Corporate Tax

A Guide on Business Conventions: Why Professionals Should Take Part in One

In the age of social media where everyone can share information in a few clicks, some professionals may think they no longer have to attend an industry conference or seminar.

While social media channels, LinkedIn in particular, may have become popular platforms for information sharing and networking, the truth is that it is still a must for professionals to attend conferences, seminars, and meetings.

These events are usually short, typically 2 to 3 days. During that short amount of time, professionals like you can learn from several industry experts. Moreover, you can network with other people in your industry.

There are many reasons why you should attend an industry event, such as:

  1. Learn how industry trends are being implemented. In a typical business convention, top notch speakers and resource persons share the latest trends and how these are being used in your industry. They can enhance your knowledge base, and teach you something valuable that you can apply when you go back to your office.
  1. Meet new suppliers. Most professionals tend to shy away from business conventions because of the salespeople that introduce various industry products and services. But in truth, business conventions and conferences can introduce you to innovative products and services that you or your company may find necessary to stay competitive.
  1. Network with peers. Industry events provide the best platform for professionals to grow their network. They can learn best practices and referrals from competitors, especially those from other regions or countries.
  1. Free travel. For many professionals, their participation in industry events can give them the opportunity to get some much needed rest and relaxation. They can claim travel expenses related to their participation in a business conference or convention, from lodging to transportation to incidental expenses.

There is no shortage of business conventions that professionals can participate in. The following is a discussion of particular fields and some of the more notable meetings, conferences, and exhibits that professionals can join in.

Information Technology

The I.T. Industry is constantly evolving, so it is understandable why there are lots of business conventions held for people and organizations in this field. There are lots of technology conferences held all year round. The good news is that most of these events offer live streaming options, which augurs well for IT professionals who are too busy or those who have exhausted their travel budget.

The Google Cloud Next conference is one of the most highly anticipated events among I.T. professionals. This will take place in San Francisco from March 8-10 this year.  Google Cloud developers will benefit greatly from taking part in this event, what with Google CEO Sundar Pichai and Alphabet chairman Eric Schmidt expected to talk about Google’s initiatives this year.  The conference is expected to draw thousands of participants, who will see what the future of cloud development will be like.

Another highly anticipated business convention in the I.T. industry is the Bluetooth World 2017. This yearly, two-day conference is expected to draw more than 1,000 thought leaders to Santa Clara, California. It will showcase how Bluetooth technology is changing the world, and how the Internet of Things is making life easier for everyone.


There are also lots of business conventions that accountants can take part in.  Perhaps the most prestigious of these is the MNCPA Tax Conference held yearly in Minnesota.  This is also one of the longest-running tax conventions in the United States, with its first staging held more than 60 years ago.   CPAs, CPOs, tax practitioners, and financial professionals looking to expand their knowledge of tax-related developments are encouraged to participate in this convention.

The American Institute of CPAs (AICPA) offers more than 60 conferences all year round. These events cover almost every topic there is in the accounting field. Some events are held simultaneously in multiple cities and most conferences can earn continuing professional education (CPE) credits for its participants.

One of the biggest events that the AICPA is holding is its CFO Conference. It will be held in Phoenix, Arizona this year, with hundreds of CFOs, CEOs, investment bankers, attorneys, chief audit executives, and academics expected to join.  The conference will tackle issues such as cybersecurity, strategic planning, risk management, and the current political, tax, and economic landscape in the U.S.


Engineers also have tons of options when it comes to business conventions.  Engineering associations are usually at the forefront of these events, providing engineers with the opportunity to hone their skills, earn more certification, and be updated with the latest advancements.

Electrical engineers, for instance, can attend the International Solid-State Circuits Conference organized by the Institute of Electrical and Electronics Engineer. This year’s event held in San Francisco, California tackled developments in the Internet of Everything.

For mechanical engineers, the Mechanical Engineering Congress and Exposition is a prestigious event to take part in.  This is reputed to be the biggest interdisciplinary mechanical engineering convention in the world.  It has been going on for more than a century now, with the first meeting in New York held in 1880. For some historical perspective, this is also the same convention when Willis Carrier presented his concepts on air conditioning back in 1911.

This year’s Mechanical Engineering Congress and Exposition will be held in Tampa, Florida.


Conferences and education events for members of the academe are designed to provide educators with tried and tested strategies in connecting with students, connect with peers, and bolster their practice.

One of the biggest gatherings of educators in the United States is the International Society for Technology in Education (ISTE) Conference. In 2016, the conference had more than 18,000 participants composed of educators, school leaders, policy makers, tech coordinators, school administrators, and library media specialists. This year, the organizers hope that the event will have more attendees. The event is scheduled to be held in San Antonio, Texas.

The ASCD, meanwhile, organizes its annual conference called Empower. It is designed not just for teachers but also principals, school superintendents, instructional coaches, and central office staffer. This year’s conference scheduled in Anaheim, California has more than 200 sessions on deck.

There are also certain conferences held onboard cruise ships. The International Interdisciplinary Business-Economics Advancement Conference, for example, will be held at the Navigator of the Sea, a five star luxury cruise ship. The cruise will depart from Miami, Florida and stop at the Bahamas and Mexico before returning to Miami.

The conference is expected to attract scholar students, scientists, and researchers who will share their insights on business and economics.

Sales & Marketing

With the Internet changing the way people buy products and avail of services, it is not surprising that many business conventions geared towards professionals in the sales and marketing field are focused on e-commerce.

One event, Brand Innovators Summit, is conducted in multiple cities across the US throughout the year. These summits teach sales and marketing professionals and entrepreneurs how the best brands are using digital media to promote their products and services. Topics range from content marketing, monetization, and enhancing customer experience.

Mozcon Local is similar to the said event as it teaches sales and marketing executives how to use digital media, particularly local marketing and search engine optimization.  Participants will learn tips and tricks for optimizing their websites and make them rank higher on Google.

Adobe, a popular creative product, also holds its own conference. The Adobe Summit is scheduled in March, with participants converging in Las Vegas to learn how to create engaging content viewable across various devices.

Another event that sales and marketing professionals should consider joining is the Social Media Marketing World set sometime this March in San Diego. The event promises to impart some distinctive social media marketing techniques from industry leaders.

Finally, Ragan’s Social Media conference to be held at Disney World will teach attendees when and how to implement various social media techniques. This event will also impart knowledge like building a social media following, strengthening online communities, and tapping key audiences.



One of the fastest growing industries in the world, the healthcare sector has hundreds of trade shows and conventions held in various parts of the globe. These conventions are attended by medical professionals, researchers, medical technology suppliers, among others.

Arab Health is one of these events. It is considered to be the biggest healthcare exhibition and medical congress in the Middle East, and the second biggest in the world.

This event attracts more than 4,400 companies that proudly display their latest innovations.  The event aims to promote and improve healthcare services in UAE and nearby territories.

Another event that attracts many healthcare professionals around the world is the Digital Health Summit.  This event, which was most recently held in Las Vegas, tackles the substantial role that technology has in advancing medicine.

The Government Health IT Conference and Exhibition, organized by the Healthcare Information and Management Systems Society (HIMSS), is another big event that attracts thousands of healthcare workers. The event particularly is geared at healthcare IT workers, with the most recent staging focusing on how the new administration will impact the healthcare sector.

Business Leaders and Entrepreneurs

Business leaders and entrepreneurs also have lots of choices as far as business conferences and conventions are concerned.

One of the biggest and most prestigious is the CEO Space Forum, which its organizers have dubbed as a business growth accelerator event.  Participants can learn many things from the event’s resource speakers like traditional funding, strategic planning, leadership, business finance, among others. This year’s gathering will happen in Orlando, Florida and run for five days.

Young professionals, or those who belong to the Millennial generation, are the target participants of the Next Gen Summit.  This event is relatively young, with its first meeting held in 2015. It is backed by partners such as Uber and Verizon.

What’s impressive with this business convention is that it has grown exponentially in the past two years. In 2016, there were more than 500 attendees. More than 10 venture capitals were supported by $1.6 billion in capital.  This year, the organizers hope to bring in a minimum of $3 billion in capital funds.

Aspiring entrepreneurs as well as bosses of start-up businesses should also check out the Start Up Conference 2017.  This is one of the biggest entrepreneur events in Silicon Valley, attracting more than 2,000 businessmen.

As the name suggests, this conference caters mainly to entrepreneurs looking to jumpstart their startup enterprises.  Topics include pitching venture capitals, finding co-founders, promoting a product, and reaching influencers, among others.

Media and Creatives

With social media taking over the world, media practitioners will learn a lot from business conventions. Events like the Print and ePublishing Conference slated this June in Chicago, for example, will teach them how to deliver the best content that’s accessible across all platforms. The BlogHer conference, meanwhile, attracts women bloggers and promotes economic empowerment and education. This conference is open to all bloggers, and provides a good platform for networking.

A similar event is Blogcademy held in multiple cities. This two-day blogging conference and worship teaches participants how to improve their content, so they can earn more from their blogs or websites. It can also teach them how to secure book deals and other publishing agreement.

Web designers, art directors and those in the creative field may also get into courses like Future of Web Design workshop. Scheduled this April in London, said workshop is expected to be participated in by engineers, web developers, and designers.


There is no denying that there are a lot of business conferences, seminars, workshops, and similar events that professionals can participate in. These events are all geared towards updating the skills and knowledge of participants, provide a venue for networking, and in some instances, allow attendees to earn continuing education credits.

Professionals should be wise enough to attend these events, as this won’t only help in advancing their career. They can get the chance to travel for free, as they can claim their expenses as deductible in their next tax returns.

How Freelancers Can Write Off their Business Travel Expenses

While there are many risks of being a freelancer, it cannot be denied that there are plenty of benefits, too.

One advantage of being self-employed is that you can make more money than you would if you were an employee. You can also work at the comforts of your home.

Moreover, freelancers like you also get to enjoy many tax deductions like home office and business travel.

If you haven’t realized, going on a business travel can benefit your trade.

Here are three good ideas that you may want to explore if you want to maximize your tax deductions by going on a business trip anytime soon:

  1. Visiting a client

Perhaps you have a client in an area away from your tax home, or your primary place of work. You might want to visit that client and several customers to strengthen you relationship with them.

