IRS News

Tax Lawyers are Exploiting All the Mistakes in the GOP Bill

Republicans that are in Congress reach the verge of the vote and is connected as the biggest tax overhaul in years. Tax scholars are putting out their concern that there are parts in this bill that has been so hastily crafted and have created the opportunities for the taxpayers who are wealthier than average. A number of lawyers and analysts have already tried exploiting the glitches and the loopholes in this game that the US tax system if playing and they are also adding more to the growing deficit.

Without the right safeguards and also the anti-abuse measures, then these taxpayers can also take advantage of the tax provisions that are riddled with the problems. There are fundamentally change courses on the key provisions, then the bill is quite going to cost more than what has been expected. It is also certain more than the dollars that has been estimated.

The sense is that there are estimates that cannot be taken far into the ways that the taxpayers are also getting through the system and its game.

People have the tendency to exploit the loopholes and also give access to the advice, specifically the taxpayers and the corporations who have high incomes. These are not poor Americans. The Republican plan provides a $1.5 trillion cut that can also disproportionately has the wealthiest Americans that can also pay for the expansion of the national debt. There is the analysis of the final bill in the Tax Policy Center and discovered that the 1% of the taxpayers can also reap the 83% of the tax benefits around 2027 and also see the cut as well as the average amount of $20,660. Whereas the 40% of the households also have the tendency to see an increase in the average of this amount around 2027.

The 13 scholars on taxation have also increased the lawmakers and also mentioned this in the earlier report when they are drafting the legislation that they have already closed and rushed the processes without even providing enough regard for the tax law as well as the intricacies and the risks of the consequences that are unintended.

Another glitch that has already seen this in the overhaul process into the very minute inclusion of the AMT or the alternative minimum tax. Why? This is because it was already set at around 20%. This is similar to the 20% that the corporate tax rate can also be included in the very Senate. The alternative method to this is to lower the corporate tax rate and also make businesses no longer receive the benefits of tax breaks. There are lobbyists that also claim that the inclusion in the tax can also claim the development and the research tax credits that make it more difficult for the prevented banks and the tech companies that are received when getting the credits as well as the investment in areas around the United States that can be described as undeserved. Luckily for the business, then the lawmakers can be struck in the AMT provision along with the final plan.

The tax scholars who also presented this report discovered other issues in the House and Senate Bills. The instance that it reduces the corporate income tax has become 21%, it also encourages the taxpayers to reach the shelter income in the corporation so that it can avoid getting the high rates on the income taxes. It can also happen under the very law but “the cost of this is that there is a high corporate tax that is relatively high and also shows some limits to the benefits of all these strategies.” This is one of the essential points that the paper has brought up. Unlike the individuals, the corporations are also written in the Republican tax bills that can deduct into the local and the state income taxes. This also heightens into the incentive to just start the corporation.

Entrepreneurs can also gain the relieve that the lower tax rate is passed through the income. The changes in the legislation can also result to the substantial tax planning and also go for the lower taxes that can characterize the very livelihood is the right and proper business. The final bill is also serving as the provision for the pass-through companies to make the most out of the 20% deduction on the income. This is without the safeguards that have been placed in the very version of the Senate. It also leaves the companies to reflect something tangible to the employees that have already provided a tax break. There are also other real estate developers.

This is not the exemption that makes it limited to the real estate companies. There are associates that also spin off the limited liability that separate the corporation because of the services provided to the firm. The associates and their company are also considered the pass-through business. The associates can also check into the contract and then make sure that the original firm is the restricted income that amounts to $157,500 to the individual. The $315,000 is for couples and associates can also make the most out of this deduction from pass-through businesses.

Take for example an athlete who can create this brand name and make it into a company that can also lower the rate of the pass-through on the income. The tax experts can also check that there is a loophole that is not very clear cut. The assets of the brand company serve as the reputation of the owner, as opposed to its employees. If it is the latter, then this company cannot be eligible for deduction. IF the athlete allows the pass-through company to take place then it maintains the right to keep its image and its license. It is also the company’s asset to look into its intellectual property and also make it accessible to lower the rate, and then that’s when it can pay off.

According to the experts, the tax games can reduce the revenues and also increase the cost of the legislation that makes it more regressive. The additional tax complexity is necessary that the way for the police to come up with new rules so that this can prevent abuse. It also ensures the legislation that can move it further away from the goals that are more equitable, simpler and efficient tax system.

It is possible to deduct the taxes on the exports along with the incentivize of the firms to also develop the very intellectual property that is found in the United States. It can also export the goods on that very basis. What can also encourage these manufactures to make, claim, call and sell depends on the distributor. They can make the most out of the subsidy on the export and they can also check the low tax rate on the exports and also provide the economic incentive for companies that they said are perverse.

This shows the glitches that work around the tax code that is so complicated. In fact, this new tax bill is not even as simple as they claim it to be due to its host of changes.

25% Rate Pass Through Helps the Wealthy

The real story behind the tax bill is more complicated. It is also expected to become a windfall for the investors that are earning high-income. There are many business owners that also include small businesses. It can also end up letting the pay be as high as 35.22%. Overall, it can also serve as a complication to the tax code that also provides the small business owners. Despite the attempts of small business owners, taxpayers cannot abuse this new system because the proposal that has been laid out prevents them from doing so. It is definitely an opportunity for the business owners and the clever investors that can help the tax lawyers and add this to the game of the system.

