Corporate Incentives To Attract Employers To Your State

Have you ever considered the real costs when states compete against each other for a large corporate manufacturing facility or corporate headquarters? If no states compete the corporation has to pay their way at the normal rate that any other business would, but when they send it out to bid, so to speak, it’s like a procurement solicitation for a contract. The best terms, tax credits, improvements, regulation reduction that fits their total needs wins.

There might be one state that the corporation would never consider, but that state is used as a bargaining chip to get another state the corporation is interested in to capitulate and sweeten the deal. One member of our think tank sees how this might unfold in the future: “I do believe that conservative states will eventually force liberal states to start lowering taxes once enough business is lost.”

Back when we had this dialogue at our think tank, I noted: I think everyone is seeing what’s happening. I am glad to see Obamas Department of Commerce secretary, Penny Pritzker talked some sense into him, or maybe it was Oprah who talked to Michelle Obama, but he did mention in the State of Union that he was going to see that they lowered taxes for Corporations to get them to come back and re-shore their company factories here. The Obama Administration never lowered those corporate taxes, but I am sure Donald Trump’s Administration will.

Still, back when Obama was in office, I noted that lowering Federal Corporate Taxes won’t quite be enough, as we have a problem with unions, class action lawsuits, and duplicate and over regulation too. The funny thing is I could have personally fixed this whole thing in about 4-6 months, but I see the Obama Administration made all the wrong moves and blew through lots of money, our money.

When government wastes money people notice and it doesn’t make them too happy about taxes, when corporations see that the government wants to steal their efficiencies through taxation — after all the Six Sigma management initiatives and cost painstaking cost reductions and then the regulatory agencies use that money to come attack them or make laws which hurt them — they get upset and want to do something about it.

Today they hire lobbyists and lawyers to protect themselves, and often hire government insider lawyers to come work for them (revolving door), but can you blame them? Worse, the politicians seeing this use extortion tactics to get campaign contribution bribes. The whole system is broken and here we are.

Our think tanker replies; “Once this happens, the hearts of people will likely change, and people may want the same policies of their states to also reflect on the federal government.”

Yes, and they’d like that down to the local level also, but what they don’t want, what no one wants is the Federal Government in every aspect of their lives and businesses because that kind of goes against the whole concept of what being an American is all about.

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Real Estate Games Can Be More Than Just Pastime

Recreation is a vital part of everyone’s life. Gaming is one form in which children and adult alike can become hooked. But more than just past times, they can be used to educate.

Strategy games with some touch of real estate can be used early to teach children important aspects of the industry. There are real estate games which starts with the player owning a land. In order to prosper, the land needs to be developed. Problems soon arise with cash flowing in to the player’s side giving more opportunities to buy more properties but giving more difficulties for maintaining them.

There are also games which allows you to be a property manager, a house flipper, an interior designer, a real estate tycoon, and so much more. Almost any title or job relevant to the real estate industry has a game you can engage in.

Classic Games

Do you know that there is a very classic game which can be used to train kids to develop basic grasp of real estate? That game is called Monopoly.

In this game, the players battle for property ownership. By landing on specific properties, players buy them at the game’s bank and the title cards are awarded to them. As the game progresses, they can develop the properties to establish houses and hotels.

Other players who land on other player’s properties need to pay rents equivalent to how many houses or hotels are established on them.

The game has other kinds of properties like railroads and utility companies. The players can also own them and collect rent to other players.

This board game is actually a strategy game too. It makes the players think carefully on whether to buy a certain property or not. There are also financial constraints like taxes, maintenance repairs, and other expenses which can affect the players’ earnings.

Modern versions

This classic board game has now evolved. It can now be played on computers and gadgets. There are several versions which have slight variations on rules. Some are even made to be adaptive to certain areas like changing names of streets to those known to a certain country.

The real estate industry is a truly fascinating world. It captures not only the minds of adults but also the curiosity of children. Real estate games can be their first step towards understanding what the industry can do for them. Whether they just want to be plain homeowners or real estate tycoons, there are games to harness their skills.

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Ultimate Practical Tax Lawyer Secrets to Tax Audit Survival

CRA Income Tax Audit – Toronto Tax Lawyer Introduction

As Toronto tax lawyers we deal with CRA audits and auditors on a daily basis. So what is a tax audit? This article will explain what you can expect to happen if you are audited for taxes.

The Canadian income tax system is based on self assessment. In other words it is up to every Canadian taxpayer to fully and properly report their total income from all sources on their annual T1 or T2 income tax return. The Canada Revenue Agency performs tax audits and issues income tax assessments to ensure that the self-assessment income tax system continues to work properly. While most Canadians are truthful on their tax returns, there are some who are not. CRA is looking for errors or disputable positions or deliberate misstatements on tax returns that have been filed.

What is a Tax Audit?

An income tax audit is an examination of a taxpayer’s returns and supporting records to make sure that income and expenses have been properly reported and are supported by accounting records and receipts. The CRA tax auditor will ask to see the individual or corporate books and records and bank account and receipts for expenses. A corporation will normally have to provide its minute book to support any dividends or bonuses. There may be questionnaires to be filled out. Any information that is wrong, even if due to an error, will be used against the taxpayer.

Most audits are done to ensure compliance with the Income Tax Act for income or payroll deductions or under the Excise Tax Act for GST/HST.

Canadian Tax Audit Procedures

CRA auditors will often search for relevant information on the Internet, and a taxpayer’s web site or other sources located on Google might contradict information the taxpayer provides to the auditor. This information will then be used for further enquiries possibly including 3rd party requests for information. Furthermore open social media accounts are publicly accessible, and CRA auditors will gather this data from taxpayer social media accounts to build a case against a taxpayer. CRA officials have publicly discussed using taxpayer’s social media accounts in this way. If taxpayer lifestyle and reported income don’t match up the CRA tax auditor may decide to look into the taxpayer’s situation to see what’s actually going on.

