Archive for North America

Self Employed And Worried About Retirement Plans? Read On…

Manasa Nadig, EA
Manasa Nadig, EA

You did it! You quit your job and started that small business that had always been your dream! Exciting times, thrilling ups & downs, you are your own boss–but wait, you do miss the paychecks that arrived regularly every other week. You also miss the medical benefits that the company paid for & that retirement plan you contributed to. What’s more, you also miss that extra oomph on your paycheck-the employer contribution to the company 401(k).

In this post on Employer Retirement Plans for Small Businesses, let’s closely examine the Individual 401(k). This is also known as the Solo 401(k). Unlike other retirement plans, a solo 401(k) is only for sole proprietors or S Corps who have no employees. A spouse can contribute if he or she earns income from the business.
It comes in both the Traditional & Roth version. Just like IRA’s, Traditional is money put away pretax & is taxable when withdrawn. The Roth 401(k) is funded with after-tax dollars & is tax free when withdrawn. One can also split the contributions between the two. Loans can also be taken against savings in 401(k)’s.

Why I like these plans?

•They are ideal to sock away large amounts of money in the good years.

•It helps you save both as an employer & an employee. Here’s how for 2013 – you can contribute a maximum of $33500 (Up from $33000 in 2012) as an employer AND $17500 (Up from $17000 in 2012) as an employee- not to exceed a maximum of $51000 (Up from $50000 in 2012) or 100% of the employee’s compensation, whichever is lesser. Read More

Written by | Posted in Individual • North America • Partnership • Small Business

Mega Millions Lottery Winners – Lump Sum or Installments

TaxConnections Picture - Lottery BallsThree separate lottery winners in the third highest Mega Millions have some tough decisions ahead of the them.

In addition to deflecting requests for money from every person they have ever known (and many they have never even met), will have some “good” problems to deal with like – taxes, investment options, insurance protection and ensuring their after-tax funds outlive them. Unfortunately there are more financial horror stories about lottery winners than happy endings – mainly attributable to the fact winners seldom have any experience handling even moderate sums of money.

Before claiming their prizes, I recommend that they have some in-depth conversations with a qualified attorney, CPA and investment advisor (best if all are in the same room – and are not a relative).

The most pressing issues are:

1) Can I retain my anonymity?

2) Am I a solo winner, or are there other family members and/ or friends/ co-workers that are entitled to a portion of the winnings (and the related taxes)?

3) Should I take a lump-sum or installments? Read More

Written by | Posted in Individual • IRS • North America

U.S. Tax Court Filings During The Shutdown

government-closedWe previously posted on Saturday, October 5, 2013, Suspension of Tax Court Operations During Government Shutdown regarding the cancellation of Tax Court Trial Sessions Scheduled to Begin October 7 and 8, 2013.

What does the taxpayer with a Statutory Notice of Deficiency or Statutory Notice of Determination, which gives the taxpayer ninety days from the date of the notice file a Tax Court petition to when the Tax Court is closed?

Without a timely filed petition, the Tax Court lacks subject-matter jurisdiction over the taxpayer’s case and the taxpayer loses the Tax Court as a forum in which to litigate. The remaining litigation forums require the taxpayer to pay the disputed tax, penalties and interest and sue for refund.

A statutory filing requirement generally can be satisfied only by actual physical delivery to the government (“physical delivery requirement”). Where the Tax Court receives a petition prior to the 90th day, the physical delivery rule is satisfied.

However, if the petition is received after the deadline, the taxpayer must look to the common-law “mailbox rule” and the statutory “postmark rule” of Section 7502 to determine if it has satisfied the physical delivery requirement. The Tax Court Rules of Practice and Procedure expressly reference Section 7502, stating that “In all cases, the jurisdiction of the Court also depends on the timely filing of a petition. Read More

Written by | Posted in Federal • North America

US Tax Disaster – Offshore Funds, Life Policies, Portfolio Bonds

growing taxWhat Every American Investor Must Know

Many American investors are confused by sales pitches of expat investment advisors who are unfamiliar with United States tax laws. While it is true that no tax may be payable in the fund’s jurisdiction (Isle of Man, Guernsey or the UAE, for instance), significant US taxes are payable by the American owner. Confusion abounds when Americans invest in foreign mutual funds, life policies, savings plans, portfolio bonds and similar fund arrangements as compared to when they invest in US-based funds.

Generally, with a US fund virtually all of the income and the gains are distributed annually to investors and reported directly on their US tax returns. The fund sends both the investor and the IRS a form 1099 detailing the shareholder’s income earned in the fund. Foreign investment vehicles are not subject to this kind of disclosure. The American investor must flounder along and determine the proper US tax treatment of his investment.

