IRS Commissioner Thanks Tax Pros for Surviving Tax Season

Internal Revenue Service Commissioner John Koskinen has sent a message of thanks to tax professionals and their partners for managing to get through a “challenging” tax season.

“As the April 15 deadline approaches, I want to thank all the tax professionals and other partners who have helped to make a challenging filing season run as smoothly as we could have hoped,” Koskinen wrote in an email Wednesday. “Every filing season is busy and presents unique issues. This tax season saw hurdles ranging from the tax extender legislation in December to putting in place new provisions of the Affordable Care Act. The work of attorneys, Certified Public Accountants and Enrolled Agents as well as the software industry and payroll community has been extremely helpful—and essential—to running the tax system and helping the nation.”

Koskinen—who has faced his own challenges this tax season dealing with steep budget cuts that sharply reduced IRS customer service hours and personnel—also thanked tax pros for their patience.

“I just wanted to let you know how much we appreciate your hard work and continued dedication—as well as your patience,” he added. “I know tax professionals—as well as taxpayers—have faced long wait times when calling the IRS for assistance. I want you to know it’s frustrating for me as well as IRS employees. This remains a major area of concern for the IRS.”

Koskinen also looked beyond tax season. “While the April 15 milestone will quickly pass, please remember we appreciate the work you do throughout the year helping individual and business clients with extensions, amended returns and compliance issues,” he said. “We look forward to continuing to work with tax professionals and all of our partners in the tax community in the year ahead. Thanks again for your hard work, and congratulations on reaching April 15.”

House Ways and Means Committee chairman Paul Ryan, R-Wis., whose committee oversees the IRS, also had a statement on Tax Day about his plans for reforming the tax code and the IRS.

“Today is more than a deadline; it’s a call to action,” he said. “There’s no getting around the fact that our tax code is a mess. It sends jobs overseas, it discourages productivity, and it punishes hard work. But President Obama wants to make it worse. He wants to raise yet another $2 trillion in taxes and give even more special carve-outs to his favorite industries. Our tax code should not pick winners and losers. Our country can’t reach its potential with a tax code that punishes people for reaching their own.”

Ryan added that the tax-writing Ways and Means Committee is working on tax reform. “That’s why this committee is working to fix our tax code—every last word of it,” he said. “If we make our tax code simpler, flatter, and fairer, we can create more jobs and more take-home pay. We don’t see eye to eye with this President. But I’m hopeful that we can find some common ground. I believe we can work together to simplify our code and create a better system for American job creators—big and small—in the next year. And regardless of how long it takes, whether it’s with this president or the next, we remain committed to real reform that will create opportunity for all Americans.”

Separately, Ryan’s office also noted that the House is taking up seven pieces of legislation Wednesday to reform the IRS (see House Ways and Means Committee Passes Bills to Reform IRS). The bills include:

• H.R. 1058, Taxpayer Bill of Rights Act of 2015, which would incorporate a taxpayer’s bill of rights into the core responsibilities of the IRS commissioner. This would include rights to quality service, to pay no more than the correct amount of tax, to privacy, and to challenge the IRS’s decisions and be heard.

• H.R. 1152, would prohibit IRS employees from using personal email for official government business.

• H.R. 1026, Taxpayer Knowledge of IRS Investigations Act, would amend the tax code to stop the IRS from using a provision designed to protect taxpayer privacy to instead protect government employees who improperly look at or reveal taxpayer information.

• H.R. 1295, would amend the tax code to improve the process for making determinations with respect to whether organizations are exempt from taxation under section 501(c)4 of such code. The bill would help prevent the IRS from targeting organizations because of their political or religious beliefs when filing for tax-exempt status. This legislation allows groups to declare their tax-exempt status rather than wait to gain approval from the IRS. It also gives these groups access to court to challenge IRS decisions.

• H.R. 1314, would amend the tax code to provide for a right to an administrative appeal relating to adverse determinations of tax-exempt status of certain organizations

• H.R. 709, the Prevent Targeting at the IRS Act, would make political targeting a fireable offense at the IRS. The legislation would authorize the IRS to terminate employees who target individuals because of their political beliefs.