Pass-through businesses connected to the partnerships, sole proprietorships and limited liability companies are into the S corporations. Unlike the traditional C corporations, the income is not connected to the business-level income tax and also check into the earnings of the owners. The ordinary income tax rate amounts to 39.6% can equate to the pass through businesses alongside the small businesses. However, this characterization is quite misleading. These kinds of businesses serve as the multi-state pipelines. Other companies include real estate developer, hedge funds, private equity firms and other kinds of large businesses.

In addition to this, there are millions of owners of businesses, both the big and small ones who would not benefit from this low rate because they are not incurring enough wages. Around 9% of the owners of this pass-through business have already paid at a rate of around 25%. The income tax rate cap can also pass through the income that can benefit them at all. By contrast, the ones can also benefit the 25% tax rate cap that has increased in the 39.6%. This is currently the reception of half of all the pass-through income.

Passive owners get quite a deal because there is less risk and they treat wages as business profits. The proposal can also cap the income tax for the pass-through businesses and these passive owners make the most out of 25%. This can also benefit the taxpayers who make more than around $260,000. Otherwise the 35% and higher, then it is possible for the businesses to the unproposed bracket. It is also a business for the capital intensive. The 35.22 percent can also reflects the default rule in the legislations of the 30%. This is deemed eligible so that the 25% rate as well as the remaining 70% is then characterized and be compensated and taxed at the usual maximum rate of 39.6%.

Pass-through businesses are also eligible for 25% because the entrepreneurs are passive. They really do not jump in and contribute to the business. The new bill bases this on the total hours that the taxpayer spends for the business. Taxpayers also document the hours that they are sure tax advantages are considered for active owners. They can also benefit the 25% maximum in the income tax rate. It may also reduce the total hours that they put into the business and then hide the extent of how much they are involved with the IRS. This can be a pretty hard-pressing challenge.

The bill then creates the tax planning opportunities. It also produces the rental and the interest income is also eligible for the 25% and also tax it into 39.6%. Rental activity is also inherently passive and then the rent can be earned to the pass-through businesses. Interest income is passive and can also be earned from the entity. This then trades the money that is lent and borrowed by the hedge fund as well as the private equity funds that are engages in kinds of activities. There are taxpayers that can also invest in the funds. The tax rate on the business income is capped at 25% and instead of buying, it is taxed at the rate that reaches up to 39.6%. They can also invest the REITs which can also go through the mortgage and the rent interest income which is explicit and also eligible for the 25% cap right under the proposal.

Another possibility that can be looked into is that the investors can also borrow the funds. In that way, the investors can deduct the interest at that percentage. From 39.6%, it gets into 25% and the income is then received. Investors can also borrow from kinds of pass-through businesses and then just invest this primarily in the same one, as long as this is run by persons who are not related with one another. Business owners are also borrowed and then contributed to the businesses. They can also deduct this interest. Statutes are then encouraged and separated from performances of the services. It invests in the maximization of the income eligible for 25% by cross investments in the businesses.

Employment Matters: The Difference Between Contractors and Employees

When there’s extra work that needs to get done and there are no sufficient employees to do the job, companies usually hire more workers to keep up with the customer rush. If you happen to find a job in a company, make it a point that you understand your status in that company. That way, you will know how you are supposed to be treated by your new employer.

More often than not, problems arise because independent contractors think of themselves as employees, and vice-versa. For some, knowing whether they are contractors or employees doesn’t matter because all that matters to them is that they got a job and an income. However, they don’t realize that not knowing which classification they belong to—independent contractor or employee—will put them at the risk of tax troubles in the future.

But how does the law classify contractors vs. employees?

Telling Between Contractors and Employees

On the surface, you probably cannot tell what sets contractors apart from employees because most of the time, they do the same work. However, the law views them differently. The law also views the companies that hire them just as differently.

Basically, the thing that makes contractors different from employees is their degree of independence and control over the work that’s assigned to them. Usually, while an employee performs tasks that are dictated by others and are provided trainings to effectively do the job, an independent contractor has more than one client and sets his own hours at work. A contractor typically does not have a boss and he uses his own tools in performing his job. Also, his salary doesn’t automatically come at a definite date because he invoices for each of his completed assignments.

While that seems pretty much understandable, there can sometimes be gray areas, too.

In many cases, companies prefer hiring contractors instead of employees so they can save on labor costs. Financial-wise, hiring contractors makes more sense because contractors are not entitled to benefits. Also, companies save considerably on taxes since in hiring contractors, it no longer becomes necessary for the employer to pay portion of the state unemployment taxes.

Companies that follow the law and take the employee route usually regret their decisions at some point in the future because of the cost that making someone an employee entails. That explains why small businesses that operate on tighter margins are often tempted to hire contractors instead of employees, even when the job that needs to get done calls for an employee.

To minimize their costs, business owners make people believe that it is more advantageous to be a contractor than an employee since contractors’ take-home pays are bigger. While that may be true on the surface, that is not as simple as it seems.

The Tax Implications of Contractual Work 

If you are an employee, your employer is the one that pays half of your Social Security and Medicare taxes and withholds half of these taxes from your salary. That and the withholding of your federal and state income taxes are the reasons why those employees who work at $9 per hour at fast-food restaurants take home less every payday.

So, does that prove that being a contractor is better than being an employee?