The US tax laws are clearly designed to deter US persons from investing in offshore funds, whether the investment is made directly or indirectly (e.g., through a BVI company, non-US trust etc.). They prevent the income or gains from escaping US taxation and, impose harsh sanctions on the US investor eliminating any possible tax deferral. Read More

Written by | Posted in Expatriate • FATCA • Individual • IRS • North America

The Administrative Effect of The Government Shutdown On The Internal Revenue Service

TaxConnections Picture - BudgetOverview

On October 1, 2013 the United States Government was required to suspend all but its most needed operations as the result of the U.S. Congress’ failure to compromise upon appropriations that would have funded the government in fiscal year 2014. It should be duly noted that since March 26, 2013 numerous government operations have been funded under the Consolidated and Further Continuing Appropriations Act [Pub. L. No. 113-6].

As a reminder, the United States Government operates on a fiscal year that runs from October 1 – September 30, and Congress is required to appropriate funds for the approaching fiscal year by the beginning of that year (i.e., October 1, 2013). Historically speaking many legislators often fail to do so, but typically they can agree upon a Continuing Budget Resolution that provides temporary funding—typically at the previous fiscal year’s spending rates—for the short-term period(s) while negotiations for the full-year appropriations continue. However, as both Democrats and Republicans continue to debate many federal buildings across the country have remained closed since October 1st including access to national parks, monuments, and museums coupled with hundreds of thousands of non-essential federal employees being furloughed.

Administrative Effect on the Internal Revenue Service

On October 8, 2013 the Internal Revenue Service (hereinafter the “Service”) updated its online notice about the government shutdown and reminded taxpayers on extension that the October 15 deadline is still in effect. The Service emphasized that Read More

Written by | Posted in Federal • IRS • North America

The Unenviable Case of The Seggermans

TaxConnections Picture - Green Question GuyWhat if Someone Dies Owning an Undeclared Financial Account?
What Should The Heirs Do?

Henry Seggerman has first-hand experience with this type of situation. Without hesitation, my guess is that he’ll tell you to get the Estate into the IRS Offshore Voluntary Disclosure Program (“OVDP”). Henry is the son of a prominent New York businessman who passed away. Henry was named executor of his father’s estate, valued in excess of $24 million. Unfortunately, over half of this wealth, however, was maintained in secret and undeclared foreign bank accounts located in Switzerland and other jurisdictions. The father worked with his Swiss lawyer and other parties, arranging for over $12 million in the undeclared accounts to be left to his surviving spouse and five of his children, including Henry.

Henry’s position as executor charged him with various responsibilities, including filing an estate tax return for his deceased father. Henry signed the estate tax return for his father’s estate falsely underreporting its assets by over $12 million. Generally speaking one can say that an executor of an estate steps into the shoes of the deceased. Henry not only did that, he went a step further and perpetuated the fraud of the deceased. While this may possibly have pleased the deceased, it certainly did not please the Internal Revenue Service or the Department of Justice.

In order to access the undisclosed funds, the Swiss lawyer assisted Henry and three of his siblings (Suzanne Seggerman, Yvonne Seggerman, and Edmund Seggerman), in creating undisclosed Swiss bank accounts to hold the hidden money that they had inherited from their father. In order to tap the funds, Henry and his brother worked together, transferring funds from the brother’s Swiss account to a bank account for a foundation controlled by Henry. Henry then transferred the funds into the United States, in the guise of loan repayments. Read More

Written by | Posted in Estate Planning Tax • FBAR • Individual • IRS • North America • Property Tax

IRS Office Of Appeals Handling Of Collection Due Process Cases – Still Inadequate!

IRS Building in WashingtonIf you have ever been a victim of IRS lien or levy action you know first hand that it can be unilaterally devastating on many levels and take literally years if not decades to financially overcome. To add insult to injury it gets all the more complicated when the IRS action is taken before you have had the opportunity to exercise your legal appeal rights. The only thing worse in my opinion is when the action is incorrectly taken without proper authority or basis AND the appeal effort is mishandled to boot. For the record this happens quite frequently for a wide variety of reasons.

The US Treasury Inspector General for Tax Administration (TIGTA) is required by law to determine whether the IRS complied with the provisions of 26 United States Code Sections 6320(b) and (c) and 6330(b) and (c) when taxpayers exercise their rights to appeal the filing of a Notice of Federal Tax Lien or the issuance of a Notice of Intent to Levy. According to a report issued in September by TIGTA additional improvements are STILL needed to ensure that statutory requirements are met by IRS’ Collection Due Process (CDP) Program. Read More

Written by | Posted in IRS • North America • Tax Provision/Tax Reporting

Higher Taxes For Online Travelers In United States? Depends On Which State You Live In

iStock_000003587174XSmallI have been writing ad nauseum for the past few years on the Online Travel Company (“OTC”) debate. Being that my home state of Florida relies so heavily on the tourism industry, this has been a pressing issue for some time. It was reported this week by the Washington Post and BNA Tax that the debate has drawn national attention. Specifically, an influential task force known as the National Conference of State Legislatures (“NCSL”) examined the issue in an attempt to achieve national uniformity.

