Louisiana Eyes Tax Reform

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With tax reform being a goal of Governor Bobby Jindal in the 2013 Louisiana legislative session, the Louisiana Department of Revenue and Louisiana Economic Development have released a report that outlines the Louisiana tax structure, and offers ideas for possible reform efforts.  Stating what should be obvious, the report concluded that the “ideal tax structure…is…one with a broad base, low and flat rates, multiple revenue sources, and few exemptions.”  Governor Jindal has designated Revenue Secretary Tim Barfield, Jr. as the leader of his administration’s effort to reform the Louisiana tax structure.

See http://www.thetowntalk.com/article/20121117/NEWS01/211170315/Tax-reform-Louisiana-tops-Jindal-s-2013-agenda?odyssey=mod_sectionstories

IRS’ Continued War with Medical Marijuana Dispensaries

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The IRS disallowed Section 162 ordinary and necessary business deductions to a medical marijuana dispensary authorized under California state law.  Under section 280E, businesses deductions are disallowed when the taxpayer is engaged in the trafficking of controlled substances.  Even if legal under state law, the court disallowed the deductions because the activity is illegal under federal law, which is contemplated by Section 280E.  Olive V. Commissioner, 139 TC 2, August 2, 2012.

The Potential Consequences of Preparing Your Own Tax Returns

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With the advent of tax software programs, more and more people are choosing to prepare their taxes on their own. Tax software does certainly make filing for the do-it-yourselfer much easier and quicker than in the past, but this doesn’t mean there are not still circumstances under which hiring a professional may not make better sense. It’s a good idea to determine whether or not you will prepare your tax return or hire a professional well ahead of the April 15th deadline so you won’t have to scramble to find a CPA or accountant at the last minute.

When Filing Your Own Tax Return Makes Sense

Should your tax return be exceedingly simple, completely straightforward and not incorporate significant deductions then preparing your own tax return could be the way to go. Easy and straightforward mean you have no stocks, savings or securities, property you rent out and you don’t operate your own business. The person who has one job and receives a yearly W-2 from his or her employer and has no other tax situations is a prime candidate for preparing his or her return.

Preparing your own tax return can also make you much better informed regarding your financial situation. If you are forced to work through tax forms it may give you a better idea about donations you’ve made and whether there are sufficient taxes being taken from your monthly pay.  Using a tax software program allows you to prepare your taxes within your own schedule; you can begin your tax return then return to it whenever you have the time and inclination.

If you tend to procrastinate, you can even wait until April 14th to prepare your taxes and file online although this is hardly recommended. Tax software has become both inexpensive and simple and most all of the current software is user-friendly. The program will ask you questions and you will simply fill in the blanks. If your adjusted gross income falls below $57,000 you may even be able to get a free electronic filing.

Negative Aspects to Filing Your Own Tax Returns

Some of the “cons” to preparing your own taxes include the time involved, the potential complexities and the stress of doing it yourself. Believe it or not, the average person will spend 23 hours preparing and filing a 1040 form, so consider what your time is actually worth.  The standard amount to prepare and file a Federal and State return is around $200, so if you consider the time you would spend on your taxes to be worth more than $10 per hour, consider hiring a professional. Further, even with the best software you may miss deductions you are entitled to.

Even with up-to-date tax software on your side, the tax code is ridiculously complex; there have been nearly 3500 changes to the tax laws since the year 2000. If you work for yourself, receive income from freelance work, or are a small business owner, you need a professional to prepare your taxes. In the same vein, if you are a landlord, have real estate assets or investments which produce dividends then by all means, hire a professional tax preparer, CPA or accountant. In any of these situations, an error on your tax return can be costly, and, in the end, hiring a tax professional to prepare your taxes can alleviate much of the stress which accompanies tax season. If you have any doubts about your tax situation or past tax returns, it can be very advantageous to consult a tax attorney to ensure you stay right with the IRS.

 

Louisiana Tax Law Firm Discusses Streamlined FBAR and Tax Return Compliance

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US citizens or taxpayers living abroad, and delinquent in there federal income tax and FBAR compliance responsibilities have a new procedure outlined by the IRS with which to get compliant with US tax filing rules.  The IRS has announced “streamlined filing compliance procedures” for taxpayers that are considered “low risk” under the program.  The program is effective September 1, 2012.  For the “low risk” taxpayers, the IRS program outlines an expedited review of the case without being subject to penalties.  Please note that the definition of “low risk” is very narrow, and the program does not shield the taxpayer from criminal prosecution.  Taxpayer’s with criminal prosecution exposure should consider voluntary disclosure under the program reopened early in 2012.

