One hundred years and counting...that is how long the income tax has been in place.
Importance of the 16th Amendment for Collecting Income Tax
The 16th Amendment was ratified in early 1913 and was critical for the federal government to collect income tax. Prior to its passage, collecting income tax was unconstitutional.
At least 36 states were required to approve and sign the 16th Amendment before it became ratified. Delaware was the 36th state to ratify it.
When it was ratified the tax form (the 1040 which we still use today) was only 3 pages long.
Compare that with today's tax return that can be dozens or in some cases hundreds of pages long. The complete federal tax code in total was 400 pages long. Today it is an estimated 73,000 pages plus.
Taxing the "Rich"
Most bills and laws passed today seem to run hundreds and sometimes thousands of pages long. The income tax act passed in 1913 was a total of 14 pages long and was aimed at taxing the "rich." At the time it targeted the top 1 percent of income earners.
The tax rate started at 1% on income greater than $3,000 (approximately $69.5 thousand in today's dollars) and increased to 7% on income greater than $500,000 (approximately $11.6 million in today's dollars). The total tax revenue for the federal government in 1913, in today's dollars, was $16.6 billion compared to $2.7 trillion today.
Prior to the ratification of the 16th Amendment, the federal government relied on tariffs i.e., consumption taxes. At the time of passage the income tax had nothing to do with the federal government requiring more money. The federal government in 1882 was running a surplus of $146 million (the tax revenues were $403 million and the federal expenses were only $257 million).
Originally, under President Grover Cleveland and Democrat majorities in both the House and Senate a 2% income tax on the rich (top 1% of income earners in the US) was passed in 1894. However the income tax was challenged in the Supreme Court (Pollack v. Farmers' Loan & Trust) and the court struck it down by a vote of 5 to 4. The cause for it to be struck down was that the Constitution required that a "direct tax" such as the income tax be apportioned equally among the states according to the population. This could not be the case with an income tax.
John Steele Gordon has a story about the history of the income tax that can be found here.
I included part of the history he writes about and pickup his column following the defeat of the first attempt to pass the income tax in 1894.
"The income tax was dead. But the pressure to tax the incomes of the largely untaxed rich only increased, especially as the Progressive wing of the republican party grew in strength under Theodore Roosevelt. By the time of the administration of President William Howard Taft (1909 -13) the pressure was becoming overwhelming. One representative suggested simply repassing the 1894 tax bill and daring the Supreme Court to overturn it a second time.
That idea horrified Taft, who revered the Supreme Court. He feared that it would weaken its position as the final arbiter of the Constitution. He came up with a brilliant, very lawyerly, alternative: he proposed a constitutional amendment to legalize a personal income tax, while meanwhile imposing a tax on corporate profits. In the early 20th century such a tax was, in effect, a tax on the rich. As the corporate income tax is technically an excise tax, there was no constitutional problem. Taft's solution was implemented and in 1913 the 16th Amendment was declared ratified just as Taft was leaving office.
The new president, Woodrow Wilson, and the strongly Democratic Congress promptly passed a personal income tax."
He goes on to write:
"Unfortunately the corporate income tax, originally intended as a stop gap measure, was left in place unchanged. As a result, for the last 98 years we have had two completely separate and uncoordinated income taxes."
CPAs Thank Congress and the IRS
So here we are, one hundred years later with over 73,000 pages of tax code with Congress continuing to add to it. More confusing and more complex than ever and requiring more knowledge than ever to complete a personal or corporate tax return.
CPA firms are truly blessed to have the IRS, Congress and the Office of the Presidency looking out for them and helping them grow CPA's practices across the country. Just think if we have the same exponential growth (doubled approximately every 11 years) over the next 100 years as the past 100 year our tax code will be about 15 million pages long. Can't wait to attend those continuing education tax update courses...
Did you make noncash donations this past year? Do you plan to write off those noncash contributions on your tax return? If so, your tax return may be under increased scrutiny. Here is some important information to consider when reporting your noncash charitable contributions.
The Treasury Inspector General for Tax Administration (TIGTA) is responsible for auditing the IRS (yes even they are subject to audits). In a recent audit they focused on assessing how well the IRS monitors and enforce taxpayer compliance with the reporting requirements for claiming noncash contributions on tax returns.
