The Republican Party can’t live on the dollars of libertarian billionaires and the votes of downwardly mobile white reactionaries alone. Without the support of culturally moderate, but fiscally self-interested suburban homeowners, the GOP’s congressional majorities would cease to exist. Highly educated, highly affluent blue-state suburbs put the Speaker’s gavel in Paul Ryan’s hand — and he then used it to pare back one of their favorite tax deductions.
There’s been a lively debate in recent days about whether the GOP’s deeply unpopular tax bill will become more — or less — politically toxic between now and the 2018 midterms. Pessimistic progressives contend that once voters realize the legislation reduces their short-term tax burden, they’ll view it more fondly. Others argue that the stench of corruption that clings to the bill will prove more potent than its meager middle-class benefits.
Well-off homeowners across the country spent the past week fighting for their tax planners’ attentions; waiting in long lines to prepay their 2018 property taxes, in hopes of getting in one last, unlimited deduction before the new rules take effect — then learning that those prepaid taxes might not actually be deductible, anyway.
Furthermore, the IRS’s guidance doesn’t define “assessed” — an oversight that’s proven confounding for New Jersey residents. As Bloomberg explains:
By state law, a New Jersey property assessor “shall determine his taxable valuations of real property as of October 1 in each year” – language that sounds promising for would-be tax cutters. But the same statute holds that the assessor “shall complete the preparation of his assessment list by January 10.” Ultimately, the “final assessment” is to be completed by May 5.
President Trump signed the “Tax Cuts and Jobs Act” into law, and it makes major changes to the U.S. tax code for both individuals and corporations. Yahoo News states, the bill represents the most significant tax changes in the United States in more than 30 years.
With the that in mind, here’s a guide to all of the changes that will go into effect — the new tax brackets, modified deductions and credits, corporate tax changes, and more.
The 2018 tax brackets
The final bill kept a seven-bracket structure but with mostly lower tax rates.
The marriage penalty is (almost) eliminated
The marriage penalty has been effectively eliminated for everyone except married couples earning more than $400,000.
Standard deduction and personal exemption
The standard deduction has roughly doubled for all filers, but the valuable personal exemption has been eliminated.
Capital gains taxes
Short-term gains are likely taxed at a different rate than they formerly were. In addition, the three capital gains income thresholds don’t match up perfectly with the tax brackets.
Different groups have weighed in on the cost and impact of the various versions of the tax plans and bills. Here are some of the major players listed in the Marketplace.
Congressional Budget Office: The CBO is the greatest ally and enemy of members of Congress trying to push legislation. The agency “scores” legislation to determine how much a bill will cost the government and how it will affect Americans. When those scores don’t line up with what someone wants to hear, the agency is often labeled as biased. The director of the CBO is appointed by House and Senate leadership, and the current director, Keith Hall, was appointed by Republicans.
Joint Committee on Taxation: This committee helps members of the House and Senate with research on tax-related matters. Its primary function is to provide reports to members of Congress, but some of its information is public. Often when you hear about reports from the JCT, members of Congress have leaked them to the media or think tanks, rather than them being available to the public.
Tax Foundation: The Tax Foundation is generally considered a right-leaning think tank and provides many detailed analyses of how the various tax plans could impact the economy. The group faced some criticism for the way it crunched the numbers on the House plan, and subsequently changed its model and issued a correction.
Tax Analysts: This is the nonprofit arm of a group that also runs Tax Notes, a tax-focused news outlet that sells newsletter subscriptions to individuals and businesses.
Attorney General Jeff Sessions announced that the Justice Department is settling class action lawsuits brought by more than 400 conservative groups who claim they were “improperly” delayed when seeking tax-exempt status with the Internal Revenue Service.
“There is no excuse for this conduct. Hundreds of organizations were affected by these actions, and they deserve an apology from the IRS. We hope that today’s settlement makes clear that this abuse of power will not be tolerated,” said Sessions.
As mentioned in NPR, the consent order says the IRS admits it wrongly used “heightened scrutiny and inordinate delays” and demanded unnecessary information as it reviewed applications for tax-exempt status. The order states, “For such treatment, the IRS expresses its sincere apology.”
The IRS stepped up its scrutiny around 2010, as applications for tax-exempt status surged. Tea Party groups were organizing, and court decisions had eased the rules for tax-exempt groups to participate in politics.
The U.S. Internal Revenue Service is exploring whether the Chronic Disease Fund, a patient-assistance charity funded largely by drugmakers, gave “impermissible” benefits to its corporate donors, according to federal court filings.
