Tax Break

Small business taxes: the most overlooked deductions

New York City's main post office, tax day 2003. Today many small businesses file taxes electronically, and will be including a new form 1099-K. REUTERS/Chip East

Small business owners face a tax challenge this year. Form 1099-K is an attempt to help close the tax gap — the $385 billion difference between what the IRS thinks it should be collecting and what it actually collects — by making sales and other commercial transactions on the Internet harder to hide.

The forms are being sent to business owners by credit card companies and online payment processors including eBay, PayPal and Amazon. The 1099-Ks list all 2011 transactions processed for sellers with more than 200 transactions and $20,000 in annual gross receipts, according to this helpful Q&A on Bloomberg BusinessWeek’s small business site.

The IRS estimates that 53 million forms will be issued this year,  and that the move will add $9.5 billion to its coffers over the next decade.

Small business groups have been protesting the new rules, arguing that they add to their already sizable burden. (Small business owners spend more than $1,000 per employee in tax preparation costs and time.)

Essential tax and accounting reading: defending big oil’s taxes, taxing the rich, risky deductions, and the payroll tax cut’s impact

Welcome to the top tax and accounting headlines from Reuters and other sources.

 
* Big oil, bigger taxes. The Wall Street Journal editorial. President Obama says he wants to end subsidies for what he calls “the fuel of the past,” but lucky for him oil and gas will be the fuels of the future too. His budget-deficit blowout would be so much worse without Big Oil, because the truth is that this industry is subsidizing the government. Much, much worse, actually. The federal Energy Information Administration reports that the industry paid some $35.7 billion in corporate income taxes in 2009, the latest year for which data are available. That alone is about 10 percent of non-defense discretionary spending—and it would cover a lot of Solyndras. That figure also doesn’t count excise taxes, state taxes and rents, royalties, fees and bonus payments. All told, the government rakes in $86 million from oil and gas every day—far more than from any other business. Link

* Most Americans back “Buffett tax”:Reuters/Ipsos. Kevin Drawbaugh – Reuters. Nearly two-thirds of Americans support imposing a minimum tax rate of 30 percent on those who earn $1 million or more a year, according to Reuters/Ipsos poll results released on Tuesday. The poll showed that 64 percent of those surveyed favored a “Buffett tax” as proposed by the Obama administration and named for multibillionaire investor Warren Buffett, who backs it. The poll said that support for the Buffett tax was strongest among Democrats, at 76 percent, but also significant among Republicans, with 49 percent of them viewing it favorably. Link  

* Senate defeats tax break for natural gas trucks. Roberta Rampton – Reuters. A bipartisan proposal to provide tax incentives for natural gas vehicles was defeated in a Senate vote on Tuesday, but a key backer of the bill said it will be revised and reintroduced to address concerns from industry. The five-year plan was designed to spur purchases of long-haul trucks and commercial vehicles that can run on cheap and abundant U.S. natural gas. The amendment to the Senate’s highway bill needed 60 votes to pass, but was rejected in a 51-47 vote after conservative groups panned it as an unnecessary subsidy. Link  

The five most common taxpayer questions answered

Filling out the 1040, New York City post office, April 15, 2010 REUTERS/Mike Segar

You’ve got a month left before the tax deadline — April 17 this year — and have you filed your taxes?

If typical patterns hold, more than one in four of us has yet to sign on the bottom line.  IRS numbers show more than 32 million individual income tax returns arrived after April 9 last year.

David Cay Johnston dissects the manufacturing tax proposal

Reuters columnist David Cay Johnston has zeroed in this week on President Obama’s proposal to apply a lower tax rate to manufacturers.  It’s an idea that may sound appealing at first glance, but will, Johnston predicts, end up more about defining the word “manufacturing” than supporting true manufacturing and manufacturing jobs.

In the video below Johnston explains his thesis. His full argument can be found in this column . And over at Double Taxation, Toni Nitti  lends his support to the argument, writing :
“even code reform based on good intentions comes with the price of complexity and confusion.” YouTube Preview Image

Tax clips from the Web: Kanye’s charity blunders, D.C. lobbyists and identity fraud

A Federal Trade Commission report listed identity theft as the top complaint from consumers in 2011 – for the 12th year in a row. Of those 280,000 complaints, about 24% were tax or wage-related. This is something of a stark wake-up call to the perils of our electronic lives, which can be hacked without our knowledge, right up until we hit the send buttons on our electronic tax returns, says Jonnelle Marte for Smart Money’s tax blog: “For some victims, the fraud isn’t discovered until they hit the send button on their electronic tax returns — and get a rejection note from the IRS. Other times it takes a little longer to know something is wrong, such as not receiving a refund check.”

If you have been unlucky enough to be hacked, correcting the error could take the IRS from 6-12 months, according to Marte.

Home on the range

Here is a quote from the author of the Tax Foundation’s annual rating of the states with the best tax climates -“The lesson is simple,” wrote study author Mark Robyn, “A state that raises sufficient revenue without one of the major taxes, all things being equal, has an advantage over those states that levy every tax in the state tax collector’s arsenal.”