CRA’s practice on income tax audits is to do a GST (and HST) compliance review; if problems are found, the matter is normally forwarded to a GST/HST auditor for a full GST/HST audit. Similarly, an income tax compliance review is often done during GST/HST audits. Combined income tax and GST/HST audits were discontinued in July 2010. These compliance reviews are not always carried out and sometimes income tax audits may miss large GST/HST problems and vice versa.

CRA Audit Statistics

CRA issues an annual report to Parliament. The latest one was released in January 2016. The audit statistics from CRA Annual Report 2014-2015 provide less detailed information than for the previous year.

For small & medium enterprises no statistics were given. CRA reports that they reviewed 12,981 international and large business files and 9,440 aggressive tax planning files that resulted in identifying $1.4 billion in fiscal impact. For international and large business files CRA audited 6,540 income tax and GST/HST underground economy files and identified over $448 million in fiscal impact. In all cases there were fewer audits in 2014/15 that the previous year. Presumably this reflects the results of budget changes.

Reasons for Tax Audit

CRA may choose to audit a taxpayer for several reasons. Amongst them are:

  • Industry audit projects
  • Random selection
  • Third party tips
  • Past history of non-compliance
  • Comparison of information on returns to information received from third-party sources – in other words are all T-slips reported

Since 2011 CRA has been auditing high net worth individuals and families, sending questionnaires asking for information about all companies, trusts, etc. that they control.

CRA has also been concentrating additional audit resources on the underground economy in an attempt to deter unreported cash sales.

What is the Tax Auditor Looking For?

The focus of the tax audit is to find errors in tax returns. Here are some examples of typical issues that may arise in a tax audit that would cause a taxpayer to receive a tax assessment at the end of the tax audit and that could result in penalties or a referral for a tax evasion investigation:

  • Overstated Expenses
  • Overstated Deductions
  • Over claimed Income Tax Credits
  • Under reported or unreported Earnings
  • Unreported cash sales
  • Unreported internet income
  • Unreported offshore income
  • Unreported offshore assets
  • Credits, such as for charitable donations, that are not supported by receipts
  • Personal expenses deducted for business
  • Shareholder loans not repaid within 2 corporate year ends

Right of CRA to Audit and CRA Audit Policies

Section 231.1 of the Income Tax Act gives CRA the statutory ability to carry out audits. In particular it entitles auditors to request and examine documents including computer records. Section 231.2 is a more formal provision whereby a “demand” or “requirement” is issued, but it need not be used by a tax auditor in the normal course where s.231.1 suffices.

The CRA can choose to audit anyone, but case law has held that such discretion does not permit a vexatious audit made for capricious reasons.

The Canada Revenue Agency has an internal policy in CRA Audit Manual §9.12.3 that audits should normally be limited to “one plus one” years that is to say the most recent year for which a return has been filed and assessed, plus one year back, with limited exceptions. This policy can be pointed out to a tax auditor to try to limit the scope of audit requests, but it has no legal effect and cannot be used in court to challenge a tax assessment that has been issued. Of course this rule of one plus one years does not apply in the case where CRA suspects unreported income. They will typically look at three years, and in some cases even more than 3 years.

In theory, the CRA has no discretion in applying the Act and must “follow it absolutely” by issuing a tax assessment for all otaxes wing. The reality is that in practice tax auditors have wide discretion not to assess an amount, however once it is correctly assessed; a Tax Appeals Officer or Tax Court judge will have no power to cancel it on grounds of equity, fairness or compassion.

Tax Audit Assistance from Toronto Tax Lawyer

Our top Toronto tax lawyers fight CRA tax auditors every day. A taxpayer has the right to professional representation at all times. This is specifically provided for in right 15 of the Taxpayer Bill of Rights which says “You can choose a person to represent you and to get advice about your tax and benefit affairs. Once you authorize us to deal with this person, we can discuss your situation with your representative.” A taxpayer should never meet with a CRA auditor without a professional Canadian tax lawyer present. Any information that is wrong, even if due to an error, will be used against the taxpayer. The auditor will also take notes and may misunderstand what the taxpayer has said or may wrongly record responses. An Ontario tax lawyer will have his or her own notes to contradict any auditor errors. Contact our Toronto tax law firm for tax help as soon as a CRA tax auditor contacts you.

Founding lawyer, David Rotfleisch is an expert in the realm of income tax law.You might say that income tax is David’s passion for David is not only a lawyer, he is a chartered professional accountant. He has helped start-up businesses, resident and non-resident business owners and corporations with their tax affairs, and over the years, he has assisted numerous corporations and individuals with simple and complex tax and estate planning matters as well as tax amnesty and tax litigation issues.

We are Toronto based tax lawyers with more than 25 years of experience. We deal with all tax problems of the Canadian citizens and find out the perfect solution for them in a quick,responsive and efficient way. We fight CRA daily. Share your income tax problems with us and sleep at night.

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The Transaction Tax on Deposits: Has the IRS Finally Met Its Match?

If I made you the President, Congress, and Supreme Court and you can change one thing, what would it be?

Many of us feel the U.S. is headed to the point of no return and feel the American dream is no longer attainable. How many of you are tired of hearing about government shutdowns, raising the debt limit every year, or you aren’t paying enough taxes?

The Founding Fathers gave the Federal Government the power to establish a means of monetary exchange and to protect our property rights. The government has a right to charge a fee for these services, a brokerage fee if you will that serves to facilitate a voluntary exchange of rights between two or more parties.

But things changed in 1913 when the 16th Amendment gave the government the power to tax income, thus creating the IRS. We were told only the rich would pay it; that it would even the playing field between the rich and poor, the have and have-nots. 100 years, and 74,000 tax code pages later, what happened? How did we get here? What would Ben Franklin, George Washington, Thomas Edison, or Henry Ford think if they were around today?

Today, the rich are still rich, the poor are still poor, tax revenues as a percentage of GDP have averaged 18% over the past 100 years (no matter if rates were 34% or 94%), we are $19 trillion in debt, and the dollar has lost 96% of its value. This doesn’t even include the future promises that were made with Social Security and Medicare.