You don’t need to spend the entire them talking to them. You can schedule a meeting for a few hours.  Just make sure to keep note of the things you talked about during the meet.

  1. Meeting a Vendor

Do you know a supplier of a vendor that you can meet in Miami or another area that’s far from your home? You might want to meet him to negotiate a new deal, or how you can improve your business relationship together.

  1. Attend a conference

Are there any workshops, seminars, or conventions that you can participate in?  Attending one that’s relevant to your trade may teach you new skills or update your knowledge. The activity may also give you the perfect time to meet prospective clients or vendors.

What expenses can you write off?

 Any of the abovementioned ideas are justifiable enough to be the purpose of your next business travel. What’s more exciting is that you can deduct all your business travel-related expenses on your next tax returns.

Remember this–you can write off your business travel expenses as long as the primary purpose of your trip is ordinary and necessary for your work.

An ordinary expense is defined as common and accepted in the trade or business that you are in. If you are in the IT field, then your participation in an information security summit can be considered an ordinary expense.

On the other hand, the IRS considers travel as a necessary expense if it is appropriate for a taxpayer’s business.

You can write off the following travel expenses:

  1. Meal Expenses

You can also deduct the costs of meals that you had while you were on a business travel. However, there’s only a 50 percent limit on meal expenses.

There are two methods that you can choose from in figuring out your meal expenses.

The first is the actual cost.  This simply means claiming 50 percent of the actual cost of your meals during your business trip. If you are to use this method, you should have receipts or records of your actual expenses.

The second option is to deduct the standard meal allowance (SMA) of $51 a day, which is the rate for most of the small localities in the US. The advantage of this option is that you don’t have to keep every receipt, as you simply subtract the SMA.

However, the SMA is a bit low. Thus you may not be able to enjoy larger deductions on your tax return if you opt for this method.

Keep in mind that you can claim meal expenses even if your dinner or lunch with a prospective client didn’t lead to a deal. So even if you met potential clients, you can deduct the costs of their meals in your next tax return.

But you may also wonder—can you claim the meal expenses during a business meeting? After all, it is a common practice to discuss a deal or get to know a prospective partner while eating.

The answer is yes–you can also claim meal expenses that you incurred while entertaining customers or potential business partners.

In fact, it is not only the meals served to your clients that you can claim as tax deductible.  You can even include taxes and tips, cover charges if you brought your guests to a nightclub. The rent that you paid for a room in which you held a dinner party for your guests can also be deducted as a meal expense.

But the IRS won’t allow claiming deductible on lavish and extravagant meals. There’s no definite dollar amount for a lavish or extravagant meal, so it can really be tricky for most business owners to determine which meals to expense.

Let’s say that you treated a potential client to dinner at a five-star hotel. Would that be considered lavish or extravagant meal? Perhaps, but you can also justify that it is reasonable given the circumstances. Maybe the client that you met is the CEO of a Fortune 500 company, whom you just can’t bring to any ordinary restaurant.

  1. Lodging Expenses

Unlike in meal expenses where you are limited to a 50 percent tax claim, you can deduct 100% of your lodging expenses during a business travel.

You can even stay an extra day in your destination and claim associated stay-over costs. For example, you had your last meeting on a Friday, but you didn’t leave until Saturday afternoon because you wanted to get a reduced fare on that day. You can claim the stay-over costs on Saturday even though you had no business-related activities on that day.

But if you stayed for a couple more days just to enjoy the sights, then you can’t deduct the hotel charges for those extra days.

  1. Transportation Expenses

Whether you traveled by car, bus, train, or airplane, from your home to the business destination, you can write off your transportation expenses during a business trip.

But if you were provided tickets by a client, your cost is zero.

If you were able to fly because of a frequent flyer reward, then you won’t be able to claim the airfare.

You can also claim transportation expenses to and from the airport to your hotel, and the hotel to the offices of your clients or customers.

If you brought your own car, you can write off your gas expenses, toll fees, and parking. You can even charge the expenses you incurred for maintaining your vehicle, like car wash, replacement of tires, or oil change. However, you have to keep your receipts to prove that you indeed had paid for the said services while you were on a business travel.

Aside from the three major expenses, you can also write off the following:

  • Shipping of baggage
  • Dry cleaning and laundry
  • Business calls
  • Tips
  • Other out-of-pocket expenses such as computer rental fees

The rule of thumb is that expenses that are directly related to your business trip can be written off.  For example, you had paid for the shipping of your brochure or documents needed for a seminar or convention. You can deduct the shipping expenses.

But you can’t expense personal charges like gym or fitness fees. You can’t also deduct fees for movies or games.

Things to Remember Before Traveling for Business

 Now that you have learned the expenses that you can claim on your next tax return, you should then know the things that the IRS will look into before it accepts your tax deduction claim.

These include:

  1. Establish the Purpose of Your Travel

One, your travel should be primarily for business. You can prove this by showing that you have at least one business appointment or meeting schedule before you leave home.

This means that you can’t just depart for the Bahamas or Florida with the hopes of meeting a potential client there. Or collecting business cards of people you would present as business associates.

An invitation to a conference, emails, and other correspondences—these are enough to prove to the IRS that you went to a particular destination for a business-related activity.

But what if you don’t have any invitation or email proving that you went to a certain destination for a business activity?  Let’s say you want to spend a vacation in Miami, and also get some potential clients there.

You can mix pleasure with business, so to speak, by placing several advertisements in the area.

For example, you’re a distributor of computer software. You are hoping to expand your business by distributing more products in Miami.

What can you do to achieve that goal? You can post online ads showing to prove that indeed, you were looking for new business contacts in the area.

And when you get there in Miami, meet a couple of those who have responded to your advertisement. Document your meeting by taking photos, or keeping the business cards of your prospects.

However, you should also look at the time spent for business-related activities during your trip. It would be hard to justify travel costs for a week-long trip to Miami if you only spent 2-3 days meeting with clients.  The IRS will likely call your attention if you declared that you spent just half of your time in Florida meeting prospective customers or dealers.

What if your residence is just a few hours away from Miami? Does that mean you can’t claim your travel expenses as tax deductible?

You can, as long as you can prove that you had to sleep or rest in Miami so that you can meet the demands of your work. Let’s say that you slept in the hotel where you held a meeting to avoid possible traffic problems. The IRS will consider your overnight stay in Miami to be business-related, and allow you to make a claim.

  1. Allocate your expenses

If you traveled for a business meeting but also went to see some old friends or visited tourist destinations, you will have to allocate your expenses. You can only deduct your business-related expenses, and not the costs that you incurred for personal activities.

For example, you rented a car to take you to Miami from New Orleans. Your business travel amounted to around 2,000 miles round trip. But on your way back to NOLA, you decided to take a detour to Jacksonville to visit your old college buddy.

Because the detour to your college buddy is personal and not business-related, you cannot claim your expenses for that part of the trip.

Generally speaking, you can’t claim the expenses of your spouse if he or she accompanied you in your business trip unless the presence of your significant other was necessary.

No, your spouse taking down notes for you during your trip isn’t justifiable. Your partner should have done something more critical, like serving as your interpreter, or even helping you close a deal.

  1. Keep your receipts and related documents

Lastly, keep all your receipts during the trip. You may even write down details at the back of the receipt, like the names of the business associates you met and the purpose of the meeting.

If your total expense during the trip is $75, you don’t need to show your receipts, though.

Don’t throw away other papers such as conference or seminar program. Those papers can justify your tax deduction claim.


Going on a business travel is like hitting two birds with one stone. Your firm not only stands to benefit from you embarking on a business travel, but you can also reduce your tax obligations.

You can meet a potential client during a business travel, or strengthen your relationship with your current customers. You can also attend a convention or seminar to enhance your skills, or learn a new one.

Moreover, you can write off business travel expenses like lodging, transportation, and meals, although the latter has a limit of 50 percent of the total costs.

The IRS, though, has been quite strict when it comes to business travel claims. You can fend off an audit by properly allocating your expenses, keeping receipts and related documents, and establishing the purpose of your travel.

If you’ll follow the tips mentioned in this article, then you should have no problems in claiming business travel deductions.

Filing Your Indian Tax Return When You Are Residing in the U.S.

It has often been a question for many Indian citizens living in the U.S. whether they should file their Indian Income Tax Return or not. Actually, taxability in India is predominantly based on your residence, not on your citizenship. Hence, you have to identify your residential status first before you determine if you are liable to file your Indian ITR.

So how do you determine your residential status?

Basically, your residential status depends on the length of time of your physical stay in India within a given financial year. It helps if you check your passport and take note of the immigration stamp dates, including the dates of departure and arrival.

If you meet any of these two criteria, then you are considered an Indian resident for a financial year:

  • You reside in India for at least six (6) months, or 182 days, during the financial year
  • You have stayed in India for at least 60 days or 2 months in the previous financial year

If you do not meet any of the above-mentioned criteria, then you are considered an NRI (non-resident Indian). As such, your Indian income tax largely depends on the income that you earn in India for the entire financial year. On the other hand, if your status is “resident,” then your global income is taxable in India.

If I am living in the U.S., do I still need to file my Indian income tax return?

Yes, but on certain conditions.

Just because you are an NRI does not necessarily mean that your obligation to file your tax returns in India is no longer there. In fact, as July 31st of every year–which is the deadline for filing returns–looms, you must already be gearing up to file your returns if your income in India goes above the basic exemption limit.

Any salary you receive or earn in India, including income from a residential property located in India, income coming from fixed deposits or interest on savings bank account, as well as capital earnings on the transfer of properties in India, are just some of the many examples of income accrued within India. Such incomes are taxable for an NRI. It follows then that any income earned outside the bounds of India is not taxable in India.

It is also important to note that any interest you earn on an NRE account and FCNR account is free of tax, while interest on an NRO account is taxable for an NRI. Simply put, if you are an NRI and you have performed your job in India, your salary income will be taxable in India, regardless of where your salary is credited to your account. On the other hand, if you have worked abroad but have received your salary in India, then your salary will be included in your taxable income in India.

