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Internal Revenue Service Issues Guidance On Federal Income Tax Impacts Of ... - Mondaq News Alerts (registration)

Google IRS Federal Income Tax - Wed, 2014-04-02 02:06

Dixie Press Online

Internal Revenue Service Issues Guidance On Federal Income Tax Impacts Of ...
Mondaq News Alerts (registration)
For some time it was uncertain how the Internal Revenue Service (IRS) would treat transactions dealing with virtual currency for federal income tax purposes. The IRS provided us with its long-awaited response last week. In Notice 2014-21, 2014-16 I.R.B ...
Fox Rothschild LLP | Internal Revenue Service Issues Guidance on Federal ...Linex Legal (press release) (registration)
IRS virtual currency guidanceDixie Press Online
Bitcoin Taxation: Understanding IRS Notice 2014-21Bitcoin Magazine
Lexology (registration) -WROC-TV
all 92 news articles »
Categories: Tax news

Running Late? Push Federal Tax Day Back to October - New York Times

Google IRS Federal Income Tax - Tue, 2014-04-01 13:12

Running Late? Push Federal Tax Day Back to October
New York Times
“I find the I.R.S. can be reasonable” if there's a reasonable cause, Jeffrey Porter said. □ Does filing for a federal extension mean I automatically get more time to file my state tax return as well? No. Rules vary by state, so you should check with ...

Categories: Tax news

Release of Annual State-Local Tax Burdens Rankings

Tax Foundation - Tue, 2014-04-01 13:00

(All maps and other graphics may be published and reposted with credit to the Tax Foundation. Click on the map to enlarge it.)

This morning, we released our Annual State-Local Tax Burdens Rankings which estimates the combined state and local tax burden shouldered by the residents of each state, regardless of the jurisdiction to which those taxes are paid. Using the most up-to-date data available, the report examines the state-local tax burdens in each of the 50 states in 2011.

New Yorkers had the highest burden, paying 12.6% of their collective income in state and local taxes. New Jersey (12.3%) and Connecticut (11.9%) came in 2nd and 3rd, respectively.

On the other end of the spectrum, Wyoming (6.9%), Alaska (7.0%), and South Dakota (7.1%) have the lowest burdens.

Click here for the full report.

 

 

Categories: Tax news

French Economist Wants Top Tax Rate of 80 Percent to Fix Inequality

Tax Foundation - Tue, 2014-04-01 11:30

French economist Thomas Piketty has a new book out on inequality, in which he claims that capitalism tends naturally towards greater and greater concentrations of wealth. To address this, Piketty recommends progressive income tax rates of up to 80 percent and a global wealth tax of 2 percent. Here are some summary charts and here is a review of the book in the Washington Post by Steven Pearlstein:

Just when you thought Karl Marx had finally lost all political and economic relevance, a brilliant French economist has come along to pick up where the German philosopher left off — correcting for many of Marx’s mistakes, updating his analysis in light of subsequent experience and unearthing a bounty of modern economic data to support a theory about capitalism’s inherent and self-destructive contradictions.

The economist is Thomas Piketty, a professor at the Paris School of Economics, who with Emmanuel Saez of the University of California at Berkeley has recently turbocharged the debate about income inequality. Piketty and Saez gathered data from tax returns that confirm the story of stagnant middle-class incomes over the past 30 years while revealing how much the super-rich have pulled away from everyone else.

Piketty’s prediction of a 21st century of slow growth and extreme inequality is based on historic data and a simple equation. The data, which he assembled with various collaborators in several countries, show that over long periods of time, output per person — productivity — tends to grow at an average of 1 to 1.5 percent. The data also show that average return on investment over long periods of time ranges between 4 and 5 percent.

The problem with these two historic trends, Piketty explains, is that whenever the return on financial capital (investment) is higher than the return on human capital (productivity) for an extended period, it is a matter of simple arithmetic that growing inequality will result. The reason: Those with the highest incomes will save and invest, generating capital income that will allow them to pull away from those relying solely on wages and salaries. It takes only a few generations before this accumulating and accumulated wealth becomes a dominant factor in the economy and the social and political structure.

The big problem with Piketty’s big idea is that the people who earn high-incomes tend to change every year. The chart below shows IRS data on people reporting at least a million dollars of income over a nine year period. It indicates that half of these millionaires were millionaires just once. Only 5.6 percent reported at least a million dollars of income in all nine years.

Penalizing this 5.6 percent with high tax rates also penalizes the 94.4 percent who are only temporarily rich. Further, basic economics tells us that punishing the rich also punishes the poor and the middle-class, because it hurts business formation, growth, investment, innovation, productivity, hiring and wages. I believe this is what previous followers of Marx have found.