The answer is not necessarily. Why? Because independent contractors pay 100% of all their Social Security and Medicare taxes when they file their tax returns, and pay all the income taxes that were not withheld. And if you are a contractor and you failed to make estimated tax payments every quarter to cover your taxes, prepare yourself for an unfortunate surprise come April. This only goes to show how tax responsibilities affect the amount that employees take home during payday versus the amount taken home by contractors.

Contractors Escaping Taxes

 Sounds common, doesn’t it? Many contractors believe that one of the advantages of being an independent contractor is that they get to escape taxes. Actually, they don’t. Well, that’s always possible. But that is not legal.

If you are a contractor and are paid in cash, don’t think that that already lets you get out of paying taxes and not report it. Whether your pay comes in the form of a check, cash, digital transfer or barter, and regardless of its amount, remember that every pay you get for each work that you do is taxable income.

Many contractors get all the more confused about taxable contract income because of the amounts that the IRS uses to require reporting of earnings. Remember that when you are a contractor, you get Form 1099-MISC to lay down the details of how much you have made for each job. Form 1099-MISC is what you need, not a W-2. However, as a contractor, an employer does not need to send you a form 1099 if your earnings during the tax year in question is less than $600.

The law can’t stress enough that the abovementioned rule is just a reporting requirement and has nothing to do with your taxable income. However much you earn, your earnings are always legally taxable and should be reported either on Schedule C or as other income on Form 1040.

For your FICA taxes, which refer to your Social Security and Medicare taxes, these taxes are self-employment taxes which you are responsible for in full. If you are an independent contractor, you should report the amount of your FICA taxes and pay them via Schedule SE.

While being an independent contractor has its share of advantages when it comes to taxes, there are instances when a business hires a contractor who is eventually deemed as an employee. In such cases, both parties lose significant amount of taxes, interests, penalties and premiums.

Since the relationship between a company and a worker sometimes tends to be a gray area, it is imperative that you protect your status as an independent contractor. Well, that is if you are really an independent contractor. To make sure that your work as a contractor remains independent of your employer, it should be able to pass the Four Point Test.

Determining Your Status

 If one asks you now whether you are a contractor or an employee and what makes you think so, do you know how to answer?

In Canada, a four-point test helps workers to determine their relationship with the business that you are working for. The agency clearly sets out a method that lets tax payers and workers identify the nature of their relationship with their companies.

The four-point test makes clear-cut distinctions between contractors and employees based on their control, tool ownership, risk of loss and integration.

  • Here, the issue is who controls the worker. If the employer has all the right to hire or fire you, determine your salary, decide on the time and place of your work as well as the manner in which you should perform your work, then you are an employee. Even if the employer does not directly control how you do your job, if he still has the right to do so, then an employer-employee relationship exists between the two of you.

 On the other hand, if you are a contractor, it is not necessarily the employer that runs the ship. As a contractor, you decide how you are going to perform your job and you maintain your right to decide where and when you are going to get the work done. In short, you are the only person responsible for planning the job that you need to get done.

  • Ownership of Tools. When it comes to tool ownership, the common notion is that what sets contractors apart from employees is that contractors supply their own tools. While that may be true, the problem is that it is also customary for other employees to provide tools for themselves so they can perform their jobs, such as in the case of garage mechanics and painters.

If that is the case, then how does tool ownership differentiate a contractor from an employee? According to CRA, the cost of using the tools is a better indication of whether you are a contractor or an employee. As per the CRA rule, you are considered an independent contractor if you purchase or rent large tools that call for major investment and expensive maintenance. Otherwise, you are an employee. Another good example of a self-employed, independent contractor is a home-based IT worker who uses his own computer to perform his job.

  • Chance of Profit/Risk of Loss. Here, determining which type of relationship exists between the business and the worker heavily depends on the financial involvement of the latter. Take a look at these questions:
  •  Do you have a chance of gaining profit?
  • Are you at risk of incurring losses due to damage to materials, delays or bad debts?
  • Do you cover the operating costs?

If your answer to all of these three questions is a Yes, then you are considered an independent contractor.

  • This criterion seems to be an attempt to presume the intention of the involved parties. According to CRA, a business relationship exists if the worker integrates the payer’s activities to his own commercial activities. On the other hand, an employer-employee relationship exists if the worker integrates his activities to the commercial activities of the payer.

The CRA does not lay out how to determine such integrations. However, an obvious way of proving that you integrate your own commercial activities is by having multiple clients. If you have only one client, it becomes easy for others to presume that you share an employer-employee relationship with that client. But be careful when having a single client, because that puts you at risk of being declared as a personal services corporation by the CRA.

Deciding Whether to Become an Employee or a Contractor

 Based on the facts discussed, it looks like being a contractor can be beneficial for you in terms of earnings and taxes, so long as you are prepared. However, remember that being an employee or a contractor is not really one of those decisions that you make when you look for a job. In reality, it is the business or company that decides whether you are a contractor or an employee.

Most of the time, employees are carried on the books, unlike contractors. So as a contractor, it is your responsibility to enshrine your relationship with the company you are working for through a contract. This contract should focus on the first three points of the four-point test and set out the intentions of both parties. Since you are an independent contractor, you have to make sure that such a written agreement is carefully crafted so your status is protected in case the other party subsequently changes his mind and argues that your relationship is not what you think it is.