• H.R. 1104, Fair Treatment for All Gifts Act, would protect Americans who donate to tax-exempt organizations from the threat of a gift tax audit.

All seven bills passed on Wednesday. “We’ve said from day one that we’re going to clean up the IRS, and these bills are a key part of that effort,” said Ryan. “These are commonsense, bipartisan reforms that will provide real accountability and help make sure people are never unfairly targeted again. The IRS should work for the taxpayer, not the other way around. But the IRS is just part of the problem. We have a tax code that punishes people for working, saving, and investing—things we’re going to need if we want to build a healthy economy. If we really want to give relief to taxpayers and create opportunity in our country, we need to overhaul our broken tax code to make it simpler, flatter, and fairer for all Americans. These bills are a firm step forward.”

In the Senate, Senate Finance Committee ranking member Ron Wyden, D-Ore., also called for tax reform on Tax Day. “As Americans race to meet tonight’s midnight tax filing deadline, we are reminded that it’s long past time to clean up our nightmare tax system,” Wyden said in a statement. “Such a complex code is only dividing taxpayers into two different camps – the fortunate who have extra resources to successfully navigate the system to their benefit, and the rest of Americans.  It’s time for a fair and simple tax code that works for everyone.”

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Online Business-Is It Possible without Paying Taxes?

With the trends changing in the world, a larger population is showing interest in setting up their own ventures. Internet exposure and a wide variety of innovative courses, both technical and non-technical have opened new vistas to all those who want to try their luck in personal set-ups. There are an array of services one can provide to one’s customers by initiating an online business of one’s own where one can invest and earn as per one’s convenience as opposed to a periodically-paid job where one has to stay dependent on a time-bound salary and rare raises.

It’s tougher to land a good job with numerous applicants vying for the same position in a single industry, not to talk of many industries operating all over the world., online businesses seem to be more in the business these days considering the current job scenario. But is it as easy to run one’s own business as it appears in the first glance? Online business is much more than socializing with your folk and friends on the social networking sites which also has taxes come tagged with it.

Though you can go a long way in your business provided you have an idea how to make your website and promote your webpage. To be a success in your own online business, you will be required to think in a more mature and professional manner. Getting a sharpened mind with each and every experience from the start is also a requirement of taking a business to a profitable position. When starting a business, never think that you will get an exemption from the taxes. You’ll have to pay them wherever necessary whether these are sales tax, use tax, income tax or any other tax. If you are in the dark regarding these and someone on a budget, seek the assistance of affordable tax preparation services.

The other most important thing that you need to take into account that any type of business you are going to start, it should be in the compliance of the regulations and laws of your land. It is a great idea to mention in the terms and conditions of your website that the products sold by your company are taxable to the customers if the state has such business guidelines. The patrons coming to your website to purchase products will thus feel privileged that you are transparent about the sources of your income.

Things can however, turn for the worse if as an owner of online business, you try to evade taxes. Make it one of your first and foremost preferences to get in touch with town hall of your state government or a lawyer to discuss legalities involved in online business. All online transactions have corresponding tax payment whether these are big business or if these are small business tax returns.

It is a primary requisite on your part to acquire knowledge about everything that is related to taxes in with regard to online business. On this note, there are some states that have laws that validate sale transactions which are tax-free and there are some that have different percentages of tax collection.

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How to Alleviate the Cap Loss Tax Problem

When securities markets swoon and apprehensive investors bail out of their holdings, they console themselves with deductions for capital losses when it comes time to file taxes. But long-standing rules limit deductions for losses on sales or redemptions of shares of individual stocks, bonds, mutual fund shares, and exchange-traded funds (ETFs). Still, resourceful investors will find ways to work around these limits, if they know the full details of IRS rules.

The big hurdle is IRC Section 1211, which caps the deduction at $3,000 for both married couples and single filers. (Married couples who file separate returns are limited to a maximum deduction of $1,500 per person.) These dollar limits haven’t been revised upward since they went on the books in 1978, when Jimmy Carter was in the White House.

In my experience, many individuals focus just on the $3,000 ceiling and forget that the tax code authorizes them to be resourceful when they incur capital losses. Section 1211 allows capital gains on investments to be fully offset by capital losses on other investments. There’s also another significant break that investors fail to take advantage of: Losses on sales or redemptions of stocks, bonds, mutual funds or ETFs held in taxable accounts can be used to offset gains on sales of capital assets other than stocks, bonds, and so on. This opens up many possibilities—for instance, profits on sales of collectibles and vacation homes.

