Tag: Tax Implications


New Year Tax Cut Updates

Sanjiv Gupta CPA - 8 years ago
It is now common knowledge that the New Year will signal an increase in taxes. This is not very good news, especially at the start of a new year. However, with the expiration of the term of most of the tax breaks that had been legislated, there is not much choice for the common folk. The chances of another extension being provided are all the same minimal, especially considering that the estimated loss of these breaks is about $192 billion. The effects of such a loss are expected to be felt way into the year 2017.  The resultant net effect of these changes in the tax threshold is meant to cover at least 90% of the citizenry. These changes are expected to cut through the social fabric, from the very rich people to the very poor people. Even then, this does not mean that the population in general and the government are ready for the result of such tax changes. While the government may be happy that more and more people will be covered with the tax threshold, the result may not be smooth sailing for everyone who is affected. As such, the total effect is an increase of about $2000 in the tax bill of individuals.Now that the elections are complete, it is expected that the congress will finally get down to business and deliberate on the tax bills. The problem with this kind of deliberations is that the congress will be forced to balance delicately between the spending cuts that they seek and the tax increases that they want to effect. As such, while the legislators will be busy trying to reverse or change the scheduled tax increases, various accounting professionals are expecting to get busy with the process of re-arranging the tax benefits of their clients so as to minimize the effect of tax on the bottom line. It is therefore expected that a lot of lobbying will happen before a blueprint for tax in the New Year is let out to the public. On the other hand, the public can only hope that the result of this intense lobbying is a relief nonetheless.It is the expectation of many people that some particular types of taxes are bound to make a come back in the process. Some of these include payroll tax, which was cut at the time to help inspire growth. This kind of tax is set to affect virtually everyone who falls within the tax bracket. The president has been on record as pushing for some of the tax cuts as well as some of the scheduled tax increases. With a government in debt even more than it was before, his reasoning cannot be faulted one bit. At the end of the expiry period, the average rise in taxes that individuals and businesses pay is bound to affect the bottom line of most institutions. Businesses, individuals and the government have to work together so as to fend off any negative impact that such a situation may bring.

2012 Year End Tax Implications

Sanjiv Gupta CPA - 8 years ago
The fat lady is almost singing to signal the end of the current gift and estate tax exemptions and rates. To start with, the so-called “fiscal cliff”, which is the estate tax exemption, is on course to fall precipitously in 2013 while at the same time the maximum estate tax rate is expected to rise. The net result of all these changes in tax thresholds is that many high net worth clients are being requested to consider giving away part of their wealth in order to take advantage of the current exemption just before this period lapses. The thing is with most of the exemption strategies in gift-giving often the least effective means is to give the gifts as cash. On the other hand, one can also use some of the other strategies such as the use of Family Limited Partnership (FLP) to acquire a valuation discount for the assets being gifted may be used. Some of the other ways to give away gifts include using the Intentionally Defective Grantor Trust (IDGT) and then use the trust as seed money to purchase different assets from the estate.However, this is not usually the situation in most cases as there are different things that come into play when gifting away part of your estate. For instance, there are many important caveats that include the risk of an estate tax clawback as well as the affordability of the gift itself. You must also take care of the state estate tax laws that may be due on the estate. As such, it is very important for the high-end members of the population to determine whether they would rather give away part of their wealth or simply sit back and endure the tax burden that will be coming at the turn of the year.Taking Advantage of the Current Gift Exemption: To start with, for a person to take advantage of the gifting it is important to know a few things. In essence, the basic principle that is behind gifting is to start by making a gift while the exemption is currently at $5.12 million. At the end of the year, the exemption will drop from $5.12 million to only $1 million. While, the exemptions that are set to expire at the end of the year, it is quite possible that the tax burden that an individual will have at the start of the next year will be very huge. Gifting is a way through which individual spread their wealth, not only to the people around them but also help themselves take care of the financial aspect of their estates. Gifting can also be done to a member of the family as well as to charities and other less fortunate members of the community.While on the case of gifting away wealth, it is usually advisable to gift away pieces of property instead of cash. This is because it is a better way of spreading the wealth to future generations who may not be old enough to handle huge sums of money.

Tax Implications On Trade

Sanjiv Gupta CPA - 8 years ago
The general feeling around the USA and Europe for that matter are that the year 2013 is going to be a tough one, at least economically. Already countries like Spain have changed their tax policies and the effects of these changes have started showing various contract negotiations being halted. In Spain for instance, football players like Ronaldo are in contract negotiations with their clubs. In a bid to keep the player, clubs such as Real Madrid are forced to offer to pay the taxes on behalf of the player if only to retain his services. Such options are normally available to the rich clubs such as Real Madrid; however, much poorer clubs may not be able to follow the same pattern, in essence losing some of their best players or assets. In the USA, the trade of R.A. Dickey the N.L. Cy Young winner is being held up by the tax implications of his move to the Blue Jays. We can see the trend spreading across Europe and North America affecting various organizations and individuals. The changes in the tax policies of the different countries seem to be having a biting impact on the way in which business is being conducted. Various governments have resorted to increasing their tax bases as they try to make ends meet in the face of a harsh economic period. The effects of the recession may have passed, but the impact that the recession had cannot be ignored whatsoever. As such, in a bid to do away with the budget deficits that they acquired during that period, different governments have resorted to various ingenious ways of cutting off their bills. Considering that the government is a representation of the people, then the people can be expected to bear the brunt.The tax implications of the different tax changes have gone as far as the capital gains and the dividend taxes. In most countries like Greece, the tax on capital gains has been increased by almost 200% with the tax on distributed dividends being reduced by a smaller margin. The result is that it gets more expensive to make money on the stock market, with the margin of profits reduced considerably. However, some people hold the opinion that this increase in taxes may in effect actually increase the amounts of money that investors get from the stock market. This thinking seems to rely on the psyche of the stock market investor. In most cases, the stock investor is a long term investor who waits for real money. As such, this investor looks at the long term trend instead of the short term implications of laws. The historic relationship between the taxes shows that an increase in taxes often has the net impact of an immediate decrease in the earnings of individuals coupled with a resurgence of the prices and an eventual increase in returns. It is this line of thought that seems to have some people very optimistic. The long term seems to be the solution for the current mess.