See our chart book for more on inequality and the consequences of taxing the rich. Here is our study on income mobility and the persistence of millionaires.

Follow William McBride on Twitter

Categories: Tax news

U.S. to Raise Taxes on Canada to Pay for Deficit

Tax Foundation - Tue, 2014-04-01 08:00

In a bipartisan vote yesterday, the U.S. Congress sent a bill to the President’s desk that would raise income taxes on Canadians to pay for the hundreds of billions of dollars of revenue shortfalls caused in the implementation of various popular, longstanding programs that experts agree are just totally unaffordable.

Senate Majority Leader Harry Reid (D) said in a statement, “I think we all agree that Americans are deserving of healthcare, education, public parks, and whatever else they want, but asking our hardworking citizens that are the backbone of our economy to pay for these things is ludicrous.”

Wisconsin Representative Paul Ryan (R), who chairs the House Budget Committee, applauded the bill, saying, “we’ve succeeded in repealing all the job killing taxes in Obamacare, including the medical device tax, the employer mandate tax, the surtax on investment income, and bevy of other taxes, all without increasing the deficit by a penny.”

Public discourse on the long term feasibility of maintaining programs like Medicare, Medicaid, and Social Security that are woefully designed and unsustainable by even the most cursory of analyses has reached a fevered pitch in recent years. Both Republicans and Democrats agree that reform is necessary, but also agree that getting reelected is nice too.

“That’s where Canada comes in,” said political pollster Frank Luntz. “I’ve looked at the survey data, and Americans are all on board with increasing spending on programs that they get to use now or in the future, but focus groups have shown reluctance to actually pay for things.”

President Obama is expected to sign the bill, which would totally offload our deficit problem onto somebody else, and noted in a speech in the Rose Garden yesterday that 100 percent of Canadians are currently dodging United States corporate and individual taxes by structuring their business and personal income outside of the United States. “We’ve got to stop these tax breaks for shipping jobs overseas,” he added.

More posts like this here.

Follow Scott on Twitter.

Categories: Tax news

U.S. stops talks with Russia over tax information: report

Yahoo Tax - Mon, 2014-03-31 21:37
The United States has de-facto suspended talks with Russia about exchanging information on taxes under 2010's Foreign Account Tax Compliance Act (FATCA), in a sign of a deepening rift over Moscow's actions in Ukraine, Vedomosti daily reported on Tuesday. Scheduled to take effect on July 1, FATCA will require foreign banks to share information with the Internal Revenue Service about Americans' accounts worth more than $50,000. The United States and European Union have already sanctioned some Russian officials and Bank Rossiya over Moscow's annexation of Ukraine's Crimea peninsula, which instigated the most serious East-West spat since the end the of Cold War more than 20 years ago.
Categories: Tax news

Deadline To File Federal Income Tax Approaching - Fox 2 KFXV

Google IRS Federal Income Tax - Mon, 2014-03-31 21:28

Deadline To File Federal Income Tax Approaching
Fox 2 KFXV
We spoke to state representative Armando Martinez on yet another option on how you can avoid IRS fines. April 15 is right around the corner and if you haven't filed your federal income tax returns experts say get to it now. “It's very important that ...

Categories: Tax news

Obamacare: kid's Social Security survivor benefits are not income - Bangor Daily News

Google IRS Federal Income Tax - Mon, 2014-03-31 15:52

Obamacare: kid's Social Security survivor benefits are not income
Bangor Daily News
The answer, according to the IRS, is: For purposes of the premium tax credit, your household income is your modified adjusted gross income plus that of every other individual in your family for whom you can properly claim a personal exemption deduction ...

and more »
Categories: Tax news

New York Launches Cigarette Smuggling Task Force

Tax Foundation - Mon, 2014-03-31 13:45

Following the release of our latest analysis on cigarette smuggling, New York Governor Andrew Cuomo (D) has announced a 13-agency task force convened to combat illicit cigarette trade. According to the latest data from the Mackinac Center for Public Policy, smuggled cigarettes represented 56.9 percent of cigarettes consumed in New York in 2012.

Here’s how the story was covered in the New York Post today:

In an effort to crack down on the sale of illegal smokes in New York, Cuomo is set to announce Monday a 13-agency task force dedicated to keeping illegal cigarettes out of the state.

“This new law-enforcement strategy will help to crack down on these illegal cigarette sales and capture those smugglers who seek to evade the law and rob the state of the revenue it is rightly owed,” Cuomo said.