See IR-2012-65, June 26, 2012

Is the IRS Targeting Your Small Business?

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The extreme complexities of the United States tax code make it no surprise that a large number of small businesses make honest mistakes on their tax returns which can end up costing them plenty. And, no matter how unwitting that mistake might have been, count on receiving no mercy from the IRS. There are several common mistakes which you can avoid, thus lessening your chances of being the target of an IRS audit of your small business.

Although the IRS does not require that you save and submit receipts for meals and entertainment which cost less than $75, keep every single receipt anyway. Not only should you keep the actual receipt, make a record documenting the date, where  you were when you incurred the expense, whether there were people with you, the business purpose of the receipt and the business relationship between you and those who were with you. While a credit card receipt may have your name, the date and address of the restaurant, go the extra mile and write out the purpose of the meal or entertainment. Make sure you have a secure place you keep all receipts and documentation, and whatever you do, don’t wait until it’s time to file your taxes to record that year-long documentation thinking you will remember the circumstances—you won’t.

Any office equipment such as computers or office furnishings are considered capital expenditures and must be depreciated rather than simply deducting the equipment on your tax return as an office supply. If the IRS decides you deliberately mischaracterized the equipment they may deny your deduction altogether. If you, like most small business owners, sometimes use your personal credit cards or cash when buying business items, make sure you keep close track of those costs, submitting them for reimbursement to your business.

Many small business owners get into trouble with their automobile deductions. Remember, you can either take the standard mileage deduction or you can deduct actual auto expenses but you can’t do both. You can go from one method to the other from year however this may skewer your automobile depreciation amount. If your vehicle is owned completely by your business, then you are allowed to deduct all auto expenses, however you ever use the vehicle for personal use, then this is considered taxable income to you—or the employee who uses the vehicle.

The IRS has recently reduced their number of audits on those who make less than $200,000 per year and have shifted their primary focus to those who operate small businesses. In fact, the IRS currently audits around 4% of small businesses, with a concentration on cash-based businesses such as those in the construction industry, bars, restaurants or mobile food vendors. If the business is a partnership or S-corporation, there is much less audit risk however you should consider all aspects of incorporating aside from potential IRS benefits.

The biggest trap which small business owners fall into is mixing personal and business use of assets and deductions. Remember—the IRS will contend that all assets and deductions are personal unless you have meticulous records proving otherwise. Should you find yourself in trouble with the IRS because of honest mistakes you’ve made with your business returns, don’t waste time—consult with a knowledgeable tax attorney as soon as possible.

 

Potential IRS Problems for the Self-Employed

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According to the IRS a staggering 30 million United States taxpayers have some type of compliance or collection “issue.” Of course this could include something as relatively minor as an unfiled tax return or a more serious pending federal tax lien or non-payment of back taxes. Far and away the most frequent issues targeted by the IRS come from self-employed taxpayers who have failed to file a return, paid no taxes or didn’t pay enough taxes. Those who are self-employed may feel – at least in the beginning – that being self-employed means being their own boss and doing whatever they please. Of course the reality of running a business every day will soon set in and some days the self-employed may wish they were back at a 9-5 job where the responsibilities are greatly reduced.

You Must Act Like the Boss

The main thing the self-employed person must remember is that he or she is the boss—even the boss of oneself. As such there are specific tasks and responsibilities that the self-employed person must be disciplined enough to keep up with. The self-employed business owner must either take the necessary time to learn the tax laws which relate to their specific business or must hire a trusted, skilled professional to take care of taxes. A bookkeeping system which meshes with tax laws is crucial as well. Unfortunately a great number of us absolutely loathe paperwork—including tax preparation—and avoid dealing with it until there are penalties and costs involved.

Audit Flags

If you happen to be self-employed then you are already at a much higher risk of being audited, particularly if you claim deductions—even perfectly legitimate deductions. If you are audited by the IRS, they can-and will- ask for all your financial records. The primary issues the IRS will be looking for during an audit will be whether you reported all business sales and receipts, whether or not your lifestyle seems to exceed the income you reported, whether or not you reported your cash transactions, whether you used personal deductions on your business taxes, whether your payroll deposits were correctly done and how you are classifying your employees. (Some small businesses classify regular employees as independent contractors in an attempt to avoid payroll taxes and the headaches which accompany them.)

