Trump’s Tax Reform Plan, or not….

A few highlights of what is supposed to happen in the next month or so, and a crucial caveat: nothing is written in stone…. so, stay tuned.

In the past month, both the House Ways and Means Committee (“House”) and Senate Finance Committee (“Senate”) have proposed a tax legislative bill to revamp the current US tax code.  The House released its proposal on November 2; the proposal was passed in the House of Representatives after a vote on November 16.  The Senate released its proposal on November 10 and is scheduled to pass the bill to a full vote of the senate after returning from the Thanksgiving holiday.

We have received many requests to determine the impact of the proposed bills.  Both bills are complexed with a variety of changes for corporations, pass-through entities and individuals’ taxation.

Changes will affect deductions, repeal of the estate tax, repeal of the individual and corporate alternative minimum tax, and a shift to a territorial system for foreign-sourced income.

Below are selected highlights for both proposals related to corporate and individual income tax:

House Bill

Senate Bill

Corporate Income Tax

Flat tax rate of 20% effective
January 1, 2018.

Flat tax rate of 20% effective
January 1, 2019.

100% deduction for qualified
property placed into service for 5 years.

100% deduction for qualified
property placed into service for 5 years.

Alternative minimum tax would
be repealed.

Alternative minimum tax would
be repealed.

The two-year carryback and 20-year carryforward periods would be eliminated,
allowing the NOL to be carried forward indefinitely.    The NOL deduction
would be limited to 90% of the taxable income.

The two-year carryback and 20-year carryforward periods would be eliminated,
allowing the NOL to be carried forward indefinitely.    The NOL deduction
would be limited to 90% of the taxable income.

Individual Income Tax

Tax brackets would be
reduced from seven to four.

Tax brackets would remain at 7, but the rates would be lower for most
brackets including

Rate

Single

Married filing jointly

Rate

Single

Married filing jointly

12%

Up to $45K

Up to $90K

10%

Up to $9,525

Up to $19,050

25%

$45K–$200K

$90K–$260K

12%

$9,525–$38.7K

$19,050–$77.4K

35%

$200K–$500K

$260K–$1M

22%

$38.7K–$70K

$77.4K–$140K

39.6%

Over $500K

Over $1M

24%

$70K–$160K

$140K–$320K

 

 

 

32%

$160K–$200K

$320K–$400K

 

 

 

35%

$200K–$500K

$400K–$1M

 

 

 

38.5%

Over $500K

Over $1M

Standard deduction increases to $12,200
for individuals, $18,300 for head of household and $24,400 for married
couples filing jointly

Standard deduction increases to $12,000
for individuals, $18,000 for head of household and $24,000 for married
couples filing jointly

Personal exemptions will be eliminated.

Personal exemptions will be eliminated.

State and Local Tax deduction will
be eliminated, with the exception of property taxes that can be deducted up
to $10,000.

State and Local Tax deduction will
be eliminated completely.

Mortgage Interest can be deducted on the
interest paid on the first $500,000 of mortgage debt.

Mortgage Interest can be deducted on the
interest paid on the first $1,000,000 of mortgage debt.

Medical Expense deduction will be eliminated.

Medical expenses above 10 percent of a
taxpayer’s adjusted gross income can be deducted.

Student Loan Interest deduction will be
eliminated.

Student Loan Interest can continue to be
deducted up to $2,500.

These proposals are not final and at this time it cannot be determined when or if either proposal will be passed. As noted above, there are key differences between the two bills that need to be resolved.  The bill can only be passed into law once both the house and senate pass identical bills.

Under Banks’ Microscope: How KYC (Know Your Customer) bank compliance is going to affect you

Banks have been required to enforce their Final Customer Due Diligence Rule and will “look through” both individual and nominal legal entity account holders to clearly identify them.

Did you receive a KYC (Know your Customer) Form from your bank? Here’s what you have to know:

KYC Policies enable banks to know their clients and comply with The FinCen guidelines with respect to the U.S. Bank Secrecy Act/Anti Money Laundering (AML) regulations.

Under these regulations every financial institution has to obtain beneficial ownership and control information when an account is being opened. AML Compliance includes analyzing the account relationship, develop a customer risk profile and conduct ongoing monitoring to identify and report suspicious transactions.

If you are an individual you will be asked to submit copies of your ID or passport, form W9 or W8Ben, and documents proving your current address.

If you are a legal entity you will be asked to verify the legal status of the entity, the identity of the authorized signatories and the identity of the beneficial owner/s, and/or controllers of the account and the chain of ownership of the entity.

If you refuse or delay your answer, the Bank is entitled to refuse to open new accounts or discontinue its relationship with you.

Any questions or concerns?  Please contact us, we at GC Consultants, Inc. are here to help you and clarify all your doubts.