What if there is a better way than the one we have now? A way that:

• Addresses these issues and reverses these numbers

• You can keep close to 100% of your paycheck and you decide how it is spent

• Government can run more efficiently

• Increases foreign investment in the USA, creating job opportunities

• Increases US competitiveness internationally

• Reduces your tax bill by 85% or more

• Replaces the current tax system, not adds to it

By now, you may have realized the answer to my question for me it to repeal the 16the amendment and eliminate the income tax. But what do we replace it with?

The Founding Fathers were adamantly against giving the government the power to tax income. In fact, taxing income was a basis for the American Revolution which, in their minds, took too much power from the people and transferred it to the government.

It wasn’t until the late 1890’s, early 1900’s that taxes went from not only as a means of generating revenue for the government, but also as a vehicle of social justice, which is a redistribution of wealth from the rich to the poor.

The U.S. tax system is unique in that it is both progressive and regressive at the same time. Progressive (Regressive) means as income increases (decreases), the tax burden as a percent of income increases. The argument for a progressive tax is the ability to pay. Those who make more should pay more. But how much more is the question.

Today, the tax code is over 74,000 pages long, most of which goes to the definition of income. No one could possibly know what is in those 74,000 pages. Even those who wrote it don’t know. It costs approximately $12 billion to administer. This doesn’t even include fraud or the underground economy that pays no taxes at all. Since we live in a global economy that is linked electronically at the push of a button, it isn’t difficult to move funds around to avoid high taxes. Americans spend countless hours trying to comply with the tax code. We are told that tax policy is designed to stimulate economic growth. Many of us believe that it is designed to promote a certain type of behavior (spending) while discouraging others (saving).

There has to be a better way. There is. It’s just a matter of will.

There have been several alternatives proposed to eliminate the current tax system. Some have been taken seriously, meaning a bill was introduced into Congress. Others have only been discussed theoretically. Most deal with replacing the income tax with some form of consumption tax. A consumption tax is a tax on spending for goods and services. You may have heard of some of these: A National Sales tax, a VAT Tax, the Flat tax, and the Fair tax.

All of these are better than what we have now. They are simpler, don’t punish savings and investment, progressive on consumption, improve US competitiveness overseas, and encourage foreign investment. But they still have flaws like administrative and compliance costs, regressive on wages, don’t replace all income taxes (except fair tax), calculating an accurate tax base, preventing fraud and evasion. Of course, all of these costs get passed on to consumers

So, how do you eliminate the tax code, fund the federal budget, and provide for the future entitlements that were already promised while providing businesses and families a tax cut? Find a tax base that is 100 times larger than the one we have now, and then provide an automated system that operates in real time.

The Automated Payment Transaction Tax (APT) was created by University of Wisconsin economics professor Dr. Edgar Feige and presented by William Hermann in 2003. The idea came from the fact that since so much of the economy is electronic due to advances in technology, why not take advantage of this same technology and simplify the way the government collects its revenue. The APT tax is intended to replace all federal, payroll, corporate, and estate taxes. It’s not intended to be an additional source of revenue for the government. It’s the simplest and most efficient way for the government to collect its revenue at the lowest possible cost to the taxpayer. Finally, it is intended to eliminate income tax returns (and the IRS!), reduce the opportunity for fraud and evasion, and broaden the tax base.

The APT tax is certainly an out-of-the-box way of thinking. The current system taxes income (GDP). The transaction tax is based on all of the transactions that make up that $13 trillion GDP. It is important to note that for the transaction tax to be revenue neutral, it must have an accurate number from the Bank of International Settlements, and an economist who knows how to interpret it. Once this is accomplished, it’s simple to administer. The rate is simply the Budget/# of transactions.

Here’s how it works. Every institution that generates a transaction would set up a Federal Government Tax Collection Account called a TPA (Tax Payer Account). The government only has access to the total aggregate sum of payments in the TPA. It wouldn’t have access to the individual transactions of a taxpayer. This ensures individual taxpayer privacy.

The technology already exists in the current systems of payments used by banks and credit card companies. This should help reduce the initial setup costs as opposed to starting from scratch. Simply post a credit to the deposit account of the payer and debit to the TPA. Institutions would only need to add a computer chip or some other software enhancement that would create a virtual tax payer account linked to every customer financial account.

For example, let’s say the rate is 5%. Mary goes to the grocery store and buys $100 worth of items. The tax of $5 (100*.05) is automatically transferred to the government TPA. All taxes are assessed and collected in real time.

Every transaction is treated in this manner, whether it’s receiving your paycheck, buying a car, or investing in a stock. No longer is there a need to file a tax return on April 15th and the government doesn’t incur collection and enforcement expenses. Also, individuals and business don’t incur the cost of compliance, including time.

By now, I’m sure you’re wondering what the rate is. The latest data available is from 2005. GDP was $13 trillion and the number of transactions was $856 trillion. Dr Feige then took a conservative approach in anticipating future behavior to try and avoid the tax. He deduced that a worst case scenario would be that the number of transactions would be cut in half. This is the only proposal that anticipates a worst case scenario. Most of the others present a best case scenario. Could you imagine the worst case scenario of those proposals where the rates were doubled? Debate over. Back to the income tax.

The base is $428 trillion ($856*.50). With government revenues of $2.4 trillion, the tax rate is.56% ($2.4/$428). Each side of the transaction would pay half. Going back to our grocery store example, the tax is $0.56 ($100*.0056). The buyer and seller each pay $0.28.