 When does filing my Indian income tax return become mandatory?

The question of whether you should file your Indian income tax return or not is irrespective of your being an NRI or not. If you have lived in the U.S. long enough to be considered an NRI but still have income coming from India, you are required to file your Indian income tax return when your income exceeds the basic exemption limit. As an NRI, filing your income tax return in India is mandatory in the following cases:

  • The total of your taxable income from all sources goes above the basic exemption limit of Rs 2.5 lakh.
  • You have either long term capital gain (LTCG) or short term capital gain (STCG) from selling your investments or assets in India, even if your income goes below the exemption limit.
  • You wish to claim a tax refund, in cases when TDS has already been deducted.

Are there tax deductions available to NRIs?

NRIs are also entitled to tax deductions, just like ordinary Indian residents. Most of the common deductions under the Chapter VIA of the Income Tax Act of India are available whether you are a resident or not, except for those that have to do with maintenance, treatment of disabled dependent, medical treatment of certain diseases for both self and dependents, as well as specified investments like five-year post office deposit, senior citizen savings scheme and investment in Rajiv Gandhi Equity Savings Scheme.

If I am in the U.S., can I also enjoy the benefits of the Double Tax Avoidance Agreement (DTAA)?

 Currently, India has a DTAA with around 90 countries around the world, and one of them is the U.S. As an NRI, one of the first things that you need to determine is whether your income is taxable in India. Then, if you are living in the U.S., you must furnish a tax residency certificate (TRC) issued by the tax authorities in the U.S. Aside from that, you may also have to provide a self-declaration by filling out Form 10F.

Getting relieved under DTAA depends on your type of income. In fact, under the DTAA, certain incomes may be entirely exempted or may be taxed at a lower rate. If under this agreement your income is taxable, then you are required to pay your tax in India and claim credit for your paid tax in the U.S. against the tax liability in your home country.

For you to claim a lower tax rate under the agreement, being an NRI, you must have provided your PAN number earlier on to avoid being charged with higher withholding tax  of 20 percent, as stipulated in Section 206AA. Under rule 37BC issued by the Central Board of Direct Taxes (CBDT), NRIs like you are allowed to furnish alternative information or documents instead of PAN so as to avoid high withholding tax. These include your name, email, address, contact number, TIN and TRC.

But how do I file my Indian income tax return if I reside here in the U.S.?

 If based on the abovementioned standards you have figured that it is mandatory for you to file your Indian income tax return, then make sure to do it in advance to avoid penalties. Just because you reside in the U.S. does not mean you have to go back to India to file your Indian income tax return. Today, there exists a process of electronically filing your returns, allowing you to do your job without having to physically go to India.

Now, take a look at the following tax filing process for NRIs like you.

 Step 1: Choose your method.

NRIs have different methods to choose from when filing tax returns. You may do it yourself online, avail of assisted services, or follow the traditional route of chartered accountant.

Do it online (E-filing)

Today, filing tax returns online is the easiest and most convenient method for NRIs. In fact, the Indian Income Tax office is now making strides towards making this method the most viable option for Indians filing their returns from anywhere around the globe.

You have certain options when it comes to e-filing. First, log on to the income tax website and file your returns there. While this option is free, the whole process may be cumbersome for you and really need to have some technical know-how to go about the process. Under this option, you need to download a certain software to get hold of the appropriate form, fill it out and upload an XML file on the website. If you have a digital signature, affix it on the form and that’s it. Your return is filed. In case, however, that you do not have a digital signature, then you will have to send a signed copy of your ITR-V.

Here are the steps:

  1. Log on to and register.
  2. Your user ID is your PAN.
  3. View your Form 26AS. This is your tax credit statement.
  4. Select the financial year.
  5. Download the ITR form that applies to you.
  6. Open the excel utility and fill out Form 16.
  7. Click the “Calculate Tax” tab and check your tax payable amount.
  8. Fill in the details and pay your tax.
  9. Click the “Validate” tab to confirm all the information you have provided.
  10. Generate an XML file and save it to your computer.
  11. Upload the same XML file by clicking on “Upload Return” on the panel.
  12. Sign the file digitally by selecting “Yes” on the pop-up.
  13. Download the acknowledgment form or ITR-V that will be generated by the site. Print it and sign it in blue ink.
  14. Send the form either by ordinary or speed post to the Income Tax Department office in Bangalore, 560 100, Karnataka, India within 120 days of your e-filing.

Your other option for e-filing is logging on to tax-filing service websites. The web is teeming with sites that offer tax filing services, the most popular of which include and Compared with the income tax website, such online tax filing service providers offer a more user-friendly experience to NRIs like you, though you have to pay a certain amount of fee for their services. Some of them even have support offices in certain countries.

Tax filing service websites offer various packages, and the one you should choose should depend on the complexity of your Indian income tax return. The first thing to do is to register on the website and follow the process of filing, which is pretty much like the process for Indian residents. For overseas filers like you, you can send your payment via your international credit card. Usually, the regular packages of these sites range between Rs 250 and Rs 750.

Assisted Return Preparation

If you do not want the do-it-yourself method in filing your tax returns online, you may opt for certain websites that offer a mix of offline and online filing services. If you want this method, you can search for websites that offer such services, choose one, and call the nearest office of the service provider of your choice. Once you decide to avail of their services, they will do the entire tax filing process through email. All you have to do is just send them scanned copies of all the required documents and they will do the filing for you. They will also send you a copy of the ITR-V, which you need to sign and send back to their office. They will then be the one to forward the document to the income tax office in Bangalore. Rates of such service providers depend on the complexity of your tax returns.

The best thing about this option is that you have the benefit of getting professional advice from tax consultants. However, not all service providers of this kind offer complete online assistance, so you really have to be careful in choosing your provider. As a rule, the one you should choose must heavily depend on your needs.

Talk to a Tax Consultant in India

Of the three options you have, this one is the most traditional one. If you take this route, you depend on your chartered accountant or tax advisor in India to file your tax return on your behalf. The advantage of choosing this method is that since you already share a long-term tax advisor-client relationship with each other, he has all your necessary tax information and will certainly be able to guide you through the entire process. The only problem you may have if you choose this method is that you have to make sure that the tax advisor of your choice is accessible and tech savvy enough to be relied on.

Step 2: File your tax returns.

To file your tax returns, make sure that you are able to complete the entire process of filing. Should you wish to do it online, choose a website that offers e-filing services and fill in the details on that website. If you opt for assisted services, send your documents to the service provider who will then complete the filing process on your behalf.

Step 3: Sign your returns.

When it comes to this, you have two options. First, you may purchase a digital signature, although that is not a popular option since it is cumbersome for both the filer and the Indian Government. The other potion is to print out the ITR-V, also known as the acknowledgment, sign it and send it to India’s income tax office in Bangalore. Take note, however, that this acknowledgment document can only be sent via regular or speed post. So if you are sending it from the U.S., then it is best to avail of the regular postal service or courier it to anyone you know in India who can send it via post to the tax office.

Deducting Your Trip To India – Detailed Business Expense Guide

Suppose that you have just arrived from a two week trip to Europe, where you were able to close some deals while visiting some old friends. You’re so happy not only because you were able to snag more business, but you were able to bring home some souvenirs for your family and friends. And of course, you were able to squeeze in some time for relaxation and got to see top sights like the Big Ben and the Eiffel Tower.

But did you know that you can even reduce your next tax bill by declaring your recent trip abroad? Indeed, jet setting can save you a significant amount of money, but only if expenses satisfy certain conditions.

Business Related Travel Expenses are Tax Deductible

According to the Internal Revenue Service (IRS), you can deduct ordinary and necessary expenses for travel away from home or business as long as these are connected with your business or job. This applies to both domestic and international travel.

What are ‘ordinary’ expenses? The IRS defines this as a common or accepted expense in your trade or business. For instance, you can consider the costs associated with distributing promotional literature like newsletters and holiday cards as ordinary expenses.

On the other hand, a necessary expense is defined as something helpful and appropriate for your business or work.  Your business trip, which allowed you to close new deals, can be considered as one.

The IRS says that for travel to be considered deductible, it should be ‘away from home.’ This stipulation is almost always  satisfied for international travel. The IRS will consider  you to be away from home if you are on travel outside your tax home (where you live or work)  for a time longer than a typical day’s work.

Keep in mind, though, that eligible deductions for business travel are only for temporary work on the road. If you spent more than a year on the road for a business travel, then it is considered an indefinite assignment and thus doesn’t qualify you for a tax liability. Even short assignments to the same place during a fiscal year may be considered by the tax authorities as an indefinite assignment.

Eligible Business Travel Tax Deductibles

Now you may ask—what are the travel related costs that you can normally deduct on your tax bill?

Among the travel related costs that you can deduct on your next tax bill are:

  1. It doesn’t matter whether you travel by plain or car; you can normally reduce the expenses related to getting to and from a business destination as long as it is not close to your tax home.

For example, you took a cab to get from the airport to the hotel where you met your client. You can deduct the cab fare as a work-related transportation cost. You can also declare car rentals, and even costs incurred when you took your own car (gasoline expenses, parking and toll fees, for example.) You can even claim the expenses of operating and maintaining a vehicle such as repairs, washing, oil change,  and tire replacement as tax deductibles.

What if your client provided you with a free ticket? Or a friend in London gave you a ride? Obviously, you can’t declare these as deductibles.

But what if you took an ocean liner on your way to London? Can you also deduce the costs on your next tax bill?

The IRS has special rules when it comes to luxury water travel. There is a daily limit on the amount that you can deduct. The amount varies depending on the time of the year. It is typically 200% of the highest federal per diem rate allowable during the time of your travel.

For instance, the highest federal per diem for the period January 1 to March 31 is $428. The daily limit on luxury water travel is double that amount, which is $856.

So let’s say that your total bill for a five-day cruise to London from New York for a business travel conducted in February is $5,000. You can only claim $4,280 as your deductible because you exceeded the daily limit of $856 per day.

