Monthly Archives: March 2016

US Pass-Throughs Set Out Tax Reform Wish List

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Tax-News

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The Parity for Main Street Employers business coalition has issued a new letter that calls on the US Congress to enact tax reform “that is comprehensive, restores tax rate parity for all businesses, and reduces or eliminates the double tax on corporate income by integrating the corporate and individual tax codes.”

The March 17 letter, signed by more than 110 business associations and addressed to the Chairmen and Ranking Members of the House of Representatives Ways and Means Committee and the Senate Finance Committee, noted that tax reform needs to be comprehensive, so as to encompass both C corporations and pass-through entities, including partnerships, sole proprietorships, and S corporations.

Pointing out that, with nearly 70m workers employed at pass-through entities, whose profits are passed directly to their owners and are taxed on their individual tax returns, tax reform should “ensure that we avoid harming these critical employers, [and therefore] needs to be comprehensive and improve the tax code for corporations and pass-through businesses alike.”

The letter also urged that Congress should “restore rate parity by reducing the tax rates paid by pass-through businesses and corporations to similar, low levels. The 2012 fiscal cliff negotiations resulted in pass-through businesses paying, for the first time in a decade, a significantly higher top marginal tax rate than C corporations.”

“Taxing business income at different rates penalizes pass-through businesses and encourages planning to circumvent the higher rates,” it added, “ultimately resulting in wasted resources and lower growth.”

Finally, it recommended that “Congress should eliminate the double tax on corporate income [at both the corporate and the shareholder levels] by integrating the corporate and individual tax codes. … A key goal of tax reform should be to continue to reduce or eliminate the incidence of the double tax and move towards taxing all business income once.”

US Senate Finance Committee Chairman Orrin Hatch (R – Utah) has recently confirmed that he is working on a proposal for corporate tax integration. However, this year’s tax reform efforts in the House of Representatives are being concentrated on international tax reform, with indications that it could include a corporate rate cut (which would increase the disparity with individual tax rates).

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Slow state tax refunds upset filers

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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The Minnesota Department of Revenue warned its taxpayers back in January that new and increased measures to fight tax identity theft and refund fraud could slow their refunds.

They weren’t kidding. Two months later, folks in the Land of 10,000 Lakes are getting annoyed.

Anger growing over slow refunds

Personally, I’ve heard from some Minnesota taxpayers who are not happy with the wait. More have been heading to the Minnesota Department of Revenue Facebook page to register their complaints.

The consensus is that it’s unfair for state tax officials to hold on to the refunds when they certainly don’t allow such delays for taxpayers who owe taxes.

It sounds like there weren’t many Minnesotans in the recent Bankrate tax poll that found more than 70% of U.S. taxpayers would give the IRS more time to process returns in order to fight tax fraud.

Seriously, though, I understand the frustration, especially if you’re counting on the tax money to cover some necessary expenses. That’s what 27% of those surveyed by Bankrate said they would do with their federal refund money.

Lost state revenue to tax fraud

But I also get where Minnesota tax officials are coming from. Like Uncle Sam, states lose a lot of money every year to tax fraud.

Eventually, we all pay for that stolen tax money.

That’s why the Vermont Department of Taxes is just now getting around to distributing more than $16 million in refund claims.

The Green Mountain State held the money in February as it waited for more employer W-2 forms and other information against which the returns, and their delayed refunds, could be checked for legitimacy.

More state security checks

While Minnesota’s taxpayers are more vocal about their delayed refunds, they are not alone.

Every state that collects some form of individual income tax — that’s 43 of them, along with the District of Columbia — is experiencing refund delays due to high levels of refund fraud this tax season.

States aren’t revealing what they’re doing to catch fraudulent refunds. “If you design a new key, you don’t want to put the blueprints out there,” Verenda Smith of the Federation of Tax Administrators told Tax Notes.

A check of state tax websites, however, reveals that in order to accept or process returns, many departments are asking their filers for state-issued driver’s license info or enhanced password requirements and security questions in connection with state-authorized tax preparation software. Some are even demanding that taxpayers whose returns raise questions complete a quiz to confirm their identity.