Let’s take a look and see how this affects the average American. Mary has an annual income of $50,000. After deductions, she is in the 15% bracket for a tax liability of $7,500 ($50,000*.15). Add another 7.65% for Social Security (6.20%) and Medicare (1.45%) or $3,825, we get a total tax bill of $11,325. Under the transaction tax, Mary has a base of $100,000: $50,000 coming in as income and $50,000 going out in spending and/or saving. It doesn’t matter how the $50,000 is used. It’s treated the same under the transaction tax. Her tax liability is $280 ($50,000*.0056) or ($100,000*.0028). That’s it. Plain and simple. No more calculating deductions and exemptions, trying to figure out if you qualify for some credit, or worrying if you’re going to get audited. No more tax returns. Period. April 15th is just another day. Plus, Mary has an extra $11,000 in her pocket.

Now, let’s see how it works for a rich guy. Mr. 1% has an annual income of $1,000,000. After deductions, which either took a considerable amount of time to calculate or cost to have someone else do it, he is in the 30% bracket for a tax liability of $300,000 ($1,000,000*.30). His payroll taxes are approximately $8,000, for a total tax bill of $308,000. Under the transaction tax, he has a base of $2,000,000 ($1,000,000 in, $1,000,000 out). His tax bill is $5,600 ($1,000,000*.0056) or ($2,000,000 *.0028). If we did the calculation for a corporation like Microsoft, we’d see similar savings.

I’m sure by now the question you’re asking yourself is “how can the government possibly pay its bills under such a system?” Then the one after that is “if the rich aren’t paying the taxes, then who is?” The answer lies in what makes up the $856 trillion tax base. Income only makes up 1.5% of the base ($13 Trillion GDP/$856 Trillion transaction base). Mr 1% is pretty close to that at 1.8% ($5,600/$308,000). Mary is at 2.4% ($280/$11,325). So what makes up that 98% difference?

Let’s start with the cost of doing business in the United States. If we do the math for Microsoft, let’s see how close their tax bill is close to being 98% lower. Their tax liability for 2011 was 4.9 billion ( 18%). Remember, we are no longer concerned with income. They would now pay a 0.28% tax on every transaction they make to bring their products to market. It doesn’t matter whether it’s on a dollar of revenue or a dollar of expense. If their net income was $0 or negative, their tax liability would still be based on all of the transactions they incurred. Under the current system, their tax liability would be $0. They had revenue of 69.9 billion, expenses of 41.9 billion, and 5.4 billion in dividends, giving us a tax liability of 328 million (69.9+41.9+5.4)*.0028. That’s a savings of 93% (.328/4.9). This doesn’t include what they did with retained earnings or stock options and other financial perks. We will address those next.

This goes for every single company, partnership, and sole proprietorship that operates in the United States. Since the tax is paid in real time when transactions occur, there is no longer a need for compliance, preparation, or any other costs associated with taxes. Skills and expertise can now be utilized elsewhere.

Next, let’s look at those areas of the economy that are currently not taxed. The two biggest are financial transactions and currency transactions. The biggest argument against the transaction tax is that economic activity would be adversely affected since these transactions are so important to market liquidity. However, this has already been taken into account by reducing the tax base by 50%.

Empirical research has shown that a transaction tax will have an adverse effect on security trades and currency trades, mostly due to the small bid-ask spreads. To counteract this, we created an alternative called transaction tax on deposits, which is only imposed on deposits (financial institutions that hold personal, business, and investment accounts). Investment accounts would be taxed twice: once on initial deposit and once when withdrawn and deposited into a bank account. The second tax could be avoided by allowing direct checking and debit cards from these accounts, which would make them more popular. For this example, we used a 7 year projection of economic expansion making the numbers more accurate.

• The tax base rises from $856 Trillion to $1.0 Quadrillion

• Subtract 50% as only deposits pay the tax for a base of $500 Trillion

• Subtract another 35% for financial and currency transactions for a base of $325 trillion ($500*.65)

• As in the original calculation, subtract 50% for behavioral changes to avoid the tax, leaving us with a final base of $162.5 trillion ($325*.5)

• If the budget is $3.7 Trillion, the rate is 2.28% ($3.7/$162.5). It is a bit higher than the APT rate, but considerably lower than the current system and all of the other alternatives. Note, there is no tax on cash withdrawals because they are not considered deposits

Going back to our Mary example, her tax is now $1,140 ($50,000*.0228) for a 90% savings of $10,185 ($10,185/$11,325). To show how flexible the rate is at minimal cost, let’s say we increase the rate to 2.50%. Total revenue for the government would be $4.062 Trillion ($162.5*.025), for a surplus of $362 Billion. Simple math: numerator divided by denominator. If we add compliance and enforcement savings of $500 Billion, we have close to an extra $1.0 Trillion to pay down debt or fund unfunded liabilities like Social Security and Medicare. I’ll leave you with these closing thoughts:

All of the alternatives presented are better than the current system. They are simpler and more efficient. But simpler doesn’t mean simple. The following issues still exist:

• Someone still has to collect the taxes and enforce the code

• Someone still has to determine what is income, a deduction, and an exemption

• It’s difficult to predict the amount of revenue that will be generated or anticipate changes in behavior to avoid the tax. None even attempt to.

• Since the tax is not collected immediately, the opportunity for fraud and tax evasion still exists

• Taxpayers still need to fill out forms and comply with the code (The IRS still exists, except with Fair tax)

• Perhaps most importantly, they are all regressive (wages)

The transaction tax on deposits solves all of these issues. Since it is paid in real time, the taxpayer doesn’t need to do any calculations, keep any records, or read 74,000 pages of the tax code. It’s efficient because the government doesn’t have to expend resources collecting the tax or enforcing the code. Real time payments also provide transparency. No longer is there ambiguity about who is paying the tax and how much they are paying. The calculation of the rate is simple: (Revenue needed/#of transactions). Finally, we won’t have to hear the “fair share” argument anymore because everyone is paying their fair share. Everyone has skin in the game. It’s fair because there is no more favoritism towards one group over another. No more pandering to lobbyist and special interest groups. Since wages, spending, and saving are treated equally, it’s not regressive. It’s progressive, not in rates, but through the skewness of the tax base, which makes it different from all other proposals. Since high net worth entities conduct most of the transactions, they pay most of the tax. The poor pay close to nothing.