  1. Shipping and Baggage. You can also deduct expenses that you incurred for shipping almost anything you need for your business or job while on travel. For instance, the $100 bill that you incurred for sending props or other materials required for a presentation.
  1. You can also deduct the full cost of the hotel room or other accommodations if your trip is overnight. Thus, you can reduce a $7000 per night stay at The Savoy on your next tax bill.
  1. You can deduce up to half of the cost of your meals if you are traveling for business. However, the meals should not be lavish or extravagant. There’s no clear-cut definition for a lavish or extravagant meal, but you can expect to get audited if you claimed a meal consisting of lobster and champagne as a deductible.
  1. You can also deduct any communication-related expenses like phone calls and faxes while you are traveling for business. This also includes international calls.
  1. Cleaning – this includes expenses for washing and ironing your clothes during the trip. Because you have to be presentable during your meetings with clients, right?
  2. Tips— you can also deduct the tips that you handed out to waiters, bellboys, and other workers.

Travel Considered Entirely for Business

The IRS maintains that only foreign travel which is spent solely for business is fully deductible. This means that if you spent your entire stay abroad on business-related activities, then you can claim all your travel expenses as tax deductible.

Since you did go spend time visiting friends and sightseeing during your trip, then you’ll have to allocate between tax deductible business expenses and the non-deductible personal ones.

But let’s face it–you do want to deduct the entire cost of transportation during your entire trip abroad, right?  You can deduce your travel expenses even if you didn’t spend the entire trip on business-related activities if you meet any of these conditions:

  1. You don’t have substantial control. According to the IRS, you don’t have substantial control over your trip if you are not a managing executive, or you are not related to your employer. The IRS defines a managing executive as an employee who has the authority and responsibility to decide on the necessity for business travel.

You also don’t have substantial control if you are merely an employee who was ordered by your boss to go to say, Paris, for a business trip.

But if you’re self-employed, then you might not satisfy this condition at all.  The IRS maintains that self-employed individuals and business owners have substantial control over arranging their business trips.

  1. You were outside the US for less than a week. The IRS will consider your travel entirely for business if you were out of the country for a week or less. However, you will have to count the day you return to the US, and not the day that you left.

This can get a bit confusing if you were traveling to different parts of the US before you left for London. For instance, say your home is in Denver. You left for New York on Tuesday, stayed there for a few days for a series of meeting, before flying to London on Saturday morning.

You had several business meetings in London on Sunday and Monday, then spent the next two days sightseeing. You went back to the US on Thursday before going back to Denver on a Saturday.

Although you were away from your home for more than a week, you were out of the US for less than a week. Remember that the IRS won’t count the day you left your home.

So, you may be able to claim the costs of your stay in London from Saturday and Sunday, but you won’t be able to do so for Tuesday and Wednesday.

  1. You spent less than a quarter of your travel on personal activities. But what if you spent more than a week outside the US? Does this mean that you can’t claim that as business related, and thus make you unqualified for tax deductibles?

You can, as long as you spent less than a quarter of your trip on personal activities.

So let’s say that you spent 14 days in London, and only got to see the sights and visit your friends in 1 to 2 days. You deduct the cost of the round trip plane fare, cost of meals, lodging, and other related expenses as mentioned earlier.

  1. Vacation was not a major consideration in arranging the trip. You can claim deductions on your tax bill if you can prove that a vacation was not a major consideration in arranging the trip.

Tips in Filing Business Travel Expenses

Now that you have an idea which business-related travel expenses you can claim as a tax deductible, here are some tips that you should remember so that you will be able to maximize your savings the next time you file your tax returns:

  1. Keep track of all your receipts and records. You can save a lot of time in looking for receipts when you keep every slip that you get during the course of your travel. You should also write on the back of each slip the location and date, the name of the person that you met, as well as the reason of the expense. This way, you won’t have to scavenge for slips when it is time to file your tax returns.
  1. Document everything. If you’re taking a client to a fancy dinner, you can claim that as a deductible. But you should be able to justify to the IRS that the nature of the meeting warranted such a fancy dinner. Thus it is recommended that you document the business you discussed so that you can justify the claim or pass an audit.

If you attended conferences or meetings while on travel, it would be a good idea to keep the programs or brochures you received. You can also keep the emails sent to you by people whom you met during the business meetings as proof to back up your claim.

Make it a habit to write down the names and business relationship of all the people you met during your travel. Write down their names as well as the business discussed.

You should also know that the IRS does not require receipts for travel expenses less than $75. So if you checked in a hotel for an overnight stay at a discounted price of $70, you’re not obligated to show the actual receipt.

  1. Try apps. If you have too many documents to keep track of, you might want to download and use apps for travel expenses. There are apps such as Tax Tracker that can help you in documenting business and travel expenses.

Mobile apps can monitor your travel expenses, time spent on the road, and miles traveled so you can file taxes and claim deductions quick, easy, and accurately.

  1. Be honest. The best way to avoid a date with the IRS is to be honest about declaring your tax returns. Deduct only the expenses that you are entitled to. Keep all supporting documents just in case you are called for audit. Remember, you not only end up losing deduction but also pay additional tax, interest, and penalties if the tax authorities find out that you make unsubstantiated claims.

Worse, the IRS may subject your tax return to further scrutiny. And you don’t want them to start digging.

The bottom-line is that you can make a lot of exemptions when you travel abroad for business purposes. Now that you know which travel expenses you can deduct, start saving those receipts and recording every expense. You’ll be surprised at the amount that you can save during the tax season.

Hire Your Children To Save Taxes

Child labor is a subject that has a negative connotation in our society. For most people, it means depriving children of their childhood. It means forcing them to work when they should be at home watching TV, or playing in the fields.

But it is a different matter altogether if the child is employed by his or her parent’s company.

If you have a small business and you have children aged below 18 years old, it is highly recommended that you hire them as employees. It can be a very fulfilling experience to them. It can hasten their growth, develop a sense of pride and self-worth, and teach them to be more responsible.

Moreover, it can save your company thousands of dollars in taxes. It’s like hitting two birds with one stone—your children can be productive during their spare time and you andyour company can get to save a lot of money.

Hiring teen and young adults in a family owned business benefits both parents and the young ones. Parents get to save more as their businesses have lesser tax burden. Children, on the other hand, can be productive and get some extra money for their extracurricular and summertime activities.

Tax Benefits

There are several ways for your company to benefit from hiring your children as workers:

  1. The child’s salary is free from taxes.

You might know that the first $6,300 of income in a fiscal year is free from federal taxes. This is called the Standard Deduction. So if you hire a child as an employee of your firm, you’re basically keeping that amount in the family. Hire someone else and that $6,300 is taken out of you.

That money coming from your own pocket can be used by your son or daughter to buy a car, or go on a vacation. Even better, he can use it to support himself or his college education.

  1. The child’s salary will be tax deductible.

Let’s say that you are hiring your child with an annual pay of $6,300.  You can declare that amount as tax deductible from your business income.  The first $6,300 earned by a child working in his/her parent’s firm is not subject to tax. Yes, this means that your child’s earning will not only be subject to federal income tax tax but also state tax, FICA, or Medicare.

You, as the business owner, meanwhile, can declare that amount as fully deductible. This means that you will get a tax relief based on your child’s salary as an employee of your business.

For instance, your business is in the 35 percent tax bracket. You hire your 14-year old son to work in your office and help you with the filing of documents, or working  with the spreadsheets. For the year, he earns $6,300 in wages. He must also has no other sources of income.

You, as the business owner, stand to save $2,205 since the full amount of his wages will be deductible as compensation.

  1. No FICA taxes.

As mentioned earlier, your child’s salary isn’t subject to FICA tax. This means your firm won’t have to pay FICA taxes on your child’s wages.

However, there are certain requirements for your child’s salary to be exempt from this kind of tax:

  1. Your business is a sole proprietorship
  2. It is a husband-wife partnership
  3. It is a husband-wife LLC considered as husband-wife partnership for tax purposes
  4. It is a single member LLC treated as sole proprietorship for tax purposes

It should be noted that your child’s salary is not exempt from FICA taxes if your business is a corporation. FICA tax exemption is also not applied if the business is a partnership, or one or more partners are not parents of the child.

  1. Setting up retirement savings plan.

What most people don’t realize is that children under 18 can contribute to their own individual retirement account (IRA). This can be a great way for them to get a head start as far as saving and investing money is concerned.

Your child can contribute up to $5,500 to a traditional IRA. He can subtract the amount from their income for tax purposes. However, your child can’t make more contribution to what he earned in a year. So if he earned $5,000 in a year, the maximum IRA contribution he can make is $5,000.

  1. Shifting a parent’s higher taxed income to a child.

Since your child can save by a) having his income exempt from taxes and b) having the option to set up IRA on the income, you can then shift your higher taxed income to him.

Going back to our examples, your son makes $6,300 and then adds $5500 as a contribution to an IRA. Thus he has $11,800 shielded from taxes, and your business can write off that amount as a legit business expense that can reduce your gross income.

That’s the maximum amount that your child can make in a year sans tax. If you give him a higher pay than $6,300 in a year, the next $9,275 will only be taxed at a rate of 10%.

Thus, your son stands to have a tax of just $927.50 for the year on aggregate earnings of $21,075.

You’ll be wise enough to include that amount in your own income as you can incur a tax liability of $10,600. You can save up to $9,672 in taxes by doing so.


There are several things that you should know if you are to hire your kids as employees. Knowing these guidelines should keep the IRS from disallowing your company from claiming said tax exemptions:

  1. He/she must be a real employee.

Your children should be hired as bona fide employees. This means that they have work that is helpful and appropriate for your business. Typical jobs for children include routine office work such as typing jobs, stuffing envelopes, cleaning the office, answering phones, or making deliveries.  Tech-savvy teenagers can help in marketing a company through social media. Or they can help in maintaining the spreadsheets of the firm.

They can’t be hired for jobs that have no connection with your business, like mowing your lawn at home. Suffice to say, children shouldn’t be asked to do household chores and get compensated for it.

Since your child is considered as a real employee, he or she should fill out their timesheets. It is also recommended that they sign a written employment agreement that specifies the duties and work hours of the employee.

