Consumption or turnover tax is a very common form of taxation around the world. In fact, the United States is one of the few countries that do not have this type of tax in place. Value Added Tax (VAT) or Goods and Services Tax (GST) are common names of consumption tax. VAT is a method of tax that requires each level of production to collect and remit a tax on the value added to the product. This tax goes down the supply chain until it hits the consumer. Most VAT systems identify three basic principles when determining a requirement for VAT:
- A supply of goods or services
- The place of supply, which will ultimately determine who has taxing rights
- Where the client belongs, which also determines who has taxing rights
VAT has historically been a popular method of lowering the deficit of many countries. While it has not yet been introduced into the U.S. tax system, U.S. businesses that are involved in business with other countries need to be aware of its presence and requirements. Whenever a company transacts business across borders, it needs to determine if VAT would apply. If the foreign country has a VAT system in place, the following situations may trigger the requirement for a U.S. business to register and pay VAT in that country:
- Physical presence in the foreign country (can include a subsidiary, branch, or sales force)
- Warehouse or distribution center in the foreign country
- Provide services to clients in the foreign country (may not need to be physically present in that foreign country to fall subject to VAT)
The above list is not all-inclusive, so the business will need to consult with a qualified tax adviser before conducting any type of business in a foreign country with VAT. Failure to comply could result in civil or criminal penalties. Moreover, if the business did not collect VAT at the time of sale, it may be unable to recoup the tax it owes to the government. This could be detrimental as VAT typically runs at about a 20-30% rate.
By Jill A. Helm, CPAPosted on December 16 2014 by admin
Rarely are the words “I really enjoyed working with the Internal Revenue Service to resolve that issue” spoken. Dealing with the Internal Revenue Service can be an intimidating and frustrating experience. The Taxpayer Advocate Service is available to help you navigate problem resolution with the IRS. As part of the IRS Restructuring and Reform Act of 1998, the National Taxpayer Advocate was directed by Congress to appoint at least one local taxpayer advocate for each state. As a result of the directive, the IRS created the Taxpayer Advocate Service.
The Taxpayer Advocate Service is designed to help individual and business taxpayers resolve problems with the IRS. The service is independent of the local IRS office and reports directly to the National Taxpayer Advocate. The Taxpayer Advocate Service works to resolve problems for qualifying taxpayers by ensuring that the problems they are having, which have not been resolved through normal channels, are promptly and impartially handled. The service assists taxpayers who are facing hardships by bringing issues to the attention of IRS management that compromise taxpayers rights, increase taxpayers burdens, or create problems for taxpayers .The Taxpayer Advocate Service also makes recommendations on administrative and legislative changes in their annual report to Congress.
The Taxpayer Advocate Service is available to assist taxpayers who are suffering or are about to suffer a significant hardship, have experienced a delay of more than 30 days beyond the normal processing times to resolve a tax account problem, or have not received a response by the date promised. The taxpayer should expect the Advocate to provide an impartial and independent review of the problem, timely acknowledgement, updates on the progress and a time frame for action on the problem. The Advocate will provide their name and a phone number and also advice on how to prevent future problems.
There are a number of ways to reach your Taxpayer Advocate. IRS Publication 1546 contains a directory of the local offices by state and their location. Telephone and fax numbers are listed for each local office. The Service may also be reached by calling the toll free number 1-877-777-4778. In addition, you may file Form 911 to request Taxpayer Advocate Service Assistance. The form and Publication 1546 are available on the IRS website at www.irs.gov.
If you experience a problem in resolving your situation with the Internal Revenue Service, it should be a comfort to know that there is help available. The Taxpayer Advocate Service is a free service and truly is designed to be your voice at the IRS. As the IRS Publication states, “The worst thing you can do is nothing at all!”
By Cheryl Dickerson, CPAPosted on December 11 2014 by admin
In late October, the IRS announced annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Some of the changes for 2015 that may be of greatest interest to taxpayers include the following:
- The tax rate of 39.6 percent affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
- The standard deduction rises to $6,300 for singles and married persons filing separate returns, and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
- The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
- The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
- The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
- The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
- Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
- For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
- For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014.
- The annual exclusion for gifts remains at $14,000 for 2015.
- The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) rises to $2,550, up $50 dollars from the amount for 2014.
- Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014.
By Dale F. Jensen, CPAPosted on December 10 2014 by admin
Effective January 1, 2015, sales tax requirements have changed for construction contracting. The changes are as follows:
- A contractor must determine on a contract-by-contract basis, whether the work performed under each contract is a “modification” activity subject to prime contracting sales tax, or a “service contracting” activity subject to retail sales tax.
- Contractors may have to comply with project-specific exemption certificate requirements.
