Foundation, New York’s business tax climate remains one of the worst in the nation.

New York State ranked 49th in the country for the competitiveness of its tax structure, with New Jersey being the only state ranking lower.

“Our overall ranking of 49 is simply unacceptable,” said New York State Business Council President Heather Briccetti. “No economic development program in the world would allow us to overcome the systemic faults in our tax system that makes us uncompetitive in relation to our fellow states.”

The latest report from the Tax Foundation marks the third consecutive year that New York’s tax climate ranked next to last in the country. At the same time, the foundation did give New York credit for passing corporate tax reforms two years ago that lowered rates on businesses from 7.1 percent to 6.5 percent. However, the state still received poor grades for high property, sales and personal income taxes.

The Tax Foundation report indicates that South Dakota and Wyoming are the states with the most competitive tax climates in the nation.

“Our goal with the State Business Tax Climate Index is to start a conversation between taxpayers and policymakers about how their states fare against the rest of the country,” said Tax Foundation Policy Analyst Jared Walczak. “While there are many ways to show how much a state collects in taxes, the Index is designed to show how well states structure their tax systems, and to provide a roadmap for improvement.”

In response to the report, a spokesperson for Governor Cuomo defended the administration’s tax policies.

“New York has a fair and progressive income tax structure that this conservative leaning organization fundamentally disagrees with,” said Cuomo spokesperson Rich Azzopardi. “Thanks to Governor Cuomo’s reforms, we also have the lowest middle class tax rates in 70 years, the lowest manufacturing tax rate since 1917 and the lowest corporate tax rate since 1968, and a tax cap that broke the cycle of skyrocketing property tax hikes on businesses and property taxpayers alike.”

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Hillary Clinton Proposes Standard Tax Deduction For Small Businesses

Hillary Clinton’s presidential campaign recently released details about some of the ways she would support U.S. small businesses if elected.

Clinton’s plans include establishing a standard tax deduction that has previously only been available to individuals. Her campaign explained that a standard tax deduction would allow small business owners to easily obtain tax relief without filing additional forms that document equipment and transportation costs.

Additionally, if Clinton is elected, she would expand healthcare tax credits in the Affordable Care Act for small businesses that employ up to 50 workers, as well as create new federal incentives for local and state governments to streamline the business licensing process. Clinton also said she wants to guarantee that small businesses with questions about U.S. government regulations are able to receive answers to their queries within 24 hours.

These proposals illustrate some details about how the Democratic nominee would fulfill promises to improve access to financing and minimize regulatory burdens that make it difficult to launch small businesses in the United States. Since first launching her campaign in April 2015, Clinton has said she aims to be the “small business president” if she wins in the November 8 election.

“Way too many dreams die in the parking lots of banks,” Clinton said during her Democratic National Convention speech. “In America, if you can dream it, you should be able to build it.”

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IRS Studies Methods To Ensure Small Business Tax Compliance

The Internal Revenue Service (IRS) estimates that it collects $458 billion per year less in taxes than the amount that is actually due. Perhaps surprisingly, the agency says $125 billion of this “tax gap” is individual business income.

Taxpayers in this category are primarily sole proprietors, and therefore pay taxes on the money their operations make through their personal returns, which can make it difficult for the IRS to detect.

The primary method for the IRS to uncover unreported income is through audits, but it is a time-consuming and imperfect tool. Due to limited resources, the agency collected only $7.3 billion from audits last year, which is its lowest total in 13 years. Of course, the IRS wants business owners to voluntarily pay all of the taxes they owe, but the agency explains that 63 percent of “low visibility” income, the type that isn’t captured by outside parties on tax information documents, is not disclosed on tax forms.

For the past four years, the Taxpayer Advocate Service, an independent office within the IRS, has been conducting studies to try to find methods to persuade small business owners to accurately report their earnings. Interestingly, the studies found that self-employed individuals who went through an audit and were found to be clean reported less income in subsequent years. In fact, three years after their audits, the study’s test group of taxpayers reported 35 percent less in taxable income than a control group of similar taxpayers who had not been audited.

It’s not entirely clear why this is the case. Researchers believe it’s possible that the experience of an audit may have been discouraging and sapped the subject’s “tax morale,” or perhaps the audit inadvertently offered insights into previously unknown methods for legal tax avoidance.

The IRS is said to have a secret algorithm that it uses to calculate how likely each taxpayer is to have unreported income. And it appears to work well, because out of the 1.2 million individual returns that the agency audited in 2014, including sole proprietorships, only 13 percent emerged without any tax adjustments.

However, studies have found that only a minority of those who are audited and require adjustments actually intended to cheat. The majority of small business owners who run into problems in an audit simply didn’t keep accurate records or didn’t understand all of their tax obligations.