At the end of the day, it is the business’ responsibility to weigh certain factors to determine whether a worker is an independent contractor or an employee. While other factors may indicate that one is an employee, other factors may indicate that he is an independent contractor. Apparently, there is no magic that stands alone in determining one’s status, but the key to making the right determination is by looking at the entire relationship that the person has with the company he is working for.

In a nutshell, what makes a worker an independent contractor is his being his own boss, although his work should still stay within the definitions of a contract with the party he is working for. Also, he is not eligible for benefits provided by the employer and retains a certain degree of independence and control. On the other hand, a worker is an employee if he treats the business as his stable source of income, is eligible to benefits and pensions, and gives up elements of control to his employer. He should also be working within the time and place specified by the employer.

Applying for a U.S. Visa? Follow These Easy-to-Follow Steps

Whether you are coming to the U.S. for tourism, pleasure or medical treatment, you have to get hold of a US Visitor Visa. You need to present this non-immigrant visa if you are entering the country and won’t be staying there for good.

If you are a foreign citizen who has relatives in the U.S. and want to pay a visit, then you are qualified to apply for this visa. Under the U.S. Visa Waiver Program (VWP), however, there are certain countries which do not require this document if the trip won’t last longer than 90 days. Check out this waiver program first to see if your country is one of them.

 Salient facts about the U.S. Visitor Visa:

 It is more commonly known as the B1-B2 or simply B2 visa for U.S.A.

  • You may apply for it and get it stamped in your passport.
  • You may be granted this visa for one specific purpose only, including medical treatment or tourism. If you are entering the U.S. for business purposes, then you should apply for a B1 visa and not B2 instead.
  • Once you have your B1 visa, it means you can only stay in the U.S. for six (6) months or less. If you want to extend a little longer than 6 months, you need to request for an extension, which you may apply for at the USCIS.

How do I apply for a B2 visa?

 Just like any other travel document, the B2 visa is applied for. Should you wish to apply for this visa, you need to have your valid passport, submit the application form, pay all the necessary fees and make sure that you appear for the visitor visa interview at the nearest U.S. consulate in your country.

Here are the steps:

Step 1. Get your digital photograph. This photo is one of the requisites when applying for a U.S. visitor visa. However, you need to make sure that it meets the criteria set by the U.S. consulate. Most photo studios automatically know how a digital photo should be if it’s needed for a U.S. visa application so you don’t necessarily have to mention each and every criterion to them. Otherwise, mention these digital photo requirements:

  • It must be square in shape.
  • Its minimum dimensions should be 600 pixels by 600 pixels.
  • Its maximum dimensions should be 1200 pixels by 1200 pixels.
  • It must be colored, particularly a resolution of 24 bits per pixel.
  • It must be in JPG format.
  • Its file size must be equal or less than 240 kilobytes.

What if your consulate does not require you to upload a digital photo when filling out the DS-160 form?

If that is the case, wait for your photo to be taken at the ASC (Application Service Center) or OFC (Offsite Facilitation Center).

If you normally wear eyeglasses, you can wear them in the photo as long as their lenses are not tinted and they do not obscure your eyes. Also, avoid glare on the eyeglasses by tilting your head slightly upward or downward. You cannot wear dark sunglasses or other decorative items, unless you have hats or head coverings that you normally wear for religious purposes.

Step 2. Completely fill out the visitor visa application form DS 160. Before coming to the consulate for the next part of the application process, make sure that you have already completed this application form. You fill out this form over the internet and not anywhere else. After filling out this form, wait for the 10-digit barcode that will be sent to you as a confirmation. Then, print the page as you will need it during your visa interview appointment.

The DS 160 form is an online form required by most US consulates in the world, including India. It should be completed online prior to printing. Take note of the following that you will need before filling out this form:

  • You need to have your digital photograph in a specific format. If you haven’t uploaded or provided a photo during the online application submission, you may bring your printed photo when you go to the consulate for your personal visa interview.
  • You should confirm the consulate where you will appear for the interview.
  • You should have a reliable internet connection since you will fill out the form online.
  • You need to get your passport details ready, including the issue date and expiration date.
  • You need to specify an address where you will stay in the U.S.
  • You need to specify your social security number and U.S. tax ID number.

As for the technical requirements, here are the things that you need:

  • Your Internet Explorer (Windows) must be at least 5.0 service pack 2.
  • Your Internet browser must be able to support 128-bit encryption and should have JavaScript enabled.
  • Your Netscape must be version 6.2 or higher.
  • You must have a laser printer linked to your system so you can readily print out the confirmation page. Otherwise, you may simply take a screenshot of the page and paste it in Microsoft Word for later printing.

I already have the necessary information and technical requirements ready. What’s next?

If you already have the abovementioned requirements, it’s time to fill out the form. Here are the things that you should remember when filling out the DS 160:

  • Provide honest information–no more, no less. In the appropriate spaces provided, enter the requested information in English.
  • You will notice that most of the questions are self-explanatory. Provide the correct information all the time. When it comes to fields where an answer from you is not applicable, choose the “does not apply” option.
  • In case you plan to be away in the course of your online application, you may save your application temporarily until you are back so you may start where you previously left off. Remember that if the online application remains inactive for 20 minutes or more, your session will expire and all the data you previously entered will be lost.
  • If you are using a public computer, make sure that you delete the file after you are done.
  • Print the confirmation page and bring it with you in the succeeding parts of the application process.

How long does it usually take to fill out the form online?