The transaction tax on deposits is not foolproof. Any system can be manipulated. It won’t solve how our tax dollars are spent, only how they are collected. It won’t avert another financial crisis that is based on bad policy. It’s flexible enough in that the rate can be adjusted to meet projecting spending requirements (paying down debt and future entitlement promises), as long as we can calculate a reliable tax base.

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Wisconsin Politics and Their One Billion Dollar Surplus in 2013

Sometimes Republicans don’t get enough credit, but I believe they should. Luckily the Republicans hold thirty-one governor seats at the start of 2017. One of the most notable would be Scott Walker and in 2013 he was doing quite well, he had created a one billion dollar surplus for the state. I remember discussing this with our think tank back then.

“Gov. Scott Walker stated that several states around his increased taxes, and as a result unemployment was on the rise in those states. I put some thought into what is going on and I am actually excited to see what the future holds for us.”

Turns out it’s now 2017 and our think tanker living in Indiana had Mike Pence as governor who did the same thing, with similar results as Scott Walker – Pence was rewarded for his good governance and stewardship with his name on the Trump Ticket, he’s now our Vice President.

If you recall, Scott Walker tried to negotiate with the unions, and they played hard-ball to the max, he took the vote to the people knowing that the people were tired of government employee unions holding the taxpayer for ransom. If you’ve ever been to downtown Madison, and just sit in the Starbucks across the street from the capital building you’d immediately understand the dynamics they’re merely after overhearing and eavesdropping on conversations for a few hours, I have several times.

Still, the people of Wisconsin are very strong hearty people, they have to be it’s cold there! They have a good work ethic too. The union workers are not bad people, but they’ve certainly grown strong over the years and their politics over-stepped the bounds of fiscal reality. Is it thus, their fault?

Well, health care costs have been rising, people are living longer, the union pension fund has faltered due to slower GDP and stock market growth, and the retired employee cost had risen to nearly 40% of the states’ budget, so if anything in this world is unsustainable, and I just hate that word due to its overuse by everyone and anyone who wants to meld our minds to their socialist agenda, it would be this notion that states, counties and cities across this country can continue in the same vein considering these new conditions and trendy aging demographic realities. For Scott Walker to accomplish that surplus under those conditions is even more impressive.

Our think tanker also noted with great predictionary precision; “I believe there will be an inevitable revival in conservative fiscal policies throughout the United States.”

Indeed, I look at Germany right now and they want no one to collect social security unless they’ve paid in for 40-years and although today the retirement age is 65, they want to attempt to lower it to 62, and they are hoping that inflation and the influx of Eastern Europeans to work will help keep their fiscal policies buoyant. I see the PIIGS of Europe still learning their lessons, except of Ireland which has learned its lesson.

Either we get our act together with fiscal responsibility now at all levels including the states, or we turn into an irreversible slow train wreck as we head down the path of socialism and hope to get inflation to cover the tracks of such wasteful and irresponsible spending.

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Streamlining Tax Operations

A tax function’s capability to provide value depends on how well it is able to modify to the constantly evolving regulatory alterations at present, while contributing to a firm’s business strategy.

Often, most corporate tax activities are not able to address the operational incompetence. Increasing regulatory needs and restricted resources indicate that tax divisions are under constant pressure.

Progressive tax departments are performing an in-depth current state evaluation that delivers a roadmap of distinct actions, cost, and comparative significance of the tax functions to reflect enhancing efficiency.

These evaluations take into account the existing operational condition, organizational culture, and an aptitude for change.

The tax scenario is becoming complex as firms are expanding their sales & operational reach into other domains and facilitating mergers & acquisitions.

Information required for the tax functions is normally decentralized and stored in systems customized for financial & management reporting. This requires a substantial initiative to not only revamp the information for tax purpose but also comprehend the position of different tax instructions.

The pressure from globalization, increasing the requirement for efficient utilization of resources, and expanding focus on business synergy is forcing business/tax stakeholders to modify their approach towards tax operations.

The progress of tax operations is a continuous process, be it an outcome of strategic alteration as requirements emerge and circumstances transform. The questions surrounding tax operations revolve around normal operations, development in global tax governance, efficient utilization of tax data analytics, and international risk management competencies.

In the recent past, severe economic circumstances facilitated several business transformations that had an indirect effect on tax operations.

Currently, risk and existing business preferences are critical factors influencing tax operations. Tax stakeholders are concerned with the tax risk and it is one of the most important priorities.

The factors influencing the regulatory and risk environment are as follows:

  • In-depth emphasis on peer tax rates.
  • An increase in control by tax authorities.
  • Change in international business models.
  • A boost in the requirement for organizing the international capital.
  • Discussion on corporate governance and tax avoidance.
  • Uncertain tax legislation.
  • Critical regulatory environment.
  • Leadership emphasis on decreasing tax.
  • Enhanced importance of reputational risk.

Tax authorities also felt that quality impacted global tax compliance/reporting and was the number one concern. The other factors – tax cost and the capability for value addition were also key issues.

In other words, tax authorities wouldn’t be able to accomplish the expected outcomes by functioning normally, instead, they have to change their operations. However, the process of modifying the tax structure, while maintaining service quality is complex.

Efficient tax firms can maintain performance in a volatile business environment since they are excellent at change management. They have a robust leadership team, efficient resources/tools/technology, clear communication, effective service delivery methods, business analytics, and performance standards.

In order to cater to complex requirements, several tax activities are accepting a hybrid operating method, complementing the efforts of internal corporate tax personnel with an interface of top-notch internal/external sources.

Two critical features of tax operating models are tax centers of excellence (COEs) and shared service centers.

Centers of excellence are specific, delivering a distinct service. For e.g., the creation of indirect tax returns/statutory reporting. On the other hand, shared service centers are multi-dimensional and consist of many tax controls.

There aren’t any customized solutions. Distinct solutions are exclusive to specific tax department requirements. For instance, using internal human resources would be appropriate if there exists an adequate current scale via a delivery network, security threat, and data management.