Foreign Investment in Real Property Tax Act (FIRPTA) – What You Should Know

FIRPTA - Foreign Investment in Real Property Tax Act

Foreign Investment in Real Property Tax Act (FIRPTA) – What You Should Know

The Foreign Investment in Real Property Tax Act, also known as FIRPTA, is a tax act that has been around since the 1980’s. This act is designed for the government to protect property interests in the United States, therefore regulating foreign investments in US property.

The act is designed to regulate foreign investments in US Real Property Interests (USRPI). We first need to know what US Property is. The IRS explains USRPI as interests that a taxpayer has in real property located in the United States or in the US Virgin Islands as well as certain personal property that is associated with the use of the real property. The term interests includes having shares in a domestic corporation which hold any USRPIs unless the corporation was not a US real property holding company (USRPHC).

The second point to keep in mind is that the act regulates foreign investments on USRPIs defined above. This means that FIRPTA withholding applies to foreign taxpayers (sellers) who dispose of US Real Property Interests (USRPI). Taxpayers who purchase USRPI from foreign taxpayers are required to withhold, starting from February 17, 2016, 15% of the gross proceeds (amount realized) on the disposition. This means that the rate of withholding is applied to the cash being paid, the fair market value of any other property being transferred, and the amount of any liability assumed by the purchaser or which the property is subject to immediately before or after the transfer.

Depending on the type of ownership of a USRPI, different withholding regulations might apply and therefore not limited to the 15% withholding on gross proceeds. The following are some examples of ownership types and withholding requirements:

1) Jointly owned properties, by U.S. and foreign persons, will have the amount realized allocated depending on the capital contributions of each.
2) Foreign corporations will withhold 35% of the gain it recognized on its distribution to shareholders.
3) Domestic Corporations will withhold tax on the fair market value of the property distributed if the corporation is a USRPI and the property distributed is either in the redemption of stock or in a liquidation.

Even though there are various regulations concerning FIRPTA, when it comes to withholding and ownership structures, it is important to realize that withholding taxes on the amount realized is a heavy burden for any foreign taxpayer attempting to sell. This is the case since the taxpayer would have to wait to file a tax return to claim a refund for excess withholding. There are various possibilities to be able to avoid this withholding which includes, but are not limited to:

1) Acquiring a residence that is less than $300,000 where you or a family member live in the residence for 50% of the time in two years broken down into two 12 month segments.
2) If you are disposing your interests in a corporation and that corporation certifies it is not a USRPI where the corporation was not a USRPCH in the last 5 years or it is not considered a USRPI by law.
3) You receive a withholding certificate from the Internal Revenue Service.

Method number three is one of the most frequently used ways to reduce or avoid the FIRPTA withholding. The reasons where this withholding certificate might be issued is if the IRS determines that the amount withheld if greater than the tax liability the seller will incur, the seller is exempt from US tax of all of the gain realized or an agreement with the IRS where security for the tax liability is provided by either the transferee or the transferor. It is important to make sure that a complete application, Form 8288-B, is made before or on the date of the transfer, otherwise, the application would be rejected. Within 90 days of filing, the IRS will then issue the withholding certificate.

Once the seller has applied for the withholding certificate, the IRS will delay the collection and reporting of the tax, under Form 8288-A, by 20 days starting from the date on which it has issued the withholding certificate whether it is approved or denied. Please note that to avoid any penalties or interests, even though you have applied for the withholding certificate, the full amount of the withholding tax has to be held in an escrow account until the certificate is received. The advantage of this is that the seller will receive the money as soon as the certificate, instead of waiting to file a tax return. The buyer will also be certain that he will not incur any future tax liabilities or penalties.

Selling or buying real estate can be quite risky and confusing unless proper guidance is received by your real estate agent, attorney, and CPA. We are available to help you plan your real estate transactions so that you can comply with IRS regulations and reduce your tax risk. Please call us for more details.

Implications of State Transactions & Nexus

00000000-1-A-S-Dion5One of the main goals for a taxpayer is to increase his revenue. Two of the main areas, for a business to achieve this, are to expand its customer base into various states and to provide customer service. This could mean that the taxpayer might perform various kinds of transactions to expand the business’ influence in a state.

Depending on the kind of transactions, and the situation that the business finds itself in, nexus might be created. Nexus means that a taxpayer has filing obligations with a state whether for purposes of paying sales tax, filing state income tax returns, filing tangible personal property tax returns & other similar filing requirements.

There are many types of situations where a business could find itself having nexus with a state and most of it is concerning whether the taxpayer has economic substance with that state. Economic substance means that a business is essentially using the resources and infrastructure, of a state, to expand their business, for example using the state’s roads, properties, etc.

Certain transactions, that could create economic substance, are holding inventory in a warehouse, hiring employees to work, hiring independent contractors to work in a state, sending an employee to repair items in a state and many others. We always urge taxpayers to consider nexus implications for any new type of transaction which they are not familiar with and to test, on an ongoing basis, whether they have a nexus within the state.