These findings illustrate the importance of keeping accurate business records in order to avoid problems, as well as the need for many to seek the assistance of professional tax experts to ensure that business filing is conducted correctly.

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Should The IRS Do More To Help Entrepreneurs In The Sharing Economy?

During a recent hearing of the U.S. House of Representatives Small Business Committee, the National Taxpayer Advocate Nina Olson said the IRS is failing to help entrepreneurs navigate tax rules and regulations in the sharing economy.

Olson noted that 4.2 percent of American adults, or 10.3 million people, earned income from the sharing economy, including from sites such as Uber, Etsy, Lyft and AirBnB, during the period from October 2012 to September 2015. This marks a 47-fold growth over the three-year period.

However, despite that massive growth, Olson pointed out that “surprisingly little has been done to understand the tax compliance challenges this new frontier presents, or how it impacts Treasury and IRS’ ability to fairly and efficiently administer the U.S. tax code. Most of these new entrepreneurs do not have any experience with the relevant tax record-keeping and business filing obligations.”

A recent survey illustrated that people who earned income on an on-demand platform in 2015 are largely unaware of their tax obligations. The data showed that 34 percent didn’t know whether they were required to file quarterly-estimated payments; 36 percent were uncertain of the type of records they needed to keep for tax purposes; and 69 percent received no tax guidance from the company with which they worked.

Both Olson and Small Business Committee Chairman Steve Chabot (R-Ohio) believe that the IRS needs to do more to provide information to those earning income in the sharing economy.

“When the IRS is behind the times, it puts small businesses behind the eight ball,” said Chabot. “This failure has left on-demand platform companies and their workers confused and frustrated as they try to do the right thing and pay the taxes they owe.”

“If a person working in the sharing economy called the IRS toll free line today, he or she would hear a recording saying the IRS is not answering any tax law questions after April 15th, so please check [the IRS website],” Olson testified. “The same message is given to people asking questions at IRS walk-in sites. For a tax agency to not answer questions from taxpayers trying to learn what they need to do to comply is beyond unacceptable, it’s absurd.”

At the hearing, Olson provided some recommendations on how the IRS could assist these citizens in meeting their tax obligations. “The IRS should expand its education and outreach to sharing economy participants, including by developing a publication on sharing economy tax issues,” Olson said.

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Ohio Congressman Says Tax Credits For Small Businesses Will Help Economy

Ohio congressman Steve Chabot says that a “confident America” depends on small businesses unburdened by taxes and regulations.

Speaking at a weekly Republican address to mark the end of National Small Business Week, the chairman of the House Small Business Committee stated his belief that top-down regulations and higher taxes don’t inspire the confidence required for a burgeoning economy.

“Times have changed, business models have changed, but the enduring spirit of American innovation continues to breathe life into our economy and create the jobs no government program can,” Chabot said.

He argued that tax credits, ending the oil export ban and waiving upfront loan fees for veterans who want to be entrepreneurs would all be beneficial to small businesses in the United States.

Chabot said that in 20 years in Congress he has never encountered a person who approves of forcing excessive regulations and complicated tax burdens on small businesses. “Still, that’s what happens,” he said.

“If we want a confident America, we need confident Americans,” Chabot said. “Top-down regulations and higher taxes don’t inspire confidence. Job creation, innovation and the courage to try and fail until you succeed – those are the building blocks of a future we can all get excited about.”

National Small Business Week has recognized entrepreneurs from small businesses since 1963. According to the U.S. Small Business Administration, 28 million small businesses in the United States account for 54 percent of the country’s sales and provide 55 percent of all jobs, making them a very significant portion of the nation’s economy.

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Proposed Bill Would Guarantee Equivalent Tax Cuts For Small Businesses

In an effort to ensure that small businesses receive an equivalent tax rate cut in any future reform of corporate taxation, Vern Buchanan, a senior member of the House of Representatives Ways and Means Committee, has introduced the Main Street Fairness Act.

If passed, the Act would establish that businesses filing taxes as pass-through income will never pay a higher rate than a C corporation. As an example, if the U.S. Congress reduces the corporate tax rate to 25 percent, that would also be the pass-through rate. The profits of pass-through entities, such as sole proprietorships, partnerships, and S corporations, which account for over 90 percent of all businesses in the U.S., are passed directly to their owners and are taxed on their individual tax returns.

Under the current law, corporations pay a maximum tax rate of 35 percent, while small business owners pay up to 39.6 percent under the federal individual income tax code, on top of additional taxes on earnings and investments. In some states, these small businesses pay more than 50 percent of their income in taxes.

“Local mom and pop stores and medium-sized businesses should not be burdened with a higher tax rate than multinational corporations with billions of dollars in earnings,” Buchanan said. “America has the highest corporate tax rate in the developed world – and small businesses face even higher rates.”

