Here's to a great season.
Monday, June 20, 2011
Sunday, June 19, 2011
Saturday, June 18, 2011
Friday, June 17, 2011
Wednesday, June 15, 2011
The number of people who reported incomes of at least $200,000 and paid no U.S. income taxes jumped 79.5 percent in 2008 from 2007, according to an Internal Revenue Service study.
In all, 18,783 people filed U.S. tax returns with adjusted gross incomes of at least $200,000 and used legal deductions, exemptions and credits to avoid owing any U.S. income taxes. That represents 0.43 percent of high-income taxpayers, the biggest percentage of non-payers in an IRS study released yesterday that includes data going back to 1977.
Even with the dollar threshold being held constant for inflation, the 2008 totals and percentages were the highest on record. The percentage of non-payers in 2008 almost doubled from the 0.23 percent of filers who reported no income tax liability in 2007, before a recession-fueled decline in tax revenue.
“That is further evidence of how broken this system is,” said Senator Ron Wyden, an Oregon Democrat who has called for an overhaul of the U.S. tax code. “What else can you say but ‘Congress, get going and fix this’?”
The data are estimates based on sampling conducted by the IRS and are subject to sampling error. The numbers vary depending on the measure of income and the measure of tax the IRS uses.
No Tax Owed
Under an “expanded income” concept that adds items such as tax-exempt municipal bond interest not included in adjusted gross income, 27,399 people had annual incomes of $200,000 or more in 2008 without paying any U.S. taxes.
U.S. citizens who earn income outside the country can receive U.S. tax credits for foreign taxes paid, so they can eliminate their U.S. tax liability and still pay significant taxes elsewhere.
Others paid no income taxes anywhere in the world. Using the AGI definition and an analysis that examines taxes paid worldwide, 10,824 returns in the high-income group owed no tax to any country. Both of those figures, on an absolute and a percentage basis, hit records in the years covered by the study.
“It’s kind of a surprise to me. I don’t know what the reason for that would be,” said Alan Viard, an economist at the American Enterprise Institute, a Washington policy research group that supports low taxes and market-driven policies.
Losses and Deductions
The reasons why high earners can legally pay no taxes include partnership losses and deductions for charitable contributions, medical expenses, investment interest expenses and casualty and theft losses, the report said. Typically, people in this group avoid taxes because of a combination of deductions and other provisions and income sources that differ from those of the typical taxpayer.
“Nontaxable returns under the expanded income concept were much more likely to have tax-exempt interest than were taxable returns, and, when they did have it, the average amount was much higher,” said the study by IRS economist Justin Bryan. “Similarly, nontaxable returns were much less likely to have any income from salaries and wages.”
These taxpayers are able to avoid paying the alternative minimum tax, which was created in 1969 following reports that 155 high-income taxpayers had paid no taxes. The AMT was rewritten in 1986 and operates as a parallel tax system with a structure that tends to affect people with high state and local taxes or with large families. Many tax deductions, including those for charitable contributions, can be applied to the regular income tax and to the AMT.
Almost half of U.S. households don’t pay any federal income taxes. Most of the non-payers are at the lower end of the income scale, where tax credits intended to encourage work and cover the costs of raising children help to eliminate tax liability.
Adjusted Gross Income
About 3.1 percent of taxpayers reported adjusted gross income of at least $200,000 in 2008. They reported earning 29.8 percent of the AGI of all taxpayers and paying 52 percent of all federal individual income taxes, according to IRS figures.
Eric Toder, co-director of the Washington-based Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution that provides research and analysis on tax policies, said the number of filers earning more than $200,000 dropped from 2007, suggesting that there were dips in income even for people who managed to exceed that income level. That trend and the effect of the recession could have pushed people who would otherwise have had some tax liabilities into the no-tax category.
IRS figures show that the number of filers earning more than $200,000 dipped from 4.53 million in 2007 to 4.37 million in 2008.
“My guess is that the average income in that group went down quite a bit,” Toder said.
To contact the reporters on this story: Richard Rubin in Washington at firstname.lastname@example.org Andrew Zajac in Washington at email@example.com
Tuesday, June 14, 2011
1. Pay yourself "reasonable" compensation. Become familiar with the IRS’s guidance on "reasonable" compensation and keep good documents and compelling business reasons for determining your compensation. Avoid commingling of business and personal accounts.
2. Update your stock basis every year. Each year basis calculations should be updated. This is a responsibility of the taxpayer. Furthermore, it should not be automatically assumed that a shareholder has enough basis to deduct losses.