Usually, if you are ready with all the requirements before filling out the form, you may complete the online application within 15 to 40 minutes. Take note that the system will not allow you to submit the form unless you have filled in all the mandatory fields.

Step 3. Pay the B2 application fee. Presently, the visa fee is $160 and is non-refundable.  When paying for this fee, you have several options. It’s either you pay it electronically as a bank transfer or you pay it in cash at the designated CitiBank or Axis Bank in your place. It’s better if you create a profile at the U.S. visa service website first and select the Schedule Appointment option before making a payment if you want to make sure that you are paying the right amount and that your payment gets activated at the right time. Once you do this, the screen will show to you the payment options and will detail how you can initiate the payment. This fee is good for one year, so you have to take an appointment schedule within the year for your visa interview.

If you are from India, you can make your payment by any of the following ways:

  • Bank Electronic Payment via NEFT. Most Indian banks support the National Electronic Funds Transfer (NEFT). Log into your profile and get a unique account number where you will send your NEFT payment. Keep this number as you will need this in your interview appointment.
  • Mobile Payment. You may also pay your visa fee using the IMPS system on your mobile phone. The problem with this, however, is that you must be preregistered with your bank and have a valid MPIN. If you choose this payment option, you can initiate your IMPS payment by sending a text to the bank or by mobile banking application. As much as possible, enter the exact amount flashed on the payment confirmation screen to avoid delays in your scheduling appointment. Make sure also that you enter the correct Beneficiary MMID number and Beneficiary Mobile Number.

Once you have made the payment, wait for a text message reflecting your 12-digit IMPS reference number. You will use this number in scheduling your interview appointments. Make sure that you are able to finalize your schedule within three (3) hours of payment.

  • Over the counter Cash Payment. If the first two options don’t work for you, you may pay your fee at any CitiBank or Axis Bank branch in India or the DRUK Bank in Bhutan. Before going to any of these banks to make your payment, print first a U.S. visa fee collection slip from your online application profile. Bring this slip with you when you make your payment and wait for the bank to give you a receipt. You need the receipt number in setting up your visa interview online.

Step 4. Schedule your visa interview. After paying your fees, the next thing that you have to do is to schedule two (2) appointments. This part of the process includes your appointment with someone from the Offsite Facilitation Center (OFC) who will facilitate you in the Biometrics, including taking your fingerprints and photo; and your appointment with the Consulate or Embassy for the actual visa interview.

Here are the documents that you need in setting up your visa appointment:

  • Your passport, which should be valid for at least six (6) months beyond your intended period of stay in the U.S.
  • Your visa application fee payment receipt.
  • Your DS 160 confirmation page, which you printed out during the online application.
  • Your email address.

Once your documents are ready, you can finally set up a visa appointment. To do this, you may go to the US visa online appointment system to take an appointment schedule, or call the following numbers: +912267209400/ +911206602222 /+13106165424 (USA local number). If you want to get your preferred date and time, then don’t wait until the last minute to book your interview.

Step 5. Schedule your fingerprinting appointment at the Visa Application Center (VAC). Once you have taken an appointment schedule with the embassy or consulate for the personal interview, it’s time to schedule the fingerprinting appointment. You must schedule this appointment at least one or two days before your actual interview at the consulate. You may ask, what about the fingerprints taken in step 4?

Under the new rules, your fingerprints must be taken not just at the Offsite Facilitation Center (OFC) but at the Visa Application Center (VAC) as well. This rule was introduced to ease the usual congestion at the U.S. consular facilities, as well as to expedite the processing of applications. Make sure that you schedule your visa interview appointment at the embassy or consulate first before your appointment at the VAC.

Step 6. Appear at the US consulate for your personal visa interview. On the date and time of your scheduled appointment at the US consulate, go to the consulate with all the required documents. Don’t forget to bring any of the following on the day of your interview:

  • Your photograph
  • Your passport, including your old passport/s
  • The DS 160 confirmation page stamped at the VAC
  • The receipts verifying your visa application fee payments
  • Your interview appointment letter
  • Other supporting documents

Today, around 7 out of 10 applications for a U.S. visa get approved, which is equivalent to 70% approval rate. If you worry about not getting your U.S. visa, just keep in mind that honesty is the key. Usually, individuals who fail to get approval from the U.S. consulate are those who falsify their documents and commit fraud in their applications. Just be true in disclosing all the required information in your application process and you can be almost sure that you are one step closer to getting to the U.S.

W2 Tax Fraud

The IRS has advised the tax payers & tax services professionals  about a new fraud involving a phishing email that ask the victims about the W2 data like Social Security Numbers and other personally identifiable information.

“This is a new twist on an old scheme using the cover of the tax season and W-2 filings to try tricking people into sharing personal data,” said IRS Commissioner John Koskinen in a statement. “Now the criminals are focusing their schemes on company payroll departments. If your CEO appears to be emailing you for a list of company employees, check it out before you respond. Everyone has a responsibility to remain diligent about confirming the identity of people requesting personal information about employees.”

This is not the first time tax payers are faced with such fraud.  In fact, IRS Criminal Investigation has received numerous complains from victims who have shared their or their clients information with cyber criminals on a fraudulent phone call or in an email.

Cyber criminal sitting in a remote part of the world can “spoof” an email address (of someone important in your company) and ask for a report or a actual document.  Here at Sanjiv Gupta CPA firm we never call or email our clients or prospects to ask about any kind of personally identifiable information.  So, please do not share your social or address with anyone asking for this information.

