Wednesday, June 5, 2013

3 Potential Ways To Pay An Unexpected Tax Debt

Miranda Marquit for Forbes writes:        Every now and then, a shift in financial strategy or an unexpected event leads to a debt to the IRS. It’s common to think that immediate payment in full is the only option, but depending on your circumstance, there are options to manage your payments.
Here are three approaches worth considering for paying back the debt:
IRS Installment Plan
The IRS offers installment plans that allow taxpayers to make manageable payments over time. Using an installment plan might make sense for people who have seen a sudden increase in income, and might not be prepared to pay taxes. This may also appeal to some investors seeing a higher bill in 2013, thanks to increases in taxes for couples earning more than $450,000 a year and the Medicare surtax on investment/unearned income. 
Anyone who owes less than $50,000 (including penalties and interest) to the IRS can apply online for a payment plan. For some, this can be a way to pay what is owed without upsetting the current financial strategy. There is no income requirement with an IRS installment plan. Instead, the taxpayer suggests a payment schedule, and if it is deemed “reasonable” by the IRS, it is adopted.
The downside to the installment plan is that it is considered a loan. Taxpayers who use the installment plan pay a small loan origination fee, and pay interest over the course of the loan term. However, the interest rate is generally competitive.
Credit Card
It is possible to pay taxes with a credit card, but the interest rates are often much higher than what the IRS charges. The main advantage to using a credit card is the possibility of rewards, although the card needs to be paid off quickly if a taxpayer wants to avoid high interest charges that offset the value of the rewards.
It can also make sense, if you know you can pay off the debt quickly, to open a 0% APR credit card to pay your taxes. In this case, it can be less expensive than the IRS installment loan, especially if you can pay off the debt before the interest-free period ends.
Sell Investments
Another strategy is to sell investments to raise the money to pay taxes. A taxpayer can avoid loans and interest charges altogether with this method. The main disadvantage when selling investments is opportunity cost. While there might be transaction fees, too, greater damage can be done through the time (and earnings) lost now that the capital is no longer at work.
If selling investments is an option, consider selling long-term assets that can be taxed at a lower rate. Losing investments might also be worth considering selling first. With losing investments, you can get the capital you need while setting up for a possible tax deduction.
Posted on 6:12 AM | Categories:

Crossing The (State) Line / it is important to understand this exposure upfront then make informed decisions on whether your company is subject to a state's income and franchise taxes.

Anna Coldwell for ORBA writes: When you say you want to grow your manufacturing company, what does that mean? It may entail expanding your physical plant or warehouse or introducing new products. It could also mean opening new markets by conducting business in multiple states.
Many states have been more aggressive in going after out-of-state companies doing business in their states. Many of these businesses do not realize they have an exposure to a state's taxes until they receive a Nexus Questionnaire from that state. That is why it is important to understand this exposure upfront then make informed decisions on whether your company is subject to a state's income and franchise taxes.

What Taxes Could You Be Subject To?

Another state can apply its sales and use, income or franchise tax to your business if you have established a sufficient connection, or "nexus," with that state.
Historically, nexus required a physical presence in the state, such as offices, manufacturing facilities or employees. Physical presence is still required today to trigger sales and use tax collection obligations, but many states require only a minimal presence to establish nexus for income and franchise tax purposes — and the courts have often agreed.
Federal law prohibits a state from taxing a company's income if its only activity in the state consists of soliciting orders or sales of tangible personal property that are approved and shipped from outside the state. But this law does not apply to intangible property. Thus, several court cases have allowed states to tax an out-of-state firm's income on intangibles, such as trademark licenses or credit cards, even though the firm had no physical presence in the state. A substantial economic presence was sufficient.
Franchise tax — a tax on the privilege of doing business in a state — often requires even less of a connection. Simply soliciting orders or sales in the state may be enough.

How Might You Trigger "Nexus"?

