Income Tax Exemption

Who Really Pays Taxes

admin — Fri, 04 May 2012 16:31:56 +0000

Who Really Pays Taxes

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Home Page > Finance > Taxes > Who Really Pays Taxes

Who Really Pays Taxes

Posted: Apr 29, 2012 |Comments: 0

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Depending on who you talk to, those who have the highest income in the United States either do or don’t pay their fair share of taxes, but you have to be careful when listening to the speaker. Individual income taxes funded 25% of the budget – that’s one way of looking at a discussion about federal taxes.

Another way is to look only at revenue and where that is raised.

Federal revenue was actually around $2.2 trillion for the 2010 budget year. This means that the majority of revenue comes from sources other than individual income taxes. Here’s a breakdown from the Tax Policy Center:

Individual income taxes – 42%
Payroll taxes – 40%
Corporate income taxes – 9%
Other taxes and fees – 9%

While any discussion of what comes out of your pocket has to ultimately include payroll taxes, this article deals only with the income tax side of the federal fiscal house.

According to the Tax Foundation, if your adjusted gross income is over $344,000, you are in the top 1% of income earners. The number is about half that amount for the top 5%; $112,000 for the top 10%; and $66,000 to be in the top 25%. If you are in the top 50% of income earners, your adjusted gross income exceeds about $32,000.

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When the government talks about Adjusted Gross Income, what it means is your income before any itemized or standard deductions. This amount also is before you take into account payroll taxes withheld from your paycheck or the nondeductible portion of self-employment taxes. The top 50% of taxpayers pay about 98% of all income taxes. The top 10% pay about 71% of all income taxes; and the top 1% pay about 37% of all income taxes. Here’s a better breakdown:

The top 1 percent of income earners pay 36.7 percent of all income taxes (24.01 percent effective tax rate).
The top 5 percent of income earners pay 58.7 percent of all income taxes (20.46 percent effective tax rate).
The top 10 percent of income earners pay 70.5 percent of all income taxes (18.05 percent effective tax rate).
The top 25 percent of income earners pay 87.3 percent of all income taxes (14.68 percent effective tax rate).
The top 50 percent of income earners pay 97.7 percent of all income taxes (12.5 percent effective tax rate).

Where does the money go?

In the budget year 2010, the federal government spent about $3.5 trillion, of which $1.3 trillion was borrowed. Approximately 55 percent of what the government spent was classified as mandatory. In budget speak, that means some form of social entitlement program. This includes Social Security, federal pensions, various aid programs, Medicare and Medicaid. According to the TaxPolicyCenter, 58 percent of this mandatory spending is on Social Security (33 percent) and Medicare (25 percent). In 2010, payroll taxes footed the entire bill for the Social Security payments and a large portion of the Medicare costs. Remember that those using the Medicare system also paid premiums.

Discretionary spending accounted for 39 percent of federal expenditures. Theoretically, the term discretionary means spending that is not required. This includes defense and most other federal departments. More than half of the discretionary spending was on defense. Interest payments accounted for 6 percent of federal spending.

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About the Author:
Gary Levine is a lecturer and practicing Certified Public Accountant from central Virginia. Mr. Levine provides fractional CFO Services to clients from New Jersey to Virginia and offers personal finanical planning and counseling to individuals.
He also serves as the Executive Director of Non-Profit Connection, a nonprofit organization promoting health and financial literacy and provides financial and accounting services exclusively to other nonprofit groups. www.non-profitconnection.org
www.levine-cpa.com
http://www.linkedin.com/in/garylevinecpa
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Coalition Take Bashing Over Pasties, Static Caravan VAT and Granny Tax

admin — Fri, 04 May 2012 16:31:55 +0000

Coalition Take Bashing Over Pasties, Static Caravan VAT and Granny Tax

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Home Page > Finance > Taxes > Coalition Take Bashing Over Pasties, Static Caravan VAT and Granny Tax

Coalition Take Bashing Over Pasties, Static Caravan VAT and Granny Tax

Posted: May 04, 2012 |Comments: 0

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Last night the UK coalition Government took a bashing in the polls.

Many local councillers lost seats and there has been a distinctive shift in the populations take on what the Government should be doing to bring the UK out of another recession.

Both the Conservatives and the Liberal Democrats have similar views on many aspects of how the country should be won it seems that voters do not see it their way. The turnout was very low which also highlights the country’s disinterest in party politics and many are asking “what’s the point in voting?”.

