IRS Direct Deposit 2013 (2012 tax year)
It appears as if refunds this tax season will be deposited on the same schedule as last year. We e-filed several returns on January 30th and all of our clients (except for one very large refund) have received their refunds today, February 6th, one week later (5 business days).
The IRS has not issued a Refund Cycle Chart for 2013 (tax year 2012), but, they have said that taxpayers should expect to receive refunds within historical time frames and within 21 days. Last year taxpayers could receive their refunds within 5 business days; if they filed on a Wednesday they would receive their refund by the following Wednesday.
Tax Season Opens Tomorrow
The Big Day has finally arrived. Tax season opens tomorrow, 01/30/2013. Taxpayers can now e-file their returns and expect their refunds…sometime in the near future. Unfortunately the IRS hasn’t published a Refund Cycle Chart this year. It will be interesting to see how long direct deposit refunds take this year.
Businesses will have to wait much longer to file. Many business forms won’t be available until late February or early March, including Form 4562 Depreciation, which almost every business uses.
This is all thanks to the so called “fiscal cliff” and last minute legislation.
Filing A Tax Return With Your Last Pay Stub
Pay stub.(Photo credit: Wikipedia)
Every year, about this time, many taxpayers, eager to receive their large refunds and not wanting to wait until they receive their W-2′s from their employer, decide to move forward with filing their return by using their last pay stub of the year. Is this legal? Well, I’ve addressed the issue of a paid tax preparer filing someone’s return without a W-2. And, they clearly are not suppose to do that.
But, what about filing your own return? There are obviously issues with that as well as I’ve addressed in the same article above. However, the difference is, it is against the rules for a paid preparer to do it, but someone filing their own return could just run into some accuracy problems. It isn’t necessarily illegal or against the “rules” for someone to file their own return with their last pay stub.
When you file a return, you are swearing under oath that the income that you have listed on the return is accurate and complete. Whether you got that information from a W-2 or a pay stub shouldn’t matter, as long as you are 100% sure that it is correct. So, technically, yes, you could file your own return with your last pay stub.
The Fiscal Cliff Prediction
(fear) the Fiscal Cliff… (Photo credit: MyEyeSees)
The Republican House and the President will come to an agreement at the 11th hour. They will both give a little. The President wants to increase taxes on those making $250,000 or more a year. The Republicans want to extend the “Bush Tax Cuts” for everyone. I believe that something like this will happen:
Scenario 1: They will extend the Bush Tax Cuts for everyone except those making $350,000-$500,000 or more per year.
Scenario 2: They will extend all the Bush Tax Cuts but significantly reduce deductions (i.e. mortgage interest) for everyone making $250,000 or more per year.
Scenario 3: They will extend the Bush Tax Cuts for everyone except those making $250,000 or more per year but will make significant cuts to various welfare programs.
Or, we might see a combination of the above three scenarios.
No matter how they agree, the stock market could soar because of the “fiscal cliff” being averted.
Should You Buy Gold?
Everyday you hear or see the commercials about buying gold or silver. It seems as if you don’t buy gold you could lose everything if the economy collapses. But, is that really the case?
There are two reasons to buy gold or silver. 1) As an investment that could go up in value, and/or 2) as a form of protection for a future economic collapse, disaster, war, etc.
If you are strictly buying gold or silver because you think it will increase in value and you plan on re-selling it at a later date then you probably should not take physical possession of the gold or silver. The high cost of delivery and gold/silver dealer commissions when you buy and when you later sell, drastically eat in to your profit. A 20% gain in the price of the commodity could be wiped out by the dealers high commissions. Instead you should look at buying a Gold or Silver ETF (Exchange Traded Fund). With extremely low commissions through an online discount broker (Scottrade, Schwab, ETrade) and low management fees you can keep almost all of your profit when/if the commodity moves up in value.
Keep in mind that if you are buying gold or silver as an investment, a good rule of thumb is that it should not exceed 10% of your portfolio. Also, they are both near their all time highs.