Security paying off

Anecdotally, the efforts to cut down on stolen identity refund fraud seem to be working.

Illinois, which finally began issuing its refunds on March 1, says fraud-prevention measures implemented last year saved nearly $5 million from going to tax criminals.

Even less populated states are seeing results from their tax fraud prevention efforts.

Montana tax officials say that so far this year, they have blocked 188 fraudulent returns seeking a total of $220,245 in refunds. Last year at this point in the filing season, Montana had blocked 529 fraudulent returns seeking nearly $583,000 in refunds.

But the states are paying a price in lost goodwill.

Taxpayers express frustration over tax departments never acknowledging receipt of their state tax returns, reports Tax Notes, or getting a busy signal when phoning state tax offices.

Have you gotten your state tax refund yet? If not, has your state explained why it’s delayed? Are you in tough financial straits because of the unexpected wait?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Daily fantasy sports and real taxes

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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Virginia says it’s OK. New York is still fighting it in the courts. And Texas reached a legal settlement over it.

“It” is fantasy sports. Defenders say the activity is a game of skill. Opponents say chance dominates the outcomes, making it a way to place illegal bets on sporting events.

And it is heading into high gear this month in conjunction with March Madness, the annual tournament to crown the best men’s college basketball team in the United States. Conference tournaments are now underway, with the Big Dance invitations going out on March 13.

Lots of money involved

While there’s disagreement as to whether fantasy sports are gambling or just clean sports fun, there’s no argument that the games are a collective cash machine.

Fantasy Sports Trade Association research found that 56.8 million people in the United States and Canada played fantasy sports in 2015, spending an average of $465 each on their online game-related activities.

Outside research firms estimate that daily fantasy sports games generated around $2.6 billion in entry fees in 2015 and will grow 41% annually, reaching $14.4 billion in 2020.

That money is a key reason why some states are trying to kick fantasy sports out of their jurisdictions and others are welcoming the games.

A provision in the Unlawful Internet Gambling Enforcement Act of 2006 defines fantasy sports as games of skill, not chance, thereby making them legal, at the federal level, to play online. But states still have the final say on what is and isn’t gambling within their borders.

State-by-state fantasy sports fights

New York launched the highest profile fight against fantasy sports last November, when the Empire State attorney general filed suit against industry leaders DraftKings and FanDuel.

The state contends the games are no different than Vegas bookies, offering players “a way to bet on existing sporting events, nothing more.”

New York also wants the sites to compensate players in the state for all the money they’ve ever lost on fantasy games. The total, including fines, could top $4 billion. The games are continuing, pending a hearing expected this spring.

Texas’ top lawyer filed similar actions against the fantasy sports leagues and has had more immediate success. FanDuel recently agreed to cease operations in the Lone Star State by May 2.

In Virginia, however, the fantasy games are welcome. On March 17, the Old Dominion’s government signed a law that officials there say will protect consumers and legitimize businesses such as FanDuel and DraftKings.

Virginia’s Fantasy Contests Act takes effect in July and applies to any online fantasy sports games, both season-long and daily competitions, that charge an entry fee. Fantasy sports companies will have to pay Virginia a $50,000 registration fee to be in compliance.

Regardless, winnings are taxable

In addition to the money from the companies, Virginia also will be collecting taxes from fantasy sports players whose fake teams pay off.

Actually, even in states that contend the games are illegal gambling, fantasy sports players still are supposed to pay taxes on all their winnings.

Ditto for folks who pocket a little extra cash in the less formalized office pools that will be popping up as soon as the NCAA’s annual men’s college basketball championship tournament brackets are set.

You would think March Madness would be a boon for the Internal Revenue Service and state tax departments. You would be wrong.

The FBI estimates that more than $2.5 billion is illegally wagered on March Madness each year. And while proceeds from illegal activities are taxable — remember, that’s how they put Al Capone in Alcatraz — the reality is that the tax collector gets very little — OK, none — of the taxes due on winnings from illegal wagers.

That lost tax revenue is the tournament’s one sure bet.

Do you play fantasy sports? Do you report all your winnings on your taxes? Most importantly, do you have any special insight or inside info on which team will be the 2016 NCAA champ?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.