Many taxpayers will deduct noncash charitable contributions to qualifying organizations on their Federal tax return and do not properly comply with reporting requirements. The TIGTA office, in its audit, found that the IRS controls are not sufficient to ensure compliance.
They found, based on statistical sampling of 2010 tax returns that approximately 60 percent of tax filers that claimed $5,000 or more in noncash contributions did not comply with the reporting requirements. A total of $201.6 million was claimed by these taxpayers.
Taxpayers who claim noncash contributions that total more than $500.00 must file a specific form to report their noncash charitable contributions. Additionally taxpayers must follow specific guidelines when valuing the noncash contribution. Over estimating the value of the noncash contributions can create a problem for the taxpayer.
Taxpayers that donate motor vehicles, airplanes or boats must attach also attach Form 1098-C to their tax return. TIGTA found a number of tax returns, totaling $77 million, that were missing the Form 1098-C and over-estimated the fair market value of the noncash contributions by more than $2.2 million on many of the tax returns analyzed.
These factors have caused TIGTA to recommend to the IRS they expand procedures to identify tax returns claiming noncash charitable contributions that do not have the correct form attached and (or) a qualified appraisal attached when required. They also recommended the IRS develop processes to systematically verify the accuracy of noncash charitable contributions. Finally, they recommended to the IRS, they revise Form 8283 and related instructions and develop procedures to match the 1098-C with individual tax returns to those filed by charitable organizations. This would allow them to cross-reference the amount claimed for the donation of a motor vehicle, boat or airplane to that on the 1098-C reported by the charitable organization to the IRS.
Tax preparation has become increasingly complex. The tax code and reporting requirements for taxpayers have increased. The noncash contribution reporting requirements is just one example where a taxpayer cannot simply record a number or transaction on a line on the 1040. They must also provide additional documentation, fill out an additional form(s) and know how to determine the value of the contribution.
Failure to comply or deliberately mislead can lead to additional fines and interest charges. Because of the beast we call our tax code and increasing complex reporting requirements; you will want to consider having a CPA prepare your taxes this year.
A reputable tax professional will be readily available all year round to provide assistance with any tax problems or questions you may have - support and personal customer service that software can not offer.
A qualified CPA with his experience, education and continuing education requirements can navigate the maze of tax laws, identify deductions and help you pay the least tax possible. A software program does not offer advice and is only as good as the information entered into it.
Finally, many non-CPA preparers only file taxes seasonally and a large number of them have less than 50 hours worth of training. When considering cost, realize a CPA may be a little more expensive (although it may surprise you by how competitively priced many are), but you are buying the time of a preparer that has more education, knowledge and expertise of tax laws.
This tax season isn't it worth saving yourself the frustration, time and angst of having to think about and preparing your own taxes?
Have a question about tax changes in 2013, download our FAQs about the the tax changes in 2013.
Taxes! Doesn't that word itself conjure up nightmares? To the vast majority of the public, it
does. But of course there are some who enjoy the challenge of tackling the tax forms and have the time and the patience to study a few of the 70,000 plus pages of tax laws. If you are of this rare breed that possesses the ability to comprehend tax laws, by all means, you should save money and prepare your own tax return.
But if you are like the majority of common taxpayers, this DIY path could result in costly mistakes. Even if you are able to understand the tax laws and interpretations of the tax laws that apply to your situation, you may still end up paying more taxes than required.
You will probably spend many frustrating hours searching web sites and reading conflicting information. United States tax laws are complex and far reaching. Over the past decade they have become even more confusing and complex. Trying to read up and understand these laws once a year, as you prepare your taxes, only adds to the stress of already busy lives. It is not practical for the majority of us to study the tax code and become tax experts for one month out of the year for the one or two returns that have to be completed.
So what is one to do? Should we use a tax software or do we find a CPA we can trust? What factors should you consider?
The method you chose to prepare you tax return primarily depends on the complexity of your personal tax return and your personal preference.
Tax Knowledge
If you simply need to file a 1040EZ and prefer not to spend the money on a tax professional, than a software tax program will certainly meet your needs. Some web sites over free use of their software for the 1040EZ forms.
However, most tax filers will need to file a more complex tax return. To make good use of a tax program, you must have a good understanding of the tax system. You need to know which expenses qualify as deductions, which forms to use, what credits you may or may not be eligible for and how certain tax strategies affect the taxes you pay. A tax program does not explain tax credits, capital gains or losses, debt forgiveness or any of the other more involved aspects of our tax code. If you are a tax novice, a tax program is not likely to help you.