If you are buying gold or silver as a form of protection for a future economic collapse you should be reasonable about it and only buy a small amount of gold and silver that you keep in physical form. Many people who buy large quantities of physical gold or silver think that if the world currencies collapse then the default currency will be gold and silver. This may or may not be true.
Historically this has been true. However, in today’s world we have technology that has never existed before. It wouldn’t be that difficult to set up a barter system online. You wouldn’t need gold or silver to do that. A barter system with online currency could be administered privately as a coop or even by local governments. Thus, if you have a skill, like fixing computers, for example, you could still get work and get paid through a local barter system and still buy bread and milk for your family, even if you don’t have any gold or silver. Of course, without tying the barter credits to some standard measure, the barter system itself could experience runaway inflation.
The point is, gold and silver are only as valuable as other people think they are. They don’t pay dividends, have employees or provide goods and services.
It’s only metal. Invest with caution.
“Conservative” Group Pushes for Sales Tax on Services
The Thomas Jefferson Institute for Public Policy, a supposedly center-right public policy foundation, is pushing for sales taxes to be collected on most services in Virginia. The law would include services provided to the public but not business-to-business services. This would include tax preparation, legal services, transportation, shipping services, insurance, private education, auto repair, hair services, dry cleaning, landscaping services, apartments, bowling, and the list goes on and on. The new law would be “revenue-neutral” (what they always say) and would eliminate the Business and Professional Occupational Tax (Business License), Business Personal Property Tax and Business Inventory Tax.
Although I like the idea of getting rid of Business License fees and Property and Inventory Taxes, I don’t like the idea of charging sales taxes on services. Charging a sales tax on services is the same as charging sales taxes on labor. As we all well know, labor is already taxed extensively through the Federal Income Tax, State Income Tax, Social Security Tax, Medicare Tax, State Unemployment Tax and Federal Unemployment Tax. Now, they want us to collect and remit sales tax to the state for services?
This also creates burdensome accounting. For example, if you pay someone to mow your lawn as an independent contractor then under this new law they would also be required to collect sales tax from you and remit it to the State. That seems to me like a paperwork nightmare, especially for small operators. And, it increases the potential for fraud. How much of this new tax will never get remitted to the State?
Although this tax is paid by the public, it will eat into the pockets of service providers. There are certain price points that people will pay, tax included. Thus, service providers will have to lower their prices to accommodate the new tax. Also, it will give an unfair advantage to those small operators who skirt the law and don’t collect or report the tax at all. I say, “Two Thumbs Down” on this idea!
Boehner Piles On FB Founder
There is so much inaccurate and misleading information floating around about Facebook Co-Founder Eduardo Saverin and his tax avoidance that it is time to point out a couple of things.
1. Renouncing U.S. Citizenship does not help you avoid taxes up to that point. In other words, Mr. Saverin still had to pay capital gains on his FB shares based on the value on the date that he renounced his citizenship. Which means that he owed (or already paid) hundreds of millions of dollars in capital gains taxes upon his exit.
2. He will have to pay the taxes that have accrued no matter where he lives. In other words, he is paying his “fair share” on what he earned as a U.S. Citizen. What he earns after that is between him and his new home country. The fact that he owns U.S. assets (FB shares) would make it rather easy for the IRS to collect the taxes that he owes. If he doesn’t pay, they can put a tax lien on his remaining FB ownership.
“There’s already a law on the books, George,” John Boehner said to George Stephanopoulos . “But this is outrageous. This is absolutely outrageous — that somebody would renounce their citizenship to avoid paying taxes. And yes, it’s already against the law.”
Senators Chuck Schumer and Bob Casey have been on the case for a while now. “Mr. Saverin has decided to ‘defriend’ the United States of America just to avoid paying his taxes,” said Schumer. “We aren’t going to let him get away with it so easily.”
“This guy just thinks he can rip us off by engaging in this scheme,” Casey, D-Pa., said.