  1. The work must be age-appropriate.

The work assigned to your child should be age-appropriate. There’s a chance that a 8 or 9 -year old child can help in some tasks in the office like stuffing envelopes or even making deliveries. But it will be difficult for the IRS to believe that a child aged below that age can perform any useful work for your firm. Employing a 6 or 7 year old for photocopying work or filing can put you in trouble with the IRS.

It’s also a no-no for children aged 16 years and below to work in a dangerous industry. Hence if your business is heavy equipment contracting, you can’t assign your 15-year old son to the field.

  1. Child should comply with legal requirements.

Since the child is considered a real employee, he or she should comply with the same legal requirements as you would when you hire a stranger. Thus, he will have to apply for a Social Security Number and fill out IRS Form W-4. He or she should also complete Form I-9 of the U.S. Citizenship and Immigration Services.

  1. Compensation must be reasonable.

Simply put, your child’s salary should be consistent with market rates.

Many shrewd business owners would try to give their children a big compensation because it can give them more tax savings in the long run. It would enable them to shift much of their income to their kids who are likely to be in a much lower income tax bracket. But you shouldn’t attempt to do this as the IRS would eventually find out about this if they do an audit.

In paying your children, you should give them a reasonable compensation. The total compensation must include the salary plus all the fringe benefits such as health insurance and medical expense reimbursements.

To get an idea on how much you are to pay your child, you can call an employment agency to see the typical compensation for the type of work that your youngster will do in your business.

  1. Pay in cash.

It’s up to you to decide how much you would pay your son for the services he renders to your business. Just make sure that you pay him in cash if you don’t want to get in trouble with the IRS. Compensation in the form of foods and other things won’t cut it.

There was this case of a tax preparer in Washington who also owned an employment agency. She employed her three children aged 8, 11, and 15. The kids earned a combined $15,000 in two fiscal years for doing tasks like filing and stuffing envelopes. Their mom deducted their salary as business expenses. The IRS disallowed it.

Why?  It’s because the children’s wages was used by their mom to pay for their food, often pizza.  Also, she used the money to pay for their tutor’s fees.

While the mother argued that it was her children who asked her to spend their earnings that way, the Tax Court ruled in favor of the IRS. It noted that it is her parental obligation to provide food and support her children’s education, and the wages of the kids should not be used for these purposes.

  1. Be diligent about documentation and book keeping.

One way to ensure that this arrangement won’t backfire on you is to be diligent about the documentation and book keeping. Doing so would convince federal or state auditor that you reasonably employed your children for your business, and that your tax claims are legit.

Aside from getting all the state permits necessary to employ children, your company’s recordkeeping and payroll tax accounting must also be fool-proof. The payroll for your kids must be done in the same way that an employer would do the payroll for another employee. Paying a fair market rate, as mentioned earlier, would also satisfy the auditors.

  1. Your child should also help your business.

Finally, business owners should not only be concerned with the tax savings they’ll get when they hire their children. They must also be sure that their children can do the tasks assigned to them. The children should be able to help the business, and not just for the tax savings that the firm gets because of them.

Sure, they’ll reduce taxes by employing a child. But if the child doesn’t do a good job at work, then it would probably best to hire another individual to do the job for the firm.

Let’s say that a father hires his 15-year old son to help typing documents in his office. He’s able to save $3,000 in taxes for doing so. But if his son just lounges around the office and doing nothing, then the father didn’t really get the best out of this arrangement. It would have been better for him to hire another person who can actually help his company.

With the tax savings that small business owners can get, it really makes a lot of sense for them to hire their children during summer or even on weekends. The business owner not only stands to save on taxes, but also instils in his/her children values like hard work and responsibility.

If you decide to do this, you should ensure that you do things right. Get your children the necessary permits. Do your accounting cleanly. And give them real wages—not slices of pizza. If you do things correctly, you can save thousands of dollars in taxes while training your children who could be your successor one day.

How to shield business using accrual accounting ?

How Accrual Accounting Can Shield Businesses from Tax Payments

 Business owners like you should not only be hard working and motivated. They must also be clever. From sourcing the cheapest materials to finding the cheapest labor without compromising the quality of their items; entrepreneurs have many ways of displaying their shrewdness. Being shrewd can give them the edge over their competitors.

Managing the company’s finances is one area where business owners should be very clever at. In particular, being familiar with the principal methods of keeping track of income and expenses—cash and accrual—would enable business owners to know which method of account is best for their business.

And it’s simply not for complying with tax rules and regulations. Sometimes, being familiar with accounting nitty-gritty can save a business owner thousands of dollars for a fiscal year.

Take for instance, delaying taxes on a portion of their income for a year. There’s a very generous accounting rule that allows an entrepreneur or a company to delay paying taxes on a fiscal year.

So say that you are a business owner, and the IRS would let you take a year to pay taxes on an income amounting to $11,000.  You’ll have 12 months to produce $2,750 assuming that you have a tax rate of 25%. You could instead defer paying that tax, and use the money to invest in advertising. Or maybe upgrade your equipment so that your business becomes more productive and profitable.

Cash vs. Accrual Method

To better illustrate how the accrual method of accounting can benefit business owners by letting them defer payment of a portion of their income tax, let’s look at the two methods of recording accounting transactions.

In cash method, the income is counted when your company receives money or check. Expense is counted when your firm pays for a service or product.

Let’s cite an example so you can better understand. If you sell merchandise amounting to $500 to a customer on January and receive payment for it on March 1, you can record the income on March 1. This is because it was only on March 1 that you received the payment.

This method is preferred and practiced by more small business owners. For one, it is easier to maintain. Business owners or their bookkeepers only record when the firm receives cash, or pays cash out. It is straightforward and simple. It requires little record keeping other than checkbook register and bank statements.

But one disadvantage of this method is that it can distort the picture of your firm’s income and expenses. It won’t account well for situations wherein you have used credit to buy supplies, or extend credit to your customers.

It can also lead you to falsely believe that your business is experiencing highs and lows.  For instance, if your company receives many payments on a month, you may think that the business is booming. But the reality could be that those payments came from sales that took place many months earlier.

In the accrual basis, transactions are only counted when they happen. It doesn’t take into account of the date the money is actually received or paid. There’s no need for you to wait until you see the customer’s money being transferred into your account, or you actually pay out of your checking account if we talk about expense.

In accrual method of accounting, the job completion date is the one that matters. You can’t put the income down in your books until your business finishes a service or delivers all the products as specified in the contract. So if a job takes another 30 days for the finishing touches, it doesn’t have to go on the books until the 30 day period has lapsed.

For example, your business is a leather repair shop. It has been commissioned to repair an antique leather couch, with the job completed on December 10, 2015.  Your business bills the customer for $1,000, which you receive on January 10, 2016. In the accrual method of accounting, your business will have to record that income in December 2016 even though your firm has yet to receive payment from the client.

The foundation for accrual accounting is the “matching principle.”  This is the idea that expenses must be recorded whenever an obligation is incurred. When a firm makes a sale, the expenses needed to produce the item or provide the service must also be record in the same period—regardless of when the cash is paid.

The strength of the accrual method is that it can tell you the health of your business. You would know if the company is booming or slowing down, depending on the number of orders or deliveries that it is posting for a certain period.

But it won’t tell you what cash your business has on hand. This in turn, could lead you to add debt that you can’t afford. Moreover, the accrual basis is very complicated for most small business owners. Shifting tax burdens using this method is also difficult for most entrepreneurs.

Some small businesses try to get the best of both worlds, so to speak, by using a hybrid method. They use the cash method for income and expenses, and accrual basis for inventory as required by the IRS.

Certain types of businesses are also allowed to use special accounting methods, like builders, contractors, farmers, and business owners who receive payments under long-term contracts.

Saving on Taxes Using Accrual Method

While the accrual method can be complex for most business owners, it can be very useful for those who want to save on taxes. As mentioned earlier, large businesses use this type of accounting. Even small businesses with sales under $5 million a year can use accrual accounting. With accrual method of accounting, business owners can reduce their tax burden or liability.

In the accrual method, businesses can delay recognition of an income to a future tax year in order to reduce their tax liability for the current year. This explains what we mentioned earlier—that if a business has an income amounting to $11,000 for year 1, it can elect to defer payment of $2,750 in taxes for the said income to the next succeeding year.

To better illustrate how accrual accounting can work to the advantage of small businesses in deferring tax payment, let’s cite a few examples.

Usually, businesses include advance payments for the services in the tax year that they receive them. But they can also choose to declare that payment until the next year until the product or service has been completed.

For example, a contracting firm uses the accrual method of accounting.  It receives a $100,000 advance payment in December 2016 from a client for the construction of a house to be completed by the end of 2017. The firm has the option not to include the amount in its income for tax purposes for 2016, but instead declare it for 2017.

The game goes for advance payments for goods and properties. Businesses can postpone reporting income from the advance payments they receive from properties they sell, lease, build, or install.

For example, a magazine receives a 12-month subscription for its monthly publication. In November 2016, it received payment the payment of $120 from a subscriber who agrees to pay the entire cost upfront. The said firm can postpone reporting the income until the completion of the contract, or when it has completed delivering the magazines to the subscriber.

In these scenarios, the companies can opt to use the payments they received to grow their businesses, like investing or buying new equipment.


However, companies who opt for accrual accounting have to follow certain rules if they want to defer recognizing income during a certain year.

Generally, businesses are not allowed to defer inclusion of an advance payment in income for services that they are to perform after the end of the tax year following the year that they received the payment.

To further illustrate this, a dance studio gets a two year contract for 96 one-hour dance lessons. It received an advance payment for the contract in October 2016. The contract would stretch up to 2018. The company is thus obligated to recognize the payment in its 2016 income because part of the services won’t be performed until 2018 (or the year after the year it received the payment).

Deferring reporting income is also not allowed if the company receives it under a guarantee or warranty contract. The same goes for income from prepaid rent.

Other Benefits of Accrual Accounting

Aside from the flexibility that accrual accounting can afford to small business owners, there are other advantages or benefits that this accounting method can give to entrepreneurs.

One is that it gives a better picture of a company’s financial performance. Accrual accounting allows the business owner to easily see how the company is doing as far as finances are concerned. He or she will be able to see where the profits are coming from, and where the expenses are going.