Take, for example, the case of Marilyn Paul. Marilyn plans to sell her personal residence and anticipates a capital gain greater than the exclusion amount of up to $500,000 for married couples filing jointly or $250,000 for singles and married couples filing separate returns. Marilyn should consider realizing losses on, say, shares of stock or mutual funds to offset the taxable part of her gain.

How much can be deducted?

It depends. The law allows capital gains to be offset by capital losses realized during the same tax year, up to the total amount of capital gains. It doesn’t matter whether the gains and losses are a mixture of short- and long-term; losses can be used to offset capital gains.

Suppose net capital losses exceed capital gains. How much tax relief becomes available for 2014? Section 1211 blesses offsets of net losses against as much as $3,000 of ordinary income—a wide-ranging category that includes salaries, pensions, and interest. If necessary, however, investors can carry forward unused losses over $3,000 into 2015 and succeeding years.

An example: Nat and Patricia Rosasco expect to have long-term losses of $60,000 and long-term gains of $40,000, resulting in a net long-term loss of $20,000 for 2014. On Form 1040’s Schedule D, they subtract $3,000 of their loss from ordinary income, leaving them with a carryforward of $17,000 from 2014 into 2015. On the Rosasco’s 2015 Schedule D, they use the remaining loss (unless offset by capital gains) to trim ordinary income by up to $3,000, leaving them with a carryforward of $14,000 from 2015 to 2016.

Another state of affairs—this one from the pages of my real-life client roster—includes a married couple I’ll call Rudolph and Flavia Colman. Rudy is a 30-something investor with an unshakeable faith in the “market-timing fairy.” Alas and unsurprisingly, Rudy relied on a seer who was no Nostradamus.

Just how maladroit was Rudy at anticipating market movements? In 2000, a few days before the prices of technology stocks crested, he moved money into mutual funds that invested in dot-com ventures—despite his wife’s prescient kvetching to buy bond funds instead. Fortunately for Rudy, Flavia—who has forgotten more about tax planning than her husband will ever know—persuaded her husband to place ownership of the fund shares in both their names. (A little lesson against stereotyping your clients: the tax-savvy Flavia is a former Victoria’s Secret model. I’m a founding member and active member of Flavia’s fan club.)

The Colmans suffered losses of $90,000 when the dot-com bubble burst. In the event that the couple realizes no future capital gains and the cap stays set at $3,000, they’ll write off all of their losses only after the passage of 30—count ’em, 30—years, a number not necessarily daunting, as Rudy is hale and hearty, swims a mile just about every day, and gets 24/7/365 TLC from his devoted spouse.

What if Rudy dies before they’re able to deduct the entire $90,000? Will this be a problem for Flavia? Not at all, provided she lives long enough. After filing their last joint 1040 form, she just continues to claim unused losses in subsequent years on her own returns, whether filed singly or—should she remarry—jointly with her next husband.

So why was it wise for the shares to be owned jointly? Had Rudy been the sole owner at the time of his death, that would’ve derailed her carryforward.

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How Does a Corporate ‘Tax Inversion’ Work?

The U.S. government has been promising a crackdown on tax inversion deals for months. Yet the measures announced Monday may not be enough of a disincentive for companies like Pfizer or AbbVie, which are tempted by the savings involved in snapping up smaller foreign rivals and re-domiciling themselves to avoid America’s labyrinthine tax system.

The new rules, aimed at “when possible, stopping” inversion deals, according to the U.S. Treasury, aim to close a number of tax loopholes that make inversion deals possible.

One element will stop companies using so-called “hopscotch” loans, which allow a redomiciled parent company to access earnings from its foreign subsidiaries without raising its tax bill. Another would stop inverted companies transferring cash or property from a “controlled foreign corporation” to their new parent company to avoid U.S. tax. A further measure stops companies using special dividends and other one-off payments to make sure they come in under the threshold of 80 percent of the combined company, which is needed to make an inversion happen.