Watch out for emails that contains such wording (even if the email address appears to be legit).

• Kindly send me the individual 2015 W-2 (PDF) and earnings summary of all W-2 of our [ or Your ] company staff for a quick review

• Please send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary) as at  3/7/2016.

• I have not received the list of W-2 copy of employees wage and tax statement for 2015,  Send them in excel sheet or send them as PDF.

You think it can’t happen to you or your employees ?

One of major upcoming startup, Snapchat,  announced that last Friday its payroll department was targeted by an email phishing scam in which a scammer impersonated the company’s CEO and asked for employee payroll information.  The company informed its employees that, “Unfortunately, the phishing email wasn’t recognized for what it was–a scam–and payroll information about some current and former employees was disclosed externally.”

IRS also announced that they are seeing 400% surge in similar email phishing emails.

How can you protect your employees and your company ?

Do not share personal information unless via employee by clicking on “Reply” button.  Always type the email address and verify before pressing the send button.  Do not share social security or other personal information on phone.



Tax Terms You Should Understand

We do not want you to look at the jargons associated with filling of tax returns and think how ever are you going to understand all of the important and basic tax terms. Instead, we want to prepare you to file your tax returns with ease without getting intimidated. Even though the tax terms might be complex in nature, they are not as difficult to comprehend, especially now, since you have this book to refer to when tax season rolls around.

After a while, assuming that your visit to the United States is a permanent one, you will only have to rack through your brain to remember the meaning behind each one. However, for now, it is pertinent that you have a clear and comprehensive understanding of the tax terms, at least the important one that you should remember and know by heart. Here is the list of the following tax terms you need to know:

Term Definition
1040 Form The basic IRS form that people needs to submit their income tax return. 1040A and 1040EZ are two other names for this form.


Adjusted Gross Income or AGI This is taxable income, which consists of gross income from chargeable sources minus allowable adjustments.


Alternate Minimum Tax or AMT A tax computation that includes items labeled for tax-deductible items into the adjusted gross income. If the alternate minimum tax is higher than the regular tax liability for that year, the regular tax and the amount exceeding it are payable. The reason behind the creation of the alternate minimum tax was to force taxpayers to pay their tax liability.


Capital Gain When the value of a capital asset increases such as a type of investment, the price of the property, in this instance, increases. The owner will earn more money when it is time to sell it, as the price increased from the original buying price. Taxpayers can classify this type of capital gain as a short-term or long-term and must clam it on their next income tax return.


Child Tax Credit Taxpayers can claim taxes on children who are dependent on them and are under the age of seventeen at the end of the tax season.


Deduction Taxpayers need to subtract all expenditure and allowable items from the adjusted gross income. In doing so, it decreases the amount of income that qualifies for taxation.


Dependent Dependent is a spouse, parent, child, or a relative to whom a taxpayer provides for with a large chunk of their salary going towards their care.


Earned Income The taxpayer earns income thorough his/her business or trade, and this includes salary, wages, commissions, bonuses, and tips.


Earned Income Credit Taxpayers can refund earned income credit. For people who only earn a meager or low-income, the earned income credit decrease and at times, eliminates their taxes. Sometimes, earned income credit acts as a wage subsidy, allowing the taxpayer to pay a decreased amount of tax owed.


Estate Tax Estate tax is the amount of levied tax on a person who has passed away, but has left behind taxable assets. The value in estate tax is set above the exemption total of the gross estate minus allowable deductions. However, the deceased individual’s spouse, if alive, will not be subject to pay estate tax.


Exemption The tax law defines exemption as a deduction used to decrease the entire amount of payable income. However, an exemption to decrease payable income is only granted by looking at the circumstances and status of the taxpayer.


Filing Status Filing status consists of five categories, single, married, but filing individually, married and filing together, head of the house, widow or widower with a dependent child.


Itemized Deduction Itemized deduction is subtracted from a taxpayer’s adjusted gross income. It consists of money spend on particular services and good that year. The IRS has outlined specific deductions a taxpayer is qualified to ask for include deductions on local and state taxes, interest on mortgage, medical expenses, and gift tax. You can find them in the FORM 1040 Schedule A.


Non-Refundable Tax Credit Non-refundable tax credit cannot decrease the amount of tax an individual’s owes to less than a zero. In the event, the amount of tax the taxpayer owes could lower to less than a zero; the IRS would need to pay them.


Passive Income Passive income is classified as earnings acquired from a limited partnership, rental property, or an enterprise in which the taxpayer does not play an active role in the activities.


Property Tax Local government bodies evaluate the property of the taxpayer, assessing its value along with the value of the land it sits upon. On the basis of their evaluation, the taxpayer will be required to property tax.


Self-Employment Tax Taxpayers who work for themselves, meaning they run their own business, will have to pay self-employment tax, as this is the only way for them to receive social security benefits when they retire. However, the amount they are required to pay may be decreased if they pay Medicare and Social Security Taxes thorough another individual.


Standard Deduction Standard deduction is referred to as the base value of the income, which is not taxable. The taxpayer can use the base value to reduce their taxes, specifically reduce their adjusted gross income, but only if he/she does not select the itemized deduction technique of computing taxable income. The taxpayer’s status, disability, age, or if he/she is dependent on another taxpayer for support is taken into account when computing the value of standard deduction.