All tax preparers are now required to register with the IRS and take continuing education courses throughout the year. The tax preparers that meet the most stringent requirements and demonstrate the highest level of knowledge are CPAs. All CPAs must meet a minimum education level, worked in the industry for several years and have passed an in-depth, rigorous exam demonstrating comprehensive knowledge of the US tax code.
Accuracy
Since anyone can make a mistake, your tax return should be checked for accuracy, both in regards to what tax laws apply to your circumstances and for calculation errors. Any tax software program should allow you to insert, delete, and replace any number easily and then recalculate the totals.
Every year the IRS receives tens of thousands of returns with calculation errors, missing information and incomplete returns. This will either cause the return to be rejected or may result in a future notice from the IRS. Notifications of errors usually require you to amend the return and (or) pay additional taxes, penalties and interest. Preparing your own tax returns with this result does not save you time or money.
Availability
A reputable tax professional will be readily available all year round to provide assistance with any tax problems or questions you may have - support and personal customer service that software can not offer.
A qualified CPA with his experience, education and continuing education requirements can navigate the maze of tax laws, identify deductions and help you pay the least tax possible. A software program does not offer advice and is only as good as the information entered into it.
Finally, many preparers only file taxes seasonally and a large number of them have less than 50 hours worth of training. When considering cost, realize a CPA may be a little more expensive (although it may surprise you by how competitively priced many are), but you are buying the time of a preparer that has more education, knowledge and expertise of tax laws.
This tax season isn't it worth saving yourself the frustration, time and angst of having to think about and preparing your own taxes?
For the past year we have heard nonstop talk about "going over the fiscal cliff." This week, 
Congress averted that by passing a bill to address many of the tax increases that were about to kick-in and delayed the automatic budget cuts scheduled to begin.
While neither side appeared happy with the outcome there were both some positives and negatives for the taxpayer. Here are some of the highlights:
On the Positive Side
- Most of the Bush tax cuts will be preserved permanently. This includes the 10 percent, 15 percent, 25 percent and 28 percent tax brackets.
- The 33 and 35 percent tax brackets will be retained for individual taxpayers with income under $400,000 and for married couples with income under $450,000.
- The capital gains tax for individual taxpayers that make less than $200,000 and married couples that make less than $250,000 will be kept at 0 percent or 15 percent.
- The standard deduction for joint filers is kept at twice that of single filers. It was scheduled to go back to 1.67 times that of a single filer and would have resulted in a tax increase for joint filers.
- The Alternative Minimum Tax (AMT) has been permanently set to adjust for inflation. The AMT was originally passed to make sure that a small handful of the wealthiest Americans paid taxes. It was originally targeted at just a few hundred taxpayers but was never adjusted for inflation. As income for taxpayers increased with inflation, the AMT caused more taxpayers to be subject to the AMT. Since its passage millions more taxpayers are now subject to the AMT. Congress passed a patch every year to prevent even more people from being impacted by the AMT. With the permanent adjustment for inflation, they willl no longer have to pass a patch each year.
- The American Opportunity Tax Credit for education is extended through 2017.
- The child tax credit of $1,000 becomes permanent. Its refundable portion is extended through 2017.
- Emergency unemployment compensation and extended benefits unemployment insurance program is extended one year to January 1, 2014.
On the Negative Side
- Individual tax payers with income greater than $400,000 and married couples with incomes greater than $450,000 will see their top tax rates increase to 39.6%.
- For individuals that make more than $200,000 and joint filers with income above $250,000 there will be a phase out of their personal exemptions resulting in higher taxes.
- There will be a limitation on itemized deductions for individuals that have an income of more than $250,000, head of household filers that have an income greater than $275,000 and joint filers with an income greater than $300,000.
- With the Patient Protection and Affordable Care Act there is a 3.8% surtax on capital gains on income for single filers above $200,000 and married couples on income more than $250,000. The top capital gains tax rate at this income level with the surtax included is 18.8 percent.
- The top capital gains tax rate with the 3.9 percent surtax tax included is 23.8 percent for individuals who have income over $400,000 and joint filers who have income over $450,000.
- The estate and gift tax is increased to 40 percent with an exemption level of approximately $5.12 Million.
- The Social Security payroll tax increases by 2 percent and reverts back to 6.2 percent.