Whether your company is exposed to multistate taxation depends on many factors, including the nature of your business, the tax laws in each of the states in which you do business, and your activities in those states. Nexus is determined on a state-by-state basis, so if you plan to expand into two or more neighboring states, you may face different rules for each.
That said, some activities or circumstances within a state will generally trigger nexus. One example is having legal domicile or a principal place of business there, of course. But even just maintaining an office or other facility there will probably do the trick. Rendering services of any kind, performing warranty repairs or hiring others to provide them, or soliciting orders will also create a strong likelihood of nexus.
Therefore, the best course of action is to learn each prospective state's rules and project your tax liability before expanding. Doing so will limit or eliminate any unpleasant surprises that could make the expansion less beneficial than you'd anticipated.

Can Multistate Taxation Actually Be to the Company's Benefit?
Multistate taxation isn't necessarily a bad thing. For example, to avoid multiple taxation of the same income, most states require that you apportion income among the states where you are subject to income tax. This typically is done using a formula based on a company's sales, property and payroll in each state, though states weight each factor differently and some use only one or two of the factors.
Suppose that your company is located in a state with a very high corporate income tax, but you do a significant amount of business in states with low or no income taxes. Because you lack nexus with those states, all your income is taxed by your home state.
But if you create nexus with one or more of those states (by setting up a small office, for example, in a state where your sales are significant), you may be able to allocate some income to those states and lower your overall tax bill.

Taking Your Business on the Road

If you are working to expand your customer base, taking your business across state lines is an obvious step. But it is also a step that should not be taken without plenty of planning. In addition to training a sales force and ensuring you have products in place, you need to consider the tax ramifications of conducting business in other states. State tax planning should be part of your organization's decision-making process as early as possible.
Posted on 6:11 AM | Categories:

Timeshare Capital Loss as a Tax Deduction

Mark Kennan, Demand Media writes: Timeshares sound great -- you, along with others, buy partial ownership in vacation properties and have the right to use them for a certain period of time each year. However, they don't always turn out to be the financial gold mine you expect. When you do have a loss on your timeshare, you might be -- but aren't always -- entitled to a tax deduction.

TIMESHARE USE MATTERS

If you used the timeshare for personal reasons, such as taking vacations, you aren't allowed to claim a tax deduction for a loss no matter how much you lost. The Internal Revenue Service denies you a deduction for any personal losses, which include losses on vacation homes and timeshares. If, however, you held the timeshare as an investment or rental property, you may be entitled to a deduction. For example, if you bought the timeshare in a trendy coastal area hoping the value would rise so you could sell for a profit, that's an investment property.

DEDUCTION TIMING

To claim a capital loss on your timeshare, you must actually realize the loss, which means you must actually sell it at a loss. If the market value goes down, you've got an unrealized loss, which isn't deductible because it could go back up while you still own it. For example, say you paid $13,000 for the timeshare but it's now only worth $7,000. You're not entitled to a deduction -- yet. If you sell it for $7,000, now you're entitled to a $6,000 deduction.

TYPES OF LOSSES

The first step in figuring your deduction is determining whether it's a long-term loss or a short-term loss. If you owned the timeshare for more than one year, it's long-term. Losses from timeshares you owned for less than one year before selling count as short-term losses. The distinction comes into play when you have both long-term and short-term gains to offset because you first offset your losses against similar gains. For example, say you have a $7,000 long-term loss, $5,000 in short-term gains and $5,000 in long-term gains. You must offset your $5,000 of long-term gains, leaving only $2,000 in losses to offset your short-term gains, even though eliminating your short-term gains first would save you more on taxes.