Labour had some big gains including Birmingham which was seen as a safe area for the Coalition. Labour leader, Ed Milliband, says that they are winning back the trust of the voter however it would seem that with many voting for smaller parties such as UKIP it could be showing that the major parties are not a favourable option as voters cannot see a difference between them.

You could also argue that voters are making a judgement on spending cuts which is hurting the public sector hard and will impact on the private sector as a direct result of less money being available in the economy.

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I can see some clear reasons for the shift in voter confidence. The recent issues over tax being applied to pasties and grannies being targeted to pay more in tax would certainly upset many hardcore Conservative voters. The Coalition as a result obviously have been impacted hard.

The Liberal Democrats have lost more power in the last 24 hours with their lowest number of councillors as a result of the vote. Surely this indicates that the Coalition needs to do more to win back voter confidence in the next 6 months. I understand that things cannot happen over night, but a clear plan of investment in the economy rather than curs would stimulate consumer spending rather than hinder a recovery and in turn economic growth.

Another area that has been hit by the Coalition is that of Static Caravans whereby the planned increase in VAT to 20% will see holiday home owners having to pay out up to £20,000 in tax to own a family holiday facility in the UK.

This tax will surely just push holiday makers abroad to warmer destinations rather than keeping that money in the economy. However the Coalition see this as an opportunity to gain a small tax benefit for the Treasury rather than looking at the long term picture.

My concern over tax rises is that they are rarely removed after there “temporary” introduction. Therefore if the Government can create a new tax, albeit in their eyes temporary, then it will be here forever.

Maybe this is just another reason why the Government have lost so much power during this important voting round. Do we think they can pull it around? I’m not so sure but one area that would help is in the UK holiday industry. I say remove the planned VAT increase on the sale of Static Caravans and move onto other areas that really can be taxed without harming the consumer which is where the real recovery will be.

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About the Author:
Nick Green
“Passionate about truth and doing things the right way, not the quickest!”Nick is Marketing Manager for Covewood Enterprises who operate Aberdunant Holiday Park and Cardigan Bay Holiday Park who specilise in Static Caravans For Sale and Holiday Homes in the UK.
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Pembrokeshire MP Ignores Constituents On VAT increase

admin — Fri, 04 May 2012 00:46:20 +0000

Pembrokeshire MP Ignores Constituents On VAT increase

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Home Page > Finance > Taxes > Pembrokeshire MP Ignores Constituents On VAT increase

Pembrokeshire MP Ignores Constituents On VAT increase

Posted: May 03, 2012 |Comments: 0

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Tourism is the traditional mainstay of the Pembrokeshire economy and has had much recent success due to the huge developments many caravan and holiday parks have completed, this is characterised by the development of the Bluestone Holiday Village and its waterworld facilities offering holidays to compete with such companies as Center Parks in England.

So you have to wonder why with such a large county dependant on tourists, that it’s own conservative MP failed to vote against the proposed VAT increase on static caravans. Stephen Crabb MP who is the party whip, and known for his Christian and anti Gay equality rights voted to increase the TAX rate to 20% placing thousands of his own constituents jobs at risk.

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Government figures predict a 30% drop in caravan sales and the caravan park and tourist industry say it will shatter local economies heavily reliant on tourists such as Pembrokeshire.

It does not seem fair that an affluent holidaymaker can buy a house as an holiday home for £175,000 that out prices young local families that is only used a few weeks a year and only has to pay 1% stamp duty, when the working family buying a caravan holiday home for £20,000 has to pay 20%.

Perhaps Mr Crabb should be thinking more about the county that Sent him to parliament than just toeing the party line for career advancement. Does he think that he can keep his job when others around him will have lost theirs?

Another similar development at a Welsh Caravan park is Cardigan Bay Holiday Park in Poppit Sands. They invested over £1m in a new unique tropical pool with retractable roof that is bringing thousands of holiday makers to North Pembrokeshire each year. However if holidaymakers who wish to visit Pembrokeshire on a regular basis to enjoy such facilities and want buy a static caravan they need to act fast. The increase in VAT could put them off if they delay after October 2012 and this could place such parks in difficulty and possibly create job losses in those areas.

Surely this impact on the local economy would have been considered by the Pembrokeshire MP, but sadly this doesn’t seem to be the case.