- No action was taken on the debt ceiling.
Below are the 2013 taxable income brackets:
| Rate |
Single Filers |
Married Joint Filers |
Head of Household Filers |
| 10% |
>$0 |
>$0 |
>$0 |
| 15% |
>$8,950 |
>$17,900 |
>$12,750 |
| 25% |
>$36,250 |
>$72,500 |
>$48,600 |
| 28% |
>$87850 |
>$146,400 |
>$125,450 |
| 33% |
>$183,250 |
>$223,050 |
>$203,150 |
| 35% |
>$398,850 |
>$398,350 |
>$398,350 |
| 39.6% |
>$400,000 |
>$450,000 |
>$425,000 |
Although a tax deal was reached that prevented the federal withholding income tax on most people from going up, the social security tax did increase by 2%. The Tax Policy Center estimates that the 2% increase in the Social Security payroll tax will decrease the average American workers pay by $740 per year.
Finally, the deal did not address the debt limit or include any significant spending cuts. The automatic budget cuts that were to start on January 1, 2013 have been delayed by 60 days.
The current debt for the US is in excess of $16.4 trillion and climbing each day. Within two months the US government will be facing two major issues: 1.) Reaching its maximum debt limit and 2.) The prospect of automatic budget cuts if an agreement is not reached.
Over the next two months expect to see more political posturing and rhetoric coming out of Washington and of course more complicated tax laws - after all it is tax season.
Have you ever had an employee upset because the net amount of his or her check decreased unexpectedly? Imagine your whole workforce upset because all their checks decreased unexpectedly. Who will be the first person to hear about it? Who has has to figure out why the employees' net checks have changed?
This may happen if you do not prepare your employees for the tax increases scheduled to occur on January 1, 2013. This year your employees' take home pay may decrease. The reasons for the decrease in take home pay are:
- The payroll tax cut put in place in 2010 is set to expire. This will increase the Social Security tax for employees from 4.2% back up to the pre 2010 level of 6.2%.
- The tax withholding tables will be updated, but it is not known if they will be based on the current tax rates or the pre-Bush tax rates.
- Employees may change their W4 withholding allowance or marital status on their W4 or state withholding form.
Currently there is a great degree of uncertainty as to what will happen come January. Until legislation is passed in the House and Senate and signed into law by the President, no one quite knows what will happen to any of these taxes.
How the Social Security Payroll Tax Cut Impacts an Employees' Net Check
The 2% payroll tax increase will decrease the amount of money an employee takes home by 2% of his or her gross pay. If an employee's gross wages for a pay period is $2,000, his or her net check for that pay period will decrease by $40 (.02 multiplied by $2,000 equals $40).
For 2013 the Social Security tax applies to all wages paid to an employee below $113,700. Any wages that an employee earns greater than $113,700 are not subject to the Social Security tax.
How the Changes to the Withholding Table Can Impact Your Employees' Paycheck
The amount of federal taxes withheld from an employee's paycheck is based on the W4 withholdings and the income bracket for that employee. The greater the wages paid to the employee, the higher tax bracket that individual will fall into. A higher tax bracket will result in more taxes being withheld from that employee's paycheck.
Each year there are slight adjustments to the withholding tables. Employees whose income is between brackets may see a change in taxes withheld from one year to another because of the adjustments to the tables from one year to the next.
Beginning on January 1, 2013, there may be significant changes to the withholding tables. The 2012 withholding tables are based on the current tax brackets of 10, 15, 25, 28 and 33 percent. These are the current Bush tax cut rates set to expire. If there is no legislative action before January 1, 2013, the rates will revert back to 15, 28, 31, 36 and 39.6 percent. If that occurs many people will see an increase in the amount of federal taxes withheld from their check and thus a decrease in their net check.
Changes to W4 Will Alter an Employees Net Check
An employee's net check will increase because the employee increases the number of dependents they claim on their W4 or if they change their marital status from single to married. The converse is also true. When an employee decreases the number of dependents on their W4 or changes their marital status from married to single, more taxes will be withheld and their net check will decrease.
For states that have an income tax, any changes to the state withholding form will also alter the state taxes withheld from an employee's paycheck.
Notify Your Employees of the Uncertainty and Possible Decrease in Net Pay
To avoid confusion and frustration among your workforce, it is a good idea to prepare them for a possible change to their net check. This can be done though a general company email or a group meeting, explaining the current situation.