“Saverin has turned his back on the country that welcomed him and kept him safe, educated him and helped him become a billionaire,” Schumer, D-N.Y., said. “This is a great American success story gone horribly wrong.”
ABC New’s entitled their article, “Facebook’s Eduardo Saverin ‘Spits in the Eye of the American People.’
Well, I don’t feel like Mr. Saverin “spat in my eye.” He earned money here and paid taxes on it (and will pay more if he hasn’t already). If he wants to leave then I think it is his loss. But, I think that if Mr. Saverin wanted to come back and start another Billion dollar company he should be welcomed back. Senator Schumer says that this country educated him and helped him become a billionaire. That is true. But, without Mr. Saverin’s money, Facebook may never have gotten started. It was his family money that financed Facebook from the beginning. Now, look how many Americans have become billionaires because of Mr. Saverin.
Let’s be clear. I do think that everyone should pay their fair share of taxes. But, there are two issues here worth mentioning:
1. We live in a Global Economy. Thus, we have to compete globally. The U.S. is the only country in the world that taxes it’s citizens on worldwide income no matter where you live. If someone leaves because U.S. taxes are too high that should tell us something. Also, the reporting requirements for U.S. Citizens living abroad are cumbersome. Just to have a foreign bank account means that you have to report the information to the IRS every year on Form TD F 90-22.1. Not reporting it results in a fine of $10,000 per occurrence. Just that requirement alone would make someone consider renouncing their U.S. Citizenship. Think about it. If you live overseas and you have two checking accounts, a savings account and business account and you forget to report those accounts to the IRS for two years, you could owe $80,000 in penalties, just for not letting them know that “hey, I have some foreign bank accounts.” And, of course, living overseas means that you have to pay taxes in the country where you live and to the U.S. Sure, you can exempt about $100,000 or so, but for the high income earners that doesn’t help much. Singapore doesn’t have a capital gains tax which could be the reason that Saverin chose that country. But, Singapore will benefit from him living there in other ways because of the money he will spend and invest in their country. Thus, Singapore is competing in the Global Economy by offering incentives, whereas Schumer is competing by trying to force people to stay.
2. If he owes taxes, he should have to pay them. I haven’t heard anyone report that Mr. Saverin said he isn’t going to pay the taxes that are actually due. But, to try to pass a new tax law just because of him? Come on. That is a little ridiculous.
In a time where we should be encouraging overseas investment into our economy, new laws like the one Senator Schumer is espousing would only discourage people from doing business here.
As far as Speaker Boehner is concerned, he would be much better served focusing on cutting the Federal Deficit by cutting spending instead of attacking Mr. Saverin. Perhaps if our Congress would focus more time and energy on finding ways to cut spending and finding ways to bring ex-patrioted dollars back into the U.S. instead of trying to squeeze every last dollar of possible taxes out of people on the other side of the world we wouldn’t be in the financial position we are in.
April 15th (April 17th): Just Another Day
Please, don’t stress about April 17th, the due date for this year’s Individual and Partnership Federal Income Tax Returns. April 17th is NOT a hard deadline. Just file an extension and if you think you might owe money make an estimated payment to avoid interest and penalties on the amount due. Keep in mind, the point of filing an extension, if you owe money, is to avoid a late FILING penalty.
So, why all the hoopla surrounding the tax “deadline”? We are programmed from an early age to fear the IRS. Many people believe that if they don’t file their tax return by April 15th (April 17th) they might face serious fines or even go to jail. Of course, that isn’t really true unless you owe a lot of money and don’t file at all.
Here are the facts:
1. If you are due a refund, there are no penalties if you file late. Yep, that’s correct (for Federal returns). The IRS will even pay you interest on the amount they owe you! (at .000000001% or something like that)
2. If you owe money, you can avoid late filing penalties by filing an extension. For Individuals the extension is 6-months and for Partnerships it is 5-months.