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About the Author:
Nick Green
“Passionate about truth and doing things the right way, not the quickest!”
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Common Issues Regarding Tax for Brand New Owner

admin — Thu, 03 May 2012 07:13:34 +0000

Common Issues Regarding Tax for Brand New Owner

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Home Page > Finance > Taxes > Common Issues Regarding Tax for Brand New Owner

Common Issues Regarding Tax for Brand New Owner

Posted: Apr 27, 2012 |Comments: 0

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If you are planning to open a brand new company, there are numerous issues regarding tax as well as data processing issues that you have to be mindful of. Listed below are some of the also came across issues a brand new business owner has to cope with.

1. Company Selection – To start with, you need to choose which kind of business entity you will set up. The kind of business entity will determine which taxes type you need to document. The most typical types of businesses are the only proprietorship, partnership, business, S business and also limited liability company. This company can help you for making that determination and establishing the selected entity. With regards to the kind of organization you select, you may also require services of your lawyer to accomplish lawful documents required to establish the business.

2. Income taxes – The type of company a person operate decides exactly what fees you have to pay and how you pay them. The 4 general forms of enterprise income taxes tend to be income tax, self-employment tax, work taxes and excise tax. This office can assist you with the filings necessary for no matter which business you choose.

3. EIN – An Employer Identification Number (EIN) is generally accustomed to recognize a small business entity. Should you set up your small business being a partnership or corporation, you will require an EIN. Should you function as a single proprietorship, you will also require a good EIN for those who have staff or a Keogh monthly pension. This office can assist you in figuring out the dependence on an EIN and enable you to purchase one.

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4. Local Company License – Depending upon the community by which your business is positioned, you may also be asked to acquire a company taxes permit (that is at times known as company license). This office can help you determine the necessity for one and help with submitting the application.

5. Sales Tax Permit – If the new company offers list sales, you need to get yourself a sales tax permit as well as regularly remit the actual sales tax accumulated from your sales. This particular workplace can assist you with acquiring the permit and creating the installments. Although you won’t end up operating a retail sales enterprise, you may have to sign up with the state for use tax functions. Once more, this company will help you your sign up if it is required.

6. Payroll – For those who have staff, you will have to withhold and remit pay-roll taxes to the government, state and often nearby governing bodies. We will assist you to set up the paycheck program as well as sign-up with the suitable government agencies.

7. Information Reporting – If someone makes payments totaling $600 or even more for your yr to folks who are not your employees, you will end up necessary to issue a 1099-MISC to that particular person right after the end of the season. This involves getting the individual’s name, Social security number, and address ahead of paying them the first time. This particular necessity is actually extended to payments you’re making to businesses in 2012. This workplace will help you set up a process of collecting the required information and also getting ready the required filings following the close of the year.

8. Recordkeeping Program – Creating an excellent recordkeeping method right away can save lots of suffering in the future. This company can help you in selecting as well as creating a recordkeeping system suitable for your small business.

9. Accounting Strategy – Each taxpayer also needs to use a consistent accounting method, which is a set of guidelines for analyzing when to report cash flow and also fees. One of the most regularly used accounting methods will be the cash technique and an accrual strategy. Under the cash technique, you usually record income in the tax year you receive that as well as withhold costs in the duty yr you have to pay them. Under an accrual strategy, you normally record revenue in the tax year you earn it and deduct costs in the tax 12 months you get all of them.

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About the Author:
If you’re considering for Oro Valley Certified Public Accountant, The office of Gabrielle M. Luoma, CPA, PLLC is willing to give it’s service for your success. Visit us | Tucson Tax Accountant |
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Advice From Business Accountants Perth To Maximise Your Tax Return

admin — Wed, 02 May 2012 09:59:01 +0000

Advice From Business Accountants Perth To Maximise Your Tax Return

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Home Page > Finance > Taxes > Advice From Business Accountants Perth To Maximise Your Tax Return

Advice From Business Accountants Perth To Maximise Your Tax Return

Posted: Apr 27, 2012 |Comments: 0

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Business accountants Perth can help you get the most out of your tax return in many ways. While most people would not want to sell shares that have fallen below their cost price, this is one way of cutting back on your capital gains tax. When you sell them at a loss this can be deducted from your gains thus reducing your tax.

Business accountants Perth advise you to then use the money you made from the sale to purchase more promising shares. According to business accountants Perth it is important not to buy the same shares soon after selling them as the taxman will not allow the capital loss.

Accountants Perth point out that when you sell shares that have been owned for less than twelve months, you pay full CGT on the profit, but if you keep them for over a year this is reduced by 50%. By deferring the sale until after the end of June, the capital gains tax due will not have to be paid until the following year.

