Another Tax Loophole
November 24, 2008
Just image, you are a small manufacturing company, business has been good, but yesterday you received a call from a customer who wants 50,000 widgets in 45 days. The customer is a large account and if you turn the business down, he may never call you again.
Problem: You need to hire more staff to meet the manufacturing needs of this customer. AND the customer said nothing about an advance payment. In fact he mentioned that he would be paying net 30 once shipment was received.
You need working capital and you needed it yesterday
You sit down and you start to think. Well let’s see, it will take much needed time to apply to the bank for a loan, your wife threatens to leave with the kids if you refinanced the house one more time for business reasons and your credit cards are maxed out.
As you look around your messy yet effective office you wonder where you can get the working capital you need?
Sitting in front of you is your secretary mailing out invoices. You slowly walk over to her desk and you ask “What’s the total amount of invoices that we have outstanding at this very moment?
Hurricane Katrina ? How To Use Your Business Loss To Get A Refund on 2004 Taxes
November 17, 2008
With the massive losses caused by Katrina, the economy of the Gulf Coast region is in extremely bad shape. Fortunately, there is a quirk in the tax code that can help you generate a large refund from your 2004 taxes.
Apply Losses to 2004 Taxes
When a large geographic area suffers a disaster, the President can declare it a federal disaster area. President Bush has made such a declaration for the Gulf Coast area.
While you’ve probably heard such declarations occur over the years, I doubt it means much to you. The declaration, however, has major implications for recovery efforts. Initially, the declaration of a federal disaster area means the federal government is going to provide disaster relief loans, special grants that don’t have to be repaid, unemployment benefits and a variety of other assistance. It also signifies a major tax break for impacted businesses.
When a business suffers a loss, the deduction must typically be made in the year the loss occurred. With Hurricane Katrina, the deduction would typically occur when you file taxes in 2006. The problem, of course, is 2006 is a very long time from now if your business is destroyed. You will find this hard to believe, but the IRS is here to help.
Fraudulent Tax Shelters ? KMPG Goes Down Hard
November 11, 2008
In the largest criminal tax case ever filed, KMPG has copped a plea to using fraudulent tax shelters to bilk the government out of 2.5 billion dollars. KMPG has agreed to pay a fine of $456 million dollars, but nine of its executives still are under indictment.
Son of Boss Tax Shelters
From 1996 to 2003, KMPG promoted a tax strategy known as the Son of Boss. This shelter was used to create phony tax losses that could be claimed by wealth individuals looking to write off tens of millions of dollars. KMPG promoted the structure despite the fact it’s own internal tax attorneys warned the structure was fraudulent and could result in criminal charges. So far, wealthy individuals participating in the scheme have paid over $3.7 billion dollars to the IRS.
There should be no mistaking the impact of the plea agreement in this case. KMPG may have enjoyed the huge fees earned from the scam, but it is paying an incredible price for pursuing this practice. The price paid includes:
1. 456 Million Dollar Fine,
2. Permanently barred from providing tax services to wealthy individuals,
3. Permanently barred from involvement in any pre-packaged tax strategies,
Small Businesses: Company Car Vs. Personal Mileage Reimbursement In Hurricane Katrinas Wake
November 5, 2008
With gas prices at an all time high before Hurricane Katrina left her mark on our nation, most Americans were hoping that gas prices would settle down once summer passed. But gas prices have jumped as much as 80 cents a gallon across the country once Hurricane Katrina destroyed the Gulf Coast and impacted all of our lives.
While Hurricane Katrina is a horrible tragedy, it’s not just affecting the Big Easy. Hurricane Katrina will impact every single American that commutes to work, takes a vacation, or shops online.
Company Car vs. Mileage Allowance
Companies and individuals alike are now concerned that the federal mileage deduction or their company’s gas mileage reimbursement will no longer cover the costs of operating a vehicle for business purposes.
At the beginning of 2005, the IRS standard federal mileage reimbursement rate for business use of a personal vehicle (including vans, pickups or panel trucks) was 40.5 cents a mile for all business miles driven, up 3 cents from 37.5 cents a mile in 2004; The primary reason for the increase was higher prices of vehicles and fuel in 2004.
The Annual Gift Tax Exclusion: Getting The Edge
October 29, 2008
Whether helping the kids with a down payment on their first home, paying the premiums on a life insurance policy in an irrevocable trust, or moving appreciated assets to a younger generation, annual gifting will touch the lives of millions of Americans. But before the transfer is made, an investor should spend some time looking at the investment and the tax ramifications of the property to be passed.
Much of the gifting itself will be done under the Annual Gift Tax Exclusion, a method that alleviates both a gift tax and the need to report the transfer. This exclusion applies to gifts only between individuals. Gifts made to charities and other organizations fall under a completely different set of rules.
The transfer is not deductible by the donor nor is it taxable to the recipient. Currently (in calendar year 2005), the annual exclusion is set at $11,000. In the future, this can be adjusted for inflation, but only in $1,000 increments. Spouses can increase their gifts to others to a maximum of $22,000 and, finally, gifts between spouses, like love, knows no limits.