Essential tax and accounting reading: European carbon and tycoon taxes face headwinds, better outlook for Japanese sales tax, audit red flags, and more

Japan's Mount Fuji REUTERS/Toru Hanai

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Whistleblower Joseph Insinga suing IRS for not being paid a reward. Lisa Rein – The Washington Post. Joseph A. Insinga was the ultimate whistleblower. The former executive with a Dutch bank says he divulged to the Internal Revenue Service details about how for years his employer helped U.S. companies dodge taxes. Now Insinga is taking tax authorities to court for failing to give him a reward that he says he is owed by the federal government. Insinga filed a whistleblower claim with the IRS in 2007, a year after Congress passed a law to help the government uncover tax cheats by encouraging informants to come forward. Those with inside information could receive up to 15 to 30 percent of any taxes, fines, penalties and interest the IRS collected from a taxpayer who was illegally sheltering taxes, usually a corporation. Insinga says he is entitled to a portion of the money the IRS collected from the taxpayers he exposed. He’s confident that at least one company, and maybe more, was forced to pay taxes based on his information. He had alleged that Rabobank Group, where he worked as an executive for more than a decade, helped seven companies avoid hundreds of millions of dollars in taxes through offshore partnerships and other corporate schemes. Link

* Delay EU carbon levy, says air industry. Peter Marsh, Joshua Chaffin and Simon Rabinovitch – The Financial Times. Seven of Europe’s leading aviation companies have joined forces to warn that the European Union’s plans to charge for carbon pollution are jeopardizing 2,000 jobs and billions of dollars of orders from China. Airbus and six large European airlines said the plan to bring global airlines into the EU emissions trading scheme for carbon dioxide, which the industry has steadfastly opposed, is creating an “intolerable” threat to the European aviation industry by opening up the possibility of trade battles with China, the US and Russia. The EU’s plan to regulate the output of carbon dioxide, as part of the effort to combat global warming, has stirred concern in the European aviation industry. Airbus – which employs more than 50,000 people across Europe – argues the proposals will damage competitiveness at a time of economic weakness, wants the EU to “put on hold” the extension of the scheme to airlines until a global plan for regulating carbon emissions by airlines can be agreed. Link

* Clegg forced to go soft on ‘tycoon tax’ Kiran Stacey, Helen Warrell and Vanessa Houlder – The Financial Times. Nick Clegg has been forced to soften proposals for a “tycoon tax” less than 48 hours after announcing it as a flagship policy at his Liberal Democrat party’s spring conference. The deputy prime minister said on Saturday that he wanted to set a minimum effective tax rate, making sure high earners did not use various loopholes to pay less than 20 per cent of their income in tax. The Treasury was surprised by Mr Clegg’s explicit mention of a minimum tax rate, as they had expected his speech to focus on general anti-avoidance measures. People close to George Osborne, the chancellor, told the Financial Times a minimum rate was not being considered. Link

Essential tax and accounting reading: Swiss eager for U.S. deal, E&Y auditor/advocate, slow refunds, and more

Internal Revenue Service office near Times Square in New York.

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Swiss president wants tax accord with U.S. David Jolly – The New York Times. In the view of Switzerland’s president, her country would sign a deal on banking secrecy with the United States “tomorrow” if not for an impasse created by Washington. “We are ready,” President Eveline Widmer-Schlumpf, who is also finance minister, said on Wednesday. “We’ve made a lot of constructive proposals. We could sign it tomorrow if the United States wants to do it.” She said the countries had made “considerable progress” toward a global deal in the last few months. An agreement will include deferred prosecution deals against Swiss banks accused of helping American tax evaders, fines and a “substantial” transfer of client data to the Internal Revenue Service, she said. Widmer-Schlumpf said that Switzerland, which accounts for more than one-quarter of the world’s offshore wealth, was not prepared to abandon banking secrecy altogether and that the data transfer “has to take place within the existing legal procedures in both countries.” Link

* Ernst & Young tightropes between audit, advocacy. David Ingram, Dean Aubin and Sarah Lynch. Corporate audit giant Ernst & Young operates a lobbying firm in Washington, D.C., that has been hired in recent years by several corporations that were at the same time E&Y audit clients, prompting two senior lawmakers to demand closer regulatory scrutiny. Amgen Inc, CVS Caremark Corp and Verizon Communications Inc have ongoing lobbying contracts with Washington Council Ernst & Young, an E&Y unit, while also using the audit firm to review the corporations’ books, according to documents reviewed by Reuters. U.S. rules on “auditor independence” include one that bars auditors from serving in an “advocacy role” for audit clients. The rule is focused on legal advocacy, such as providing expert witness testimony, but several accountants said the general prohibition on advocacy may cover lobbying, as well. Link

* Tax break goes far beyond factory floor. Kim Dixon – Reuters. A Reuters analysis of company filings and government data shows how broadly the Section 199 manufacturing deduction is now used, suggesting it may be nearly impossible to keep it focused on manufacturing. From Starbucks Corp to Time Warner Cable Inc, businesses far beyond traditional manufacturers use the benefit. President Barack Obama wants to cut the top corporate tax rate from 35 percent to 28 percent, with a special 25 percent rate for manufacturing. Critics say the manufacturing focus is in large part politics as Obama faces a potentially tough re-election fight in battleground states such as Ohio and Pennsylvania, where manufacturing is important. Link

Trying to move a mountain: Why Congress debates tax reform in an election year

Max Baucus, chairman of the Senate Finance Committee REUTERS/Kevin Lamarque

Tax reform is coming! 