Although no one wants to be the bearer of bad news it is better your employees are prepared ahead of time rather than having them all run to the payroll administrator or the owner questioning the decrease in net pay.
B.J. Upton (or B.J. Upton's agent) recognized the impending tax increases in 2013. Recently B.J. Upton signed a new five-year contract with Atlanta Braves. The contract required that
B.J. Upton receive a $3 million signing bonus. As part of the negotiated contract, a provision was included that requires the Braves to pay the signing bonus before December 31, 2012. The reason for the requirement to pay the bonus before the end of the year is the impending additional taxes on Medicare wages and investment income above $200,000 ($250,000 for married couples).
Bronson Stocking, recently posted an article, Even Baseball Players Are Watching the Fiscal Cliff, According to the article if B.J. Upton receives his $3 million signing bonus on January 1, 2013 or later, he will have an additional tax liability of $120,136. By pulling the signing bonus into this year he will save that amount on his taxes. As noted in the article it is not only B.J. Upton that is pulling income into this year to avoid the higher impending tax rates starting in 2013.
"Many of those who are in a position to take advantage of the current tax rates are already doing so. Investors are paying close attention to the current standoff in Washington. Should the United States go off the fiscal cliff, capital gains and dividend taxes will also be increasing and analysts are already expecting some investors to take advantage of the current tax rates by selling sometime before the new year."
In addition to investors that are pulling income into this year, many companies are approving payment of dividends before the end of 2012. This assists investors with minimizing taxes before the impending additional tax burden starting in 2013.
There will be Tax Changes in 2013
Beginning in January, 2013 there will be tax changes. We do not yet know what those changes will be, but we do know with a high degree of certainty there will be changes. The changes will come about due to one of three possible reasons:
- Implementation of new taxes as required by the Patient Protection and Affordable Care Act.
- A tax compromise negotiated between the House, Senate and President.
- Expiration of the Bush tax cuts becuase Congress and the President fail to come to a negotiated agreement.
Some New Taxes for the Patient Protection Affordable Care Act
With the implementation of the Patient Protection and Affordable Care Act there will be new taxes. Some of the taxes are listed below:
- 0.9% surtax on Medicare tax on income greater than $200,000 ($250,900 for married couples).
- 3.8% Medicare tax on investment income for taxpayers earning more than $200,000 ($250,000 for married couples).
- 2.3% excise tax on certain medical devices.
- A decrease of the amount of money taxpayers can set aside in Flexible Spending Account plans (FSAs) to $2,500.
These are only a few of the taxes that are part of the Patient Protection and Affordable Care Act to be implemented beginning in 2013. As with all taxes these are subject to change.
Some Tax Cuts Set to Expire
- Social Security payroll taxes for employees will increase from 4.2% back to 6.2%.
- Individual tax rates will increase from the current rates of 10, 15, 25, 28, 33 and 35 percent to 15, 28, 31, 36 and 39.6 percent.
- The child tax credit will decrease from $1,000 to $500.
- The two marriage penalty elimination provisions will expire. 1.) The standard deduction married filers will decrease and no longer be double what it is for single tax payer filers. 2.) The 15% tax bracket will decrease and no longer be double that of single filers.
- Qualified dividends tax rate will increase for middle income and high income tax payers. The rate will increase from 15% to being taxed as ordinary income.
These are only a few of the tax cuts set to expire at the end of this year. It is likely that either at the end of this year or beginning of next year an agreed upon compromise will be passed between the House and Senate and signed by the President. Once passed we will post an update on all the changes.
Each year, the IRS comes out with a list of the top twelve tax scams. Although taxpayers can be taken advantage of by tax scams throughout the year, the IRS warns that the scammers are in full gear during tax season.
This is the time of year when tax payers are most aware of how much they pay in taxes and are looking to reduce their tax burden or trying to maximize a refund. Don't take the scammers bait and get yourself trapped.
Taxpayers should be wary of promises of free money, lost or unclaimed refunds that are available to be claimed by anybody or programs that promise to eliminate your tax burden. If it sounds too good, seek a second opinion and do additional research. Often times these scammers will try and apply pressure for you to act immediately, i.e. you have to act now, otherwise you will miss out on the opportunity, tax credit, etc.
Here are the top twelve tax scams that the IRS has highlighted his year.