3. Keep track of your own basis. Basis determines the limit on the amount of corporate losses that can be deducted by shareholders, determines the upper limit for the amount of tax-free distributions that can be received from the corporation, and is used to determine the gain or loss when stock of the S corporation is sold or disposed.
4. Document all shareholder loans. Shareholder loans should be properly documented and should bear a rate of interest that is, at a minimum, equal to the Applicable Federal Rate as published by the IRS.
5. Be proactive if you are audited. Review your files and seek professional advice and representation. Hire a tax professional with the proper credentials to represent you immediately. Audits may be at the federal, state, or local level and the government personnel that are assigned to them are specially trained.
Monte S. Colbert
Monday, June 13, 2011
Think again. After years of increased enforcement efforts at the Internal Revenue Service, tax cheating is still rampant, costing the federal government an estimated $350 billion or more each year in missing or late taxes. That’s more than the government collects annually from the corporate tax, and 16 percent of the government’s total revenue.
What’s worse, the IRS’s vaunted search-and-destroy reputation for cracking down on tax fraud — built up over the past decade — is being threatened by Republicans’ efforts to cut the agency’s budget. “We’ve been in an era of increased funding and enforcement activity, but that could be coming to an end shortly,” says Mark Luscombe, a tax analyst at CCH, a unit of Wolters Kluwer in Riverwoods, Ill.
Republicans failed to push through $600 million in cuts to the IRS budget this year but did manage to block President Obama’s proposed increases — leaving the IRS budget flat at $12.1 billion. The IRS is seeking a 10 percent increase in its budget for the coming year, with much of the new money going for stepped-up enforcement efforts. But less is being allocated to financial services in general, which doesn’t bode well for the IRS.
IRS spending cuts are called for as part of the House Republican plan to relieve the nation’s fiscal problems, but this could backfire. Spending by the agency comes with a return: For every $1 it spends on enforcement, it gets at least $4 back in collected taxes. IRS Commissioner Douglas H. Shulman warned a Senate subcommittee on Wednesday that if the agency has less money to work with, the tax gap — that’s the difference between what the IRS figures it will collect and what it actually brings in — will get even bigger. Such agency budget cuts “would actually increase the deficit by decreasing revenue,” Shulman said.
For tax deadbeats, the prospect of a weakened IRS would be welcome news. These are some of the most common scams that cheaters could have an even-easier time getting away with:
•The Death Master File might sound like a heavy metal cover band, but it is key to one of the fastest growing types of tax fraud — identity theft. The DMF, as it is called, is the database kept by the Social Security Administration with records of deceased citizens. It has been a growing source for scammers who access Social Security numbers, file fraudulent returns and make off with refunds.
Social Security numbers are obtained unlawfully in many other ways, such as using phony Web sites to request personal information or via e-mail. Incidents of tax fraud through identity theft have exploded from 51,702 in 2008 to 248,357 in 2010, according to the Government Accountability Office.
•Over-reporting refundable tax credits is another favorite tactic among fraudsters these days. The earned income tax credit is the most widely exploited, with an estimated 30 percent of all claims — amounting to about $12 billion — thought to be either fraudulent or in error. But other credits, such as the first-time home-buyer credit, American opportunity tax credit and adoptions credit, are fair game for fraudsters as well.
•Failure to report income is the black hole of tax fraud. Small-business owners and independent contractors who file a Schedule C form are the biggest violators: The IRS figures these taxpayers disclose only 43 percent of their income, leaving some $68 billion unreported. The IRS thinks that farmers are the biggest scammers, reporting only 28 percent of their income.
Boosting compliance is tricky because most of these unlawful transactions typically leave no paper trail. Consider the last time you paid your plumber or landscaper. The IRS has no way of knowing that transaction took place, and the payment could easily go unreported. To require customers to fill out Form 1099 for each transaction (think: every time you pay a cabdriver) would be too cumbersome and time-consuming.
•Some of the biggest money is stashed away offshore. The IRS had one of its greatest successes weeding out tax cheats in 2009 when it pressured Swiss banking giant UBS to disclose the names of Americans with possible hidden offshore assets. In a sure sign that enforcement pays off, scammers got spooked and almost 15,000 came forward as part of a voluntary compliance program.
A voluntary compliance program is in effect through August, offering taxpayers lighter penalties and the possibility of avoiding criminal prosecution if they pay up.
New IRS rules
Two new rules go into effect this year to help the IRS combat fraud. One requires credit card companies to report transactions to the IRS. To weed out some of those unscrupulous filers of Schedule C forms, the IRS will be looking for cases in which spending far exceeds reported income. Another rule requires financial institutions to disclose tax basis of securities sold, so investors are less likely to get away with understating their capital gains.