A recent study by the Tax Foundation revealed that almost 57 percent of cigarettes smoked in New York were bought into the state illegally, the highest of any state. That was a 20 percent increase from the previous study, conducted in 2006.

New York state has the highest cigarette-tax rate in the country, making trafficking a profitable and attractive enterprise.

New Yorkers burn a hefty $4.35 per pack in taxes — and those who light up in the Big Apple are slapped with an additional $1.50 tax per pack.

In comparison, Missouri, has the lowest cigarette tax, at only 17 cents per pack, according to the study.

“Public policies often have unintended consequences that outweigh their benefits,” Tax Foundation Economist Scott Drenkard said in the report.

While there are small changes to enforcement that could have beneficial impacts on cigarette smuggling, I hope the task force also studies the option of leaning less on cigarette tax revenue to fund government functions. New York rates are at such high levels that the state currently experiences what we call “de facto prohibition” in our report. As was seen during the U.S. prohibition of alcohol during the 1920s, these cigarette taxes have caused substantial and lucrative black market activity, undermining of the rule of law, and in some cases, creating violent crime.

This chart shows New York cigarette smuggling in a national context:

More on cigarette taxes.

Follow Scott on Twitter.

Categories: Tax news

The Alimony Deduction and the Camp Proposal

Tax Foundation - Mon, 2014-03-31 12:30

As you go over your 1040 this year, you may wonder why the form has lines for alimony payments made and received. At first glance, this might seem like a puzzling intrusion into personal lives. Upon further examination, though, alimony is a sort of “gray area” in tax policy, and the current system handles the matter rather reasonably.

The issue deserves some examination, especially because Chairman Dave Camp’s tax reform proposal would change current tax law on alimony (Sec. 1411). Under current law, alimony payments are deducted from the income of the paying spouse, and then taxed as income of the receiving spouse. The Camp proposal would reverse this treatment, and make the income taxable when earned by the paying spouse, and then tax free as it is transferred to the receiving spouse.

You will notice that both of these designs make the income tax free for one of the spouses. Why do we do this? Well, not every financial transaction in the world should count as taxable income. It is unfair to legislate a goldfish-like memory for the IRS, in which it taxes income, sees it move from one bank account to the next, and say “Aha! Income!” and taxes it again without thought for where it came from. A neutral tax base would tax all economic production (such as wages) or all economic consumption (final purchases by households) – not just any transfer of income you can put a number on. A thousand dollars of alimony represents only a thousand dollars of production; to tax both spouses would be taxing it as if it were two thousand.

The “gray area” in tax policy with respect to alimony is the fact that we have a complex and progressive tax code, meaning that different payers face different marginal rates. Should alimony income be taxed at the rate of the paying spouse, or the rate of the receiving spouse? Current law opts for the latter, on the grounds that the receiving spouse is the one who actually gets the income in the end.

However, the Tax Reform Act of 2014 would reverse this for future alimony judgments. The Ways and Means summary on the issue raises an interesting point – given that the receiving spouse is usually poorer than the paying spouse, the receiving spouse usually faces a lower marginal rate in our progressive tax system. When we tax alimony money at the receiving spouse's rate, that can give divorced couples a lower tax bill for the alimony money than they would have paid on that same income if they had stayed together. In effect, current law can modestly subsidize divorce.

There is no perfectly optimal solution for the tax treatment of alimony. Current law is reasonable, as is Chairman Camp’s modification.

Categories: Tax news

IRS' bitcoin guidance turns every transaction into a reportable capital gain ... - Inman.com

Google IRS Federal Income Tax - Mon, 2014-03-31 09:56

IRS' bitcoin guidance turns every transaction into a reportable capital gain ...
Inman.com
Likewise, wages paid to employees in bitcoin are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to the same federal income tax withholding and payroll taxes as payments in dollars. Payments made using bitcoin ...

and more »
Categories: Tax news

Bitcoin's IRS Troubles

Tax Foundation - Mon, 2014-03-31 07:30

The price of the virtual currency Bitcoin has fallen to about $461 from a closing price of $586 last Monday. This decline of about 21% came in the wake of an IRS ruling that net gains from Bitcoin transactions will be taxed as capital gains.

The IRS ruling made it substantially more difficult to use Bitcoin as a currency. Given that this is the use for which Bitcoin was designed, any threat to Bitcoin’s utility as a currency is a substantial threat to its value.

The main issue with the ruling may be the compliance costs. Imagine, for a moment, that you had to keep track of the value – in yen – of each individual dollar that you received, at the time you received it. Then, upon using the dollar, you had to record its value in yen at the time you purchased something. After doing this, you would compare the numbers, and report the gain or loss on your tax forms. It would turn any sort of economic activity into a bureaucratic ordeal. This is the sort of difficulty that Bitcoin users will be legally required to take on when they make transactions.