However, it won’t be a binding solution – the tax personnel from a specific sector could leverage current service center to manage special tax segments, while a firm could use the current finance & accounting methods to perform “traditional tax assignments”.

A robust internal tax system would enable an organization to manage tax operations effectively while displacing internal personnel for specific functions.

Co-sourcing gives an organization the opportunity to use the tax expertise that would not be available internally. It also provides the opportunity to shift the organization’s resources to some other use.

The offshoring of tax functions/processes provides the following advantages:

  • Lesser costs.
  • Internal personnel can emphasize high-value functions.
  • The possibility of establishing a relationship with global personnel.
  • The scope for leveraging time zones.

Organizations emphasize many critical architectures that assist efficient implementation and viable performance. They provide transparent vision/mission/objectives.

Therefore, for transformation initiatives to be successful, it would be advisable to have a holistic approach towards the complete tax process. This enables tax stakeholders to conclude on hybridization and the methodology required to enhance scalability.

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Maritime Taxes: Saving Money On The Water

The siren call of boat ownership is easy to understand, here in South Florida. On a hot summer day, or even a crisp winter afternoon, getting out on the water for some sailing, fishing, snorkeling or water skiing can seem like the perfect reason to take the plunge.

Florida, and in particular the Greater Fort Lauderdale area where I live and work, is a major center for the motor yacht and boating industry. In South Florida, about 136,000 people currently work in the industry. According to industry figures for 2014, 19 percent of the over 30,000 boats sold in the U.S. that year were sold in Florida.

If you are ready to invest in a boat of your own, whether a modest fishing boat or a high-end yacht, it is worthwhile to pause and consider the tax implications, wherever you may live. Depending on the ways in which you intend to use your new watercraft, that impact could be minimal, or it could significantly change your overall financial picture.

Taxing Boat Sales

As with any big-ticket purchase, you should keep sales tax in mind when you are ready to buy your vessel of choice. There is no federal vessel tax, and federal luxury tax was repealed in the 1990s, so Uncle Sam does not take any particular interest in whether or not you choose to buy a boat. The states, however, want their cut. Every state is different, so be sure to take the time to understand any particular quirks in state law before you buy.

In Florida, for instance, boats are subject to the state sales tax rate of 6 percent, in addition to any local taxes. However, as of 2010 Florida has capped this tax, limiting it to the first $300,000 of a boat’s purchase price. Thus, under current law, Florida will not collect more than $18,000 in sales tax on your new vessel. In addition, many Florida counties impose a discretionary sales surtax, which can apply to the first $5,000 of the purchase price. These sales tax caps make buying a high-end boat more attractive in Florida.

The Florida Legislature’s revenue estimating committee projected in 2010 that the tax cap would cost the state as much as $1.4 million in the first year. Instead, tax collections on yacht sales in the state rose more than $13 million in that time. Buyers who previously spent large sums to form offshore companies in order to skirt the state tax found it cheaper and easier to simply pay the Florida tax outright. So before you buy a boat, consider whether you can get a better deal by buying and berthing it in another state.

The cap on boat sales tax was so powerful that other states are competing by passing caps of their own. Recently, Maryland, New Jersey and New York all passed or are considering passing laws to cap the tax on boat sales. Depending on your politics, you may consider this an unnecessary tax break for the wealthy boat-buying class, but based on the increase in tax revenue after Florida’s cap went into effect, you can also see how lowering taxes and state competition can sometimes lead to long-term economic benefits. More boat sales in Florida lead to more employment and growth in marine-related industries in the region.

For whatever sales tax you do pay on your boat purchase, you may be able to realize some benefit when filing your federal income taxes. Assuming you itemize your deductions, you can deduct local sales tax in lieu of claiming state and local income taxes. Especially in states – like Florida – that do not levy a personal income tax, this can represent a significant deduction. The main calculation of the general sales tax deduction is based on your adjusted gross income, but you can add sales tax paid specifically on a car or boat purchase to that amount.

Make sure you also understand how a state’s use tax may impact you. For the typical recreational vessel, use tax will not matter, because sales and use tax are mutually exclusive – if you pay sales tax on a transaction, you cannot also owe use tax. That said, if you plan to use a watercraft primarily in a different state than the one where it was purchased, it is worth taking the time to make sure you understand your home state’s rules and that your documentation is in order so you do not end up a target for overzealous state tax authorities.

You should also educate yourself on state and local taxes related to a watercraft which may apply on an annual or ongoing basis. Certain states and local authorities levy personal property taxes annually on boats docked within their jurisdictions.

On the other hand, some states offer particular tax breaks to boat owners. For example, last year Florida passed a law limiting the sales tax on boat repairs to no more than $60,000, or the first $1 million of repair costs. Like the sales tax cap on boat purchases, the law is intended to allow Florida to maintain its status as a leader in the marine industry. The hope is that the cap on boat repair sales tax will attract and retain repair and refit business for luxury yachts and other high-end boats in the state, thereby increasing revenue and employment, bolstering the local economy. If you own a yacht in a high-tax state, it could make sense to cruise it down to Florida for major repair work to save on taxes. Some states even offer a tax credit on fuel used for recreational boating. Yes, even the boating industry has a strong lobby group to push state legislators for tax breaks.

Living On Your Boat

While it makes sense to think of your vessel in the same way you might think of a car or recreational vehicle, there is another way to characterize it. In some cases, a boat can plausibly serve as a second home, meaning it can offer deductible home loan interest. In order to qualify, the vessel must include cooking, sleeping and toilet facilities; do not try to convince the Internal Revenue Service that you live on your jet ski.

There are a few other caveats. The deduction is on mortgage interest secured by the residence, so the deduction will not affect you if you bought your boat outright or used some personal line of credit, such as a credit card. Also, if you are already deducting interest on a second home, you cannot deduct both it and the boat loan interest in the same year, though you may switch between them from year to year if you wish.