“Today’s measures do little to negatively impact the economic benefit from the proposed Pfizer acquisition of AstraZeneca.”

These new regulations are part of efforts across the world to clamp down on companies redomiciling to avoid paying tax in their home country. The Organisation for Economic Co-operation and Development (OECD) announced plans to curb corporate tax avoidance last week.

Yet questions remain over whether the measures will have the effect Treasury Secretary Jack Lew desires – making some already mooted deals “no longer make sense”. Although the plunge in the share prices of AstraZeneca, Shire and Smith & Nephew, all potential or actual targets for tax inversion-related deals, in trading on Tuesday suggests some think he is right.

Pfizer/AstraZeneca

Pfizer cannot come back with a raised bid for AstraZeneca until November 26. Its previous $118-billion bid was rejected, and partly caused the furore which led to Lew’s actions.

“Today’s measures do little to negatively impact the economic benefit from the proposed Pfizer acquisition of AstraZeneca,” Andrew Baum, pharmaceuticals analyst at Citi, wrote in a research note.

Pfizer could still reduce its tax rate from 28 percent to 22 percent post inversion, according to Baum’s calculations.

AbbVie/Shire

Shire’s management, possibly fortuitously, insisted on a $500-million break fee if the $55-billion deal, which would reduce AbbVie’s average tax from 22 percent to 13 percent by 2016, does not complete for political reasons. This demonstrates the shadows cast over inversion deals months ago.

However, it is still unclear whether the new rules will affect deals which have been agreed but not yet completed.

Medtronic/Covidien

Medical devices specialist Medtronic announced in June a $42.9 billion cash-and-share deal to buy Covidien, a smaller rival which was founded in the U.S. but moved to Dublin for tax purposes. It has already run into trouble with some shareholders, who may have to pay extra capital gains tax on their shares, over the inversion element of the deal – particularly as some Medtronic executives and board members have received extra payments to make up for these effects.

Mylan/Abbott Laboratories

Generic drugs specialist Mylan plans to cut its tax bill by buying Abbott Laboratories’ branded specialty and generics business in developed markets outside the U.S in a $5.3 billion deal, and headquartering itself in the Netherlands. The deal is scheduled to close early next year, so could still be impacted by the new measures.

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Top 10 Crowdfunding Sites For Fundraising

Unless you’ve been living in a remote island for the last few years, you’ve heard about crowdfunding or stories of people raising thousands or millions of dollars online.

In fact, there’s been so much chatter out there about crowdfunding that people love to throw out the line “yeah, I’ve heard there are something like 500 crowdfunding sites.” While hundreds of sites may be popping up, not all of them have real communities and funding successes under their belt.

Which begs the question… what crowdfunding site is best for you?

As a crowdfunding industry insider, I thought I’d give you an easy guide for which site to go to for your crowdfunding needs.

I’ll start with a tiny overview of the industry, a short primer on the different types of crowdfunding so you know what you’re looking for, and then I’ll get to specific recommendations for you.
The Crowdfunding Industry

Collaboration on the web is an area of exponential growth. Crowdfunding, or collaborative funding via the web, is one of the standouts for growth in this evolving collaborative economy.

The Crowdfunding Industry Report by Massolution put out data showing the overall crowdfunding industry has raised $2.7 billion in 2012, across more than 1 million individual campaigns globally. In 2013 the industry is projected to grow to $5.1 billion.

Some of the most interesting developments in crowdfunding, which are expected to grow in the months and years ahead, include: investment crowdfunding (becoming a shareholder in a company), localization (funding focused on participants in specific cities and neighborhoods), mobile solutions, and group-based approaches.

The JOBS Act that was passed in April of 2012 paved the way to investment crowdfunding, but the JOBS Act Rulings by the SEC have yet to be fully implemented to formally kick the market off. Expect big movement and activity in this area in 2013 and 2014.
Crowdfunding Models

There are 2 main models or types of crowdfunding. The first is what’s called donation-based funding. The birth of crowdfunding has come through this model, where funders donate via a collaborative goal based process in return for products, perks or rewards.