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This can have a beneficial impact on your tax bill for the current year, according to accountants Perth. Accountants Perth advise this course of action particularly if your taxable income for the following year is expected to be less than the current year.

Further advice from your accountant in Perth would be to bring forward an expense and pre-pay it in the current year to cut back on the tax you would otherwise have to pay. A good accountant in Perth knows that it takes time to prepare for such payments and so the process should be started early in the year. According to your accountant in Perth this is only possible with a fixed rate investment as the interest rate is known ahead of time and thus the equation can be easily worked out.

Small business accounting services also advise that it is possible to reduce your income tax in any one year by making super contributions that are tax deductible. Small business accounting services add that care must be taken not to go over the super contribution cap limit.

And according to small business accounting services this should not be left to the last minute as super funds can be slow to process payments and it may be after the end of June before they get around to yours. Conditions often apply to these tips, but your accountant will be able to ensure you get the best tax deal.

So your chartered accountant Perth can certainly help you maximise your tax returns in these and many other ways. Only because the chartered accountant Perth has the specialised knowledge that you need can he save you money. If you have been in the habit of doing your own tax you will be surprised at the difference that having a professional chartered accountant Perth at the helm can make to your bottom line. So give these guys a call and see just how they can help you. You will be glad you did.

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About the Author:
Paddy Lueng is a successful tax consultant based in Perth. He suggests that if you want to learn more about business accountants Perth, you should check out accountants Perth.
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The tax implications of going through a credit card debt settlement

admin — Wed, 02 May 2012 09:58:57 +0000

The tax implications of going through a credit card debt settlement

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Home Page > Finance > Taxes > The tax implications of going through a credit card debt settlement

The tax implications of going through a credit card debt settlement

Posted: Apr 27, 2012 |Comments: 0

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As the bankruptcy laws become tougher, it is a much more palatable option to go for debt settlement. When you enroll yourself in a debt settlement program, the creditor agrees to settle an outstanding balance for a considerably lower amount that you actually owe. Most often the amount become sufficiently less as the remaining balance is forgiven by the creditors after checking the financial hardship that the debtor is going through. You feel that you end up saving a great deal of money and your debt burden is gone forever.

Credit card debt settlement and taxes

A fact about debt settlement that is not know by most debtors is that the forgiven amount is usually taxable and that the debtor has to pay IRS taxes on that amount. If the amount that is forgiven is more than $600, you have to report this to the IRS through the form 1099. Through this notification, the IRS can be aware of the fact that you have settled your debt for an amount that is much less than what you actually owe. Are you pretty worried about your IRS tax implications and thinking about stopping the entire process? Well, you need not fret as there are some other options that you may resort to if you want to avoid paying taxes on the settled amount.

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How to prove that you’re insolvent while settling debts?

When you’re opting for credit card debt settlement, it is assumed that you’re insolvent. Being insolvent means your liabilities outweigh your assets. As the financial year comes to an end, you’ll get a 1099-C form from the creditor from whom you settle your credit card debts. The date on which you settled the debts is very important as all the calculations that you do later on will decide your fate as to whether or not you have to pay taxes on the forgiven amount. List all your assets as it was on the date you settled your debts and use the market value of the cars and your house as it stood on that particular date. If the total amount of debts that you we exceeds the value of the assets on that particular date, then you can prove yourself to be insolvent. If you’ve settled more than one debt account, you should repeat this process for each account.

What will happen if you don’t prove yourself to be insolvent?

Yes, if you can’t prove yourself to be insolvent during the time of settling your debts, you may have to pay the taxes on that amount. However, remember that the amount that you’ve settled for and the amount that you owe as tax is still much lower than what you had to pay to your creditors in the long run.

Therefore, don’t spend sleepless nights thinking about the tax consequences of settling your credit card debt as despite paying the taxes, you still have won the deal. The final word is that you should delete your financial worries by taking resort to any debt relief option that is suitable according to the budget.