According to Bloomberg, an IRS analysis found that 95 percent of the $129.3 million the charity spent on co-payment support in its public programs in 2011 went to patients taking drugs made by the very companies that had donated the money, according to court papers.
Donations from drug companies “are nearly all returned to those same pharmaceutical manufacturers as payments for the drugs they make,” attorneys for the IRS said in papers filed in federal courts in California, Pennsylvania and other states, seeking information related to the probe. “In effect, CDF is serving as a conduit for its pharmaceutical manufacturer ‘donors,’” government lawyers said.
The IRS has sent summonses to Roche Holding AG’s Genentech unit, Biogen Inc., Johnson & Johnson, Teva Pharmaceutical Industries Ltd., Novartis AG and Bayer AG, seeking information on donations to CDF. Biogen, Novartis and Bayer said they’re cooperating with the IRS summonses, and Teva declined to comment. J&J said it has no control over how co-pay charities operate. Roche declined to comment on ongoing legal matters.
Getting audited is not something a business owner wants to go through. However, there is a slight chance that it might take place. So what happens if you get audited by the IRS?
Most people do not want to think about getting audited. Instead they focus on how to avoid an IRS audit altogether if possible. However, the IRS could randomly select you for an audit or, you could make errors on your IRS forms.
According to Patriot Software, only about 2.5% of small business owners get audited. But, understanding what happens if you get audited is an important part of being a business owner. If you are audited, you might have some questions:
- What information does the IRS need?
- What is the Taxpayer Bill of Rights?
- How does the IRS notify you of an audit?
- How long will the audit take?
- What is the IRS audit statute of limitations?
- What are IRS audit penalties?
What information does the IRS need?
The IRS will tell you what records they want to see. The records are documents that support claims on your tax returns. Here are just some of the records the IRS might ask you for:
- Canceled checks
- Legal papers
- Loan agreements
- Employment documents
What is the Taxpayer Bill of Rights?
In 2014, the IRS announced the Taxpayer Bill of Rights, a document meant to help taxpayers understand the complexity of taxes. There are 10 basic rights that apply to general taxpayers as well as those being audited:
- The Right to Be Informed
- The Right to Quality Service
- The Right to Pay No More than the Correct Amount of Tax
- The Right to Challenge the IRS’s Position and Be Heard
- The Right to Appeal an IRS Decision in an Independent Forum
- The Right to Finality
- The Right to Privacy
- The Right to Confidentiality
- The Right to Retain Representation
- The Right to a Fair and Just Tax System
How does the IRS notify you of an audit?
If you are getting audited by the IRS, you will receive a notice in the mail. The IRS will not begin an audit with a telephone call or email.
The IRS tax notice will give you contact information and instructions for what to do next.
How long does an IRS audit take?
According to the IRS, the audit process does not have a set time limit. When you receive the notice is when the IRS audit process begins.
The IRS audit process timeline is determined by how accurate your records are, the type of audit, you and the auditor’s availability, and your response to the audit findings.
What is the IRS audit statute of limitations?
The IRS audit statute of limitations describes how far back the IRS can go into your tax returns. According to the IRS, the time period varies depending on how big of an error they catch.
Typically, the IRS can use any small business tax return filed within the last three years. However, the IRS can go back six years (or more in rare cases) if there is a big mistake. Most audits only consist of returns filed within the last two years.
By law, you are required to keep all the records you used to prepare your tax return for at least three years from the date you file the tax return. You might want to keep accurate records longer so you are prepared if an auditor uses tax returns from six years ago.
What are IRS audit penalties?
If the audit concludes that you did not pay enough taxes, you could face penalties in addition to any unpaid taxes you might have. Here are some of reasons you might be penalized, according to the IRS:
- Understating your tax liability
- Failing to file
- Failing to pay
- Errors on tax return
IRS tax audit penalties range from owing money to prison time. Take a look at some of the IRS audit penalties:
The IRS can apply an additional percentage to the amount of taxes you owe them:
- 20% or 40% penalty: If you made a mistake on your tax return, you could face a 20% or 40% penalty, depending on how severe the error is.
- 75% penalty: This is reserved for more serious cases, like fraud.
If you have a significant tax debt that you are unable to pay, the IRS can seize your property and sell it to get the money you owe them if you aren’t protected by limited liability.
Prison time is reserved for those who attempt to get away with criminal tax evasion. Tax evasion is the intentional underpayment of tax debts. Business owners purposely committing fraud to get out of paying taxes can face a jail sentence up to five years, fines up to $250,000 or $500,000 for corporations, or both.