DEDUCTION LIMITS

As long as you have more capital gains for the year than capital losses, there's no limit to how much you can write off. Even if your time share loss exceeds all your gains, the IRS still allows you to deduct up to $3,000 ($1,500 if you're married filing separately) each year against your other income, like wages, interest or self-employment income. Any additional losses carry over to the next year. For example, say you lost $10,000 on your timeshare, but you only had $2,000 in capital gains. You can deduct $3,000 of the excess $8,000 of losses against your ordinary income and carry over the remaining $5,000 to the following year.
Posted on 6:11 AM | Categories:

Xero & Stripe Partner to Simplify Online Payments for Small Businesses

 Xero, the global leader in online accounting software, and Stripe, the company that enables you to instantly accept credit card payments online, have joined forces to ensure that getting paid and managing finances in the cloud is simple and intuitive for businesses of all sizes. Both companies backed by PayPal co-founder and serial entrepreneur, Peter Thiel, share a vision to create software that benefits users by providing seamless functionality and bypass the legacy finance industry.
Xero users now have the ability to integrate Stripe's easy online system providing them a host of ways to accept payments. The integration also marks the beginning of a partnership between the two companies to help businesses get paid faster online while also offering them a real time view into finances.
A recent Zogby survey of over 500 businesses found one of the biggest financial stressors for small businesses (46 percent) had to do with being paid. What's more, a global invoicing guide from Xero found payments were, on average, two weeks late, increasing the anxiety for business owners across the globe. Therefore, in addition to the Stripe integration, Xero is providing payment platforms to its non-U.S. users by partnering with DPS Payments and GoCardless.
"Cashflow is the most important aspect of running a business," said Jamie Sutherland, Xero's U.S. President of Operations. "Having software in place that allows users to get paid faster is invaluable to the business owner. Stripe offers this in an elegant and simple way. Couple that with Xero's anytime, anywhere access to financials, business owners are able to make smarter decisions about where they spend their company dollars."
"Xero makes beautiful, effortless software for managing a business. This echoes our mission to simplify online payments for all businesses from start-ups to Fortune 50 companies," said John Collison, co-founder of Stripe. "The integration between Stripe and Xero makes it even easier to get paid using Xero's seamless invoicing capabilities. We're thrilled to be working with them."
As an extra incentive, Stripe customers new to Xero will be able to use the accounting service for free up to 60 days. To see more of this offering visit: Xero offer for Stripe customers. Xero customers are thrilled, as they have been requesting a partnership between the two like-minded companies for some time.
"We run our business online. It's how we attract clients and how job seekers in need of our service find us. That's why it's so important to have a good payment processor, so you know quickly what's going out and, more importantly what money is coming in," said Caitlin MacGregor co-founder of Cream.hr. "We've currently use Stripe and love it and are looking forward to pairing it with our Xero account. Our finances are going to be in stellar shape."

Posted on 6:10 AM | Categories:

IRS Proposes Changes To Retail Inventory Method Of Accounting

 Giles SuttonChuck Jones and Adam Hines for Grant Thornton write: The Treasury Department has proposed certain changes to the retail inventory method (RIM) pursuant to the regulations under I.R.C. § 471. Treasury has solicited comments on proposed changes to Treas. Reg. §1.471-8, which would alter the manner in which the cost complement under Treas. Reg. § 1.471-8 has historically been calculated. Specifically, the proposed changes to the regulation would exclude sales-based vendor allowances, including discounts and price allowances, from the numerator of the cost complement calculation. This change, in essence, would increase the valuation of ending inventory in the cost of goods sold computation under the RIM and thereby reduce, for federal tax accounting purposes, the cost of goods sold deduction for many retailers.


On Feb. 11, 2013, the National Retail Federation (NRF) tax counsel, Rachelle Bernstein, submitted written comments on the proposed change, urging Treasury not to finalize the regulations in their current form. The NRF pointed out that the proposed change would reverse a position Treasury had held for more than 50 years and that such a change would result in a substantial tax increase for many retailers.

In an industry where margins are slim and the profitability of the industry greatly affects the health of the economy, such a change to the RIM seems unwarranted and imprudent.
Posted on 6:10 AM | Categories: