Costly Tax Mistakes Entrepreneurs Have to Avoid


Anyone can get into trouble with the IRS, including businesses. It seems as though entrepreneurs are especially susceptible to tax troubles, many times because they simply aren’t aware of all the tax pitfalls that lay ahead. However, many of these mistakes can be easily avoided. The key is to be aware of what they are.

One of the most common mistakes is simply to be too relaxed and nonchalant with your recordkeeping and compliance. Always keep complete and accurate records and always stick to all the tax rules. Don’t get lazy and think it won’t matter. It does.

Another mistake is to try to fight every battle with the IRS alone. While you can take care of many tax items and issues yourself, other situations and circumstances are better left to the professionals. For example, if you have been chosen for an audit or you have a large tax debt, or other serious tax matter, then seek the help of a qualified CPA or an attorney.

To that same end, don’t make the mistake of trying to avoid the IRS. If you hear from the IRS respond as directed. Trying to run or hide never works, especially if you’re already on the agency’s radar. Avoiding these simple mistakes can be a real lifesaver for anyone with a business, especially an entrepreneur that’s trying to start a company.

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Study Shows Benefit of Lower Corporate Taxes


Raise taxes on big business! That’s the cry of democratic lawmakers. Democrats argue that keeping the corporate tax rate high will help increase income for workers. While it’s true that wages have basically remained stagnant over the last decade, and the cost of living has gone up, increasing corporate taxes is not the answer to solve this problem.

According to a study by Kevin Hassett and Aparna Matur there is a link between corporate taxes and employee wages. That study revealed that the common belief that customers end up paying for corporate tax increases is incorrect. In reality when corporate taxes go up, it’s the workers and not the corporations or the customers that end up paying for the increased taxes.

However, despite the evidence to the contrary, many politicians continue to scream for higher taxes on big corporations, claiming that this will help boost wages and increase employees’ income. Many in this camp also want to punish any company that moves overseas or that keeps more income in offshore subsidiaries in effort to avoid these high taxes.

Unfortunately, this kind of thinking will only serve to hurt the average American instead of helping. According to Hassett and Matur “workers become more productive when they acquire better skills or have better tools. Lower corporate rates create the right incentives for firms to give workers better tools, and more productive workers earn higher wages.”

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Will the Wealthy Start Exiting California if Tax Hikes Are Extended?


Just about everyone is aware that California has one of the highest tax rates in the country. So it wasn’t much of a surprise when voters passed a temporary tax increase back in 2012 that raised the state’s marginal income tax rate to 13.3 percent at the top level. That meant that the state’s wealthiest taxpayers had a combined tax rate of 52.9 percent.

Although many threatened to leave and many others feared a mass departure, the exodus from California among the wealthy never really materialized. While some of the state’s wealthier individuals did leave for other locations, studies showed that “millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.”

In fact, while California did see an overall loss of about 625,000 residents between 2007 and 2014, the state saw a net gain in college-educated residents. So even though more people have moved out than moved in, the rate of individuals with a higher tax rate has not experienced a major change. However, could that change if those temporary tax rates are extended or made permanent?

There is a current proposal that would extend the tax increases another 12 years, and many believe if it passes then the same group would seek to extend it again or even make it permanent. If that happened would the wealthy then be more prone to leave the state? No one knows the answer for sure, but if the tax increases are extended it will be interesting to watch how the scenario all plays out.

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Can a Trust Help You Save on State Income Taxes?

senior couple with financial advisor

Of course, when it comes to lowering taxes almost all taxpayers first and foremost focus on taxes at the federal level. There are of course many ways to save on federal income taxes and the majority of taxes we all pay go to the federal government. So it makes sense that most taxpayers put the lion’s share of their tax-saving efforts towards their federal tax bill. However, depending on which state you live in you could save a nice chunk on your state income tax as well.

There is a certain tax-saving strategy that has been growing in popularity the past few years among the wealthy. They are using trusts to help reduce their exposure to state income tax rates. Incomplete gift non-grantor trusts (ING trusts) can help transfer the tax exposure of those who live in high-tax states like California to a state with no income tax like Texas, Florida or Nevada.

Many of the nation’s wealthy families and individuals who have been using this ING trust strategy, which has grown in popularity over the last 10 years, are reaping the rewards. That’s because ING trusts can help the wealthy lower the state income tax at the trust level. This is especially true if they are nearing a substantial gain.

However, it’s important for anyone setting up an ING trust to do it before there is any intent, or letter or sales discussion that would lead to a given gain. You don’t want it to look like you are setting up the trust simply to avoid taxes. For more information on ING trusts contact GROCO.