Meanwhile, Congress can do more to attack the problem. For example, it can require that taxpayers file more documentation supporting eligibility for tax credits. And it can give the IRS broader authority to check returns for discrepancies before issuing a refund. As it is, changes to the tax code are often followed by a couple of years of noncompliance before Congress gives the IRS the authority to do pre-refund checks specific to those changes, says Mike Brostek, director of tax issues at the GAO.
Ultimately, however, these and other measures will have only a pruning effect on the fraud epidemic. The system’s multiple tax rates and numerous credits and deductions create a myriad of hard-to-detect opportunities for cheating — too many for the IRS to weed out.
The only way to unearth the problem at its roots is to reform the tax system. This could minimize unfairness created not only by fraud, but also by legal tax avoidance strategies that allow for large corporations such as General Electric to pay little or no taxes. With a system that permits such avoidance, it’s worth considering whether an inherently flawed system that encourages dishonesty — not just a lack of enforcement — is contributing to the troubling and costly epidemic of fraud.
Hube is a columnist for the Fiscal Times, an independent news organization that provides original reporting and analysis on fiscal and economic matters.
Saturday, June 11, 2011
A new survey reveals that 64 percent of shoppers have left a store in the past year due to poor customer service. What's the one factor that bugs them the most?
By Tamara Schweitzer Raben
Posted 6/ 8 11 at 2:00 PM | News, Sales, Consumer Products & Services, Retail
The way your salespeople interact with customers could be costing you business. According to a new Consumer Reports survey, which asked 1,010 adults about their customer-service experiences, 64 percent of respondents said they have left a store in the past year because of poor customer service. Among the top in-store customer gripes were rude and pushy salespeople, cited by 65 percent of respondents. Customers were least annoyed by having to wait in a long line at the checkout counter or wait for a scheduled repair.
The survey also asked about customer service over the phone, and found that 71 percent of respondents were most annoyed about the experience when they weren't able to reach a human on the phone. Additionally, 67 percent said they hung up the phone without getting their issue resolved. However, when asked about preference for handling a customer service issue, only 16 percent said they prefer to resolve the issue in person.
Consumer Reports National Research Center also looked at the best and worst companies and service providers in 21 industries. According to the findings, brokerage firms, eyeglass retailers and pharmacies were some of the highest-rated industries based on service, while computer tech support, TV, phone and Internet service providers earned some of the lowest scores. Consumer Reports takes a more in-depth look at the customer service industry in its July issue.
Friday, June 10, 2011
The IRS is stepping up audits on employee classification. It is very important to make the proper decision about employee classification
If an employee is incorrectly identified as an independent contractor you may be liable for the self employement taxes that you should have paid plus penalties.If you are unsure don't feel bad you are in common company. Congress’ General Accounting Office (GAO) has estimated that 38 percent of employers examined misclassified "independent contractors". Both WalMart and FedEx have lost lawsuits or paid penalties relating to misclassification of employees.
The general rule is that an individual is an independent contractor if , the person for whom the services are performed have the right to control or direct only the result of the work and not the means or methods of accomplishing the result.In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
The behavioral control factors fall into the categories of:
Type of instructions given
Degree of instruction
Types of Instructions Given
An employee is generally subject to the business’s instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work.
When and where to do the work.
What tools or equipment to use.
What workers to hire or to assist with the work.
Where to purchase supplies and services.
What work must be performed by a specified individual.
What order or sequence to follow when performing the work.
Degree of Instruction
Degree of Instruction means that the more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.
Note: The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right.
If an evaluation system measures the details of how the work is performed, then these factors would point to an employee.
If the evaluation system measures just the end result, then this can point to either an independent contractor or an employee.
If the business provides the worker with training on how to do the job, this indicates that the business wants the job done in a particular way. This is strong evidence that the worker is an employee. Periodic or on-going training about procedures and methods is even stronger evidence of an employer-employee relationship. However, independent contractors ordinarily use their own methods.
Financial control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job.
The financial control factors fall into the categories of:
Opportunity for profit or loss
Services available to the market
Method of payment
An independent contractor often has a significant investment in the equipment he or she uses in working for someone else. However, in many occupations, such as construction, workers spend thousands of dollars on the tools and equipment they use and are still considered to be employees. There are no precise dollar limits that must be met in order to have a significant investment. Furthermore, a significant investment is not necessary for independent contractor status as some types of work simply do not require large expenditures.
Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform for their business.