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About the Author:
Frank Martin is a writer for various finance related communities, websites and blogs. He has got an immense knowledge on various financial issues and writes articles on debt consolidation financial planning, tax debt resolution, debt settlement and even writes posts on recent financial news in the US.
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Residential Property Demand Increases in Major Australian Cities

admin — Mon, 30 Apr 2012 13:59:53 +0000

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Residential Property Demand Increases in Major Australian Cities

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Home Page > Finance > Taxes > Residential Property Demand Increases in Major Australian Cities

Residential Property Demand Increases in Major Australian Cities

Posted: Apr 24, 2012 |Comments: 0

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The statistics collected by the survey showed that the people are more interested in buying residential property in Melbourne, Sydney and Brisbane. However, retail real estate has the lowest number of buyers. API (Australian Property Institute) surveyed over 30 investors and pointed out that the industrial and commercial property will experience growth in the coming years. After the year 2014, all segments of the property market will face a major uplift. As per the current scenario of the property market in Australia, shopping malls and the real estate market have a few buyers whereas the buyers show their willingness to make investments in residential property.

The economists studied these scenarios and suggested the shopping center owners that they must think of alternatives because people prefer shopping on the internet nowadays. In Sydney, Melbourne and Brisbane, people want to buy residential property now which was not observed in the last seven years. As per the supply and demand, there is a need to lay down plans to cater to the increased demand in residential property. The incapability of people to afford new and existing homes may not accelerate the movement in the property industry for some time. There would be an improvement in the rents also but the major improvement can be observed in industrial property as compared to commercial and retail sectors.

A report has revealed that approximately 40% of people are willing to enter the real estate market in this year while 61% want to buy property in Australia in the next 5 years. The survey was conducted to determine the willingness of people to buy property in various parts in Australia. An annual mortgage report was released by QBE Lenders’ Mortgage Insurance that conducted this survey and about 1161 people residing in different parts of the nation participated in it.

The statistics showed that people will be interested in buying the property in Australia in coming years. The interested investors believe that the property price would remain stable for some time and may increase in the next three years. It is clear from the reports and surveys of the property market that home buying would take place in near future.

According to the survey, the rent on commercial property in Brisbane will increase in coming next month in comparison to Sydney and Melbourne.

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About the Author:
Aussie Property Group is a trusted name for being your best choice for Mortgage Specialist.The team expertise into various Finance sectors including Aussie Expat Finance and Property Investment Australia.
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Bookkeeping services in Hammersmith and much more

admin — Mon, 30 Apr 2012 13:59:52 +0000

Bookkeeping services in Hammersmith and much more

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Home Page > Finance > Taxes > Bookkeeping services in Hammersmith and much more

Bookkeeping services in Hammersmith and much more

Posted: Apr 24, 2012 |Comments: 0

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Accountants ‘R’ Us is an company where they give you the opportunity to develop into partners with them and provide professional accountancy and consultancy services. This has been a trustworthy working area from the year of 2005 to now which has been proven by the comments from directors and other clients from different companies as seen in the testimonials section in the website itself. All the accountants and Tax advisors are qualified so there is nothing to worry about. Sit back, relax and let all the professionals do the work for you.

When talking about an accountant in London, qualified accountants can be found in various places such as in Chelsea, Croydon, Ealing, Hackney and Hammersmith. If you are to choose a place from one of these and if you are close by that means their services will be more fast and effective.

Accountants ‘R’ Us offers a wide range of accountancy services such as –

• Annual Auditing and Accounting.
• Taxation Advice.
• Inland Revenue Investigations advice.
• Bookkeeping Services, Payroll and VAT matters.
• including all other financial services.

Accountants ‘R’ Us will ensure your work is handled quickly, thoughtfully and with attention to detail. If you are to appoint a Chelsea accountant, or a Croydon accountant, Ealing accountant, Hackney accountant or a Hammersmith accountant you are obviously asking for local help from an accountant in London and the best possible assistance is available.

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There are various unique benefits about these accountants –

• Immediate and reasonable answers are given at any time to all the questions asked.
• Up to date service with given software which requires a minimum input.
• Advising on your financial services.

The following are the types of services provided -

• Bookkeeping and Accounting.
• Payroll and VAT Return services.
• Bank reconciliations and Annual Accounts.
• Business start-ups/ Corporate Planning.
• Personal Taxation and Planning Services.
• Estate Planning, trusts and Executorships.
• Personal Tax Planning
• Retirement strategies
• Self-assessment
• Sub-Contractors.
• Tax Investigations.

Accountants ‘R’ Us not only help you in your accounts, it also has a tax advisor in London. This tax advisor in London will help their clients to ease their work load and take over the strain of inquiries and investigations about taxation affairs of any company or an individual. Tax advisors can be found in Fulham, Battersea, Chelsea, Ealing and Hammersmith. Almost every company needs someone to handle their tax section, at least all the advanced companies. They are capable to look into matters of every Individual, Families, Business Partnerships, Limited Liability Partnerships (LLPs), Sole Traders, Small companies and Corporations.

