Could the Louisiana Tax Amnesty Program Affect You?

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The Louisiana Department of Revenue has established a tax amnesty program which began on September 23, 2013 and will run through November 22, 2013. The goal of the program is to collect outstanding state tax liabilities from Louisiana residents who have fallen behind on their state taxes and want a fresh start. Eligible taxpayers who apply during the stated tax amnesty period may be eligible to have half of the interest and all penalties waived for the tax periods for which the amnesty is applied. According to state officials, some 450,000 taxpayers and businesses currently owe the state of Louisiana an estimated $2.5 billion dollars although at least half of that amount is currently in dispute.

Louisiana taxpayers who are behind on their tax payments—for any reason at all—will still be required to pay 100% of the their taxes, however 50% of the accrued interest and 100% of the penalties will be waived, creating significant benefits for many Louisiana taxpayers to return to compliance. Delinquent taxpayers and non-filers will also be exempt from all tax penalties. The anticipated revenues from the tax amnesty program are expected to plug a nearly $200 million dollar hole in the state’s health and hospital budget. Using the tax amnesty money to make up the shortfall in the health and hospital budget was determined to be an alternative to raising taxes.

Robert Billiot, Louisiana State Representative, believes the amnesty program can help many taxpayers who were hurt by the BP oil spill or storm Isaac. The amnesty tax program is not new to Louisiana—the state implemented similar programs in 2001 and 2009, collecting $193 million and $483 million respectively. Still, some Louisiana lawmakers oppose the tax amnesty program, claiming it makes it too easy for taxpayers to take advantage of the reduction in penalties and interest. The theory is that taxpayers will simply wait until an amnesty program is implemented rather than being responsible and paying their taxes in a timely manner.

Quite often, states which implement a tax amnesty program will follow the program with increased penalties and stricter enforcement against taxpayers who were eligible but declined to participate in the program. Late penalty fees could increase from 10-25% for those taxpayers who were eligible but did not choose to participate in the program. It is important for Louisiana taxpayers who are considering taking part in the current tax amnesty program to understand that the amnesty program applies to specified taxes and tax periods open under the statute of limitations. Taxpayers who have not filed their taxes are under a statute which has not run which means a potentially unlimited “lookback” period.

The Louisiana tax amnesty program comes with potential problems for the state and local government. Aside from the cost associated with administering the tax amnesty program, should a significant number of delinquent taxpayers fail to come forward or be identified, the program could cost the state rather than providing much-needed revenue. Further, regular use of tax amnesty programs tends to encourage a failure to pay taxes and a “wait-and-see” attitude on the part of taxpayers. The Louisiana tax amnesty program will be repeated in 2014 and 2015, although these programs will last only one month instead of two and may be less generous in terms of penalties and interest.

If you are a Louisiana resident who is unsure whether you should take advantage of the current tax amnesty program, the Law Office of Paul A. Grego can help. For tax amnesty questions as well as any other issues related to federal or state taxes, audits or challenging an IRS decision, Louisiana tax attorney Paul A. Grego will help you determine the best solution. With a free initial consultation and assessment of your particular situation you are well on your way to resolving your tax problems. Call 504-302-4949 today or visit our website for additional information.

New IRS Ruling Forces Restaurants to Classify Automatic Gratuities as Wages

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Many restaurants have a policy of automatically adding a 15-20% tip for groups of eight or more—a practice many diners find annoying and even offensive. Even so, assuming the tab for your party of eight comes to $200 and the automatic gratuity of $40 is added onto your bill, that $40 will go directly to your server. The new rules which go into effect in January will reclassify these mandatory tips as “service charges” rather than regular tips. Either way you are still charged $40, but for the wait staff and the restaurant, the change could cause problems.

Wages Require Payroll Taxes to Be Withheld

Once a gratuity is classified as a service charge it becomes a “regular” wage, meaning the owner of the restaurant is required to withhold payroll taxes from the amount. For wait staff, the change means they have less money initially in their pocket along with less “wiggle room” at tax time; some servers may be less than scrupulously correct when estimating their tips for tax purposes. The restaurant owner now has to differentiate between which tips are just tips and which have changed into a service charge. Further, restaurants are required to pay Medicare and Social Security taxes on all money which is classified as wages and while they are eligible for a tax credit on some of these payments, service charges aren’t eligible.

Restaurants Considering Eliminating Automatic Gratuities

Because of the added paperwork and costs involved for restaurants, many of the larger chains are considering discontinuing the automatic gratuity practice and some have already begun phasing it out. The owner of Olive Garden, Longhorn Steakhouse and Red Lobster began phasing out automatic gratuities in July and now include a variety of “suggested” gratuity amounts, calculating the total for the customer based on a 15%, 18% and a 20% tip—regardless of the number of people. Of course diners still have the option of including a smaller tip, a larger tip, or no tip at all.