Opportunity for profit or loss
The opportunity to make a profit or loss is another important factor. If a worker has a significant investment in the tools and equipment used and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money (i.e., their expenses will exceed their income from the work). Having the possibility of incurring a loss indicates that the worker is an independent contractor.
Services available to the market
An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
Method of payment
An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.
Type of relationship refers to facts that show how the worker and business perceive their relationship to each other.
The factors, for the type of relationship between two parties, generally fall into the categories of:
Permanency of the relationship
Services provided as key activity of the business
Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status. The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self employment tax. How the parties work together determines whether the worker is an employee or an independent contractor.
Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance. Businesses generally do not grant these benefits to independent contractors. However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.
Permanency of the Relationship
When a worker is hired with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.
Services Provided as Key Activity of the Business
If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.
There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
When someone is unsure of the status they can file form SS-8 with the IRS and they will make the determination. This can take up to 6 months but if you anyone in a business that continually hires the same types of workers to perform particular services may want to consider this option.
Thursday, June 9, 2011
IRS Says 275,000 Organizations Automatically Lost Tax-Exempt Status Charity Form 990
Wednesday, June 8, 2011
How Direct Deposit Can Save Your Business Time, Hassles and Money | Network Solutions Small Business Blog
How Direct Deposit Can Save Your Business Time, Hassles and Money Network Solutions Small Business Blog
Many US Employers to Drop Health Benefits: McKinsey - CNBC
Today and tomorrow are going to be really hot so take it easy. It's a great day to stay inside and get your financial books in order. For a game plan to develop a comprehensive accounting system contact Ralph V. Estep, Jr, of Saggio Management Group at 302-659-6560.
Tuesday, June 7, 2011
As you enter the new office you will find an expansive waiting area with ample seating and a very inviting new counter that has been enlarged to allow for our clients to review their paperwork right at the counter. We are really focusing on technology at the new office so you will see that even in the lobby where we have added a flat panel television for your viewing the lastest news.
Once you leave the lobby you will be directly next to the new receptionist work area. We have really expanded the work area for our receptionist staff and provided a large counter for clients to check-out when leaving the office.
Immediately to your right is our new Conference Room with plenty of space for our clients needing additional meeting room. Technology has also been a focus in the conference room with a media center for reviewing both video and PC based materials. We plan to add video conferencing in the near future.
As you walk towards the rear of the unit, down the main hallway, you will find two new rest room facilities, two water fountains, and four large work offices to accomodate our current staff and future room for expansion. You will also find our kitchenette.
When you reach the rear of the unit you will find my office. We have really added technology in my office and provided a great space for client meetings.
We are really excited about our new location and we are planning to make the official move on Friday July 15th. We will have mail service at the new office starting today, so we are in the midst of transferring mail to the new location. When you have time, make a plan to stop in and see our new space after July 15th, we look forward to serving you soon.
Monday, June 6, 2011
Blake Ellis, On Saturday June 4, 2011, 7:34 am EDT
Tina and Kenny Thomas filed their taxes in February and are still waiting for their refund.
The Thomases are expecting a whopping $65,000 check from the IRS this year, thanks to the adoption tax credit they claimed after adopting five special needs children from foster care over the past few years.
The refund was supposed to arrive on May 3, according to the "where's my refund?" tool on the IRS website. They're still waiting for a check. The family is buying a home in foreclosure for $55,000 and agreed to pay cash with their refund. But the check didn't arrive by their closing date. They've already extended the closing date once, but if they don't get the money by June 13, they may lose the house.
"We are frustrated because [the IRS] knows they owe it," said Tina. "If we owed them, they would be charging us hundreds of dollars in interest. It's a lot of money so it seems like they're trying to prolong it as much as possible."
While the couple finally received about $5,000 -- the portion of their refund that doesn't include the adoption credit -- they have yet to see the bulk of the money.
Thousands of other Americans who adopted children over the last five years and filed for the adoption credit are in limbo as well, waiting for similarly large sums from the IRS. The adoption tax credit gives parents who adopt children as much as $13,170 per child -- up from a cap of $12,150 last year. And this is the first year the credit is refundable, meaning the money goes directly into a qualifying taxpayer's pocket, rather than being applied to future taxes owed.
That's especially helpful for lower income families because they get the cash even if they don't owe any taxes.
A typical private adoption runs about $30,000, so the credit was intended to help families by reimbursing expenses, such as court fees. Parents who adopt children with special needs, however, can receive the entire credit even if they had no expenses.
But because of the huge amounts of money adoptive parents are claiming this year, the IRS is being extra vigilant before it doles out thousands of dollars.