1. Identity Theft
Tax scammers may steal your identity for the purpose of filing a false tax return, so that a refund will be sent to them. Recently the IRS has stepped up its efforts to crack down on refund fraud and identity theft. Contact the IRS at www.IRS.gov/identitytheft if you believe your identity was stolen and used for tax purposes.
2. Phishing
The IRS does not communicate via email, text or social media. If you receive an email, text or phone call requesting personal information that appears to be from the IRS, you may report it by sending an email to phishing@irs.gov.
3. Return Preparer Fraud
As with any profession, there are always a small percentage of preparers that are looking to prey on individuals. The tax preparation profession is no different. Some preparers try and take advantage, by promising a larger than normal refund, demanding a percentage of the refund for the preparation fee, encouraging falsification of information for the purpose of obtaining a larger refund and using or promoting other unethical behavior. Do your homework and check out the reputation of the tax preparer you intend to use.
4. Hiding Income Offshore
It has been common knowledge that a number of individuals have hidden income offshore in an effort to evade paying taxes on income. In recent years the IRS has gone after individuals with offshore accounts. They implemented the Offshore voluntary Disclosure Program, allowing individuals to disclose their offshore accounts and come into compliance with US tax laws. Since they rolled out the program, 30,000 individuals have come forward. The IRS has let it be known, that those who do not come forward will be subject to severe penalties and possibly criminal prosecution. With the new reporting requirements for foreign accounts it will become increasingly difficult to continue to hide money in offshore accounts.
5. Free Money from the IRS & Tax Scams Involving Social Security
Beware of promises in fliers and advertisements of getting "free money" from the IRS or refunds or rebates from Social Security.
6. False/Inflated Income and Expenses
The IRS has found tax returns with over inflated income or expenses for the sole purposes of getting large refundable credits. Any taxpayer found over inflating their income or expenses, for this purpose, will not only be liable for paying the money back with interest and penalties but may also be subject to prosecution.
7. False Form 1099 Refund Claims
Individuals that file a false informational tax return, such as a 1099, for the purpose of filing a refund claim on a corresponding tax return may be subject to financial and criminal penalties.
8. Frivolous Arguments
Not the ones you have with your teenage children. These are unreasonable and outlandish arguments one makes to justify not paying taxes.
9. Falsely Claiming Zero Wages
Taxpayers may try and submit form 4852 (a substitute W2) or a "corrected" 1099 showing no wages. A $5,000 penalty can be assessed if it is found that a taxpayer filed one of these incorrect forms.
10. Abuse of Charitable Organizations and Deductions
IRS examiners are watching closely how donations to 501(c)(3) organizations, manage the donations, making sure that donors are not maintaining control over donated assets or the organization is not improperly shielding assets or income from taxation to benefit the donor.
11. Disguised Corporate Ownership
Third parties that are used to try and mask the true owners of a corporation. Often times disguised Corporations are used for underreporting income, claiming fictitious deductions, facilitating money laundering and committing financial crimes.
12. Misuse of Trust
There has been an increase in the abuse of trusts for the purpose of avoiding income tax liability and hiding assets from creditors. Taxpayers should always work with reputable professionals to understand the purpose of setting up the trust and how it will fit into their estate and tax planning.
The IRS provides tax tips on various topics. The latest tip is for those taxpayers who owe money to the IRS.
For various reason taxpayers end up with a tax bill that they are unable to pay immediately. It could be, that the taxpayer started a business as a sole proprietor or partnership and did not anticipate or plan for self employment taxes. The business may have been unexpectedly more profitable than anticipated. It could simply be that the taxpayer lost a job and had to make adjustments to pay for their monthly expenses rather than worry about taxes.
It does not matter what your reason is for not paying the taxes due, the IRS will go after you unless, you make arrangements to pay the taxes owed. Below are some tips to make arrangements for payments.
- Tax Bill Payment - if you get a bill for late taxes, you are expected to pay the taxes, interest and fines owed promptly. If you are unable to pay the total amount, you may want to get a loan to pay the amount owed.
- Additional Time to Pay - A brief additional amount of time to pay can be requested through the Online Payment Agreement application at www.irs.gov or by calling 800-829-1040.
- Credit Card Payments - Yes, the IRS does accept credit cards. With a credit card you may be able to find a low interest credit card. A low interest credit card may be cheaper than an installment plan with the IRS, and certainly less than continuing to accrue penalties and interest for nonpayment.