Another benefit of accrual accounting is that a business owner would be able to track historical trends. Since accrual accounting can track revenue and expenses, it allows for a better way of tracking the business activities. Business owners will be able to identify trends that are related to occurrences in the market place.

Accrual accounting can also benefit the company by making access to credit easier. Since companies will be able to keep track of their financial performance with accrual accounting, they stand a better chance of getting access to credit from financial institutions. This is particularly important for small businesses which need credit to expand, and at times, to survive.

Finally, accrual accounting would enable firms with annual sales of $5 million or annual inventory sales of $1 million to meet generally accepted accounting principles or GAAP.  The latter is considered the industry standard for financial statement preparation. Meeting GAAP enables investors and financial institutions to easily determine a company’s financial health or standing.

How to Change from Cash to Accrual Accounting

Now that we have established that accrual accounting can enable a small business to defer paying of taxes under certain conditions, the next question you may have in mind is how to change from cash to accrual accounting.

Changing accounting method should be approved by the IRS first. To do this, you should file Form 3115 or Application for Change in Accounting Method. You’ll have to pay a user fee for this.

You can also contact a business or commercial law attorney, or inform your accountant, about your desire to shift from cash to accrual accounting. These pros can help your business change to the accounting method that can increase your business’s profitability and shield it from taxes during certain tax years.

The accrual method of accounting may be something you aren’t familiar with as a business owner.  You may have been accustomed to the cash-basis that you can’t imagine shifting your accounting methodology anytime soon.

But as you have realized upon reading this article, the accrual method of accounting can give you a lot of benefits. It can enable you to defer payment of taxes for a particular year.  The money that could have been spent for tax payment can then be used by the business for initiatives like buying equipment and even investments.

As a business owner, it only makes sense for you to study the nitty gritty and even shift to the accrual method of accounting from a cash-basis method. While it is complicated and time consuming, it can be very advantageous to your business. Aside from the tax savings you can get, accrual accounting can enable your business to grow. You would be able to study better the financial health of your business, and get access to loans from financial institutions.

Understanding the Complexities of Capital Gains Tax in India

A few years ago, Aarav inherited a parcel of land from his parents.  Since he lives in the city and has no plans of going back to his hometown, he decides to sell the land. He then uses the money to buy an apartment right in the heart of the city.  It took almost three years for Aarav to buy the apartment after selling his inherited property. He falsely assumes that there is no tax liability in his reinvestment. After some time, he finds out from a tax consultant or worse, from the tax authorities, that he will have to pay tax on the capital gained from the sale of his inherited property.

It may have occurred to Aarav that the property he received is not subject to tax. This is true. In India, any asset that is received as an inheritance is fully exempt from gift tax. So he’s not obligated to pay any tax upon receipt of the parcel of land from his folks.

But the sale of the asset is not exempted from tax. This is taxable under capital gains.

In India, it is not uncommon for taxpaying individuals like Aarav to inherit properties such as land or house from their families.  And just like what Aarav did, these individuals would sell the property and invest in another property at some point in time.

However, it is also common for many people in India to be unaware of tax laws regarding inherited properties like land and house, as well as the tax stemming from the sale of those properties. They would only know of the tax liabilities they have when notified by the tax authorities, or as in the case of Aarav, when informed by his tax consultant or a chartered accountant.

It is thus very important for individual taxpayers in India to know of these laws especially if they are to inherit a property from their families.

What is Capital Gains?

In the case of Aarav, he failed to realize that he had to pay the capital gains tax from the sale of the parcel of land that he disposed of.  By definition, capital gains is the profit that Aarav got when he sold the capital asset (in his case, the parcel of land) for a price higher that the purchase price.

Capital assets are property held in any kind by the taxpayer. It may be a parcel of land, a building, a house, or a vehicle. Leasehold rights, trademarks, patents and even jewellery may be considered as capital assets as well.  In certain cases, capital assets may include rights of management to any Indian company.

Thus, capital gains tax not only applies to the sale of an inherited house or parcel of land. It can also apply to the sale of a vehicle, patent, and jewellery.

Capital assets are classified into two – short-term capital asset and long term capital asset.

In Aarav’s case, the sale of the inherited land took him 35 months after the date of the transfer into his name. As such, it is considered short-term capital asset.

If he had disposed the property a month or so longer, it would have been treated as long-term capital asset.

Under the Indian tax laws, the following aren’t considered capital assets:

  • Stock in trade
  • Consumable stores or raw materials
  • Personal effects
  • 5 percent gold bonds
  • Gold deposit bonds
  • Special Bearer Bonds 1991
  • Agricultural land in a rural area. As of AY 2014-15, rural area is defined as any area outside the jurisdiction of a municipality having a population of 10,000 or more.

Calculating Capital Gains

Short-term capital gains and long-term capital gains are computed differently.

Long term capital gain is computed as the full value of consideration fewer expenditures incurred wholly in connection with the transfer of the capital asset. This includes brokerage, commission, and advertisement expenses, among others.  Indexed cost of acquisition and indexed cost of the improvement, if any, may also be deducted.

Full value consideration pertains to the amount that the seller agrees to get in exchange for his or her capital assets. It should be noted that capital gains is chargeable to tax in the year of the transfer.

t of acquisition pertains to the amount for which the capital asset was acquired by the seller. Cost of improvement, on the other hand, pertains to the expenses incurred to make improvements to the capital asset. However, all, improvements made before April 1, 1981 won’t be taken into consideration.


On the other hand,  short term capital gains is computed as the sales value of the asset less expenses incurred related to the transfer of the capital asset.  Cost of acquisition, or the purchase price of the capital asset, as well as cost of improvement, may also be deducted from the sales value of the asset.


Cost of acquisition pertains to the amount that any of the previous owners has paid to acquire for the property. Going back to Aarav’s case, let’s say that his grandfather was the original owner of the parcel of land. He had purchased it for Rs 20,000. This will be the cost of acquisition that Aarav can deduct to arrive at the short-term capital gains tax.


It can be said that calculation of long term and short term capital gains is basically the same. The only difference is that in calculating long-term capital gains, the cost of acquisition and improvement is indexed, or adjusted for inflation.

Short term capital gains on the sale of a property are taxable per slabs rates as applicable to the individual taxpayer. This means that the capital gains tax is payable at the same rate as the income tax of the tax payer.   In Aarav’s case, the capital gains would have been taxed at a rate of 25 per cent if he falls under the 25 per cent bracket.

On the other hand, long-term capital gains are taxable at a uniform rate of 20% plus surcharge and education cess.

Exemptions Under Income Tax Act

However there are exemptions on capital gains that can be applied as specified under certain sections of the Income Tax Act of 1961.

Going back to Aarav’s case, if he had used the proceeds arising from the sale of his inherited property, then he could have been exempt from paying capital gains tax.

Section 54, for instance, exempts sale of house property on the purchase of another house property. In this case, the capital gains arising from the sale of a house property is used in buying another house property.

The new property should have been purchased a year before the sale of the inherited property or two years after the sale of the property.

Going back to Aarav’s case, if he had bought the property he now has in the city within two years after he sold his inherited land, then he would have been able to apply for this exemption. Or, if he had bought the house a year before he was able to dispose of the parcel of land he inherited from his family.

Also, he could have been exempt from capital gains if he used the gains in the construction of the property that was completed within three years from the date of the sale of the inherited property.

It should be noted that under this section, only one house property can be bought or constructed using the capital gains to claim the exemption. The exemption can be nullified if the new property is sold within three years of its purchase or construction.

Investing in Bonds

Under Section 54EC, exemption is available when the capital gains from the sale of the first property are reinvested into specific bonds. These bonds are issued by the Rural Electrification Corporation and the National Highway Authority of India. Investment in these bonds should be up to Rs.50 lakhs.

The money that Aarav invested in bonds should be redeemed after three years. However it cannot be sold before the lapse of three years from the date of sale. Aarav should have invested the money he gained from the sale of his inherited land within six months after the sale of the property to have been able to claim this exemption.

The tax exemption is equal to the capital gain or to the investment, whichever is lower.  Transferring the bonds or taking a loan against them within three years is forbidden, though. It can result to the capital gain becoming taxable.

Investing in these bonds would yield a return of 5.5 per cent interest in a year.

Capital Gains Account

Aarav could have also invested the money that he had gained from the sale of his inherited property in a Capital Gains Account. This is specified under the Capital Gains Account Scheme. Aarav could have deposited the money in any public sector bank. The deposit can then be claimed by Aarav as exempted from capital gains. Moreover, he won’t have to pay any tax on it.

However, Aarav should have done this before the deadline for filing tax returns which usually is on July 1. The money deposited in the account should only be used in buying or constructing a residential house within the prescribed period.

There are two kinds of capital gains deposits in the market. One is a savings type account while the other is terms deposit. Any individual taxpayer can transfer money from one account to another by paying fixed penalties or charges in a bid to exempt his or her capital gains against tax.

In the savings deposit type of capital gains deposit, the money can be withdrawn as long as there is a declaration that the money will be for the construction or purchase of a house. The money will have to be used for the declared purposes within 60 days. Any unutilized amount will have to be re-deposited into the capital gains account as well.

As far as interest rates are concerned, capital gains deposit will have the same rates as those on regular savings and term deposits. There’s also tax for the interest earned. Proof of deposit has to be attached with the taxpayer’s income tax return.

In the event that the deposited amount is not fully used to buy and construct a new house at the end of the three-year period from the sale of the asset, the money in the account will be treated as capital gains.

Opting to open a capital gains account should be considered only as a stop-gap measure.  The individual taxpayer will eventually have to use the money to buy or build a house within a specified period.

Other Exemptions

There’s also an exemption specified under Section 54B of the 1961 Act. This specifies that short term or long term capital gains are tax exempt when the proceeds are used to purchase new agricultural land. The purchase should have been consummated within two years after the sale of the inherited property. Also, the agricultural land should not be sold within 3 years from the date of its acquisition.