Andrew Long and his wife still haven't received the $67,000 refund they say they're owed, after adopting four children with special needs last year.
"The new adoption refund is going to be very helpful, once the IRS decides to give it to us," said Long.
The Longs recently received a check for about $12,000 -- the portion of the refund that didn't include the adoption tax credit. But they have yet to see the remaining $55,000.
Playing the waiting game
In its latest report on the tax filing season, the Treasury Inspector for Tax Administration found that, by the end of April, the IRS had received returns from 72,656 taxpayers claiming more than $897 million in adoption credits. About 58% of those claims were sent for further review, and will be audited to verify that proper documentation was submitted and that the amount of money being claimed is correct.
The IRS didn't provide an average timeframe for resolving these additional examinations.
Long said the IRS sent him multiple letters asking for the same paperwork he had already attached to his original return in February. After re-sending the documents in April, he said his tax refund status online still hasn't budged from "under review."
When he called to see what was going on, he said a representative told him that all adoption credit returns are being audited this year.
The IRS has acknowledged the issue, but says the delays are largely coming because taxpayers are filing improper paperwork or are missing documents.
"We recognize what an important credit this is for people who are adopting, since the dollar figure on this one compared to other refundable credits is very large," said IRS spokesman Terry Lemons. "But we have people who are trying to game the system all the time, so we're kind of stuck in the middle -- we know parents are counting on this money, but we're also trying to make sure each claim truly qualifies."
This may explain why parents like Deborah Schwinger, the new mother of two adopted siblings, have been left in the dark. Schwinger also claimed the adoption credit, and said she's supposed to get $24,300 back from the IRS. She received the part of her refund excluding the adoption credit, and says the IRS continues to send her letters notifying her of further delays.
"No adoptive parents, that I know, have actually gotten the money -- everyone's return is being reviewed or delayed," she told CNNMoney. "I think many people may give up."
As they wait, many confused and angry adoptive parents across the country are flocking to an online forum on Adoption.com. A thread dedicated to the issue contains 85 pages filled with comments about refund delays.
But some families are winning the waiting game. The Wards, from Smithfield, North Carolina, were one of the few families that have received a refund from the adoption credit -- totaling $54,000 -- after adopting five kids over the past five years. They've been waiting since January, when they filed their return.
To claim the credit, taxpayers are required to file a paper return, instead of filing electronically. And they must attach documentation, including an adoption order or decree. The IRS says it typically takes six to eight weeks to receive a refund if the taxpayer has submitted a proper return.
But to those parents whose refunds are being delayed because of the intense screening process, Lemons said the IRS apologizes.
"This doesn't help out the people who claimed the credit and who deserve it ... we're sorry this is taking some time for those caught up in this," said Lemons.
IRS Files Tax Lien against Tax Lady Roni Deutch
Sunday, June 5, 2011
I recently switched from Blackberry to the Android market. I am using the Samsung Epic from Sprint. The apps are great. I recently downloaded the barcode scanner and Google shopper app. I thought I would test it today at HH Gregg because they match prices. I saved over $300 on my order by using the app and matching prices. I would certainly recommend the app for everyone. It is simple, free and works great.
My wife and I had the time to visit Harry's Seafood Grill on the Wilmington waterfront last evening. The decorations were very appealing and the service was excellent. My wife had the salmon which was superior, I tried a few bites. I had the steak burger and it was awesome. We also had the New England clam chowder and my wife had the steamed clams. An overall excellent dining experience. I would greatly recommend to all looking for an excellent dining experience.
Friday, June 3, 2011
(Reuters) - Ratings agency Moody's warned on Thursday it would consider cutting the United States' coveted top-notch credit rating if the White House and Congress do not make progress by mid-July in talks to raise the debt limit.
Treasury Secretary Timothy Geithner, seeking to convince Congress to increase his borrowing authority and prevent a government default, went to Capitol Hill to press his case in a 45-minute meeting with first-term lawmakers.
"I am confident that two things are going to happen this summer," Geithner told reporters after the meeting. "One is that we are going to avoid a default crisis and we are going to reach agreement on a long-term fiscal plan."
The meeting occurred just hours after Moody's Investors warned that slow-moving deficit talks led by Vice President Joe Biden, hindered by entrenched positions on both sides, had increased the odds of a short-lived default by Washington.
Moody's warning increases pressure on President Barack Obama and House of Representatives Speaker John Boehner, the top Republican in the U.S. Congress, to strike a deal soon or risk upsetting global financial markets.