Since Bitcoin is virtual, it will be possible to design software that tracks this sort of thing for you. Nonetheless, this administrative burden throws a monkey wrench in the Bitcoin economy.

Categories: Tax news

Senator Patty Murray Would Pay for an EITC Expansion with a Worse Corporate Tax Code

Tax Foundation - Mon, 2014-03-31 07:15

Last week, Senator Patty Murray (D-WA) introduced a bill that would expand the EITC for childless workers and introduce a dual-earner deduction, which is estimated to cost an additional $144.9 billion over ten years. To pay for these provisions, the bill will prevent corporations from deducting the full cost of compensation of its highest-paid employees and ends deferral for multinational corporations that operate in certain countries.

This bill does help ease the marriage penalty inherent in the EITC and seeks to fight the program’s high payment error, but it uses some of the most economically destructive methods of raising revenue to pay for it. The Senator’s bill would push the United States’ uncompetitive worldwide system of taxation in the wrong direction and would further limit the amount corporations can deduct for compensation expenses.

Reforms to the EITC and the “Dual-Earner Deduction”

Expands the EITC while Attempting the Fight Payment Error

Under current law, the maximum EITC for childless workers is $487 with a max income threshold of $14,340.

Senator Murray’s bill would increase the max credit to around $1350 and increase the max income threshold to around $20,000 for childless, single workers. The max income threshold for married taxpayers would be around $5,400 more. It also lowers the eligibility age to 21. She quotes a Treasury department estimate, which says that approximately 13 million additional taxpayers would be eligible for the credit.

In addition to the expansion, it will also attempt to reduce the program’s high rate of payment error. Estimates from the IRS show that the EITC has an overpayment rate of around 25 percent, which costs around $11.6 billion in 2012. Since most taxpayers who claim the EITC have their tax returns prepared by someone else, Senator Murray is looking to reduce error by doubling the penalty for no following the “due diligence” requirements to $1000.

Dual-Earner Deduction and a Reduction in the EITC Marriage Penalty

Senator Murray’s bill would also extend an additional deduction to dual-earner families with children. The law allows for a deduction equal to 20 percent of the income of the spouse with the lower income. For example, a family with two earners, one making $30,000 and another making $20,000, the deduction would reduce that family’s AGI by $4,000 (20 percent of $20,000). The max deduction is $11,000. This deduction would phase-out once the family’s combined AGI reaches $110,000 and would equal zero at $130,000 of AGI.

Dual-Earner Deduction Amount Under Murray Tax Plan

Income of Spouse One

Income of Spouse Two

 

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$10,000

$2,000

$2,000

$2,000

$2,000

$2,000

$2,000

$20,000

$2,000

$4,000

$4,000

$4,000

$4,000

$4,000

$30,000

$2,000

$4,000

$6,000

$6,000

$6,000

$6,000

$40,000

$2,000

$4,000

$6,000

$8,000

$8,000

$8,000

$50,000

$2,000

$4,000

$6,000

$8,000

$10,000

$10,000

$60,000

$2,000

$4,000

$6,000

$8,000

$10,000

*$6,000

 

*This is in the phase-out range

This deduction is structured to count against earned income when determining eligibility for the EITC. As a result, this deduction eases (but doesn’t completely eliminate) the substantial marriage penalty that currently exists when two individuals who were once eligible for the EITC as singles become ineligible when they married.

 

Pays for Expansion to EITC by Making Corporate Tax Code Less Competitive

Ends Deferral on Foreign Corporate Profits in Low-Tax Jurisdictions

Corporations under current law are subject to the 35 percent corporate tax rate no matter where in the world they earn their income. However, U.S. corporations can defer taxation on foreign earned income until they bring this income back to the United States. At that point they have to pay the difference between the 35 percent U.S. rate and the rate they paid to the foreign country in which they earned the income. There is an exception, however, for what is called “passive income.” Passive income (royalties, interest, dividends, and other investment income) cannot be deferred and is taxed immediately by the IRS.

This proposal would define any income, passive or active, that is taxed by a foreign country at a rate below 15 percent as passive Subpart F income and would subject it to immediate U.S. taxation.

The United States is one of the only countries that taxes the worldwide income of its corporations, putting them at a competitive disadvantage. Deferral in the current system helps alleviate some of this problem. Ending deferral for this income would move the United States further from a territorial system, which exempts foreign-earned income of corporations; a system that most countries in the world use.