Tax Rules for Independent Contractors

Sanjiv Gupta CPA - 7 years ago
Are you clear about your employment status – whether you are an employee or an Independent Contractor (IC)? If you are not sure, then it is good that you check the IRS website to understand tax implications on these employment categories.It is the duty of every citizen to pay taxes regularly no matter what the tax liability amount is. Of late, the IRS has been conducting a lot of scrutiny on Independent Contractors because it has been noted that in certain circumstances, employers are evading employment tax by classifying their employees as Independent Contractors.Let us discuss more Independent Contractors, in the context of dental practices, to gain a better understanding of the employment classification mechanism. Independent Contractors are people who are self-employed. They are specialists in their area, own their own dental practice, perform their work duties from their premises, bring and purchase their work materials and supplies, work at their will, pay for their own staff, in case they employ people to work for them, and ultimately control the quality of their work or output that is to be delivered. Broadly speaking the ICs maintain a contract with the entity and not with the person providing the service. Hence, it is a contract between two entities. There is strictly no employer-employee relationship in this context.An employee is one work for an owner, perform services as mandated by the owner, work during the hours fixed by the owner, adhere to output quality set by the owner, use the equipment and supplies of the owner to provide the designated service and ultimately is supervised by the owner throughout the job duration. A dental associate is a classic example of this category. An associate works for a specialist or an independent contractor and draws a monthly salary for offering services. There is a clear employer-employee relationship in this context.Misrepresenting or misclassifying employees as ICs either intentionally or by ignorance is a serious offense and is punishable by law. IRS heavily penalizes owners who adopt such practices to evade taxes. Consequences for an owner who misclassifies employees are:Scrutiny of the employer’s social security and Medicare tax liabilityScrutiny of Federal unemployment tax paidPenalties an interest in general and specifically on any employee benefit plansThere are a number of cases that fall under this category of misrepresentation. If the IRS detects the case to be an abuse of classification the owner could face grave consequences. On such example is the case of a stockbroker. All the stockbrokers of this small firm were where treated as independent contractors by the owner of the firm. When the IRS audited this brokerage firm, all the brokers had to prove that they were paying self-employment taxes and also had to provide a copy of their returns to ascertain that they were reporting their income accurately. Ultimately the brokerage firm was penalized hundreds of thousands of dollars on back payroll taxes and interest.Since the results of an IRS audit could be grave, in case of malpractice or abuse of employee classification, it is best for businesses in their own interest to be transparent and straight forward in cases related to employee classification.

FATCA: Compliance And Enforcement

Sanjiv Gupta CPA - 6 years ago
FATCA is the Foreign Account Taxpayers Compliance Act. On Feb. 8th, 2012, the IRS and the Treasury Department proposed tax regulations under FATCA and a statement regarding a new intergovernmental approach with 5 trading partners of the United States to improve international tax compliance and tax implementation of the FATCA. The new upcoming new regulations are a highly dynamic issue with IRS officials and foreign governments frequently commenting.Key ProvisionsCertain United States taxpayers who hold financial assets in a country other than the US must now report those assets directly to the Internal Revenue Service under FATCA. Additionally, foreign financial institutions will be required to report to the Internal Revenue Service information about certain financial accounts that are held by United States taxpayers.United States Taxpayer Reporting When Holding Foreign Financial AssetsUS taxpayers who hold foreign financial assets with a value that exceeds $50,000 will be required to report information about the assets on Form 8938 and attach it to their annual IRS tax return. The reporting applies to assets that were held during taxable years beginning Mar. 18, 2010. The majority of taxpayers, they will start reporting on the tax return for 2011. There is a $10,000 penalty if they fail to report their foreign financial assets on IRS Form 8938. The penalty can increase to $50,000 if they still do not report after they receive a notification from the IRS. Tax underpayments that are attributable to foreign financial assets that are non-disclosed are subject to the 40% understatement penalty.Foreign Financial Institution ReportingForeign financial institutions, also known as FFIs, will now be required to directly report information about US taxpayer accounts to the IRS. They will also have to report accounts that are held by foreign entities that US taxpayers hold a substantial interest in ownership. FFIs will need to enter an agreement with the Internal Revenue Service by June 30th, 2013. The participating FFIs will have an obligation to 1. Perform due diligence and identification procedures with their account holders; 2. Annually report US taxpayers or other foreign entities that have a substantial United States ownership to the IRS; 3. Withhold 30% of payments from income sourced in the United States and pay it to the IRS, in addition to securities sales that generate income sourced in the United States made to other FFIs that are not participating, foreign entity account holders that have failed to provide enough information about substantial United States owners and individual account holders that failed to provide enough information to show whether they are a person from the United States or not.The FATCA will significantly impact United States financial institutions, the United States withholding agents, foreign entities that are non-financial, foreign financial institutions and the United States, taxpayers.
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