If you do have regular employees, never, ever “borrow” from this fund thinking you will pay it back next week or next month or next year. In most cases that never happens and suddenly you are being audited for failure to make the required federal payroll tax deposits. The penalties and interest can be huge, and you could even be subject to criminal charges, so always make sure your employee payroll taxes are correct and up-to-date.

Excessive receipts for business trips and dinners are also red-flags to the IRS, so keep them to a minimum and ensure you keep meticulous receipts and records for absolutely everything you might potentially use as a deduction on your taxes. If you find yourself in over your head, or under threat of an IRS audit, contact a knowledgeable tax attorney immediately in order to get the help you need.

Hurricane Isaac Tax Filing Relief Granted

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“IRS Provides Tax Relief to Victims of Hurricane Isaac; Return filing and Tax Payment Deadline Extended to Jan. 11, 2013”

In Information Release 2012-70, the IRS granted tax relief to victims of Hurricane Isaac for individuals and businesses located in certain counties and parishes that were affected by Isaac.

For tax returns due on or after Aug. 26, 2012, the affected individuals and businesses will have “until Jan. 11, 2013 to file these returns and pay any taxes due. This includes corporations and businesses that previously obtained an extension until Sept. 17, 2012, to file their 2011 returns and individuals and businesses that received a similar extension until Oct. 15. It also includes the estimated tax payment for the third quarter of 2012, normally due Sept. 17.”

Louisiana parishes include Ascension, Assumption, East Baton Rouge, East Feliciana, Iberville, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Washington and West Feliciana.

Mississippi counties include Adams, Amite, Clarke, Forrest, George, Hancock, Harrison, Hinds, Jackson, Lincoln, Marion, Pearl River, Pike, Stone, Walthall, Warren and Wilkinson.

Paul A. Grego
Attorney

3637 Canal Street
New Orleans, Louisiana 70119
Office (504) 302-4948
Fax (225) 208-1372

pgrego@pgtaxlaw.com
www.neworleanstaxlaw.com

IRS Red Flags – And How to Avoid Them

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Generally speaking you – or any person – have a 1 in 200 chance of being audited. This risk increases to 1 in a 100 if you make over $100,000 per year. Thankfully for most of us, the IRS has been forced to cut staff which means your odds of being audited just got a bit less likely. Even so, there are certain items in any tax return which the IRS considered “red-flags” as far as audits go. The number one red-flag is when it appears that your income doesn’t quite mesh with your lifestyle. The IRS routinely compares your stated income to your return from last year. Should there be a sizeable drop in income they may assume you are hiding money. They may also look at a huge mortgage as compared to your reported income and wonder where you are finding the money to live in such luxury. In other words, while minor variances are probably of little interest to the IRS, should you claim to be supporting six children and live in an upscale neighborhood on a stated income of $18,000 per year, you will likely have some serious explaining to do.

Cash Payments and Family Members as Employees

If you have your own business and hire your family members, you may have just raised another red flag. Of course hiring family members is not illegal, but many of the self-employed do it as a way of distributing money to their family while decreasing their overall tax liability. So, while you can certainly hire qualified family members to help out in your business—and pay them as you would any employee—you can’t distribute payroll to those who don’t actually work for you and you must always keep accurate and up-to-date payroll records.  The next IRS red flag comes when you work in a profession which the IRS knows is often paid in cash. Unfortunately, whether you cheat on reporting your cash income or not, the IRS may assume that you do. If you work in a cash industry, then you may as well get ready to be audited at some point so keep meticulous records and, ideally, seek professional tax preparation advice.

Alimony Payments, Business Expenses and Overseas Income

If you receive alimony or spousal support payments those payments must be reported as income and if you pay spousal support you may or may not be able to claim a deduction for the money. The thing to keep in mind is that your return and your ex’s return must match up, or the IRS will step in. When you run your own business, you may find the ability to claim deductions at tax time a truly wonderful thing. Be aware, though, that common sense must be exercised at all times. Particularly in the area of your business vehicle, keep your deductions at the sensible level. Keep an accurate log of the driving you do for your business and only deduct that mileage. You may also raise IRS red flags if you show your business has lost money for several years in a row or if you have overseas income.

If you have doubts about your tax returns or if you think you are about to be audited, it is definitely in your best interests to speak with a highly experienced tax attorney who can steer you in the right direction and help you through an audit.