The second and more recent model is investment crowdfunding, where businesses seeking capital sell ownership stakes online in the form of equity or debt. In this model, individuals who fund become owners or shareholders and have a potential for financial return, unlike in the donation model.
Crowdfunding Sites To Choose From

Business owners are using different crowdfunding sites than musicians. Musicians are using different sites from causes and charities. Below is a list of crowdfunding sites that have different models and focuses. This list can help you find the right place for your crowdfunding goals and needs.

1. Kickstarter
Kickstarter is a site where creative projects raise donation-based funding. These projects can range from new creative products, like an art installation, to a cool watch, to pre-selling a music album. It’s not for businesses, causes, charities, or personal financing needs. Kickstarter is one of the earlier platforms, and has experienced strong growth and many break-out large campaigns in the last few years.

2. Indiegogo
While Kickstarter maintains a tighter focus and curates the creative projects approved on its site, Indiegogo approves donation-based fundraising campaigns for most anything — music, hobbyists, personal finance needs, charities and whatever else you could think of (except investment). They have had international growth because of their flexibility, broad approach and their early start in the industry.

3. Crowdfunder
Crowdfunder.com is the platform for raising investment (not rewards), and has a one of the largest and fastest growing network of investors. It was recently featured on Fox News as the new breed of crowdfunding due to the story about a $2 Billion exit of a crowdfunded company. After getting rewards-based funding on Kickstarter or Indiegogo, companies are often giving the crowd the opportunity to invest at Crowdfunder to raise more formal Seed & Series A rounds.

Crowdfunder offers equity crowdfunding currently only from individuals + angels + VCs, and was a leading participant in the JOBS Act legislation.

4. RocketHub
Rockethub powers donation-based funding for a wide variety of creative projects.

What’s unique about RocketHub is their FuelPad and LaunchPad programs that help campaign owners and potential promotion and marketing partners connect and collaborate for the success of a campaign.

5. Crowdrise
Crowdrise is a place for donation-based funding for Causes and Charity. They’ve attracted a community of do-gooders and and fund all kinds of inspiring causes and needs.

A unique Points System on Crowdrise helps track and reveal how much charitable impact members and organizations are making.

6. Somolend
Somolend is a site for lending for small businesses in the US, providing debt-based investment funding to qualified businesses with existing operations and revenue. Somolend has partnered with banks to provide loans, as well as helping small business owners bring their friends and family into the effort.

With their Midwest roots, a strong founder who was a leading participant in the JOBS Act legislation, and their focus and lead in the local small business market, Somolend has begun expanding into multiple cities and markets in the US.

7. appbackr
If you want to build the next new mobile app and are seeking donation-based funding to get things off the ground or growing, then check out appbackr and their niche community for mobile app development.

8. AngelList
If you’re a tech startup with a shiny lead investor already signed on, or looking for for Silicon Valley momentum, then there are angels and institutions finding investments through AngelList. For a long while AngelList didn’t say that they did crowdfunding, which makes sense as they have catered to the investment establishment of VCs in tech startups, but now they’re getting into the game. The accredited investors and institutions on AngelList have been funding a growing number of top tech startup deals.

9. Invested.in
You might want to create your own crowdfunding community to support donation-based fundraising for a specific group or niche in the market. Invested.in is a Venice, CA based company that is a top name “white label” software provider, giving you the tools to get started and grow your own.

10. Quirky
If you’re an inventor, maker, or tinkerer of some kind then Quirky is a place to collaborate and crowdfund for donation-based funding with a community of other like-minded folks. Their site digs deeper into helping the process of bringing an invention or product to life, allowing community participation in the process.

These 10 crowdfunding sites cover most campaign types or funding goals you might have. Whether you’re looking to fundraise or not, go check out the sites here that grab your attention and get involved in this collaborative community.
How Crowdfunding Is Shaping A New Economy

Crowdfunding has revitalized the Arts at a time when public programs that support it are steadily dying off.

Crowdfunding is growing a market for impact investing in social enterprises, marrying the worlds of entrepreneurship and philanthropy, and helping a broader base of investors to back companies for both profits and purpose.

Crowdfunding is accelerating angel investing and creating an entirely new market for investment crowdfunding for businesses.

So get involved and join a crowdfunding community today. You’ll make a difference for a project or business owner, and also help build a new and more collaborative economy.