Tax Credit Tax credit reduces the actual amount owed taxes.


Taxable Income Taxable income is the value of the net income—deductions, gross income without all the adjustments, and exemptions—used to compute the amount of income tax a taxpayer owes.



Whenever you see a term you do not know the definition of, at least you will not have to search the entire web for it, as they will be right here in this book. Immigrants who are coming to the United States to start a new life will not have trouble understanding the terms and concepts related with taxes in the country. However, your lesson of learning all about the United States tax laws is not over yet. So, keep reading!

The tax liabilities for business ventures in the USA

Business ventures can thrive in the land of promise (USA) reasonably well provided they do not default on their obligation of tax towards the federal government. Business that employes people is responsible not only towards what they pay for their employees in addition they have to take responsibility for the society for its social welfare schemes, the healthcare of the elderly in the society and also the medical facilities for their own employees. By means of tax reduction at source of the pay of the employees, the employers withhold certain percentage in the pay-roll amount. This income is taxable and there are cases where proper reporting has not been there. To avoid having to face hassles in the form of the IRS (internal revenue service), stringent measures and punishment; employers are required to comply with the pay-roll taxes.

Some employers instead of remitting the pay-roll taxes use that amount for funding their companies’ requirement or for rotation of funds as a quick fix measures to address the shortage of cash. This may be due to the high rent and business not up to the expectations. This willful non compliance in the long run leads to a heavy damage for non disclosure and willful abetment of tax law. Criminal proceedings may also be instigated for such offenses.

It is mandatory for employers to withhold a certain amount from the employees and submit the details to the IRS and based on this the pay-roll taxes are computed. They are obliged to submit the details of their employees and their pay-roll periodically. Employers are required to file the reports of the payroll on a quarterly basis in the states and annually to the federal government. Failure to remit the pay roll tax will invite a penalty or 2 -10%. The IRS is a long handed arm of the government which can punish both the employee and employer when they discover the default in pay roll taxes.

Just as the FBAR is the long handed arm to check the proliferation of unaccounted money in foreign banks similarly the IRS is the arm working with the country.

Any business whether small or big should work in tandem with the government authorities to iron out their differences and if in case of appeal they can always take it to the office of appeal for reversal. The ways in which tax evasion can happen are

    • Omission and understatement of income
    • Improper deduction and fictitious deductions
    • False information of employees
    • Improper allocation of income

Any responsible business venture should approach a tax consultant and see to it that their business does not undergo stress with tax evasions and non-reporting. Know all the details of tax law! Become the master of your own business with the right input of running the business, with the proper input of managing the business- coupled with proper reporting to the tax authorities and be a good employer who inspires the employees to remain steadfast and innovate in their field.

4 Ways That The US Budget Deal Might Affect You

There is a new budget deal working in Congress that will have large effects on taxes and government spending if it is passed. Congressional leaders Representative Paul Ryan (Republican – Wisconsin) and Senator Patty Murray (Democrat – Washington) came to an agreement on a long term budget deal. If it is passed, this deal would give clarity to owners of businesses on their own economic future and the country’s financial future in the coming years.

According to sources at the Washington Post, this deal will not reduce the national debt but it will affect many small businesses in 4 ways:

Increased Government Spending. The new budget would increase spending by the government and it would repeal some of the 2013 spending cuts. This means that governmental agencies would have more available money to spend. This is good news for many contractors for small government that lost business in the recent months during the spending freeze.

It will reduce the chance of the government shutting down again in the future. One of the top reasons that this budget was important to agree on was so that the government could avoid any future shutdowns. The 2013 government shutdown has cost the national economy approximately $24 billion dollars. It hurt many businesses that rely on government activity and spending for a majority of their business. Consumer confidence was decreased as Americans entered the 2013 holiday season. This budget plan would significantly reduce the chance of having another government shutdown.

Corporate and individual tax rates will not increase. The new budget deal ignored the proposal by President Obama to decrease the corporate tax rate in addition to eliminating all corporate loopholes. Individual and corporate federal tax rates would stay the same. Additionally, the deal would not eliminate corporate loopholes. Corporations will still be able to get tax deductions if they buy corporate jets in addition to many other deductions they were able to take in 2012.

Airfare might increase. If this budget is approved, many business airline travelers will see moderately increased airline tickets. Under the deal, payments for increased federal revenues will be funded by increased aviation and security fees. These fees are paid by the fliers and are used to finance TSA (Transportation Security Administration).

Now the question is whether the budget deal will have enough support for it to pass through Congress. It was praised by President Obama because it was reached under great compromise by the parties. However, many are predicting that the hard-line Republicans are going to try to kill the deal because there is not enough cuts in government spending.


The IRS Is Getting Ready to Audit More Partnerships

If you have a partnership including a LLC or S corporation, your chances of being selected for auditing is increasing. The Internal Revenue Service is getting ready to audit more LLCs and S corps than they have ever done before.

In the upcoming years, the IRS is planning on shifting the focus on business auditing from corporations and start concentrating on “pass-through” entities. This shift information comes from the head of the Internal Revenue Services’ Self-Employed and Small Business division, Faris Fink, at a recent American Institute of CPAs’ National Tax Conference. The reason for the shift is because partnerships have become more complex. The Internal Revenue Service sees partnerships as a business type that has many opportunities for potential tax fraud.