Our firm is here to help you in making these kinds of considerations and would gladly consult with you on possible taxable effects and filing requirements that you might incur from having a nexus within a state.

Like-Kind Exchanges: Defer Part (Or All) Of Your Gains From Investments Sales

Have you been looking to sell your investments? Are you aware that you could defer part, or all, of the gain by exchanging your investment with a similar one?

Like-Kind Exchanges

Like-Kind Exchange

The Internal Revenue Service (IRS) provides a benefit, known as Section 1031 – Like-kind Exchanges, for taxpayers that reinvest proceeds from selling certain kinds of investment property:

By exchanging your real property or personal property -used in either a trade or business- with a similar asset, you will be able to defer the gain from the exchange.

It is important to understand that not all property qualifies for like-kind exchanges and that, depending on the type of transaction, you might have to pay taxes, as some gains will not be deferred. There are also very stringent deadlines that the IRS imposes in order to qualify for this benefit.

Usually, due to the strict time frame and the complexity of the transaction, the IRS requires the taxpayers to select a qualified intermediary acting on their behalf throughout the process. The reason is to avoid premature cash exchanges and to complete all of the necessary documentation to avoid the transaction from being disqualified.

Please contact us for further details or advice on this matter or other tax issues you might have. It is important to realize that every transaction is unique and might expose the taxpayer to varying tax consequences.

Photo credit: andrew c mace via Visualhunt / CC BY-NC-SA

Tax Scams: IRS “Dirty Dozen” List for the 2016 Filing Season

WASHINGTON — Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, headlining the annual “Dirty Dozen” list of tax scams for the 2016 filing season, the Internal Revenue Service announced today.

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Tax Scams

The IRS has seen a surge of these phone scams as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.

“Taxpayers across the nation face a deluge of these aggressive phone scams. Don’t be fooled by callers pretending to be from the IRS in an attempt to steal your money,” said IRS Commissioner John Koskinen. “We continue to say if you are surprised to be hearing from us, then you’re not hearing from us.”

“There are many variations. The caller may threaten you with arrest or court action to trick you into making a payment,” Koskinen added. “Some schemes may say you’re entitled to a huge refund. These all add up to trouble. Some simple tips can help protect you.”

The Dirty Dozen is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter any time during the year. Many of these con games peak during filing season as people prepare their tax returns or hire someone to do so.

This January, the Treasury Inspector General for Tax Administration (TIGTA) announced they have received reports of roughly 896,000 contacts since October 2013 and have become aware of over 5,000 victims who have collectively paid over $26.5 million as a result of the scam.

“The IRS continues working to warn taxpayers about phone scams and other schemes,” Koskinen said. “We especially want to thank the law-enforcement community, tax professionals, consumer advocates, the states, other government agencies and particularly the Treasury Inspector General for Tax Administration for helping us in this battle against these persistent phone scams.”

Protect Yourself from Tax Scams:

Scammers make unsolicited calls claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via a phishing email.

Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.

Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.

Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam.

The IRS will never:

Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.
Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
Require you to use a specific payment method for your taxes, such as a prepaid debit card.
Ask for credit or debit card numbers over the phone.
Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

If you don’t owe taxes, or have no reason to think that you do:

Do not give out any information. Hang up immediately.
Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe tax:

Call the IRS at 800-829-1040. IRS workers can help you.
Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

IRS YouTube Video:

Tax Scams – English | Spanish | ASL
Security Summit Identity Theft Tips Overview – English
Be Careful When Using Wi-Fi – English
Update Your Password Regularly – English

 

Which country has the highest tax rate?

In which countries do high earners pay the most tax? And where do average earners pay the most?

Income tax has been a political hot potato for decades.

In 1966 The Beatles released their song Taxman as a protest against the 95% “supertax” rate introduced by Harold Wilson’s Labour government, which the band had to pay. The top rate of tax in the UK is less than half that now but it’s still a source of controversy.

In France, President Francois Hollande’s election campaign promise to tax salaries above one million euros (£830,000) at 75% was – not surprisingly – met with howls of protest by the rich, who Hollande once said he “didn’t like”. His policy was struck down by the courts in 2012 who ruled it unconstitutional but he amended it so that the employer became liable to pay it.

To put this in context, the football club Paris Saint-Germain have to pay nearly 35m euros (£29m) to the government on star striker Zlatan Ibrahimovic’s net annual salary of 11m euros.

Tax rates do vary dramatically depending on which country you live in. The accountancy firm PricewaterhouseCoopers (PWC) has crunched the numbers for the G20 nations.

For each country, they calculated how much a high earner on a salary of $400,000 (£240,000) in 2013, with a mortgage of $1.2m (£750,000), would have left after all income tax rates and social security contributions.