*Disclosure: I’m the CEO of Crowdfunder and have personal relationships with many of the founders and teams at the sites listed, though I stand behind my picks here as guidance of value for people looking for the right site.

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REIT Conversions: Good For Wall Street. Not Good For America

wall_street_sign_nycWhenever one company or a small group of companies is able to wriggle free of the corporate tax, economists face a dilemma. On the one hand, there is some comfort in the fact that the impact of the corporate tax – our most economically damaging tax – has been lessened. On the other hand, there is the economic inefficiency that results from the unfairness of allowing a lucky few to escape the tax while others are left bearing the burden.

For example, suppose Congress passed a law randomly granting one out of every 10 corporations complete exemption from corporate tax. If the damage of the tax is large relative to the harm of an uneven playing field within the corporate sector, this new law could be a net plus for the economy. Alternatively, if the distortions of favoring one group of firms over another are too costly, the new law hurts economic growth.

Of course, in the real world tax breaks are not assigned randomly. They go to astute lobbyers and to those with skilled tax planners. Nevertheless, although our hypothetical random assignment of tax benefits may seem silly and politically unsound, it would probably result in better economic outcomes than the way tax breaks actually come into existence.

Why?

First, random assignment of tax benefits would not require the beneficiaries to act differently than they would otherwise. For a company to qualify for a legislated tax benefit, it usually must satisfy requirements that may cause it to change its business practices.

When businesses choose to convert to a real estate investment trust, they put themselves in a real estate straitjacket. So it is common to find statements like the following one, from Corrections Corporation of America, in Forms 10-K of businesses that have elected REIT status: “In order to meet [REIT requirements], we may be required to forgo investments we might otherwise make or to liquidate otherwise attractive investments.”

Second, large-scale random assignment of benefits would distribute them evenly over the economy so no one industry would be particularly favored. In contrast, tax planning and legislated tax breaks usually concentrate tax benefits in some industries and leave others out. Unless there is some clear reason to try to second-guess the free market, a tax code that favors one industry over another slows economic growth.

Third, random assignment of tax benefits would not entail the costs of planning and compliance that often significantly reduce the direct tax benefits companies enjoy. These costs come in a variety of forms. There are the out-of-pocket costs of professional fees paid to lawyers, accountants, lobbyists, and consultants. And there are the distractions to management and the drain of time to employees who must attend to compliance and planning issues.

Companies that have converted into REITs face substantial planning and compliance costs, which often negate a significant percentage of the tax benefits received. Here are some examples:

  • Iron Mountain, Inc., the document storage company, became a REIT earlier this year. The company estimates its total cost of conversion to REIT status will be between $185 and $200 million.
  • Equinix Inc. runs large-scale data centers and expects to become a REIT in 2015. It estimates its total conversion costs will be $84 million.
  • Gaming and Leisure Properties Inc. owns casinos and until just recently was part of Penn National Gaming Inc. Its election to REIT status began in November 2014. CEO Peter Carlino explained the process of creating a new REIT this way: “The pain was unimaginable, and I really do not overstate that. It was the most difficult thing we have ever done . . . I can’t overemphasize the complexity.”

The textbooks and the blue ribbon commissions that study tax reform tell us that our tax system should be simple (low compliance costs) and neutral (not interfere with free market business practices). REIT conversions move us in the opposite direction. But in a market where investors are desperate for yield, REITs have become extremely popular. Hedge funds unceasingly prowl for conversion candidates. Bankers, lawyers, and accountants are generating huge fees. Congress will have a heck of a time taking the punch bowl away from this party.

Perhaps, you may say, REITs provide benefits to the economy that make all the costs worthwhile. The usual policy justification is that REITs allow small investors the opportunity to diversify into well-managed real estate. But most large converted REITs were already publicly traded before, so it is hard to see how REIT status improves small investor access to the stock of these companies.

If the R and E in REIT stood for research and experimentation — that is, if tax-favored entities were doing science and developing new technology — tax privileges might be justified by positive externalities these activities generate. But what policy justification is there for subsidizing commercial real estate? In fact, regarding casino REITs it is easy to make the case that the associated externalities (like gambling addiction) are negative. If we really wanted to help middle-income taxpayers with their investments and promote their financial security, we would not be building more gambling houses.

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