Business taxes can be a nightmare for a lot of companies; especially small businesses that are trying to stay afloat. Things can get even tougher when it comes time to file your return and you end up on the wrong side of the ledger. So what should you do if you end up owing more business taxes than can afford?
First, don’t panic. There are steps you can take to get through the process. Then, make sure you still file your taxes on time, even if you know you don’t have the money. By delaying your filing you will be penalized further and owe even more money. So, file on time. If you’re already late, file as soon as possible.
If you can’t pay your debt in full at tax time, you do have some options. You can still make full payments a little late by filing for an extension. If you will have the funds shortly then this is a good option. Keep in mind, though, that you will be charged interest until the full amount is paid off.
You can also agree to the installment method, which allows you to make monthly payments until you pay off the debt in full. This requires a one-time set-up fee but it also allows you to choose the terms and the method of payment. You can also go with the offer in compromise route, which could lower your total bill if the IRS accepts your offer. Lastly, you could request that the IRS delay its collection if you absolutely don’t have the means to pay off your debt. This is called a temporarily delay collection.
Whatever method you choose, it’s always best to pay off whatever you can as soon as you can, and thus avoid further interest and penalties. If you find yourself in this situation, contact GROCO. We’ll help you determine which route is best for you. Call 1-877-CPA-2006, or click here.
So which side are you on? Trump, Cruz, Clinton, Sanders, a write-in candidate, or are you still hoping for an optional third-party independent candidate? The fact is, when it comes to taxes, no matter which candidate you vote for, things will likely be changing for the nation’s wealthiest taxpayers in 2017. Whether or not you see those changes as positive or negative depends on which side you fall on.
The Tax Policy Center has released some interesting numbers that give a good picture of how the wealthy will be affected based on who is elected as our country’s next president. The general picture is that if a democrat candidate is chosen then the tax system would become more progressive and the wealthy would be hit harder. On the flip side, if a republican wins the nomination then revenue would be cut and the tax system would take on a more regressive approach.
Here is how the top candidates’ plans would affect the wealthy:
- Bernie Sanders – households that fall into the top 0.1 percent would see an increase of more than $3 million in taxes on average in 2017.
- Hillary Clinton – households in the same income level would pay an additional $500,000 more.
- Ted Cruz – households in the top 0.1 percent would see taxes cut by $2 million.
- Donald Trump – households in the highest income level would see taxes cut by $1.3 million.
Whoever the country elects as its next commander in chief, the majority of taxpayers will be affected one way or another. If you count yourself among the nation’s wealthiest, then you will feel that change even more, for better or for worse.
One of the biggest tax debates that will likely always exist is whether or not the nation’s wealthy are paying enough in taxes? It’s easy for some to argue that they don’t but there are many factors that must be considered. Plus, all the while, nearly half of the country’s would-be taxpayers don’t actually pay any federal income tax at all. No, they aren’t guilty of tax fraud. These Americans are doing something that is perfectly legal and quite common.
In fact, would you be shocked to know that many of these individuals not only don’t pay any federal income tax, but they still receive a refund? According to the Tax Policy Center, it’s estimated that more than 45 percent of Americans owed no federal income taxes for 2015. According the Center, the number of total households that fall into this category has been increasing each year since 2011.
Some might think many of the wealthiest taxpayers are included among the more than 77 million people who fall into this category in 2015, but they don’t. About half of these households have no taxable income, period, and the other half qualify for enough tax breaks to help offset the amount they would owe. Therefore, these are individuals with a negative tax rate, not the nation’s highest earners.
The wealthiest 20 percent of the country, meanwhile, pays almost 87 percent of the nation’s entire federal tax bill. So, next time you hear someone claim that the wealthy don’t pay enough in taxes, just consider these numbers from the Tax Policy Center.
It’s been another record year for the federal government so far, which is in the midst of its current fiscal year. At the end of March, when the government reached its halfway point of the 2016 fiscal year, it had already collected $1.48 trillion. One might think that this massive haul would help ease the nation’s federal deficit. However, despite the record intake, the federal government still finds itself in the hole to the tune of $461 billion.