So, relax, stop stressing and file an extension.
IRS Delays Tax Refunds: Congress to Hold Hearings
Before the 2012 tax filing season the IRS released the 2012 Refund Cycle Chart showing that taxpayers could receive their refunds in as fast as 5 business days this year. Unfortunately, the IRS has not lived up to this schedule. In fact, in almost every instance this year that I’m aware of, the IRS has deposited refunds late. I’m not aware of a single instance where any taxpayer actually received their refund in 5 business days.
Why such delays this year? Well, they haven’t really said for sure. They’ve said things like new “anti-fraud techniques” or “computer glitch”. They also came out with the standard statement “most taxpayers are receiving their refunds within 10-21 days, which is consistent with historical time frames”. What? People don’t care about historical time frames. If you say you’re going to deposit the money on a certain day, do it! If you don’t, provide a valid reason to the taxpayer why you didn’t! And, what is it? Is it a “computer glitch”, “anti-fraud techniques” or is it just okay because people are getting their refunds within 10-21 days?
But, now Congress has scheduled a hearing to investigate why refunds have been delayed this year. Hopefully they will get to the bottom of this. Unfortunately, many taxpayers blame tax preparers when their refunds don’t get deposited on time. This has led to some tax preparers being threatened. It is also especially frustrating to taxpayers when the IRS’ “Where’s My Refund” tool also produces errors. This gives the impression that maybe the tax preparer didn’t even file the return at all, which is not usually the case.
So, if the IRS doesn’t give you your money back on time they just make excuses, but, pay your tax bill late or file a business return late and you get hit with penalties and interest.
Business License Fees Punish Success
Image via Wikipedia
Like most other responsible business owners in Chesapeake, VA I renewed my business license before March 1st of this year. One of the things that has always seemed odd to me is how the license fee is calculated. If you make less than $100,000, your business license is $50. But, if you make $100,000 or more, you pay a percentage of gross revenue. For accountants it is 58 cents per $100, or 0.58%. In other words, if you have $99,999.99 in revenue your business license is $50, but if your revenue is $100,000.00 your business license is $580.
Of course, a third grader could see why this isn’t fair. That one extra penny costs you $530 in extra license fees.
Whoever set this up was either too incompetent to implement a gradual system or simply didn’t care.
From a political standpoint, I can see why this would be hard to change. It would be practically impossible to keep business license fees revenue neutral without raising taxes on someone. For example, if you lowered the $50 cutoff to $75,000 and then said that business license fees are $50 for the first $75,000 and a percentage of revenue for everything above that then you would be raising fees on businesses that bring in between $75,000 – $100,000 but lowering fees on those that bring in above $100,000. On the flip side if you had a partially graduated scale where the first $99,999.99 was still $50 but $100,000 – $125,000 was $50 plus a percentage of the amount over $100,000 and then increased taxes on the amounts above $125,000 to make up for the loss of license fees on the amounts lower than $100,000 then you would be increasing fees on those businesses with more than $125,000 in revenue. Business license fees are already high enough and shouldn’t be raised on anyone.
The only fair solution is to charge $50 for the first $100,000 and then a percentage on everything above that. Of course, doing this will lower tax revenue to the city (which is not necessarily a bad thing). And, “fair” is a relative term. It would be “fair” to make everyone pay a percentage of sales, regardless of how much those sales are. If you bring in
$90,000, for example, instead of $50, you would pay a percentage. But, of course, making it “fair” would cause an increase in license fees for those businesses with revenues of less than $100,000, and I would never be for increasing taxes or fees on small businesses.
Another solution is to implement a graduated scale from $100,000 – $125,000 (for example) and not raise rates on those above $125,000. This would fix the “one penny costing $530 problem”. This would also cause a loss of revenue to the city.
Thus, the only way to fix this improper business license calculation without raising taxes on anyone is for the city to take a cut in tax revenue. But, worse things have happened. If doing the right thing means less revenue to the city then so be it.