These tax advisors are relentless and will do their best to perform their task up to their client’s expectations or more. All the services can be found in their official website www.accountantsrus.com.
If you want to find a tax advisor in Kensington you can go to the nearest advisor available which is the advisor in Hammersmith as there is no specific advisor in Kensington.

Bookkeeping is an important part in a business. It keeps a record of money flow of a company throughout a specific duration. It could be a yearly or monthly exercise. These records are kept for taxations and for other needs such as banking purposes. Why choose accountants ‘R’ Us for bookkeeping? Well for that question there are several advantages. The main advantage would be that you do not need to pay extra for another employee separately. Also you do not have to worry about your employee’s leave and other issues. If you want a bookkeeping service in Hammersmith please contact them and ask them whether bookkeeping services in Hammersmith is available, if not go to the nearest service. All the bookkeepers are well qualified and well experienced for at least 5 years. They are all dedicated, accurate and friendly. If you want to know more about bookkeeping services please visit Accountants ‘R’ Us on their website.

If you are looking for offers that Accountants ‘R’ Us provides please feel free to contact them and discuss your concerns and come to a mutual agreement that you will be satisfied with.

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About the Author:
We are a fulham based Professional Accountancy, bookkeeping and tax consultants firm offering a bookkeeping services in london as Accountant in London, Tax Advisor in London, Bookkeeping Services in Hammersmith, Tax Advisor in Kensington.
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Live-in Nanny or Caregiver

admin — Sun, 29 Apr 2012 21:22:46 +0000

Live-in Nanny or Caregiver

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Home Page > Finance > Taxes > Live-in Nanny or Caregiver

Live-in Nanny or Caregiver

Posted: Apr 24, 2012 |Comments: 0

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As our lifestyles are getting busier, we work longer hours and are overloaded. When it comes to children, parents might feel overwhelmed with all the responsibilities falling on their shoulders. Some parents send their children to licensed day cares with extended hours which provide a more formal and structured educational system. However, the day care doesn’t release you from rushing everyday to meet your busy schedule such as dropping off/picking up times, and it might not fit your budget. Therefore, many families have chosen to hire a live-in nanny or a caregiver for their children or an elder care provider.

A live-in caregiver or a nanny gives personalized and individual attention to your children while providing a safe and happy environment. In addition to personal care, many live-in caregivers or nannies also provide help with housekeeping duties such as cleaning and cooking. Although one might think that this frees up some time, having a live-in caregiver or a nanny also carries certain fiscal responsibilities and tax filing requirements.

If you are hiring a live-in nanny or caregiver, the CRA (Canada Revenue Agency) will consider you to be the employer and the nanny to be an employee. If you don’t want to feel stressed about filling out the forms, you can always rely on Tax4Nanny. At Tax4Nanny our dedicated team of professionals will release you from the mind-boggling process of registering with the CRA as well as calculating and reporting nanny taxes. Tax4Nanny specializes in payroll tax solutions including personalized tax deduction updates, proper deduction of income tax, employment insurance and other procedures such as the following:

At Tax4Nanny we help our clients to register their businesses and complete all CRA forms.
Tax4Nanny prepares a customized withholding statement detailing your employee’s net and gross pay, federal and provincial tax rates, CPP (Canada Pension Plan) and EI (Employment Insurance).
We keep our clients updated with changes in tax rates.
At Tax4Nanny, we complete a T4 form for your nanny or caregiver.
At Tax4Nanny, our services also include completing an Employer Record of Employment if your nanny resigns.
And much more.

-
About the Author:
Tax4Nanny provides its clients with comprehensive tax calculations and reporting, as well as assurance that all registration requirements are fulfilled. A choice of a one step solution for all your tax needs or individual servicesare available.
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Taxing Virtual Businesses and Their Investors and the Law: The E-Commerce Conundrum

admin — Sun, 29 Apr 2012 21:22:42 +0000

Taxing Virtual Businesses and Their Investors and the Law: The E-Commerce Conundrum

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Home Page > Finance > Taxes > Taxing Virtual Businesses and Their Investors and the Law: The E-Commerce Conundrum

Taxing Virtual Businesses and Their Investors and the Law: The E-Commerce Conundrum

Posted: Apr 24, 2012 |Comments: 0

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The Internet was supposed to make life easier for everyone. And in many ways, it has: a wealth of information—some you can rest assured is genuine and legitimate, some not quite as much—lies at our fingertips, from specialized encyclopedias to daily newspapers and everything in between. Likewise, almost everything that used to require a person to make a trip to a store, or at least make a phone call, like making dinner reservations at your favorite restaurant, booking an airline flight, and monitoring your investment portfolio now can be done from the comfort of your own home or the nearest neighborhood WiFi hotspot at the click of a button.