Fraud is extremely different than negligence — if you make a mistake on your tax return, the IRS will determine if it is negligence or fraud.
Understanding what happens when you get audited by the IRS can save you unnecessary worry, help you know your rights, and remind you to keep your records together. Check out this easy-to-read infographic:
The IRS has reported that tax audits have declined in the last few years. The budget cuts in recent years have left the agency with fewer IRS agents to catch missteps and collect revenue.
As mentioned in Forbes, the number of audits dropped 16% just from the previous year, and that was the sixth year in a row for fewer audits. The chances of audit have always been low, but they have declined even more over the last few years, considerably less than 1%. Sure that makes for a lot of happy taxpayers. No one wants to be audited.
However, infrequent audits can hurt you. Low IRS audit rates are likely to embolden some taxpayers and tax advisers. They may feel that they are in the clear. Statistically speaking, they might be. But someone is going to get audited. And you should prepare as if you will be audited, not assuming that you will not be.
If you are fully prepared for an audit, with documentation, receipts, log books, perhaps even a tax opinion, you probably won’t need them! That is the odd karma about being prepared. Conversely, suppose you figure that you don’t need any of those things, and can produce them if and when you are audited? You guessed it, you probably will get audited. What’s more, you won’t be able to quickly produce all the things you think you can.
Even if you do, the documents will almost certainly be much less persuasive to the IRS than contemporaneous ones would be. And a tax opinion prepared at audit time is rarely entitled to much deference! In short, prepare up front and assume that you’ll be audited. How long are you at risk? Start with the basic rule that the IRS usually has three years after you file to audit you. But this is often extended, sometimes voluntarily. Frequently, the IRS says it needs more time to audit. The IRS asks you to sign a form extending the statute, usually for a year. Most tax advisers tell clients to agree, but get some professional advice. You may be able to limit the time or scope.
An exception to the three year rule is if you omit more than 25% of your income. In that case, the IRS gets double that time, six years. The IRS also gets six years to audit if you omitted more than $5,000 of foreign income (say, interest on an overseas account). For unfiled tax returns, criminal violations or fraud, the IRS has no time limit. In most criminal or civil tax cases, though, the practical limit is six years. And in some cases, even if you file your return, if you miss some tax forms, the IRS can audit forever.
The statute of limitations on taxes is a fundamental rule allowing taxpayers to cut off their exposure. You should never throw out your old tax returns—ever. But after a time—many people say seven years or so—you should be able to throw out records and receipts. Still, some records should be kept forever—like receipts for improvements to property that go into your basis. If you remodel your kitchen and sell your house 20 years later, the receipts for your remodeling job are still relevant. It is comforting to know that your chances of an IRS audit are declining. But someone will be audited, and you might be the one. The best way to avoid much of the pain is to be prepared.
So, you want to start your own online business? Before you start designing your own website or webpage, make sure that you know all about the do’s and don’t of
starting an online business and that includes the technical, financial and legal matters of the business.
When you decide to start a business, you should be aware and prepared for whatever legal or financial issues that may arise. If you think that you can escape from paying taxes by starting your very own online business, think again – your dreamy balloon may burst once you get into complications regarding taxes and your online business.
The Truth About The Internet Being A Tax-Free Zone
More and more shoppers are getting lured by online shops and retailers because of their famous tag line of “no-tax shopping”. What most people don’t know is that that certain tag line used to lure online shoppers is not applicable to all states.
For you to be able to understand this concept better, here is an example: A woman from Indiana regularly purchases exotic orchids through an online shop based on Switzerland.
Since she purchases and sends her payments directly to Switzerland, she is not obliged to pay any sales tax in Indiana since her orchid supplier has all of its facilities in Switzerland.
A few months later, the exotic orchid supplier of that woman has decided to open a store in Indiana. The woman still purchases online but she already has to pay for the sales tax of the orchid since there is already a store based in the place where she is staying.
In other words, the responsibility to pay for taxes is an interdependent status between the consumer and the supplier. By that example, we can Come to a conclusion that the Internet is not really a tax-free zone. It depends on the location as well as the type of business that one is involved in.
The Responsibility To Pay Sales Tax
Admit it, nobody really loves to pay taxes. Perhaps even the rich people are irritated come tax-paying time because it is sometimes a tedious and complicated
process. There are a lot of rules and laws to refer to before one can actually come to a clean calculation of the taxes that he or she must pay.
If an individual lives in a state that is known for collecting “sales tax”, you are not exempted from it even though you try to escape it by making a lot of purchasing through the Internet because you are still required to pay for the “sales tax” directly to the state.