Geithner has predicted a financial catastrophe if Congress fails to increase the current $14.3 trillion borrowing cap by August 2, when his department will exhaust the extraordinary cash management measures it has been using since reaching the debt limit on May 16.
Geithner said he had a "good meeting" with the first-term lawmakers, but some of the skeptical Republicans, who oppose increasing the debt limit without implementing deep spending cuts, were less pleased.
"It is frustrating when the secretary talks in circles and that is very unfortunate," said Representative Stephen Lee Fincher. "We are all big boys and girls. We need a framework put forward and we are not seeing that out of this administration, only seeing talk, talk and talk."
Representative Kristi Noem, a favorite of the fiscally conservative Tea Party movement, said the freshmen Republicans made it clear to Geithner that they would not "give this administration a blank check to spend even more."
"Secretary Geithner doesn't get it," said Noem, one of the "mama grizzlies" touted by ex-Alaska Governor Sarah Palin.
But a Treasury official characterized the talks with lawmakers as friendly and constructive.
Saying the risk of "continuing stalemate" between the two sides had grown, Moody's urged progress on deficit reduction soon before politics takes over in the run-up to the November 2012 presidential election.
"We think this is an opportunity," Steven Hess, sovereign credit analyst for Moody's, told Reuters. "If this opportunity goes by without them realizing a serious long-term debt/deficit reduction program, then we think that until the presidential election, the chances of such an agreement are really much reduced."
Mary Miller, a top Treasury official, said the Moody's statement underscored the need for Congress to move quickly to make sure the United States could meet all its debt obligations while working to reach a long-term fiscal deal.
A U.S. default would roil global financial markets, but few investors are rattled just yet. Wall Street, in large part, expects the debt and deficit negotiations to go down to the wire, as did talks over tax cuts and the 2011 budget.
"We've been through this political grandstanding before," said Jim Kochan, chief fixed-income strategist at Wells Fargo Advantage Funds.
"We always go right down to the day on debt ceiling targets being raised. No congressman and no president wants to be responsible for Social Security payments not going out. This is a minimal risk. We've seen this so many times."
Obama has tasked Biden to lead negotiations with Republican and Democratic lawmakers to find a deficit-reduction deal that would be palatable to Congress and pave the way for the debt limit to be raised. Their talks are due to resume on June 9.
But Republicans refuse to consider tax increases as part of a deal, while Democrats are opposed to Republican proposals to scale back the popular government-run Medicare healthcare program for future retirees.
Republicans seized on the announcement by Moody's, which comes two months after Standard & Poor's revised down its credit outlook on the U.S. rating, as proof of the need to make some sharp spending cuts.
"This report makes clear that if we let this opportunity pass without real deficit reduction, America's financial standing will be at risk," said Boehner. "A credible agreement means the spending cuts must exceed the debt limit increase.
Senator Charles Schumer, a top Democrat, said a compromise that prevents a "catastrophic default on our obligations and significantly reduces the debt is within reach."
(Additional reporting by Rachelle Younglai, Alister Bull and Thomas Ferraro; Writing by Deborah Charles; Editing by Ross Colvin, David Lawder and Eric Walsh)
Thursday, June 2, 2011
A little-known federal tax that has the potential to bust the budget of your state and local governments, result in higher taxes, and threaten small businesses, doctors and farmers is headed your way.
Few have heard of it, but many will be affected – unless we can stop it before becoming law in 2013.
The “3% Withholding Tax” mandates that federal, state and local governments withhold 3% from payments for goods and services upfront. It sounds harmless enough until you consider the small businesses that rely on every penny of cash flow to keep their doors open and how they’ll be impacted by a 3% loss of revenue.
Last week, the U.S. Chamber announced a grassroots campaign aimed at repealing the 3% Withholding Tax. Visit RepealWithholdingNow.com to learn more about our efforts and sign our National Letter to stop the 3% withholding.
Here’s how the tax would impact you:
• The federal government, as well as your state and local governments, withhold 3% from payments to any business that provides them with a product or service. This may include your local office supply store, local builders, electric company or even a business selling equipment to first responders.
• These businesses will then be forced to raise their prices to make up for the 3% of revenue being held hostage — or simply take a huge hit and risk going out of business.
• Higher prices could drastically impact government budgets, which are already strapped for cash.
• Local or state governments may be forced to raise your taxes to help make up for the budget gap.
Like most things, when you punish small businesses, the whole economy suffers.
Similar to the 1099 mandate included in the health care bill, the 3% withholding requirement was an unrelated offset included in the Tax Reconciliation Act of 2005. Unless repealed, the 3% Withholding Tax will go into effect on January 1, 2013.