No Longer Allows Businesses to Deduct Compensation of Highly-Paid Employees Paid in Stock Options

In order for corporations to calculate their taxable profits for the year, they take revenue and subtract their costs. Part of these costs is wages and salaries paid to employees. Currently though, corporations are limited on how much they can deduct for individual employees paid in cash who earn $1 million. As result, businesses need to compensate high-paid employees in performance-based stock options to attract talent. This type of compensation is not subject to the current cap.

Senator Murray’s bill would include performance-based stock options in the cap, no longer allowing businesses to deduct the cost of that compensation over $1 million. This will artificially boost corporate taxable income and taxes for corporations, making it more expensive for them to attract talent.

More on the EITC: here and Territorial Taxation: here and here

Categories: Tax news

IRS questions about health care exemption will mean more for 2014 tax return - Lexington Herald Leader

Google IRS Federal Income Tax - Mon, 2014-03-31 04:17

IRS questions about health care exemption will mean more for 2014 tax return
Lexington Herald Leader
The exemptions for lack of affordable coverage, a short coverage gap, certain hardships, household income below the filing threshold and individuals who are not lawfully present in the United States, may be claimed only as part of filing a federal ...
How the uninsured can avoid paying a tax penaltyfox4kc.com

all 24 news articles »
Categories: Tax news

Detroit Free Press Susan Tompor column - Insurance News Net (press release)

Google IRS Federal Income Tax - Mon, 2014-03-31 02:10

Detroit Free Press Susan Tompor column
Insurance News Net (press release)
On the federal level, the U.S. Supreme Court stuck down the federal Defense of Marriage Act in June 2013 and made it possible for the IRS to recognize gay marriage on federal income tax returns. Some two-income, same-sex couples could be paying more ...

and more »
Categories: Tax news

New York state joins NYC in suing FedEx for shipping untaxed cigarettes

Yahoo Tax - Sun, 2014-03-30 23:48

(Reuters) - New York state joined New York City in suing package delivery company FedEx Corp for allegedly violating state and federal laws by illegally delivering contraband cigarettes to people's homes. The City of New York had sued FedEx last December, accusing the company of creating a "public nuisance" through its partnership with Shinnecock Smoke Shop to ship untaxed cigarettes to homes. An amended complaint filed on Sunday included the State of New York Attorney General Eric Schneiderman among the plaintiffs, and sought more than $239 million in damages and penalties. The New York state alleged that FedEx knowingly shipped nearly 400,000 cartons of unstamped cigarettes to homes in the state, depriving it of $15, $27.50 or $43.50 on each carton in tax revenue.


Categories: Tax news

Susan Tompor: Some same-sex married couples living in Michigan have to ... - Detroit Free Press

Google IRS Federal Income Tax - Sun, 2014-03-30 21:24

Susan Tompor: Some same-sex married couples living in Michigan have to ...
Detroit Free Press
On the federal level, the U.S. Supreme Court stuck down the federal Defense of Marriage Act in June 2013 and made it possible for the IRS to recognize gay marriage on federal income tax returns. Some two-income, same-sex couples could be paying more ...

and more »
Categories: Tax news

N.Y. lawmakers, Governor Cuomo, strike budget deal before Monday vote

Yahoo Tax - Sat, 2014-03-29 14:43

(Reuters) - New York state legislators and Governor Andrew Cuomo reached a deal on the state's 2014-15 fiscal year budget after several weeks of negotiating behind closed doors, according to state officials on Saturday. The $137.9 billion budget keeps growth in all spending levels below 2 percent and provides funding for statewide pre-kindergarten programs. It also cuts business taxes and introduces property tax relief for homeowners, Cuomo said on Saturday. The agreement came after budget bills were printed late on Friday, allowing state lawmakers to vote on the plan on Monday, the last day of the state's financial year.


Categories: Tax news

Your Finances: Free help in filing federal, state tax - Times Herald-Record

Google IRS Federal Income Tax - Fri, 2014-03-28 23:08

Your Finances: Free help in filing federal, state tax
Times Herald-Record
Free File is a federal income tax preparation and electronic filing program created by the Internal Revenue Service, in partnership with the Free File Alliance, a group of 14 tax-preparation-software companies. Each company sets its own eligibility ...

Categories: Tax news

Deadline to file income tax returns fast approaching - Park Record

Google IRS Federal Income Tax - Fri, 2014-03-28 15:56

Deadline to file income tax returns fast approaching
Park Record
According to a press released published by the IRS, there is currently $760 million waiting for an estimated 918,600 taxpayers who did not file a federal income tax return for 2010. "Here in Utah, the IRS estimates 6,100 taxpayers did not file a 2010 ...

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