Service Contracting is considered to be repairs, maintenance, and alteration activities in which the contractor pays retail sales tax on its materials but does not pay contracting sales tax on its revenue. Modification Contracting is when the prime contractor buys construction materials tax exempt but pays tax on the revenue of the contract while providing exemption certificates to subcontractors and material vendors. Contractors will be subject to both taxing regimes but will have to determine if the contract is a modification or service contract before bidding the tax cost related to the contract.
Project-specific exemption certificates are intended to apply to unlicensed service contractors that are performing subcontracting work for a taxable prime contractor. The certificate is intended for unlicensed service contractors that are performing subcontracting work for a taxable prime contractor. The prime contractor must apply to the Arizona Department of Revenue by supplying contact information and what project the certificate will be used for. The ADOR will then issue a project-specific exemption certificate to the prime contractor who will provide the certificate to the unlicensed service contractor. The unlicensed service contractor can then purchase material tax exempt.
If you are a construction contractor and need help with your transaction privilege tax, please contact us at Henry & Horne LLP.
By Shant AndonianPosted on December 9 2014 by admin
The Arizona Department of Revenue (ADOR) is working to ensure that there is a smooth transition in reporting and paying all transaction privilege tax (TPT) transactions in 2015.
The Arizona TPT Simplification announcement addressed these areas:
License renewals. A Business licensed with the ADOR must begin annually renewing its Arizona TPT license. The license is valid for one calendar year. The renewal is due January 1, 2015. There is no state renewal fee. When taxpayers receive a form from the state and/or city, they should submit all forms to the proper taxing jurisdiction by the time indicated.
Taxpayers may receive a separate renewal notice if they have a city license in the following cities: Apache Junction, Avondale, Bullhead City, Chandler, Douglas, Flagstaff, Glendale, Mesa, Nogales, Peoria, Phoenix, Prescott, Scottsdale, Sedona, Somerton, Tempe, Tucson, and Willcox.
Prime contracting changes. Starting January 1, 2015, non-construction or service contractors are exempt from prime contracting on both the state and city levels. Sales of materials to “service contractors” are subject to tax if the contractor: (A) works directly for the owner of the property; and (B) conducts maintenance, repair, replacement or alteration of the existing property. All other contracting activity remains taxable under the current statutes.
Filing frequency changes. Effective January 1, 2015, if a taxpayer’s annual TPT liability is less than $2,000, the taxpayer may pay annually; if its annual TPT liability is between $2,000 and $8,000, it may pay quarterly. Otherwise, its TPTs are due monthly.
Due date changes. For all taxpayers who elect not to file electronically, TPT returns must be received by the ADOR on or before the second to last business day of the month.
Audit changes. Single source audits will become effective January 1, 2015.
Standardized business and deduction codes. Beginning January 1, 2015, there will be one list of business and deduction codes for state/county and cities. Taxpayers will no longer be able to use deduction codes 888 or 999, or penalties and interest may apply. A standard list of codes will be available at the ADOR website.
By Dan BlackwellPosted on December 4 2014 by admin
The IRS continues to warn the public to be alert for phone scams. The most recent scammers are leaving an automated voicemail that threatens the Internal Revenue Service is filing a lawsuit against you.
The IRS respects taxpayer rights when working out payment of your taxes. So, it’s pretty easy to tell when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a sign of a scam. The IRS does not:
- Call you to demand immediate payment. They will not call about taxes you owe without first mailing you a bill.
- Demand that you pay taxes without giving you the chance to question or appeal the amount they say you owe.
- Require you to use a certain 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 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 to do:
- If you know you owe taxes or think you might owe, call the IRS at 800-829-1040 to talk about payment options.
- If you know you don’t owe taxes or have no reason to believe that you do, report the incident to TIGTA at 1.800.366.4484 or at www.tigta.gov.
- If phone scammers target you, also contact the Federal Trade Commission at FTC.gov. Use their “FTC Complaint Assistant” to report the scam. Please add “IRS Telephone Scam” to the comments of your complaint.
Remember, the IRS currently does not use unsolicited email, text messages or any social media to discuss your personal tax issues. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.
By Becky Barnett, EAPosted on December 3 2014 by admin
If you become a potential or actual victim of identity theft outside the tax system or believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity or questionable activity on your credit report, etc., the IRS encourages you to contact them at the Identity Protection Specialized Unit, toll-free at 1-800-908-4490 so they can take steps to further secure your tax account.
The IPSU hours of Operation: Monday – Friday, 7 a.m. – 7 p.m. your local time (Alaska & Hawaii follow Pacific Time).
In addition, you will need to fill out Form 14039, the IRS Identity Theft Affidavit Form14039. The IRS asks you to please be sure to write legibly and follow the instructions on the back of the form.