Many people say that momentum is building to revamp the tax code, but the pace can seem glacial on Capitol Hill.

Nearly everyone agrees the tax code needs a rewrite but they also agree it won’t happen in an election year.

In an effort to lay the groundwork, congressional leaders held another set of major tax reform hearings this week, dragging experts into Capitol Hill hearing rooms to discuss something that’s less likely to hit DC than a blizzard in March.

Essential tax and accounting reading: Targeting private equity taxes, IASB slows rate of change, struggling taxpayers get a break, California’s stock option addiction, and more

Hans Hoogervorst, head of the International Accounting Standards Board REUTERS/Gil Cohen Magen Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tax treatment of private equity: questions over quirk. Daniel Shafer – The Financial Times. Governments in the U.S. and Germany are examining proposals to take away the preferential treatment that has helped to turn swaths of private equity managers worldwide into millionaires and a few dozens into billionaires. The prospect of lower profits as well as higher taxes not only risks denting private equity’s ability to attract talent. It also brings back to the fore accusations that buyout bosses have amassed riches by paying low taxes and taking dividends from indebted companies in their portfolio – a debate that started before the crisis but became sidelined as public anger turned towards banks. Such indictments do not come from trade unions or leftwing anti-globalization groups alone. Calpers, the California pension fund that is among the most influential investors in buyout funds, recently called the U.S. tax break on private equity managers’ profit rewards “indefensible.” Link

* IASB eyes selective reforms after frantic change. Huw Jones – Reuters. Tackling company “disclosure overload” will be among cherry-picked projects for accounting standards reform after industry calls to ease the pace of change, a top accounting rule-setter said on Wednesday. “Now we have most of the world on board, even a small change to a standard can be like dropping a pebble into still water,” International Accounting Standards Board Chairman (IASB) Hans Hoogervorst said in a speech in Mexico. Over 100 countries have introduced IASB rules for use in listed company reporting over the past decade, during which the board also worked with its U.S. peer to align each others’ standards. The aim was to persuade the world’s biggest economy to adopt IASB rules, too. But America has delayed its decision, recently prompting Singapore to put back full adoption of IASB rules. Meanwhile, the IASB is finalizing work for its next phase. Link

Essential tax and accounting reading: Taxing the rich, Germany and the financial transactions tax, global tax dodges, and more

German Chancellor Angela Merkel REUTERS/Thomas Peter Welcome to the top tax and accounting headlines from Reuters and other sources.

* Opposition presses Merkel on transaction tax. Quentin Peel – The Financial Times. Angela Merkel, the German chancellor, is facing growing pressure to accelerate the introduction of a financial transaction tax in Europe, in order to win approval for the eurozone’s new treaty on fiscal discipline in her parliament. Both leading German opposition parties – the Social Democratic party and the Greens – are calling for action on the FTT as the price of their support for the new treaty, signed last week by 25 of the 27 European Union member states. Merkel’s legal advisers say she needs a two-thirds majority in both the German Bundestag, the directly elected parliament, and the Bundesrat, the chamber representing Germany’s 16 federal states, in order to ratify the treaty. That means relying on both the SPD and Greens to back it in both houses of parliament. Merkel and Wolfgang Schäuble, German finance minister, have both said that if an EU tax is not possible, they would be prepared to back it for the 17 eurozone countries. Link

* Swiss amend U.S. tax treaty. Laura Saunders and Goran Mijuk – The Wall Street Journal. The Swiss parliament on Monday amended a tax treaty with the U.S., allowing Washington to more easily identify U.S. taxpayers with undeclared Swiss accounts. The lower house’s approval following the Swiss senate’s backing in December paves the way for the ratification of a tax-information-sharing agreement between the two countries. Lawmakers hope the change also will help end a years-long tax battle and lessen U.S. pressure on some Swiss banks. Under the new treaty, U.S. authorities will be able to ask the Swiss to disclose names of U.S. taxpayers at a bank who exhibit certain “behavioral patterns” indicating tax evasion under U.S. law, such as trying to conceal the ownership of the account through a trust. The U.S. also will be able to request information even from small cantonal banks that, unlike UBS and Credit Suisse Group, don’t do business in the U.S. Link

* U.S. watchdog finds deficiencies in BDO audits. Dena Aubin – Reuters. The U.S. auditing industry watchdog faulted major accounting firm BDO USA LLP on Monday for numerous deficiencies found in some 2010 audit inspections, the latest of several negative reports on U.S. accounting firms. BDO’s auditors failed to identify or address financial misstatements and in some cases failed to get enough evidence to support audit opinions, the Public Company Accounting Oversight Board said in an inspection report. The PCAOB said that in one case, BDO auditors did not properly test fair-value measurements for mortgage-backed securities and other hard-to-value securities. Link