However, while the Internet may have made life easier in some ways, it hasn’t necessarily simplified life. Online technological advances have also ushered in the current tidal wave of new business opportunities by becoming a virtual retail space for thousands of proprietors to take their talents to the Internet, where hunting down the perfect location with affordable rent in an unsaturated market and all the other hassles that used to come along with opening a business no longer exist. And now, companies don’t even have to acquire their own website or domain name anymore, because a slew of websites—including eBay, Amazon, and Etsy, to name a few—have turned the Web into a virtual marketplace, where buyers can go to find everything from camping gear and jewelry to electronics and fine art. The next logical step in the equation has been for start-up investment firms such as Kickstarter to spawn, adding further motivation for those who still may have been on the fence about whether to make their pipe-cleaner toy-making hobby into a full-fledged profit-making business venture. The usually reduced financial cost of starting an online business has led to nothing shy of a small-business renaissance, and larger corporations are rushing to find creative ways to grab a piece of the market share—the one thing that has lagged behind the trend is governmental regulation of those who make a living selling their wares on these marketplace sites in addition to the sites themselves, many of which take at least a small percentage of revenue from each sale. Lately, however, federal and state governments, and the IRS, of course, are attempting to make up for lost time, while virtual business owners are doing their best to adapt to constantly changing taxation demands.

Inevitably, the first issue that must be addressed is whether or not the taxing of e-commerce businesses and their investors is both constitutional and, given the relative state of the economy, wise. Most tech experts and cyber junkies claim that goods sold via the Internet should not be taxable because the businesses are virtual and have no nexus—in other words, they do not really have a specific home in a specific state. The beauty of e-commerce is that it opens the door for anyone who has a computer and an Internet connection, which have essentially become as commonplace as television sets and cable or satellite service, to earn a living without having to get in their cars, sit in traffic, pollute the atmosphere, and leave an ever-growing footprint on the environment. As far as techies and even some lawmakers are concerned, that is a notion that deserves special tax incentives, particularly considering the still stagnant economy that we are continuing to endure. If we start forcing e-commerce businesses to charge state taxes to customers in certain states, that could spell doom for many of these fledgling companies.

For example, in Illinois, the state Legislature was strongly considering passing just such a measure. Called an affiliate nexus tax, lawmakers wanted to force out-of-state e-comm vendors who advertise through locally owned Web outlets and sold merchandise to Illinois residents to charge a 6.25 percent tax and pay that sales tax to the state government. One city, Springfield, had already passed such a tax. The state government assumed that it was missing out on so much income due to a lack of sales tax being charged by these companies, and they wanted to cash in. What they didn’t necessarily account for was the possibility that such a tax would cause some e-commerce businesses to choose not to do business in Illinois altogether.1 In fact, some large e-commerce businesses, including Amazon.com, won’t even bother shipping to certain states due to the ridiculously steep state sales tax they would have to incur. Their gross margin reduces to the point that it isn’t even worth selling to customers in certain states.

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The other question at issue with regard to these taxes is whether or not they are even constitutional. While this issue is just beginning to pop up on many people’s radar screens with the overwhelming boom in the e-commerce industry, the constitutionality of affiliate nexus taxes has been a battleground for decades now, beginning with the late 1980s early 1990s boom in mail-order/catalog and television sales (e.g., Home Shopping Network). In 1992, the Supreme Court decided to prohibit measures to levy taxes on companies that did not have a physical presence in the state, citing interstate commerce laws that forbade state governments from taxing such transactions.