A boat may even be your primary residence. Technically, as long as it meets the bed, bathroom and kitchen (or rather galley) test, you can declare your boat to be your main home. Note that if you use your boat for business, as I’ll discuss in the next section, you must divide your home between the part that is your primary residence and the part that is used to generate income. If your boat is your primary residence and it does not dock in the same port regularly, you may face a tricky tax domicile situation too.

Your Boat As A Business

Many boat owners use their boats to earn income, either on the side or as their main business. Depending on your situation, you may decide to use your vessel as a fishing charter, to run scuba or snorkeling tours, or to serve as a private ferry. As with a land-bound venture, you will need to take care to steer clear of the IRS’ hobby-loss rules by proving your genuine intention to make a profit, rather than just cover the costs of your time out on the water.

The benefit of establishing your activities as a genuine business is the ability to write off the boat’s depreciation, maintenance, equipment and fuel costs. You may not want to devote your boat exclusively to chartering; if not, you will need to keep track of the time and costs spent on private and business pursuits. Either way, you should always keep good business records and institute an accounting system to track your business activity.

As with other forms of self-employment, you will be responsible for income taxes and self-employment taxes. Remember that you may be subject to estimated income tax, which is due quarterly. Many boat owners choose to transfer their boat ownership to a limited liability company (LLC) for liability protection, but since this is a pass-through entity for tax purposes, it will not generally make much difference to your personal tax situation. If you are not used to running your own business, it may make sense to consult a tax professional or a Certified Financial Planner™ to make certain you keep up with your personal and business tax responsibilities.

If your boat business involves crossing state lines, you may need to be particularly careful about documenting the way income is sourced. Many people run up against the complications of conducting business in multiple states, and the water adds another complication. However, under a specific federal law (Chapter 46, U.S.C. Sec 11108(b)), working on navigable waters in the jurisdiction of more than one state is not sufficient to subject you to the states’ income tax rules. For example, if you live in Florida but work as a crewman on a vessel that operates in or passes through waterways of other states, only Florida – your state of residency – can impose its income tax laws (or lack thereof, since Florida has no state personal income tax). This law is particularly important for crewmembers on dredging vessels, which may operate in multiple states’ waterways (up the Mississippi river, for instance).

If you intend to find yourself operating in more than one state regularly, it may be best to consult a tax professional at the outset to understand what factors could affect your taxes. Where and how often a vessel docks and how much work is conducted on or connected to land can make a difference.

Some boat owners have no interest in running a small business, but would still like to offset the cost of owning a watercraft. An alternative strategy is to place the boat in charter with a reputable charter company. In such an arrangement, you typically retain ownership of the vessel, while the company assists you in managing what is essentially a rental business. Before you go this route, you will want to perform thorough due diligence and make sure your state’s business laws support such an arrangement, and you should understand your potential liability exposure.

What if your boat is also your office? The rules will be the same as for a home office ashore. The IRS primarily will consider whether you use your boat office exclusively and regularly for business purposes. For a boat-based office, the tricky requirement is usually the exclusive use test, because boats often have multi-purpose rooms. The IRS wants to see that you maintain a separate room or dedicated workspace that you use exclusively for business purposes.

If you are an employee and you use a part of your boat for business purposes, you may qualify for a deduction for its business use, but in addition to the exclusive and regular use tests, the boat office must also be for the convenience of your employer. You also must not rent any part of your boat to your employer and use the rented portion to perform services as an employee for that employer. If the use of the boat office is merely appropriate and helpful, you cannot deduct expenses for the business use of your boat office.

In many geographic regions it is only practical to use boats seasonally; note that an office aboard a vessel qualifies only for deductions during the time of use. IRS rules prohibit deducting office expenses aboard the boat during the period when you are not using the boat office for business purposes, or when the boat is in dry dock or storage.

A boat of your own can serve as a fun way to enjoy time on the water, a secondary or primary source of income, or even an unconventional place to call home. But besides the high costs of buying and maintaining a vessel, don’t overlook the tax considerations when deciding whether to answer the call of the open water.

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Imputing the Services of an Individual Taxpayer Identification Number to Build Tax Solutions

An Individual Taxpayer Identification Number is a United States tax identifying number issued to the individuals who are supposed to pay the federal taxes but do not possess a Social Security Number. They use this number as a legal proof to open bank accounts, apply for loans and process all the other financial activities. It is a nine digit number with a range of 70 to 88 in the fourth and fifth digits and does not serve the authorization to work or qualify dependents for the earned income tax credit purposes.

ITIN is issued regardless of immigration status to both the resident and nonresident alien immigrants who are responsible for the tax reportings. To detail it further all the non resident aliens willing to claim joint tax returns with a spouse, the spouse being a resident of the US or an alien individual residing on a temporary visa require an ITIN. Therefore, it is mandatory for all such unauthorized individuals who are claimed as dependents on another person’s US tax returns or for the non resident students and scholars entitled for the tax return filing requirements. A person in no case can have both the SSN and ITIN.

One can obtain an ITIN by submitting the W7 form which they can collect from the nearest social security office. The form should include a record of all the biographical information along with supporting original documents like voter cards, civil birth certificates, US or foreign driving license, registration cards, military identification cards, medical records, school records, passport and visa attached to the form. Applicants can submit two of the mentioned documents with a valid federal income tax return. The supplementary documents are returned to them within sixty days of the receipt and processing of the form. The ITIN issued to a person expires after using it for three consecutive years. In all such cases the individuals can reapply to get it renewed.

Since the applicants provide the IRS with a great amount of personal information, privacy is necessary for the success of the program. Expanding the information sharing beyond this would need the execution of new laws and procedures. Individuals willing to obtain an ITIN can also take the help of Acceptance Agent Services who are business entities certified by the Internal Revenue Service. These agents help the immigrants from getting their applications rejected by reviewing the authenticity of the documents submitted. They also issue a certificate of accuracy after successfully submitting the form to the respective IRS office on behalf of the applicants thus preventing them from mailing the original certificates. With them the applicants can execute their ITIN applications much faster than the applicants applying directly.