For a long time, the IRS has focused all of its energy on looking into corporations. According to Mr. Fink, the IRS is behind the curve when it comes to developing a strategy for looking into partnerships.

Approximately 95% of all the businesses have a pass-through structure including sole proprietors, S corps and LLCs according to official Internal Revenue Service data. With pass-through entities, the income earned flows directly down to the taxpayer. Bloomberg reported between the year 2007 and 2011, the number of pass through entities grew 15.3%.

Over the years, partnerships have gotten increasingly complex. There are some partnerships that have various tiers and even thousands of partners. These issues make the chances of fraud much more likely according to Mr. Fink. The Internal Revenue Service has started training their auditors on the best way to evaluate pass-through entities so they will be able to identify any red flags.

In 2012, the Internal Revenue Service audited only a small amount of partnerships tax returns, approximately .5%. That is compared with the 1.6% of corporate tax returns and 1% of individual tax returns.

In small business tax and audit news, the Internal Revenue Service announced recently that it would start allowing small businesses that had less than $10 million dollars in revenue the ability to request a fast track settlement. This fast track settlement is similar to what midsize and large businesses have had the ability to do. The rule would let small businesses appeal audits early and they can get resolution in 60 days or less instead of having to wait for the audit to be complete. CNN money sources state that it can take many years for an audit to be officially complete. This is a huge benefit for small businesses.  

Sanjiv’s Thoughts on Setting Up Business:

2014 Tax Brackets

Are you ready to plan your 2014 Tax ? In that case, you might want to start with the 2014 tax brackets.


2014 Tax Brackets

(for taxes due April 15, 2015)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $9,075 Up to $18,150 Up to $9,075 Up to $12,950
15% $9,076 to $36,900 $18,151 to $73,800 $9,076 to $36,900 $12,951 to $49,400
25% $36,901 to $89,350 $73,801 to $148,850 $36,901 to $74,425 $49,401 to $127,550
28% $89,351 to $186,350 $148,851 to $226,850 $74,426 to $113,425 $127,551 to $206,600
33% $186,351 to $405,100 $226,851 to $405,100 $113,426 to $202,550 $206,601 to $405,100
35% $405,101 to $406,750 $405,101 to $457,600 $202,551 to $228,800 $405,101 to $432,200
39.6% $406,751 or more $457,601 or more $228,801 or more $432,201 or more

You may also like to compare these numbers with 2013 tax brackets:

2013 Tax Brackets (For taxes due April 15, 2014)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,925 Up to $17,850 Up to $8,925 Up to $12,750
15% $8,926 – $36,250 $17,851 – $72,500 $8,926- $36,250 $12,751 – $48,600
25% $36,251 – $87,850 $72,501 – $146,400 $36,251 – $73,200 $48,601 – $125,450
28% $87,851 – $183,250 $146,401 – $223,050 $73,201 – $111,525 $125,451 – $203,150
33% $183,251 – $398,350 $223,051 – $398,350 $111,526 – $199,175 $203,151 – $398,350
35% $398,351 – $400,000 $398,351 – $450,000 $199,176 – $225,000 $398,351 – $425,000
39.6% $400,001 or more $450,001 or more $225,001 or more $425,001 or more


And lastly – you may also like to compare these numbers with 2012 tax brackets.

2012 Tax Brackets (For taxes due this year)

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,700 Up to $17,400 Up to $8,700 Up to $12,400
15% $8,701 – $35,350 $17,401 – $70,700 $8,701- $35,350 $12,401 – $47,350
25% $35,351 – $85,650 $70,701 – $142,700 $35,351 – $71,350 $47,351 – $122,300
28% $85,651 – $178,650 $142,701 – $217,450 $71,351 – $108,725 $122,301 – $198,050
33% $178,651 – $388,350 $217,451 – $388,350 $108,726 – $194,175 $198,051 – $388,350
35% $388,351 or more $388,351 or more $194,176 or more $388,351 or more



$27M Whistle-Blower Award Is Taxed as Ordinary Income

Whistle Blower Award is an incentive for private citizens to uncover and report fraud to government.   Usually one can get 15 to 25 percent of the money the government recovers from such cases.  In a recent case,  former CFO for a Montana hospital reaped a benefit of $27 million dollars by blowing the whistle on his former employers accounting fraud.  How is that for an award ?

Reward sounds good but how about paying tax on this reward ?   What do you think.  After all, government collected the tax they wouldn’t have collected otherwise.  And now you have to pay the tax on the tax collection.

As far as IRS is concerned, this is an income and should be taxed as an ordinary income.

San Francisco based 9th U.S Circuit Court of appeals cleared that the income received by Alderson should be treated as an ordinary income.  Alderson filed the case arguing that settlement was a result for the sale of property and therefore it should be treated as Capital Gains instead of ordinary income.

“If Alderson had offered simply to sell or exchange the information to the government in return for a sum of money, the government would almost certainly have refused the offer,” the 9th U.S Circuit Court expressed in its opinion, explaining that  Mr. Alderson  had gone to considerable effort to establish the merits of the case before the federal government got interested in it.

According to Reuters, Alderson failed to convince the appeals court about his theory that this income should be treated as capital gain because the value of the asset (this case) increased as the case went on.

Well, Saniv can figure out the tax on $27M dollars but I am sure its lots of money.  Spending few thousands dollars to save millions in taxes was surely a wise try.

Tell us what you think ?