Under Section 54G, exemption is also allowed if the gain is reinvested in acquiring a building or machinery in a rural area. There’s also exemption allowed if the gain is used in acquiring land, building, or machine in a Special Economic Zone as specified under Section 54GA.


The truth is that computing capital gains tax on the sale of a property, whether it is inherited or not, can be very tricky.  It is thus highly recommended that tax payers who acquire a property and then sell it later on consult a tax expert or chartered accountant.

As shown in the case of Aarav, he would not have been caught surprised and unaware of his tax obligations had he consulted a tax expert or accountant before he sold his property and bought a new house. This only underscores the need to get professional advice especially when dealing with real estate.

Understanding and Avoiding California State Taxes

There was a time when everybody seemed to dream of moving to California. It was, after all, the “Golden State.”  It had endless sunshine and an incredible weather – which proved to be enough motivation for Americans who have had enough of the cold.  It also had a booming economy, pristine beaches, and yes, Hollywood.

But now, many people in California would gladly trade places with Americans living in other states. There are lots of reasons behind this, from the horrible traffic in major cities, to rising criminality, and the fact that Californians are being taxed to death.

According to non-partisan, non-profit research group Tax Foundation, California has one of the highest state taxes in the country. The Washington, D.C.-based group says that California has the highest state-level sales tax rate at 7.5 percent, albeit this would drop to 7.3 by the end of the year. The rate can hit as high as 10 percent in some California cities, though, when combined with local sales taxes.

Here’s a breakdown of how California taxes will affect you should you work, buy a home, or just shop in the Golden State.

Property Tax

Property in the state is assessed at 100 percent of its fair market value.

However, Californians could qualify for a property tax break under certain conditions. For instance, homeowners are qualified for a reduction of $7,000 in the taxable value of their properties if they live in their homes as their principal residences. Senior citizens and the disabled (including the blind) are also eligible for deferring their property taxes for their principal places of residence under a new tax postponement program that started last September 1, 2016.

State Income Tax

The personal income tax rates in California range from 1 to a high of 12.3 percent. These are levied not only in the income of residents, but also in the income earned by non-residents who are working in the state.

The highest rate is levied at income levels of at least $526,444. An extra 1-percent surcharge is also levied onto incomes of more than $1 million. Those earning $7,850 or less in taxable income are charged the lowest rate of 1 percent.

It’s not surprising that a lot of Californians are moving elsewhere because of the high taxes that they have to deal with in their home state.  According to the IRS, more than 250,000 Californians have moved out from the state in 2013-2014.  This is the highest level in more than a decade.

Basic Rules

If you are one of the many Californians wishing to avoid California income tax, there are two basic rules that you have to keep in mind. The first is that a resident pays California tax on their worldwide income.

For instance, you are a resident of California and you own part of a LLC outside of the state. You will have to pay California tax on your distributive share of the company’s LLC income, despite the LLC having earned all of its income outside of California (say another state like Nevada).

The second rule is that California will tax income generated in the state, regardless of where you live. So if you own California real estate but live in New York, you still have to pay California tax on the real estate income of your property.

Defining California Residents

The state has an expansive definition of California residency. A person is considered a resident if he or she is in California other than temporary or transitory purpose.  An individual is also considered a California resident if he or she maintains a domicile in the state despite being outside of the Golden State for a temporary or transitory purpose.

What is temporary or transitory? Generally speaking, this purpose applies to a person who visits the state for an extended vacation of 3 months and doesn’t engage in any type of commercial activity in the state.

Of course, there are several exceptions to this rule. Let’s say that a millionaire couple, Mr. & Mrs. Smith, rents an apartment in California for 3 months. They travel around the world for the rest of the year, and spend parts of it living in Las Vegas where they have a mansion. It may seem like the couple are ‘safe’ from California tax laws because they only spend three months in California.

But tax authorities may be able to find proof that Mr. & Mrs. Smith are residents of California. For example, they may have a closer connection to California than in Nevada, where they have a home. One factor may be their historical ties— Mr. & Mrs. Smith had long lived in California. They may also have children and grandchildren in California, which represent the closest connection to the taxpayers. The tax authorities can argue that even though the Smiths owned a hoe in Nevada, California is still their home because this is where their family and social contacts are.

An individual who has been in the state for more than 9 months is presumed to be a resident.

Corbett Factors

There are 29 residency factors that the state looks in determining that a person is  a resident of California. These include birth, marriage, and raising family; preparation of tax returns; ownership and occupancy of custom built home; ownership of family corporation; ownership of cemetery lots; service as an officer and employee of a business corporation; and church attendance and donations, among others. These are the so-called Corbett factors, coming from the California Supreme Court case Corbett vs. Franchise Tax board which listed the 29 residency factors.

These 29 residency factors are most of the time used by California residents who want to escape tax from their home state. For example, a taxpayer wanting to escape California tax would argue that he has his tax returns prepared in Nevada and has a driver’s license there. He would also show that he has a condo in Las Vegas, and is a member of a country club in Nevada.

Those arguments may be true, but the California Franchise Tax Board could counter the taxpayer’s arguments by showing that the individual spends more time in California than in Nevada. This can be done by showing the person’s Internet searches and reviewing charge card receipts, for example. The person’s Internet searches could reveal that the taxpayer buys things in LA malls and shops at the Spectrum. His charge card receipts, meanwhile, could show that he frequently dines in at posh restaurants near his Laguna Beach property.

Sale of a Major Business

It is also common for California residents to change residency to avoid being tax for the sale of a substantial business. For instance, a company based in Arizona but with assets and operations in California is to be sold for $10-million. The owner tries to escape California tax by changing his residency.

The business owner may be able to avoid California taxes if the sale of the company is consummated after he/she changes personal residency.

However, in most circumstances, there will still be taxes levied on the sale of the company since its assets are in California. So even if the taxpayer has changed his residency, he will have to pay for the taxes on the California source income from the sale of the business.

The key here is to planning the business sale correctly from the beginning. The business owner/tax payer should leave and stay out of California for the sale year and several years after because the state can still argue that the individual only did so to avoid tax from the major sale.

In fact, many taxation experts suggest that business owners who sold their companies with assets and business operations in California should out of the state for at least four years. The reason for this is that the return may be selected for an audit 2-3 years after the tax return is filed for the year of the sale. Franchise tax board audits in California take longer than IRS audits. These audits are also more thoroughly documented particularly in cases of residency determinations.

Four years may not even be safe for taxpayers wanting to avoid taxes in California. In some cases (especially if the stakes are high enough, meaning there’s a substantial money involved in the sale), then it is advisable for taxpayers to stay out of California in 5-6 years.

And staying out of California not only means physically returning to the Golden State and re-establishing a home there years after the sale of a major business. It also means that the taxpayer should not give the tax authorities in California any hint of going back there years after completing a major business sale.

For example, the FTB can access social media accounts of taxpayers in California. If a taxpayer who sold his company in California for $20 million dollars in 2014 posted on Facebook about how he can’t wait to go back to LA as  a resident, then he just gave the tax authorities some great evidence to pursue a case against him.

The same goes for Twitter activity. If the taxpayer makes any tweets indicating that he has plans of going back to California and re-establishing domicile there, then the tax authorities could build a case against him.

In some cases, even the state where the taxpayer established residency in can be a factor in the tax authorities pursuing a case against him. Obviously, the FTB is very wary of Californians who have moved to nearby states like Nevada. Because of the close proximity of Nevada to California, the FTB is very skeptical of claims of Nevada residency than residency in Florida or Massachusetts.

It even becomes ‘safer’ for Californians if they move elsewhere shortly before a substantial sale of their business. This can shield the entire gain from the business sale against California taxes. The state may be skeptical of the timing of the change of residence;  but if a taxpayer can prove that the sale occurred months after he had completely moved out of the state then he has a good chance of being exempted against California tax on the business sale.

Retaining a Home in California

One common question is—can a taxpayer who had left California keep a family home in the state without being considered by the state as a California domiciliary?

While it may appear that California tax authorities will consider a taxpayer to be a California domiciliary because of  his home in California, there are other factors that can come in to play. For instance, the taxpayer may argue that the home wasn’t really used by the family during the past year.  Tax authorities may also look into the size and value of the home in California as compared to out of state home.

But retaining a family home in California can be considered by tax authorities as one good indication that the taxpayer how had left California still has plans of going back to the state.

This can be compounded by the FTB conducting interviews with neighbors who would tell them that the taxpayer had told them that he intends to be back in a few years. In such case, then the tax board will have a strong case against the taxpayer who had left California after a major business sale.

Still, people who are planning to leave California for good and terminate their residency can control the facts. They can leave the state several months before completing a major business sale. They can also sell the family home to show tax authorities that their domicile has shifted. Granted that these aren’t easy decisions to make (selling the family home is certainly difficult by any standards), but the taxpayer still has the advantage of knowing what needs to be done before selling a property or a business. With that advantage, he will know what to do even before the tax authorities in California smell something fishy with the transaction he is involved in.

Understanding Hillary Clinton’s Tax Plans

Democratic presidential candidate Hillary Clinton has vowed that she will make sure the wealthy and the largest firms will be paying their fair share while providing tax relief to working families. According to her, the economy should work for everyone and not just at the top of the food chain. She has committed to restoring fairness in the US tax code, vowing to create more jobs in the US and make the economy more competitive in the long haul.

Clinton has pledged to do the following:

  • Restore fairness to the US tax code by implementing a ‘fair share surcharge’ on multi-millionaires and billionaires. He will also champion for measures such as the Buffett Rule in a bid to ensure that the richest citizens in the country won’t be paying a lower tax than middle-class families.
  • She has also assured that her administration will close loopholes in the current tax code so that multi-million dollar estates will be paying their fair share of taxes.
  • Put a stop to corporate and Wall Street tax loopholes such as inversions that reward firms for shifting profits and bringing in jobs overseas. She has stated her desire to charge companies that leave the US, levying an exit tax on those firms that get away with untaxed foreign earnings.
  • She also said that she will be closing tax loopholes that allow Wall Street money managers to pay lower taxes than some middle-class households. And under the Clinton administration, businesses that bring in much-needed jobs in the US will be given lower taxes.
  • Simplify taxation for small firms to encourage the growth of the micro, small, and medium enterprises. In turn, these firms can grow and hire more people. In particular, she is setting sights on freeing small businesses with 1-5 employees that spend more than a thousand dollars on federal tax compliance. According to her, that is more than 20 times higher than the average for bigger companies.
  • Provide tax relief to working families and shield them from the rising costs of day-to-day living. She has particularly offered tax relief for Americans who are facing excessive out-of-pocket health care expenses as well as those who are taking care of an elderly or ill family member.