Taxing Overseas Firms for SOX Compliance
October 22, 2008
The Sarbanes-Oxley Act, also called the Public Company Accounting Reform and Investor Protection Act of 2002 was signed into law on July 30, 2002 by President Bush. In the aftermath of Enron, Arthur Andersen, Global Crossing, and WorldCom, SOX promises greater corporate accountability and transparency. Named after Senator Paul Sarbanes and Representative Michael G. Oxley, SOX focuses on the importance of ethical behavior in corporate governance-across the United States and now?overseas.
All countries have government-required laws like Sarbanes Oxley. In the UK, it’s the “Combined Code on Corporate Governance,” in The Netherlands it’s the “Code Tabaksblatt,” Germany has a “Bilanz Reform” and a “Bilanz Kontroll Gesetz.” But then, why do we need SOX overseas since we already have the required laws? It’s because companies with U.S. headquarters must ensure that all foreign outposts meet federal standards. This is the major cause of concern in the management and accounting circles. According to some experts, the Sarbanes Oxley Act might have dictated convoluted rules and regulations on the U.S. businesses. While the rules are concrete ideologies that prevent accounting scandals, the constant flux in the policies confuses businesses around the globe.
Render Unto Caesar
October 16, 2008
Once a year Canadian taxpayers are required, by law, to file an income tax return in the prescribed form: $150(1).
For individuals: $150(1)(d) ITA, they must do so by April 30 of the following year, provided that they owe any taxes or if they are served with a requirement to file: $150(2) ITA.
There are other rules for corporations, trusts, partnerships and deceased individuals.
If any taxpayer is required to file under $150 then they are also required to estimate the amount of the taxes payable: $151 ITA.
Caesar’s Reply
Once the taxpayer has filed their return, the Minister of National Revenue ("MNR") shall examine the return and assess the tax for the year, the interest and penalties, if any, payable: $152(1) ITA.
If the ministerial delegates don’t agree with what the taxpayer has filed, then the MNR may at any time make an assessment, reassessment or additional assessment for a taxation year: $152(4) ITA.
Not filing won’t prevent the MNR from making an arbitrary assessment: $152(7) ITA.
Some writers have concluded that Canada’s self-assessment system is based on ‘voluntary compliance;’ however, CRA on its website, under "Tax Myths" (No 2) clarifies that the system is voluntary only in the sense that you can choose to comply. The consequences of not complying are entirely involuntary and Draconian.
Failure To Pay Employment Taxes ? Penalties
October 10, 2008
As an employer, you must pay employment taxes if you have employees. Fail to pay and the IRS will rain all over your parade.
Penalties
If you have employees, you absolutely must deduct and withhold various taxes from the paychecks of your employees. Since you are deducting money from the employee’s paycheck, you are handling their funds. This fact is very important to the IRS and it places great emphasis on any failure to deposit employment taxes.
If you fail to pay employment taxes, you will be subject to a 100 percent penalty. Yes, 100 percent. Known as the "trust fund recovery penalty", the penalty is assessed against the person responsible for paying the taxes, not the entity. The person can be the owner, corporate officer or other "responsible person." In short, a business entity is not going to protect you from the wrath of the IRS.
Late Payments
Cash flow crunches are an inevitable event for practically every business. So, what happens if you make a late payment for employment taxes. Unless you can show a reasonable reason for the delay, the IRS is going to penalize you.
Employment Taxes ? Depositing With The IRS
October 4, 2008
If your business has employees, you must pay employment taxes. The payment system can be a bit confusing, so this article discusses how to go about depositing employment taxes with the IRS.
Depositing Employment Taxes
To pay employment taxes, you must deposit the money with the IRS. As is typical with tax situations, the payments are not actually made to the IRS. Instead, you must deposit the employment taxes with a federal depository. Moving the burden to the private sector, the IRS requires most banks to act as depositories. If your business has just started hiring employees, ask you bank if they act as a depository. If they do not, you may want to change banks.
To deposit the taxes, you forward money per the bank specifications. You will also need to file a Federal Tax Deposit Coupon, Form 8109, with the deposit. The IRS typically sends these forms to you at the beginning of each calendar year. If you don’t receive any, you can download the form from the IRS site or ask your tax professional.
When To Deposit
Paying Workers ? What Can You Write-Off?
September 27, 2008
As your business grows, you are going to need help. This help comes in the form of employees and independent contractors. What you can write-off is dependent upon how your helper is classified ? as an employee or independent contractor.
Independent Contractor
Whenever possible, you want to use independent contractors to assist you. Payments to independent contractors are completely deductible. You simply claim the deduction on your return. If you pay them more than $600 during the tax year, you also must issue a 1099-MISC in January of the following year. Importantly, you do not have to pay employment taxes or make withholding on the compensation.
Unfortunately, the IRS doesn’t allow you to randomly classify a worker as an independent contractor. The key to the determination is whether you "control" the actions of the worker. Generally, you must be able to show the IRS that the worker is an independent contractor because they have the ability to control the details and means by which the work is accomplished. To this end, it is helpful to show the worker sets their own ours, has a work place and risks not getting paid if the work is below standard.