They assume this person is married with two children, one of them aged under six.

These are their findings. In each country, the wage earner takes home the following proportion of his or her salary.

  • Italy – 50.59% (takes home $202,360 out of $400,000 salary)
  • India – 54.90%
  • United Kingdom – 57.28%
  • France – 58.10%
  • Canada – 58.13%
  • Japan – 58.68%
  • Australia – 59.30%
  • United States – 60.45% (based on New York state tax)
  • Germany – 60.61%
  • South Africa – 61.78%
  • China – 62.05%
  • Argentina – 64.02%
  • Turkey – 64.64%
  • South Korea – 65.75%
  • Indonesia – 69.78%
  • Mexico – 70.60%
  • Brazil – 73.32%
  • Russia – 87%
  • Saudi Arabia – 96.86% (so you take home $387,400 out of the $400,000 salary)

In most of these 19 rich countries (the 20th member is the EU) the take-home pay is between $230,000 – $280,000.

But one important thing to consider when comparing the top rate levels of tax is the threshold where the rate kicks in, because the differences are massive.

“In the UK, the 45% top rate of tax kicks in at an income level of around $250,000 (£151,000) compared to Italy where the top rate of 43% comes in at $125,000,” says Ben Wilkins, a tax partner at PWC.

Outside the G20, the Danish government taxes workers at 60% on all earnings over $60,000.

Most of us can only dream of earning a salary that would attract the top rate of tax, so what about ordinary earners?

It is difficult to compare tax rates. Income tax is only one tax – most of us will pay other kinds of tax, like social security, and those with children might get some tax relief.

The statisticians at the Organisation for Economic Cooperation and Development (OECD) have done some analysis of average salaries.

“At the top end of the distribution we have Belgium where single people pay 43% of earnings in income tax and social security contributions (or national insurance), followed by Germany with 39.9%,” says Maurice Nettley, head of tax statistics at the OECD. “The lowest rates are paid in Chile at 7% and Mexico at 9.5%.”

These tax rates apply to single people with no children, on an average salary for their country.

  • Belgium – 42.80%
  • Germany – 39.90%
  • Denmark – 38.90%
  • Hungary – 35%
  • Austria – 34%
  • Greece – 25.4%
  • OECD Average – 25.10%
  • UK – 24.90%
  • USA – 22.70%
  • New Zealand – 16.40%
  • Israel – 15.50%
  • Korea – 13%
  • Mexico – 9.50%
  • Chile – 7%

The following tax rates apply to married couples with two children.

  • Denmark – 34.8%
  • Austria – 31.9%
  • Belgium – 31.8%
  • Finland – 29.4%
  • Netherlands – 28.7%
  • Greece 26.7%
  • UK – 24.9%
  • Germany – 21.3%
  • OECD average – 19.6%
  • USA – 10.4%
  • Korea – 10.2%
  • Slovak Republic – 10%
  • Mexico – 9.5%
  • Chile – 7%
  • Czech Republic – 5.6%

In Germany the rate drops from 39.9% to 21.3% because of generous child tax credits. Across the OECD, tax rates drop by an average of 5.5% for married couples with children. Greece is the only country where you pay more tax if you are married with children.

Of course, the point of paying taxes is that the government is supposed to provide services for that.

“In a lot of the European countries tax rates and social security contributions are high but the provision of benefits by the state tends to be very generous compared to countries in other parts of the world,” says Nettley.

“If you fall ill or become unemployed the state will contribute and there are also generous pension arrangements.”

Source: BBC News

Taxation: Ambassador Phillips Remarks for FATCA Signing Ceremony with Italy

I am pleased to be here for the signing of the agreement implementing the Foreign Account Tax Compliance Act with Minister Saccomanni. We welcome Italy’s commitment to intensifying our cooperation to improve international tax compliance. Today’s signing marks a significant step forward in both our countries’ efforts to work together towards a global standard to combat offshore tax evasion.  These efforts benefit both our two countries.

This agreement also  aligns with our mutual commitment in the G20 to develop a global model for automatic exchange of tax-relevant bank information.

The Foreign Account Tax Compliance Act, or FATCA, introduces reporting requirements for foreign financial institutions with respect to certain accounts held by U.S. taxpayers. Because access to information from other countries is critically important to the full and fair enforcement of domestic tax laws, information exchange is a top priority for the United States.  As such, we have been a leader in the development of new international standards for greater transparency through full exchange of tax information. But we cannot do this alone.

Today, Italy is the 13th country to sign an intergovernmental agreement with the United States to Improve International Tax Compliance and Implement FATCA. By working together to detect, deter and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help to build a stronger, more stable, and more accountable global financial system.

This FATCA agreement is yet one further example of the deep and substantial links between the Italian and U.S. economies.   We look forward to continuing to work together to deepen these ties.