For those of you who have not been following the debate, the issue can most easily be explained by using a simple example. Consider you are going on a vacation and you find a room at a hotel, using Expedia, Orbitz, or Travelocity, for $100 online. Mechanically, how this Read More

Written by | Posted in North America • Sales/Use Tax • United States

Independent Contractor Versus Employee?

contvsemp2Is it better to be an independent contractor or an employee? For a small business owner (SBO), the question mostly is, how to determine what business relationship exists between the person providing the services & the SBO; and if that relationship is that of an independent contractor or an employee.

So how is that determination made?

Common Law Rules fall into 3 categories. Behavioral: Does the company have the right to control what the worker does & how he does it?; Financial: Are the business aspects of the worker’s job controlled by the payer?; And the Type of Relationship: Are there written contracts or employee type benefits?

•The general rule of thumb is that one is an independent contractor if the payer (of the fees) has the right to control or direct only the result of the work and not what will be done and how it will be done.

•Hence you are not an independent contractor if you perform services that can be controlled by an employer (what will be done & how it will be done). You may have freedom of action but the employer has the legal right to the details of how the services will be performed.

An independent contractor is considered self-employed and employee is not. Read More

Written by | Posted in Corporate • Individual • IRS • North America • Partnership • Small Business

A View of The IRS Through Corporate Insider Eyes – Corporate Tax Audit Survival – Part 6

Reference Cliff Jernigan's eBook Corporate Tax Audit SurvivalThis is Part [6] of a series of a Chapter in the eBook “Corporate Tax Audit Survival – A View of The IRS Through Corporate Insider Eyes” by Cliff Jernigan.

You can download the entire eBook here.

Sample From Chapter 4: “I am From Mars”

Because of my experiences in the private sector, I sometimes had difficulty fitting into the IRS fabric.

One example of this involved the high-profile debate about whether stock options should be expensed for financial statement purposes. This issue was extraordinarily intense during the 2003-2004 time period, with the Financial Accounting Standards Board (FASB) arguing that stock options should be reflected as an expense on the financial statements while industry argued that they should be reflected as an item on the balance sheet. Most employees in the high-technology sector agreed that they should be reflected as an item on the balance sheet, and I strongly supported the high-technology position.

This topic has no bearing on the filing of a corporate tax return. For tax return purposes, stock option exercises usually are treated as an income tax expense.

My colleagues in the IRS often would argue about this issue over lunch or at other meetings. Almost universally they Read More

Written by | Posted in Corporate • Federal • North America • TaxConnections

7 Ways You Can Take Control of a Sales Tax Audit

TaxConnections Blogger Diane Yetter posts about sales tax auditsIt’s a fact of life that no one looks forward to being audited.  Undergoing an audit can be a scary proposition.  But just because your company is being audited, that doesn’t mean that you can’t take control of the situation and play a part in determining how the audit will progress.  One of the first steps in a sales tax audit is the opening conference with the auditor.  This is one of your first and best opportunities to take control of the audit and set the tone for how it will progress.  Here we’ll outline seven ways that you can set the ground rules for a sales tax audit during this opening conference.

1. Use a sign-in and sign-out sheet.  You’ll want to monitor the activities of the auditor.  Using a sign-in and sign-out sheet helps you to track the comings and goings of the auditor and ensure that they have left the premises.  And it is likely your company wants to know who is on the premises so use this as the explanation why it is required.

2. Only have one contact person.  Pick one person in your company through which all communications will take place with the auditor.  This ensures that potentially sensitive information won’t be leaked accidentally to the auditor by other employees.

3. Request the specific information needed to track a transaction. If the auditor is examining a transaction, ask the auditor for what specific records are needed for the questionable transaction.  This way you are providing the Read More

Written by | Posted in North America • Sales/Use Tax

Home Office Deduction-Changes for 2013

TaxConnections Picture - home officeIf you use your home for business, there are expenses you can deduct on your tax return. The home office deduction is available to both home owners & renters alike. The home must be used by a self-employed individual or an employee who works from home for his employer’s convenience.

This deduction has been available for a few years now, however with the tax year beginning January 1st, 2013 (filing starting January 1st, 2014), the Internal Revenue Service issued Rev Proc. 2013-13. This revenue procedure details an optional safe harbor available to individual tax payers for calculating a home office deduction.

The individual can claim the Home Office Deduction based on either the Simplified Method or the Regular Method (Details Follow).

Simplified Method: 

•  A standard deduction of $5 per sq foot for a home used for business up to a maximum of 300 sq feet.

•  No home office depreciation deduction is allowed nor is a later recapture for the years the simplified option was used.

•  Allowable home related expenses, such as, Mortgage Interest or Property Taxes is claimed in full on Schedule A. Read More

Written by | Posted in Individual • North America • Small Business
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