- Electronic Funds Transfer - IRS does allow you to pay with an electronic funds transfer, as well as check, money order, cahsier's check and yes, even cash.
- Installment Agreement - If you cannot pay the amount owed in full, the IRS will work out an installment agreement for you. To qualify, you will have to make sure all your tax filings are up to date and others taxes are paid in full. There are several ways to request an installment agreement, including through the Online Payment Agreement, Form 9465, or Form 433F. You can find additional information about applying for an installment agreement at www.irs.gov. If an installment agreement is approved you will be charged a user fee of $105, or $52 for agreements where payments are deducted from your bank account. For eligible individuals with lower income, the user fee may be reduced to $43.
Finally, if you do have a balance due, you may want to consider reducing your W4 withholding allowance. This will increase the amount of taxes withheld from your paycheck.
The website for the IRS is www.irs.gov and their phone number is 800-829-1040.
The IRS just released an IRS Notice (IRS-2011-73) alerting taxpayers to some of the latest taxpayers scam. One scam they highlight is regarding unethical individuals persuading taxpayers to file false claims for tax credits or rebates.
Individuals behind these scams will start out with flyers or advertisements around churches and then allow "word of mouth" advertising to spread this illegal scheme. Members, believing they are assisting and helping fellow members, unknowingly share misinformation and help perpetuate these false filings.
The IRS Notice highlights what taxpayers should watch for.
"taxpayers should be wary of the following:
- Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
- Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS.
- Unfamiliar for-profit tax services teaming up with local churches.
- Home-made flyers and brochures implying credits or refunds are available without proof or eligibility.
- Offers of free money with no documentation.
- Promises of refunds for "low income-No Documents tax Returns."
- Claims for the expires Economic Recovery Credit program or recovery Rebate Credit.
- Advice on claiming the Earned Income tax Credit based on exaggerated reports of self-employment income."
Tax filers pay these unethical individuals to file these claims. The victims eventually discover they have been duped when their false claims are rejected. By the time the tax filer discovers that they have been scammed, the perpetrator is long gone.
The IRS requires tax preparers to register and obtain a tax preparer identification number. Before engaging the services of a paid tax preparer, make sure they are registered and have a proper tax preparer identification number. Additionally, you may want to consult with a licensed professional such as an Enrolled Agent or CPA.
Finally, if you have any questions regarding tax credits or current scams, you should visit the IRS web site, www.IRS.gov, or call the IRS toll-free number 1-800-829-1040.
Because of the increased strain on states' budgets in recent years, every state is looking for additional sources of tax revenue to balance it's budget while minimizing the budget cuts they must make
Last years in a post titled Are You an On-Line retailer? If So, You have a Big Time Ally in Amazon, we highlighted the battle brewing between some of the states and Amazon. Over the past year additional states have jumped into the fray and have attempted to pass legislation requiring Amazon to collect sales tax.
Amazon, is fighting back aggressively, discontinuing relationships with its affiliates and pulling jobs in states requiring sales tax be collected. Jeannine Pogi posted a great article "Amazon Sales Tax: The Battle State by State" and map that details the state by state battles between the states and Amazon.
Source: Jeannine Poggi, Amazon Sales Tax: The Battle, State by State from theStreet.com
In addition to the state by state battle being fought, Senator Dick Durbin (D-Ill.) plans on introducing a bill later this month called the Main Street Fairness Act. If passed, it would require all businesses to collect sales tax in the state where the consumer resides.
Currently there are approximately 30,000 state and local sales-tax jurisdictions. Imagine, as a business owner keeping up with all of the requirements and changes for some 30,000 locales where the sales tax requirements are constantly changing. What may be taxable in one jurisdiction may not be subject to sales tax in all other locales.
This was part of the basis for a 1992 US Supreme Court ruling (Quill vs. North Dakota). It ruled states could not force retailers to collect sales tax, unless the retailer had a presence in that state. The court reasoned that because the rates in every state, city and county and the products or services taxed were all different, it would be impossible for a retailer to keep track and conform to all the various sales tax laws and rates across the country.
Despite this Supreme Court ruling, a number of states are pressing forward to force Amazon and all other e-commerce retailers to collect and report the sales tax collected.
If you are expanding into another state it is important to understand the laws, licensing and tax reporting requirements of each state. To assist you we put together a list of links to connect you to each state's business web site. Go here to get your list of links.