A Closer Look at Clinton’s Tax Plans

Here are the major points of Clinton’s tax plans:

  • Charging a 4% surtax on adjusted gross income or income earned in excess of $5 million. This proposal would affect the so-called high-income tax payers or roughly one in every 5000 tax payers. In the long run, it is expected to raise around $150 billion in tax revenue for the federal government.

However, the income tax rates for individuals, married tax payers, and heads of households earning less than $5 million a year will not be affected or changed at all.

  • Imposition of the so-called Buffett Rule that would call for a 30 percent minimum tax on taxpayers who have an adjusted gross income of more than $1 million.

To the uninitiated, the Buffett rule was coined by outgoing US president Barrack Obama who had noted of billionaire Warren Buffett’s criticism of current tax policies.  In 2011, Buffett wrote that he had paid lower tax rates than his secretary.

According to Clinton, the imposition of the Buffett Rule would be one that would             help the nation achieve greater fairness in its tax system.

  • Raising capital gain taxes on high income investors. High income fliers, or those who are earning more than $400,000 make a lot of money from capital gains. In the current tax code, these high income investors pay a 20 percent tax on realized gains from investments that were held more than a year. Clinton is amenable to preserving the rate but only for investments that were for a minimum of six years. She bats for investments that were held less than six years to be taxed on a sliding scale. This would encourage investors to think long term as they have a tax incentive to hold onto an investment.
  • Raise tax rates on big estates. If Clinton gets elected, expect money and assets left to heirs to be tax heavily if these come from a big estate. She also wants to tax estates worth more than $3.5 million, and $7 million for married couples. These are far lower than today’s estate tax exemption level of $5.45 million for individuals and $10.9 million for couples.
  • She also wants to estate tax rate to be slashed to 40 percent from 45 percent.

For business taxes, Clinton wants the following:

  • Standard deduction for small businesses
  • Raise the limit for foreign ownership in inversion transactions to 50 percent of combined company shares from the current 20 percent
  • Impose a corporate exit tax on unrepatriated corporate earnings
  • Tax high frequency trading although the rate is still to be determined
  • Provide tax credits for investments in community development and infrastructure
  • Reform performance-based tax deductions for top earning executives of public firms
  • Eliminate tax incentives for fossil fuels

Impact of Higher Tax on High Income Earners

The nopartisan Tax Policy Center estimates that taxpayers in the upper echelon would have to deal with an average tax increase of $4,527, representing a 1.7 percent reduction in after-tax income. Those who have incomes in the $295,000 and $732,000 range would have to pay $2,700 more in taxes. Those in the 0.1 percent with income greater than $3.8 million will also have their taxes increase to about $520,000.

The four percent surcharge that Clinton is proposing stems from a report by the IRS that in 2013, the 400 top income payers paid an effective tax rate of 23 percent brought about by lower rates on capital gains and other tax loopholes.

Not surprisingly, the bottom 95 percent of the taxpayers will not see any changes to their taxes. The Tax Policy Center says that if Clinton’s tax proposals are enacted, this would translate to an increase in revenue by about $1.1 trillion over the next decade.

The Tax Policy Center also notes that almost 80 percent of tax increases in a Clinton administration would affect only 1 percent of the population in the first decade. One in the 1 percent would owe as much as $120,000 more while the poorest citizens would owe $6 more.

But the Tax Foundation, a top independent tax policy research organization, sees Clinton’s plans as having a detrimental impact on the economy. In the long run, it could reduce the economy’s size by 1 percent according to the foundation’s Taxes and Growth Model.  It is also projected to lead to nearly 1 percent lower wages and 311,000 fewer jobs as well as 2.8 percent smaller capital stock.  The foundation states that these are a result of higher marginal tax rates on labor income and capital.

The National Center for Policy Analysis’ Tax Analysis Center supports those claims of the Tax Foundation. In backing up the claims of the Tax Foundation, the NCPA says that the tax plan of Clinton will also hurt other taxpayers and not just the rich contrary to what her drumbeaters are saying.

A study conducted by NCPA senior fellow Dr. David Tuerck shows that while federal tax revenues would increase if Clinton’s tax plans are implemented it can also affect the income of the general population.

In the said study, the top 10 percent of income earners would lose almost 2 percent of their broadly measured income in 2017. Moreover, the poorest 10 percent of the population will lost around 0.7 percent of their broadly measured income which is the largest loss among the bottom 90 percent of the population.

The study points out that taxing high-income earners can slow down economic growth, which can hurt even the lowest income earners.

Taxes on Small Businesses

Clinton says she is proposing a scheme called “checkbook accounting” that will make filing taxes for small firms as simple and easy as keeping a checkbook or printing out a bank statement.

The standard deduction for small businesses is designed to allow small businessmen to take a standard deduction instead of tracking expenses like rent, phone bills, and office supplies. There’s still no specific amount of percentage discussed, as this would be up to Mrs. Clinton’s treasury department to refine the idea.

Many observers think that the idea will help businesses, because it would be much simpler for them to file taxes. It is also seen to provide a net benefit to small firms as they can still choose to list of all their deductions, and as such any firm will be able to choose the option most favorable to them.

However, others point out that the benefits of this tax proposal aren’t that big for small firms. Most firms today rely on technology such as apps to track their expenses. They also use those files for filing of their taxes.

Capital Gains Taxes Impact on investors

Clinton’s tax proposals will also have an effect on investors in the country. As mentioned earlier, Clinton is batting for six capital gains taxes, with longer holding periods getting the lowest levy.

Clinton believes that by encouraging shareholders to hold on to their assets for the long haul, companies will be able to engage in moves that create long-term value like investing more in employees and raising wages instead of buying back shares.

The Tax Policy Center estimates that Clinton’s plan to increase capital gain taxes on investments held for shorter than six years would raise around $84 billion over a decade. This is assuming there will be little changes in investing patterns.

But the Tax Foundation says those plans will reduce tax revenues as it would push investors to hold on to their holding a lot longer.  The organization says that this proposal would likely result to a loss of around $375 billion on a static basis, as it can reduce number of capital gains realizations.

The mutual fund industry is expected to be hit by Clinton’s capital gains tax proposal. If Mrs. Clinton’s plan pushes through, the belief is that investing in ETFs will become more popular than actively managed funds which have a 2-3 year time horizon.

Impact of Exit Tax on Companies

Another pillar of Clinton’s tax program is charging expatriating US firms an ext tax based on their offshore earnings. Clinton’s explanation is simple – “if they (companies) want to go, they have to pay to go.”

Clinton wants firms that have their tax residency moving to a non-U.S. jurisdiction to immediately pay its corporate income tax on overseas income that it has deferred.  The concept is basically asking for corporate exiters to pay before they escape.

This proposal is seen to counter the move of many US firms to shift their tax jurisdiction out of the US, which has the highest corporate tax rate at 35 percent. If this proposal comes into being, firms will face penal provisions for shifting tax residency abroad to leverage tax advantages.

Interestingly, this is an issue that is seen to protect the interests of US workers which Clinton’s rival Donald Trump has also championed by blasting trade deals like the North American Free Trade Agreement.


While Clinton’s tax plans appear to cater to the majority of US taxpayers, the consensus of many experts is that it would be detrimental to the economy in the long run. Although most of her policies except for the capital gains policy would likely raise tax revenue, organizations like the Tax Foundation believe that her plans will impose higher marginal tax rates on capital and labor income. This can then result to a slowdown in the US economy in the long run. This detrimental effect on the US economy will overshadow the revenue that Clinton’s tax policies could collect.

Indeed, Clinton’s tax plans appeal to a larger part of the population but a closer examination of her tax program reveals that there is still a lot to be improved on.

2016 tax rates

2016 Tax Rates – Plan Ahead To Save

Many of you are getting your paperwork ready to file your 2015 tax returns but you may also want to review the latest tax brackets and standard deductions amounts for the upcoming 2016 tax year.  This can give you a head start for 2016 tax planning.




Over But Not Over Tax Rate
$0 $9,275 10%
$9,276 $37,650 15%
$37,651 $91,150 25%
$91,151 $190,150 28%
$190,151 $413,350 33%
$413,351 $415,050 35%
$415,051 And over 39.6%


Over But Not Over Tax Rate
$0 $13,250 10%
$13,251 $50,400 15%
$50,401 $130,150 25%
$130,151 $210,800 28%
$210,801 $413,350 33%
$413,351 $441,000 35%
$441,001 And over 39.6%


Over But Not Over Tax Rate
$0 $18,550 10%
$18,551 $75,300 15%
$75,301 $151,900 25%
$151,901 $231,450 28%
$231,451 $413,350 33%
$413,351 $466,950 35%
$466,951 And over 39.6%


Over But Not Over Tax Rate
$0 $9,275 10%
$9,276 $37,650 15%
$37,651 $75,950 25%
$75,951 $115,725 28%
$115,726 $206,675 33%
$206,676 $233,475 35%
$233,476 And over 39.6%

The IRS has also released its standard deductions chart for 2015. Everyone who pays taxes will get a small increase in their standard deduction amount.


Filing Status Standard Deduction Amount
Single $6,300
Married Filing Jointly $12,600
Married Filing Separately $6,300
Head of Household $9,300
Surviving Spouse $12,600

There are some important changes in 2016 tax code!

  • New Limit For Earned Income Credit =  $6,269 for those who have 3 or more qualifying children in 2016 (Married Filing Jointly)
  • Had a Foreign Income = The foreign earned income exclusion is $101,300 for 2016.
  • Personal Exemption =  $4,050 for this year.  Alternative Minimum Tax  (AMT) exemption amount is $83,300 (Married Filing Jointly) and $53,900 for singles.