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Foreign Real Estate Buyers in Vancouver Facing New Tax


It’s no secret that many wealthy individuals own multiple homes, including vacation homes in foreign countries. In an effort to capitalize on this popular trend amongst the wealthy, many countries and/or cities have created new taxes aimed specifically at wealthy real estate buyers from foreign countries. Among the latest locations to enact a new tax on wealth property buyers is Vancouver, BC in Canada.

According to recent reports, the housing market has seen a huge shopping spree lately in the area as many wealthy foreign buyers, especially from China, have been snatching up homes at a fast pace. In fact, foreign buyers spent more than a billion dollars on homes and property in British Columbia between June 10 and July 14 of this year alone. With the increasing demand for property in BC, housing prices have soared almost 30 percent in the last year, which has left many local buyers unable to compete for these homes.

Therefore, in an effort to keep things fair, the British Columbian government has issued a new 15 percent tax, which will apply, to all “foreign nationals or foreign-controlled corporations” purchasing property in the metropolitan Vancouver area. BC is not the first place to issue such a tax. Australia and Singapore both recently raised the tax on foreign real estate buyers as well. The BC government said that anyone who attempts to avoid the new tax could face fines in the six figures and up to two years behind bars.

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Do You Still Have Outstanding Business Tax Returns?


Entrepreneurs have a lot on their plate, as do all business owners. However, whether you’re just starting out or you’ve been in business for years, you need to makes sure that you stay up to date on your taxes. Missing taxes returns or filing them late can bring huge headaches, and in some cases big fines and/or even prison time. If you don’t file a return you stand to be penalized 5 percent every month for the unpaid amount with a maximum of 25 percent.

Some business owners who take a loss figure they don’t need to bother filing a return because they don’t owe any tax. That’s also a mistake. Did you know that you could actually use your losses for future years, or even past years, when you make a profit? That can help reduce your tax bill. You might also be missing out on big tax credits during those down years. So file a return even if you don’t owe any taxes.

On the other hand, some business owners know they will owe money to the IRS but think that the agency will never get around to tracking them down. Don’t make that mistake either. It might take a while, but the IRS will most likely eventually come calling. If you have already made the mistake of not filing for a year or more, then be proactive and start filing late returns now. The term better late than never is very true when it comes to tax returns.

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IRS Will Get its Share From Olympic Medalists, Too

rio olympics

If you’re like most people in the country, and many others around the world, then you’ve been watching the Summer Olympics over the last 10 days or so. After all, they only happen once every four years. There have been many exciting storylines, like Michael Phelps’s unmatched dominance in the pool, Usain Bolt’s continued ownership of the World’s Fastest Man title and Simone Bile’s unprecedented Gold Medal run in women’s gymnastics.

Each time an athlete takes his or her place on the medal podium they are all smiles. Of course, they should be very happy. Winning an Olympic medal is a great accomplishment. However, with winning comes a tax bill. That’s right. American athletes are taxed for their winnings, and even for the value of the medals, themselves.

The U.S. Olympic Committee pays its winning athletes $25,000 for each gold medal, $15,000 for a silver and $10,000 for a bronze. So what does that mean for someone like Michael Phelps? Well, he earned five more gold medals and one silver medal in Rio, which means he earned $140,000 in bonuses. However, he will pay about $55,000 of that in taxes to the IRS.

That’s not all; the winning athletes also pay taxes on their actual medals. The reason they owe this money is because their cash bonuses as well as their medals are considered income, just like any other type of prize winnings.

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Apple Not Ready to Bring Foreign Income Back to U.S. Anytime Soon


Despite all the wonderful products and groundbreaking technologies Apple has been responsible for over the years, the tech giant is certainly no stranger to criticism. That criticism comes in many forms, including from competitors and those who prefer competitors’ products. There are also some that criticize Apple for some of the company’s business practice, including the practice of sheltering money overseas.

Many of the country’s largest companies use this practice to save on taxes. The money they earn on foreign soil stays on foreign soil because the consequences of bringing it to the states would be a very hefty tax bill. However this practice makes good business sense, considering that the U.S. corporate tax rate currently sits at 35 percent, which is one of the highest rates in the world.

While this is a perfectly legal practice, some critics claim that what Apple and other businesses are doing is unpatriotic. However, Apple’s CEO Tim Cook says it has nothing to do with being patriotic. “It is the current tax law. It’s not a matter of being patriotic or not patriotic,” Cook said in a recent interview. “It doesn’t go that the more you pay, the more patriotic you are.”

Cook said Apple would be happy to bring money earned on foreign soil back to the U.S., but not until lawmakers come up with a fair rate, which he hopes they will do sooner rather than later.