Buchanan’s proposed bill is co-sponsored by Charles Boustany, Chairman of the Ways and Means Tax Policy Subcommittee. “This Act simplifies the code for small businesses and gives them the confidence they need to invest and provide more jobs for American families,” Boustany said.

Several business groups and organizations are showing their support for the measure. Carolyn Lee, Senior Director for Tax Policy at the National Association of Manufacturers, stated that the bill is “a viable plan for reducing taxes on pass-through businesses that can be part of a larger tax reform effort.”

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Justice Department Warns Public To Avoid Fraudulent Tax Preparers

With tax season in full swing, the U.S. Department of Justice is warning taxpayers to beware of fraudulent tax return preparers and tax scheme promoters.

Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division explained that every taxpayer is ultimately responsible for the contents of his or her own return, and that it is therefore essential to be certain to utilize the services of a trustworthy organization when seeking assistance.

“Every year, thousands of federal income tax returns are prepared by people who care much more about making a quick buck than about preparing accurate returns,” said Ciraolo. “Most tax return preparers are honest. But some preparers who charge clients a percentage of their tax refund intentionally prepare false returns to increase their clients’ refund, and thus their own fees.”

Ciraolo provided the following tips for citizens to consider when dealing with tax preparers:

  • Your refund should never be deposited directly into a tax preparer’s bank account.
  • Don’t sign a blank return or blank form, or sign a return or a form without first reading it thoroughly.
  • Do not allow a preparer to mischaracterize your expenses.
  • Never use a preparer who fabricates business expenses or deductions, or who claims bogus credits to which you are not entitled.

As Ciraolo stated, the majority of tax preparers work properly to maximize their clients’ returns within completely legitimate parameters, however, it’s essential to avoid those who try to increase their earnings with dishonest practices. Considering the fact that every taxpayer is ultimately responsible for their own return, it’s highly advisable to research potential preparers to ensure that taxes are filed honestly and correctly.

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Tips To Help Taxpayers Avoid Phone Scams

The Treasury Inspector General for Tax Administration (TIGTA) is making additional efforts to help prevent U.S. taxpayers from falling prey to fraudsters that impersonate I.R.S. employees.

TIGTA says that it continues to receive reports that thousands of individuals have been contacted by phone and told that they must send money. Since October 2013, TIGTA has been told about approximately 896,000 telephone contacts of this type, and has become aware of over 5,000 victims who have collectively paid over $2.6 million as a result of the scam.

The fraud has been reported by taxpayers in every state in the country. Callers who claim to be from the I.R.S. tell individuals that they owe taxes and must pay using a prepaid debit card, money order, or wire transfer. If the recipient of the call refuses to pay, the fraudsters often threaten them with being charged for a criminal violation, a grand jury indictment, immediate arrest, deportation, or loss of a business or driver’s license.

TIGTA has expanded its outreach initiative to prevent the scam from continuing, including issuing Public Service Announcements to warn taxpayers. Additionally, it is working with partners in both the public and private sector to help educate the public, through traditional law enforcement channels as well as through direct outreach to associations, nongovernmental organizations and the media.

To avoid becoming a victim of these scams, it’s important for taxpayers to know that if they owe taxes, the I.R.S. will first contact them by mail, not by telephone. Additionally, the I.R.S. will never ask for credit card, debit card, or prepaid card information over the phone. Lastly, the I.R.S. will never insist that you pay your taxes using a specific payment method.

“This scam has proven to be the largest of its kind that we have ever seen,” said Russell George, the Treasury Inspector General for Tax Administration. “We will be very aggressive in pursuing those perpetrating this fraud. In the meantime, we need to do even more to warn taxpayers not to fall for it.”

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U.S. House Of Representatives Tax Writer Pushes For Territorial-Style Tax System

The top tax writer in the U.S. House of Representatives wants there to be a vote this year on legislation that would move the country to a territorial-style tax system, with the aim to exempt the earnings of American companies abroad from U.S. taxation.

House Ways and Means Committee Chairman Kevin Brady believes that international tax reform should come as the first step toward a larger rewrite of the U.S. tax code that would lower rates and eliminate many narrow tax breaks. He favors a U.S. corporate tax rate of less than 20 percent, which is significantly lower than the current top rate of 35 percent.

Many American companies have been pushing for the government to move to a territorial tax system in order to make them more competitive against foreign rivals that only pay taxes in the local jurisdictions where they operate. The U.S. government taxes corporate profits that are earned abroad only when they are brought into the country, and it is estimated that $2 trillion in U.S. profits are sheltered overseas to avoid taxation. Brady says that he wants to find a way to “lower the barriers and allow companies to bring back their profits to be invested in the United States.”

Brady believes that an international reform proposal by former Ways and Means chairman Dave Camp for a one-time “holiday” of taxing companies on foreign profits held overseas at a much lower rate is “an awfully good place to start.”