According to the U.S. treasury Department, the amount of taxes it has collected from October 2015 through March of this year has been greater than any other previous fiscal year on record. That even takes adjustment for inflation into consideration.
The Treasury Department counts revenues from several sources, including individual income taxes, unemployment insurance taxes, social insurance and retirement taxes, estate and gift taxes, corporate income taxes, excise taxes and a few other items. Of the $1.48 trillion collected so far this fiscal year, the majority comes from individual income taxes, which accounts for nearly half of the total, at $675 billion.
By way of comparison, last year, the federal government collected a total of $3.24 trillion in taxes for the entire 2015 fiscal year.
Imagine a world where you didn’t have to file your own taxes. Of course, you can use an experienced and professional tax and accounting firm like GROCO to do your taxes for you, but what if you didn’t even have to send your tax return information to an accountant? Could that ever really happen? In reality, probably not, but that isn’t stopping one U.S. senator from at least proposing the idea.
Democratic senator, Elizabeth Warren, from Massachusetts, has introduced the tax Filing Simplification Act of 2016. The senator hopes to “simplify and decrease the cost of the tax filing process for millions of American taxpayers.” Her proposal would actually force the IRS to come up with a preparation and filing service that all taxpayers could use for free to directly file their taxes with the government.
The service would require the IRS to fill in all the necessary information, which would come from W-2s and 1099s, which the agency already receives. Each taxpayer would then be responsible to make sure the information was correct. Some taxpayers that have very basic tax situations might not even have to file a return at all.
So what is the likelihood of this ever passing? Chances are the bill will not go anywhere, as Congress has always been reluctant to making these kinds of changes in the past. So while this might not ever become a reality, your tax accounting and tax preparation can still be stress-free. Just contact GROCO for help by clicking here or by calling 1-877-CPA-2006.
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While many of the nation’s high net-worth individuals make much of their income through capital gains, those who still collect a paycheck are doling out of cash to the IRS every time they get paid. The same is true for all taxpayers no matter what income level they fall in. In fact, according to a recent report, American taxpayers will spend more on taxes in 2016 than some of the most basic monthly expenditures combined.
The Tax Foundation recently reported that the nation’s taxpayers would pay $3.3 trillion in federal taxes and an additional $1.6 trillion in state and local taxes this year. That is almost $5 trillion in total taxes paid, which represents 31 percent of the country’s income. To put that into perspective, Americans will pay more in taxes this year than they will for housing, clothing and food combined.
So, next time you wonder where your paycheck is going just look to the federal government, because they own about a third of it. The percentage is even higher for high net-worth individuals. Meantime, the Tax Foundation also reported that Tax Freedom Day fell on April 24 this year, one day earlier than last year. Tax Freedom Day represents how long the country, as a whole, has to work to pay off its tax debt for the entire year. So in a sense, up until this point in the year, the nation’s entire workforce has been working for free.
While many feel the wealthy should be paying more in taxes, the efforts to enforce this strategy does have some consequences for state budgets. Many of the country’s wealthiest individuals hold the majority of their wealth in stocks. That means when the stock market goes down, so do the tax payments of the wealthy.
In fact, several states are currently feeling a pinch in their budgets thanks to the less than favorable conditions of the market. For example, Connecticut governor Dannel Malloy announced budget cuts late last year blaming the stock market’s lackluster performance. Budget analysts expect at least a $200 million deficit, and the governor has already announced several cutbacks.
Meanwhile, in California, the state is also expecting less revenue from capital gains this year and in New York lawmakers have been told to lower their expectations for the state’s upcoming fiscal year. While not all states are affected by the stock market, those that count many of the wealthiest individuals as residents can be hurt dramatically when the stock market takes a downturn.