The Texas Roadhouse chain is planning to completely phase out automatic gratuities by the end of 2013. Restaurant owners with more than 50 full-time workers have also been hit with the necessity of offering health coverage to any employee who works more than 30 hours per week, so many feel this new ruling adds insult to injury. The new IRS ruling will also likely make waiters less likely to split their tips with busboys—who regularly get stiffed as it is and exist on less than minimum wage.

Are Most Tips Reported to the IRS?

The new ruling may be in response to the fact that the IRS estimates that fewer than 40% of all tips are properly reported to the agency, resulting in billions of dollars in unreported income. Tipped employees, however, often receive the majority of their income from tips with a significant portion of that in cash, lessening the motivation for employees who may make as little as $2.25 per hour to turn in all tips to the IRS.

Tax Help When You Need it Most

As a restaurant owner who is uncertain how the new IRS ruling will affect your business, a waiter who is wondering how the new ruling will affect your ability to pay your bills, it could be helpful for you to speak to Louisiana tax attorney, Paul A. Grego. Mr. Grego offers a free consultation in order to respond to your questions and prepare an initial assessment of your tax situation. If you have tax questions regarding the new IRS ruling or any other tax questions we have the tax knowledge and experience necessary to answer those questions and ensure you stay “right” with the IRS. Call 504-302-4949 today to speak with a knowledgeable Louisiana tax attorney.

Updated Tax Rules for Married Same-Sex Couples

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Following the Supreme Court decision striking down part of the Defense of Marriage Act, many same-sex partners were left in limbo regarding many areas, including IRS tax rules. On the 29th of August, the IRS took steps to clear up some of that confusion by allowing all legally married gay couples to file joint federal tax returns—even if they do not reside in a state which recognizes the legality of same-sex marriages. The latest IRS ruling allows same-sex couples the ability to move to and from any state they choose with the knowledge that their federal filing status will remain unchanged. Same-sex couples will now be afforded the same tax benefits as heterosexual married couples including estate tax exemptions, the standard marriage deduction, IRA contributions, earned income tax credits, dependent exemptions and the designation of the taxpayer’s filing status.

Benefits from Filing as Married?

Same-sex married couples will file either as “married filing jointly,” or “married filing separately,” just as heterosexual couples have always done. Since the statute of limitations for filing a refund claim is either three years from the date the return was filed or two years from the date taxes were paid, the government will also allow refund claims for same-sex married couples to be filed for the tax years 2010-2012. Those same-sex couples who believe their tax bill will automatically be lowered thanks to the new ruling could find themselves disappointed. All married couples run the risk of landing in a higher tax bracket, subsequently falling under recently increased taxes on taxpayers with higher incomes—particularly if both spouses are contributing substantial levels of income to the marriage.

As an example, a couple who makes $200,000 per year—with each partner contributing roughly the same amount of income—would pay a “marriage penalty of almost $900. On the flip side, if one spouse earned $180,000 of that $200,000 and the other spouse earned $20,000, filing jointly would save the couple over $8,800.  For this reason, those couples who are considering amending their returns for the past three years—and expecting a windfall by doing so—might want to consult an experienced tax professional who can help determine whether it is beneficial to file amended returns or not.

The Time is Short to File 2012 Tax Returns

There is a very short window of opportunity following the new IRS ruling for same-sex couples who were legally married by last December 31st but who have not yet filed their 2012 tax return to file individually if they suspect they will be subject to marriage penalties.

Same-sex couples will also be eligible for estate and gift tax exemptions as well as combining IRAs and deducting taxes paid for employer health insurance.

There may remain complications for same-sex couples who live in any of the 37 states which have yet to recognize their marriage. These couples may be able to file their federal tax returns as married, but could still be required to file state returns as individuals even though most state income tax laws begin with federal taxable income. The IRS expects the new ruling to provide a small increase in federal revenues due to the likelihood of the marriage penalty coming into play for a significant number of same-sex couples.

When You Have IRS Questions, We Can Help

Taxes can be a complex subject, and those same-sex couples who will now be filing joint returns as a result of the recent IRS ruling may need tax guidance to ensure they make the best decisions. It remains to be seen whether states will fall into line with the federal ruling; if they do not, the tax complexities are bound to increase. Paul A. Grego is a highly experienced Louisiana tax attorney who has the knowledge and background necessary to ensure you get the best answers regarding IRS issues. Whether you are dealing with filing a federal return as a same-sex couple or have other tax issues, Paul A. Grego can help. Mr. Grego has helped thousands of clients with a variety of tax issues and wants to help you by offering a free consultation and answer any questions you may have. Call 504-302-4949 today to speak with an experienced Louisiana tax attorney.