Never the less, state governments are seeing dollar signs when it comes to e-commerce, so it appears to be a fight that many will attempt to start waging once again. Just last year, the state of California, which actually loses out on a lot of sales in general due to the relatively high sales tax rate, calculated that it is losing several hundred million dollars per year in sales tax revenue because people are buying products online from companies outside of California and then not paying the California sales tax. So the state Legislature in California passed a law to enact more stringent policies on the companies selling to Californians in order to reap the benefits of all that revenue, though it remains to be seen if the policies will lead directly to increased tax revenue as well as if the law will hold up to any challenges.2 To my knowledge, no such challenges have occurred to date. And as a specialist in helping individuals and businesses to reconcile past IRS debts, I have not yet seen any clients who have run into any auditing or legal issues with this law. However, it is still a relatively new law and most people probably do not really even know about it. In addition to the lost sales tax revenue that the state calculated, big businesses with physical presences not only in California but probably in every state in America lobbied hard for a tax on companies with a so-called “indirect presence” in the state because they felt that they were at risk of being undercut by e-commerce companies that didn’t have to worry about charging sales tax over the long run. And while they may have a point, that doesn’t solve the debate about how to define virtual space—if you can’t define it, then how can you tax it?

The Sheriff’s in Town
With new state tax laws come new problems with figuring out how to enforce the laws. There are several key obstacles that the government has faced with regard to keeping tabs on the e-commerce sector. One major issue has been in monitoring the variety of ways that e-business owners can collect payment from their customers. The most well-known and oft-used online “currency” is PayPal, which is a virtual debit account that can be maintained independently of a person’s traditional checking account. The IRS has only recently taken steps to monitor and audit PayPal records, creating a special task force that has the power to access suspicious PayPal accounts. If websites like eBay and Etsy allow customers to rate their experience while “shopping” in the e-store, then the IRS can more easily monitor businesses that have a high number of ratings. Regardless of whether the ratings are positive or poor, the number of customer ratings can tip the IRS that the company is doing a high volume of sales and can make sure that the company is applying appropriate sales taxes when shipping. Additionally, some e-commerce marketplace sites, including Etsy, allow businesses to publish their “store” policies, so the IRS can legally check companies’ shipping and sales tax policies and determine whether or not that business can be audited for further review.

An additional tool that the IRS will be using via this special tax force is to deploy its matching check program. In other words, the IRS will eventually have the ability to check any company’s credit card transactions to ensure that income accumulated as credit is accounted for in the books. Additionally, the IRS now requires businesses to issue form 1099s to all customers who pay for products and services with a credit card. While big businesses will likely be a little bit better equipped to manage the huge increase in paperwork come tax time as a result of this requirement, some smaller businesses and e-commerce businesses will not. Fortunately for those companies, the matching program was suspended for an indefinite period of time due to some backlogging concerns. However, it’s only a matter of time before the IRS gets its ducks in a row to implement these measures, so companies would be wise to start getting their books straight.

The United States is clearly getting to a point of having to start making some significant decisions about how it wants to define the e-commerce marketplace—or whether it wants to define e-commerce. While there may be some additional tax revenue for the states, there is also a chance that many e-commerce businesses will either simply avoid those states or even possibly fail completely. And although the financial aspect is a significant part of the equation, it’s not just an issue of money—it’s also a question of legality. The Constitution has some pretty clear language set up to restrict states’ abilities to regulate interstate commerce; it is without a doubt a very slippery slope, but the dollar signs may be large enough for the states to choose to go along for the ride. Still, though, there is Supreme Court precedence that upholds the notion of negating states’ attempts to tax goods crossing state lines, so it is sure to be quite the knock-down, drag-out fight that we often see when it comes to taxes. While states may feel that they need and deserve their fair share, they also need those companies to stay in business in order to spur a moribund economy. It’s a very fine line.

There is still quite a lot that has yet to be defined with regard to e-commerce. The decisions that get made and the laws that get passed in the very near future will have a significant impact on the future of e-commerce. I would expect to see a marked increase in e-commerce business owners who are dealing with IRS audits resulting from unpaid sales taxes, as well as an increase in lawsuits as small businesses attempt to keep up with the ever-changing and increasingly complex United States tax code. Better buckle up, it’s going to be a bumpy ride.

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1 Longanecker, Ed. “Taxing e-commerce would drive away innovation, jobs.” Chicago Sun-Times.
4 Feb. 2011.

2 Vranicar, David. “The Politics of Taxing E-Commerce.” E-Commerce Times. 18 Nov. 2011.

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About the Author:
Michael Rozbruch is one of the nations’s leading tax experts. A Certified Tax Resolution Specialist (CTRS), licensed CPA and the founder of Tax Resolution Services. He helps individuals and small businesses solve their IRS problems and is dedicated to educating the public on tax planning and other strategies for managing their personal and business finances. Michael has represented thousands of taxpayers who owe back taxes to the IRS, but simply cannot afford to pay.
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