Another sign that higher taxes could be hurting states’ budgets is happening in Connecticut where some lawmakers believe that many of the state’s wealthiest individuals are moving to other states in order to avoid Connecticut’s high tax rates on the wealthy. With so many high net earners in the state being affected by new efforts to raise taxes on the wealthy, the state’s budget is taking an even greater hit.
The reports regarding many of the nation’s wealthy packing up and moving to different states in order to avoid the high taxes where they currently reside continue to mount. According to one such report, David Tepper, the president of Appaloosa Management L.P., who is the wealthiest resident of New Jersey, is in fact no longer a resident of New Jersey.
Mr. Teppert reportedly registered to vote in Florida last year and then later in December, he took the necessary legal measures to become a resident of state, thus leaving New Jersey in the dust. Then, in January of this year he followed his own move with a business reorganization that also moved his company to Florida. So, why Florida? The state does not have any income or estate taxes.
While those who know him said taxes where not Mr. Teppert’s only motive for the move, his decision could save him hundred of millions in tax dollars. Florida is fast becoming a relocation haven for many of the nation’s wealthiest individuals and state officials recognize the opportunity and are seizing it.
The state has been actively trying to lure many of the wealthiest individuals that currently live in the Northeast, in places like New York, New Jersey, Connecticut and Massachusetts. It appears those efforts are working, as Mr. Teppert is not the only billionaire to make the transition to Florida in the last few years. From 2012 to 2014 the number of firms that run private pooled vehicles, like hedge funds for example, increased in the state from 37 to 62.
It appears that the sunny weather isn’t the only draw to Florida for many of the country’s wealthiest taxpayers.
One of the biggest complaints certain groups or individuals have against the wealthy is that they can take advantage of too many tax breaks and loopholes to lower their tax bill. So what are some of the top tax strategies that high net worth individuals use to keep their tax rates down, and could anyone else use them?
One of the top tricks used by the wealthy is that they make the most out of their investment income. Compared to the top income bracket that is taxed at a 39.6 percent rate, capital gain income on stocks held longer than a year is taxed at a top rate of 20 percent, which is almost half of the top income tax rate. The good news is that anyone can take advantage of this rule.
Another tax strategy used by the wealthy is to use their retirement plan accounts to invest in high-growth start-ups before they hit it big. This can pay huge dividends because, if you use a Roth IRA for example, any gains you make from your initial investment are tax-free.
High net worth individuals also avoid getting paid in cash as much as possible. One example is taking stock options instead of huge salaries. A person who does this doesn’t have to report these stock options as income right away. When they do exercise or sell them they will have to report them but any gains in stock value are taxed at the capital gains rate.
While not everyone makes enough to capitalize on these strategies, those who can and do are able to save considerable amounts of money in taxes. Contact GROCO to learn more.
Being the owner of a small business can be very rewarding, but very challenging at the same time. One of the biggest challenges small business owners face is dealing with taxes. There are countless items to keep track of and monitor with small business taxes, but these are some of the most important issues to be aware of.
As an owner of a small business you should constantly be looking out for deductions. You can deduct start-up expenses, including up to $5,000 worth of certain kinds of expenses if they took place the year before. You can also deduct any car mileage that you use to conduct your business, if you use your home as a place of business.
Business travel expenses are another good source of deductions for small business owners. Any “ordinary and necessary” expenses can be eligible, which typically include lodging, transportation, laundry, baggage charges and even hospitality tips. If you are gone over night you can also deduct meals but only up to 50 percent. You cannot deduct clothing expenses even if you purchase them for work and use them exclusively for work.
Lastly, if you own a small business you need to be aware how the Affordable Care Act affects your taxes. There are all kinds of limits and restrictions but you might qualify for the small business health care tax credit if you pay at least half of your employee’s premiums and you employ no more than 24 full-time and equivalent employees who have an average annual income of less than $50,000.
Of course, if you’re a small business owner the easiest way to deal with your taxes is to hire an experienced and professional tax preparer like GROCO. Give us a call at 1-877-CPA-2006, or click here to learn how we can help you.