In today’s economy, the decks are stacked high enough against employers. The last thing they need is another provision aimed at raising revenue at their expense.
Visit RepealWithholdingNow.com and join our efforts to stop the latest burden on business and assault on jobs.
Know the Liability Hazards….Whether You Are One or Hire One
By Ronda Jones
Forrest T. Jones & Company
Independent contracting for accounting services is a popular way to handle work overflow. However, if the contracting relationship is not handled correctly, it can create significant liability exposure for both sides. It is becoming more common for businesses to hire independent contract accounting or tax professionals to help with seasonal workforce needs or special projects. Whether you are the contractor, or are doing the hiring, be informed about liability exposure differences between independent contractors and employees. Minimize disputes by utilizing a suitable contractor agreement, making sure that insurance policies are in place and confirming the policies contain adequate language to appropriately defend either party in the event of an error or injury. (This article doesn’t particularly address the various IRS-determining criteria factors in these relationships).
The old adage “An ounce of prevention is worth a pound of cure” certainly applies to the decision to utilize a written agreement in an independent contractor relationship, even when involving good friends. Of course, the IRS views a written agreement as one of the determining factors of a true contractor relationship, but here are some considerations about liability.
An employer should consult an attorney about the language of its basic agreement(s) for each category of contractor and for length of hire, in particular as to hold harmless, non-compete and insurance clauses, and whether a “common-law” employment status could be imposed in your particular jurisdiction or situation. Certain language, such as to non-compete clauses, could impact the way the IRS categorizes the employer-independent contractor status, and sample agreements from “forms” books usually don’t address unique jurisdictional issues. Also, you should expect the need to occasionally modify the basic agreement language for certain hiring circumstances.
A contractor may wish to consult an attorney before signing a services contract, particularly with respect to any hold-harmless or indemnification agreements to ensure the contractor isn’t being held fully liable for all mistakes, but only those resulting from gross negligence or willful misconduct on their part. Consideration should also be given to insertion of a liability limitation cap for damages clause for errors or omissions you may cause. Confidentiality and non-compete language may need to be modified if it is unrealistic for your future earning potential or tailored to give you adequate protection if you are engaged in a lawsuit.
Here are some insurance concerns to consider, and an attorney may suggest that in some circumstances the contractual agreement also address maintenance of insurance policies.
If you’re the employer, you may require that the contractor provide evidence of certain types of insurance in the event the contractor causes or contributes to a claim. For example, in the case of an accounting firm hiring an independent contractor to prepare and sign off on tax returns for third parties, the employer might require the contractor maintain professional/errors & omissions liability to cover claims arising from errors or omissions.
If the contractor is meeting your clients at the clients’ home or business, or the contractor’s own home or business, the employer’s commercial general liability insurance likely protects the employer for the contractor’s actions, such as an injury to a client or damage to a client’s property, as long as the independent contractor is performing services within the scope of the engagement; however, it is best to notify your agent anyway (because your initial application may have required such disclosure) and get written confirmation of coverage, especially if you can’t find the applicable policy language. Since there is the possibility of a finding against the employer for joint liability with the contractor, the contractor should be required to provide the employer with evidence of homeowners or general liability to cover injuries like slip and fall or damage to the client’s property, if meeting clients off your premises. If the contractor drives your clients or staff, there are auto liability concerns, both as to the contractor and to your clients/staff. You should also consult your insurance carrier when hiring contract labor to ascertain you are covered under your office general liability policy for the exposure of bodily injury of the contractor, since they aren’t covered by your workers compensation plan for job-related injury and the independent contractor could institute a liability suit against you, just like a business client or visitor might.
If you’re the contractor, verify that the employer has the above-mentioned insurance policies in place, and discuss your own, additional liability exposures with your agent, whether you meet clients on your own premises, or that of the client or your employer.
When the employer hiring you for contracting work provides professional services to others (for example, an accounting or tax preparation firm, management consultant, etc., rather than a manufacturer or retail store) and your duties are not performed solely for the employer’s internal accounting functions, it may be appropriate for the employer’s professional/E&O liability insurance policy (if they have one) to cover you as an “additional insured” for errors or omissions involving your services. Here are some examples of appropriate circumstances for you to request “additional insured” protection under an employer’s professional/E&O coverage: you’re hired to prepare tax returns which the employer signs off on; you’re hired to perform bookkeeping or payroll processing under the employer’s general direction; or you support a review or audit process. In these circumstances, many professional liability/errors & omissions policies cover independent contractors as additional insureds already, because the insurance company would want you to readily engage with them in defense of a claim made against your employer involving your services. The employer’s insurance broker can supply you with a certificate of insurance and may agree to notify you in the event of non-renewal or cancellation of coverage.