When you pay a “sales tax” directly to the state, it is no longer called a “Sales tax” but rather a “use” tax. Perhaps the only difference between “sales” tax
and “use” tax boils down as to which person – the buyer or the seller – pays the state. “Use” taxes are usually used by the state to make sure that they collect the right amount of revenue on every taxable item purchased within the state borders.
There are actually still a lot of points to be discussed about taxes and online business and the points mentioned here are just what we may call “a tip of the iceberg”.
In determining what’s the right thing to do in handling taxes and your online business, it would be best to go beyond researching for legal answers alone. Consulting the help of lawyers and other legal professionals would probably benefit you more than you expect.
With products like Turbo Tax improving, many wonder where this leaves accountants. Ironically, the evolving role of accountants is helping people save on their taxes.
The Evolving Role of Accountants
Given the fact that paying taxes isn’t the most popular of tasks, most people don’t give much thought to the role of accountants. Going to your accountant is often viewed much like going to the dentist. It is not going to be fun, but it needs to be done. While a toothache isn’t fun, an audit is one of the biggest fears of most taxpayers. I guarantee you that no contestant would survive if the Fear Factor television show made them undergo a tax audit!
Given this situation, it is hardly surprising that most people view the role of an accountant as the preparation of confusing tax returns. With the advent of tax preparation software programs, many wonder why they need an accountant. More than a few accountants have probably wondered as much also.
There is no disputing the tax preparation software revolution has led to a different role for most accountants. Ironically, this is good for both taxpayers and accountants. No longer does an accountant count on spending time filing out tax returns. Heck, even accountants use software to do this now!
The role of accountants is now to do tax planning for their clients. The best accountant is one that drags you into his or her office once a year to look at your finances and plan a strategy to limit what you will pay the IRS. This should occur at some point during the beginning of the tax year, not a week before your tax returns are due!
Unfortunately, a majority of accountants never took this step since they were to busy preparing the mountain of tax returns the federal and state governments now require. The evolving role of accountants, however, has let them return to the traditional position of coming up with proactive strategies to limit your tax bill. This is more interesting for them and obviously beneficial for you.
Many thought tax software would eliminate much of the need for accountants. Ironically, the changes in their duties has returned them to their traditional role of giving tax planning advice.
So you want to start your very own online business. Aside from having unlimited access to the Internet, you also need to be armed with adequate knowledge about taxes and your online business because without it, you will surely be at loss.
Online retailers, or more commonly known as e-tailers are not exempted from paying taxes, contrary to the common misconception of most people. E-tailers are still included in the rush for meeting the April 15 deadline for tax filings.
However, veteran e-tailers would say that the most difficult part for online business owners is navigating and complying with the confusing and complicated laws and conditions governing day to day sales taxes.
An Everyday Challenge If you are one e-tailer who would like to take your online business seriously, then you should be prepared to deal with the fact that handling and managing sales taxes is actually an everyday challenge.
The truth is, a lot of e-tailers are required by the government or their state to file and remit sales tax to states on either a monthly or regular interval. The basis for the filing of sales taxes would more or less depend on how much revenue you online business generates.
Few Tips For E-tailers
It is very vital that you understand your responsibility for sales tax. You must also know that the idea that e-commerce companies are required to collect and remit sales tax in every state is one big myth.
You only have to pay sales tax if you have nexus in that certain state. If you are a neophyte in online business, perhaps you don’t have an idea what the word nexus means, right?
Well, in online business jargon, nexus means a “connection”. Put in application, making a sale in another state does not mean that you automatically have a sales tax obligation.
You have to put in mind that there are many rules and laws that you need to consider before you can determine whether or not you will need to pay for sales tax in a certain state.
When you create your very own nexus in a certain state, you are then required to calculate, collect, report and remit the sales that you make in that certain state every time you have a transaction there.
This is the reason why you are obliged to pay tax sales based on the location of your business.
However, you must also keep in mind that there are also other ways to create your very own nexus in a state. Aside from physical presence or structure of your business establishment in a certain state, you can also establish a nexus by having sales representatives present in that state, tradeshows, mobile stores, etc.
Trying to make an online business work amidst the seemingly confusing and complicated rules that apply to different states can be quite impossible.
However, one must not lose hope; with the help of professionals in the legal field and certified public accountants, you will surely be enlightened as to what steps you should take for your online business to stabilize and prosper.
By being armed with the right knowledge about taxes and your online business will surely help you achieve success in the realm of online businesses.