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Mark Cuban’s Take on Donald Trump’s Taxes

mark cuban

If you follow the presidential election then you know that this year’s run for the Oval Office is perhaps one of the most spite-filled elections our country has ever faced. According to many political pundits, talking heads in the media and dozens of poll results, the last two candidates standing – Donald Trump and Hillary Clinton – are the two least-likable presidential candidates of all time. Whether you agree with that sentiment or not, the perception among many is that this election will finish with one of the country’s most unpopular presidents of all time in the White House. There are many complaints about both candidates but throughout the entire election process one of the continuing outcries has been for Mr. Trump to release his tax returns.

Should He or Shouldn’t He?

So far, Mr. Trump has not given in to those demands. His opponent has released her tax returns and has joined in the call for Mr. Trump to do the same. Many claim that Mr. Trump’s refusal to make his returns public is just more evidence that he has something to hide, which many say is another strike against him. However, not everyone thinks his refusal to turn over his tax returns to the public is a sign of something terrible. In fact, another billionaire that has come out and stated that he will be supporting Mrs. Clinton in November says Mr. Trump’s refusal to share his tax returns isn’t a big deal at all. Mark Cuban, Venture Capitalist and host of Shark Tank doesn’t really think Mr. Trump has anything to hide.

Do Tax Returns Really Matter in the Election?

The owner of the NBA’s Dallas Mavericks, Magnolia Pictures, and Landmark Theatres and the chairman of the HDTV cable network AXS TV, Mr. Cuban recently said in an interview that the fact that Mr. Trump won’t make his returns public is irrelevant. “I know for my taxes, when it’s tax time there’s a big living room table that I have and there’s big stacks of paper all over the table. I just look at the signature pages and it takes me 45 minutes still just to sign all that stuff.” In fact, before this year (because he actually looked this time), Mr. Cuban said in any previous year he couldn’t have told anyone how much he made or what was on his taxes. “It certainly was not a reflection of net worth or of how much anyone gives to charity or anything. Any one given year may be up or down, so I don’t care if they release their taxes.”

Perhaps It’s Brand Protection

When asked why he thinks Mr. Trump is not releasing his taxes, Mr. Cuban said he really had no idea, but his best guess is that it might have been a down year for Mr. Trump so he doesn’t really want to share that information. “He may have taken a negative income last year and that certainly doesn’t match up to his brand. So it doesn’t matter.”

To read more on Trump’s Tax returns click here.

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Is Obama Secretly Trying to Raise the Death Tax Again?

carrying casket

Democrats and Republicans have been battling over the estate, or death tax for decades. Democrats always push for a higher rate, while republicans would like to completely eliminate it. During the most recent Bush administration the death tax dropped from 55 percent to 45 percent and the threshold increased significantly. Families with assets of $675,000 or more were subject to the tax before president Bush took office. After Bush entered the White House, the estate tax was changed to affect only those families with assets of $10 million or more.

Valuation Discounts Under Fire

That was a big win for republicans but that doesn’t mean the current president is ready to give up on the issue. According to reports, the treasury department recently introduced new regulations aimed at limiting the ability of families to use valuation discounts in order to lower their estate tax liability when someone in their family passes away. A value discount is a great way to save because it enables families to reduce the taxable value of a given asset that doesn’t possess an extensive and commonly traded market. For example, if a person who owns a business worth $30 million wants to pass it on to his children when he or she dies the death tax would be applied to only $20 million after the $10 million exemption.

Holding Wealth Would Be Tougher, Taxes Higher

However, if a family cannot easily sell the business, or some of its assets, because a market does not exist for just a piece of the family-owned company, then its value is decreased. That’s why valuation discounts are so helpful, because they make it possible for a family to reduce the value of its business and thus better show its lack of marketability. So how would the Treasury’s new proposals affect the estate tax? In order to take full advantage of valuation discounts many family-owned businesses create limited liability companies (LLCs) or family limited partnerships (FLPs) so they can hold onto, and eventually transfer, their wealth for estate planning purposes. If the new regulations were to become law it would mean family-owned businesses would have a more difficult time using valuation discounts, which would most likely raise the death tax bill on families that try to hold onto and transfer their companies and their business’s wealth. This could also very likely wipe out jobs and slow the economy because these types of businesses would be broken up.

Still Time to Raise Your Voice

Despite the fact that Congress has continued to shoot down efforts to raise the estate tax and lower the threshold, President Obama is seeking to go around the House with this latest effort. However, there is still time for people to express their opinions on the matter. These regulations will not take affect until they are published as final regulations. In fact, the proposed regulations are subject to a 90-day public comment period, according to the U.S. Treasury Department, which means taxpayers have until December 1 of this year to express their thoughts and opinions.


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