 

IRS Provides Tax Relief to Victims of Hurricane Isaac For Louisiana and Mississippi Residents

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Hurricane Isaac Relief

For certain Louisiana and Mississippi residents, the IRS has extended the 2011 tax return filing and tax payment deadline as relief from the hurricane Isaac disaster. This filing relief will include most extended corporate and individual tax returns, originally due on September 15 and October 15.

“The tax relief postpones various tax filing and payment deadlines that occurred on or after Aug. 26. As a result, affected individuals and businesses will have until Jan. 11, 2013 to file these returns and pay any taxes due. This includes corporations and businesses that previously obtained an extension until Sept. 17, 2012, to file their 2011 returns and individuals and businesses that received a similar extension until Oct. 15. It also includes the estimated tax payment for the third quarter of 2012, normally due Sept. 17.

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. In addition, the IRS is waiving failure-to-deposit penalties for federal employment and excise tax deposits normally due on or after Aug. 26 and before Sept. 10, if the deposits are made by Sept. 10, 2012.”

The filing relief applies to residents of the following parishes, Ascension, Assumption, Iberville, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Mary, St. Tammany, Tangipahoa, Terrebonne and Washington, and the following counties, Adams , Amite, Clarke, Forrest, George, Hancock, Harrison, Hinds, Jackson, Lincoln, Marion, Pearl River, Pike, Stone, Walthall, Warren and Wilkinson.

See IR-2012-70, Sept. 5, 2012

How to Reach an Installment Agreement with the IRS

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If you owe the Internal Revenue Service a great deal of money and are full of despair as to how you will ever get it paid off, you might want to consider a plan where you will make a monthly  disbursement or installment agreement in order to gradually get your outstanding balance paid down. The IRS has various forms of installment agreements and it’s important that you understand which type you might qualify for prior to speaking with an IRS representative.

Types of IRS Installment Agreements

If you have a balance due of less than $10,000 and you have not filed late for the past sixty months you may qualify for a guaranteed installment agreement so long as you have filed your tax returns in a timely manner. If an installment agreement will allow you to repay the entire balance owed within three years or less then you could qualify so long as you have not had an installment agreement with the IRS in the past sixty months. You must also agree that in the future you will meet all tax deadlines and pay the IRS what you owe aside from the amount of the installment agreement.  The minimum amount the IRS will agree to when negotiating an installment agreement will be the total amount you owe divided by 30. The primary benefit to entering into an installment agreement with the IRS is that you will not be subject to an IRS lien against your property. A tax lien can have an extremely negative impact on your creditworthiness in the future therefore it can be extremely beneficial to work out an agreement with the IRS.

A streamlined installment agreement could be an option for you if the total amount you owe the IRS is less than $50,000 and you can commit to paying off the entire balance in six years or less. The IRS calls this installment agreement the “Fresh Start Initiative.” Because the IRS has a ten-year statute of limitations regarding collections, if your amount owed with expire during your five-year installment period you will be required to pay the full amount before the statute expires. You must also agree to file all tax returns on time and pay future taxes before the IRS will agree to a streamlined agreement.

A third type of installment agreement is known as a partial payment installment agreement. If you cannot manage the lowest payments for the other types of installment agreements the IRS might consider this type of agreement which bases the minimum payment on what you are actually able to afford after you have paid all your necessary living expenses each month. An extended term of repayment will likely be required and you could be subject to a tax lien; you will be required to fill out a financial statement and provide all supporting documentation. In the case of a partial payment installment agreement the IRS can re-evaluate your ability to pay every couple of years.

Finally, an option known as a “non-streamlined” installment agreement could be a possibility for those who owe more than $25,000 and need longer than five years to pay off the amount owed. You will be required to provide financial statements and will be subject to an IRS lien. The IRS may ask you to sell certain assets, take out a bank loan or even a second mortgage in order to pay them in full.

Reaching an Installment Agreement

You must know how much you owe in unpaid taxes either through your own tax returns or by calling the IRS. The IRS will charge a fee for setting up your installment plan ranging from $45-$105. You will file a request for an installment agreement with the IRS and will choose your monthly payment amount. Expect to wait at least 30 days before the IRS responds to your request, then when your request is approved you must make payments each and every month without fail. It is a good idea to consult with a tax attorney prior to attempting to reach an installment agreement with the IRS. There may be issues you are unaware of which could make a significant difference in the outcome of your past due taxes.