The ITIN program was created in order to bring the millions of foreign nationals under the federal tax laws. They use the Individual Taxpayer Identification Number to determine that how long he or she had been residing in the US and having a tax return filed. ITIN holders are also eligible for the CTC or the Child Tax Credit.

George Mathew has been working as a tax accountant for the ITIN4ME, a renowned tax service company issuing Individual Taxpayer Identification Number to the US residents and their claim dependents.

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Are You Taking Advantage of the Tax Savings?

Well… are you?

I’m sure you’ve heard or read by now that when you run a business from home (network marketing, affiliate marketing, direct sales, etc) you have certain tax advantages that your neighbors, co-workers, etc don’t have.

My question to you is, are you fully utilizing those tax advantages? And if you’re brand new to the whole work from home arena, do you even know what you have in your hands tax-savings wise?

Before I go any further in letting you in on the plethora of ways you can save money on your taxes, let me dispel an awful myth that I’ve heard through the years.

The Myth?

That if you’re just starting out to operate your business from home, you must be making a profit and you must do so in the first 3 years of business. And this is in accordance of being able to turn your everyday expenses into tax-saving deductions.

Simply, NOT TRUE! YOU DO NOT HAVE TO MAKE A PROFIT to claim certain home business deductions.

The truth is, all you have to do is show you are in pursuit of a profit or have the intent to make a profit and you’re good tax wise. Of course there is a little more to it as far as actually claiming certain deductions, but you do not have had to have made ANY money to do it.

Get this, when you run a business out of your home, there are times when you may have another opportunity to save money on your tax bill. How so? Well, let’s say you have to pick up your son or daughter from school or soccer practice, but you stop at Staples or Office Max to pick up some materials for your home office, guess what? That road trip is now a write-off! It’s imperative that you would record your odometer mileage from the time you left home till the time you returned home. That mileage called “standard” mileage” is 54 cents per mile for you to write-off. Cool right?

Another example, say you have two part-time jobs. Did you know you could deduct the mileage driven from your one job to the second job? And you don’t even have to have a business for that one.

Did you know that you could write-off a PORTION of the cost of your utilities or even your rent for a home-office you set up in that spare bedroom or den?

Did you know if you meet up with customers in your home and have a home-office set up that you could write off your landscaping? And according to IRS publication 505, even start-up costs in forming your new business is a tax write-off!

Here are some everyday expenses that could turn into deductions for you because of your wonderful home based business:

  • own your home
  • pay for gas
  • make home repairs
  • eat out
  • stay in hotels
  • have business only clothing
  • use a printer for work
  • use a computer for work
  • exercise
  • subscribe to business magazines
  • take road trips
  • own a smartphone
  • go on family vacations
  • pay bank fees
  • pay credit card fees
  • own a used car

And there are many, many more expenses I could list in this article. You get it though right? Having a work from home business is a great advantage that you should not only build wealth with, but save thousands of dollars from having to pay Uncle Sam too.

Here’s a little tool I use to keep track of all my expenses and to stay compliant. It’s called TaxBot!

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How to Manage Your Investment Holdings

The uncertain condition of today’s economy is not encouraging investors. This lowered investment trend can be traced back to the past 5 years where investments have been slow with subscriptions to how to manage your investment holdings magazines taking a dip. Many investors are uneasy over investing their money into a volatile market as stocks have been plummeting in value in recent years, with small rebounds here and there, now and then. This does not give investors enough confidence although there are many investing associations that offer courses or tips on how to manage your investment holdings.

Good Monitoring of Investment
It is crucial to monitor your investments especially in this time of market uncertainty or volatility. Choosing the best investments is no guarantee of positive returns, much less huge returns, if you are not tracking the movements of your portfolio. As in any investment, there will be profits and losses; you can waste a lot of time and your hard earned money if you do not have good tracking habits or strategies such as proper record keeping. It is essential for any serious investor to review their portfolio’s performance when you are serious about how to manage your investment holdings for good returns.

There may be taxes that are incurred, retirement computations which may lead you to make further decisions on your portfolio or opportunities that come by your way to grow your wealth. There are now many online resources for your picking to assist you on how to manage your investment holdings by keeping careful records on every investment you make, be it stock, bond, mutual fund or security. Once the easy setup is done, you will only need to commit to a weekly or bi-weekly check up on the performance of your portfolio. This way, you will not be taken by surprise on any adverse news as you monitor the organizational news of your portfolio.

Online Investment Services
Online investment tracking services will update your portfolio automatically to reflect any price changes on a daily basis with a re-computation of your assets. They also assist in comparisons of your investments to your targets and the expected returns of your portfolio. These online investment services also alert the investor on potential purchases to add on to your portfolio. They may even have tips on how to manage your investment holdings that will benefit you.

Self-directed investing
This is for those who want to manage their own portfolio; those of you who might be retirees and are keen on how to manage your investment holdings can consider monitoring your own investments with a sufficient bit of basic understanding of the various investment types available for your own consideration. You will need to be familiar with tax consequences as well as investment earnings and related costs with any investment you plan to undertake.

You will need to be computer savvy if you are engaging technology in your own monitoring of your portfolio as well as be comfortable with the investment terms and conditions.

Self-directed investment requires online accounts monitoring, evaluation and understanding before an investment transaction can be performed. There may be a substantial online research required to confirm or refute financial assumptions.

Other factors
There is still a need to engage an investment company or professional broker to perform some of your trades or investments. An online broker may charge certain fees for his services. You should check out the reputation and performance of online brokers first before engaging their services.

When you get going on how to manage your investment holdings, you may need to consider it as a long term goal so that you are able to pace your time and effort on the portfolio that you are going to set up. A good investment plan is usually for the long term to enjoy its good returns. Discipline and patience are two virtues that are required when you want to manage your own investments as most stocks do not bring in huge returns in the short run. It’s a great commitment to those stocks which you think will fare well in the long run.

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