The employer should request and retain invoices from the contractor. You should consider doing a background check of someone you don’t know and check with state boards for disciplinary actions. Many court records are now online so it is easy to check for criminal or civil actions. You may be found liable for not knowing or disclosing a contractor’s criminal history—if a client suffers a theft by your contractor, for example.
The contractor would be wise to keep a log of what projects you work on, in case your involvement in a matter is ever called into question. In the case of the employer being a provider of professional services for others (such as an accounting firm), this would need to be accomplished without violating the privacy of the employer’s clients and with the employer’s approval, perhaps by logging only a client’s last name, service date and brief description of your duties, with no specifications about the client.
However, deductions are not unlimited. For example, real estate income and loss is generally considered passive income and loss for tax purposes. Taxpayers generally cannot use passive activity losses (PALs) to offset ordinary income from employment, self-employment, interest and dividends, or pensions and annuities. The rental real estate loss allowance and real estate professional status are two important exceptions to this rule. In addition, the tax consequences of renting out a vacation home depend upon the amount of time the home is rented and the amount of time you use the home for personal purposes.
As one exception to the PAL rules, taxpayers with adjusted gross incomes of $150,000 or less can claim a rental real estate loss allowance of up to $25,000 for property they actively manage. Active management does not require regular, continuous, or substantial involvement. However, it does require that the taxpayer own at least 10% of the property. Also, to qualify for the exception, married taxpayers must file jointly.
The second exception allows real estate professionals not to treat their rental activity as a passive activity. Therefore, their losses are not limited to passive income. This exception requires material participation by the taxpayer which is demonstrated by meeting one of seven tests. These tests are complex and include the number of hours of participation and the facts and circumstances of the participation in the activity.
Vacation homes are taxed under one of three sets of rules depending on how long the homeowner rents the property. If you rent your vacation home for fewer than 15 days during the year, no rental income is includible in gross income. If you rent the property for 15 or more days during the tax year and it is used by you for the greater of (a) more than 14 days or (b) more than 10% of the number of days during the year for which the home is rented, the rental deductions are limited. Under this limitation, the amount of the rental activity deductions may not exceed the amount by which the gross income derived from such activity exceeds the deductions otherwise allowable for the property, such as interest and taxes.
If you have any questions as to how the rental real estate rules apply to your particular situation, please do not hesitate to call Saggio Management Group. We can assist you in taking advantage of the available tax benefits and develop an overall tax plan.
ADP Finds Private Employers Added Just 38,000 Jobs in May
DOVER -- Legislation to partially undo tax increases that were levied in 2009 sailed through a House committee Wednesday, clearing the way for action by the full House.
The bills, proposed by Gov. Jack Markell, would reduce the personal income tax, cut the gross-receipts tax and reduce the public-utility tax on electricity and gas bills.
House Bill 128 would reduce the personal income tax on income over $60,000 from 6.95 percent to 6.75 percent for 2012 and 2013. Under the 2009 law that raised the tax, the rate will return to 5.95 percent in 2014 unless the General Assembly renews the increase.
The tax cut "keeps our competitive edge by keeping us below [the rates of] neighboring states," said House Majority Leader Pete Schwartzkopf, D-Rehoboth Beach.
House Bill 127 would cut the gross-receipts tax by 3 percent and would exempt more income from the tax, removing about 330 merchants from the gross-receipts tax rolls. Rep. John Viola, D-Newark, said he would introduce an amendment to do away with a higher rate charged on supermarket sales exceeding $2 million.
House Bill 129 would cut the public-utility tax rate from 5 percent to 4.25 percent.
The proposed cuts are made possible thanks to increased state revenue estimates.
Wednesday, June 1, 2011
""I am very pleased as I write this letter to tell you about Mr. Ralph Estep of Saggio Management Group. Accountant, Ralph Estep has been instrumental in assisting my family and my consulting business, Innovative Consulting Services I. Ralph Estep has proven himself to be conscientious, customer centric, honest and forthright and can offer your business the same excellent service he has provided my organization. Ralph Estep has been providing our company with useful direction, systemic nuances and continues to remain approachable and available should we need his accounting expertise. I highly recommend and endorse Mr. Ralph Estep Jr. for your accountant needs. I remain, Loyal J. Ricks Sr." Service Category: Accountant Year first hired: 2009 Top Qualities: Great Results, Expert, High Integrity ________________________________________ "