Protect yourself from potential fraudulent tax return filings and contact the IRS.
By Melinda Nelson, CPAPosted on December 2 2014 by admin
Writing a check to your favorite charity is always a great way to support the organization and often results in an itemized deduction on your tax return. Throwing a fundraiser in your home for that organization can result in a tax deduction as well; you just need to make sure you follow some rules.
First, you’ll want to make sure the charity you intend to benefit has a 501(c)3 tax status. So hosting an event to directly benefit a local family in need won’t be deductible unless you can set up a foundation. Many other types of non-profit organizations do not qualify because they do not have 501(c)3 status, such as civic leagues, labor organizations, social clubs and political organizations. Make sure your organization has the required non-profit status prior to beginning planning.
Next, work to ensure that the party generates more in donations than it costs. If you spend a few thousand dollars on the event and end up generating only a couple hundred dollars in donations, the IRS could determine the party was a personal expense for having a few friends over and disallow the deduction.
Make sure to save all receipts, including the cost of invitations, food, entertainment, and cleaning. You won’t be allowed a deduction for any personal benefits such as re-landscaping your yard to make it more attractive to your guests or purchasing a punch bowl that you will keep after the party. You also won’t be allowed to take a deduction for the value of your time, no matter how many hours you spend organizing the event. If any of your personal possessions break or get ruined during the party, you won’t be allowed a deduction for that expense, either.
If you intend to sell tickets to the event, the charity will work with you to determine an appropriate ticket price. It will be your responsibility to let your guests know the fair market value of any benefits they receive (such as a meal) and the total deduction they can take for their contribution. For instance, if you sell tickets for $50 per person and the cost of the meal is $20 per person, the allowable deduction would be $30.
In order for you and your guests to substantiate cash donations of $250 or more, you’ll need written acknowledgement from the organization that includes a statement that no goods and services were received in exchange for the contribution. For donations of less than $250, the donor should maintain their cancelled check or bank account statement to substantiate the donation amount.
Keep these rules in mind and have a great time benefitting a worthy cause!
By Janet Berry-Johnson, CPAPosted on November 26 2014 by admin
Giving to charity can be very rewarding. It not only helps the community but can also provide a benefit on one’s tax return. Charitable donations are reported on Schedule A in itemized deductions on an individual’s tax return. The following might help clarify any information needed in order to claim non-cash donations.
When asked to provide an amount for non-cash contributions when taxpayers provide donation receipts, oftentimes tax preparers will hear “just claim the maximum”. There seems to be a misconception about how much one can/should claim. Any non-cash donation under $500 can be reported on Schedule A with no additional reporting requirements. Anything over $500 requires the filing of Form 8283 “Noncash Charitable Contributions”. There is no minimum or maximum amount for non-cash contributions, so out with the old and in with the new!
Non-cash contributions are valued at the fair market value on the date of the contribution, not what was paid for the item. Methods that are used to calculate fair market value are appraisals and the thrift store value method. Most people will not get each article of clothing donated appraised, so the thrift store value tends to be more useful for household items and clothing. The Goodwill offers a great thrift store valuation list for donated items at Donation Valuation Guide. Using these values for your donated property will ensure that a more accurate value of your donation is being claimed.
Taxpayers should keep a record of what was donated and the value taken for each item donated, if they plan to claim a deduction. Receipts from the Donee should be retained to substantiate these donations. Another good way to keep records of what was donated in addition to the receipt is to take pictures of any donated property. Any donations in excess of $500 will require the following information in order to complete Form 8283:
- Date of Contribution
- Date Acquired
- How the Donor acquired the property (purchased, gifted, etc.)
- Donor’s Cost
- Fair Market Value
- Method used to determine fair market value (appraisal, thrift store value, etc.)
Donations in excess of $5000 may require an appraisal in order to be claimed as a deduction on the tax return. Consult your tax adviser or CPA for more information.
By Julie Duley
Most people must have health insurance coverage in 2014 or will pay a penalty fee with their 2014 income tax return. The fee (also known as “the penalty,” the “individual shared responsibility payment,” or the “individual mandate”) is based on your income for 2014.
Some individuals will qualify for an “exemption” and won’t owe the penalty fee. Healthcare.gov lists 33 exemptions including 14 “hardship” exemptions.
To qualify for the hardship exemption, you must complete the applicable application. You may need an approval number to include with your 2014 individual tax return, so apply early! Information regarding how to apply and a more detailed list is available at Apply for Exemption.
Some of the hardship exemptions included:
- You were evicted in the past 6 months or were facing eviction or foreclosure
- You received a shut-off notice from a utility company
- You recently experienced domestic violence
- You recently experienced the death of a close family member
- You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property
- You filed for bankruptcy in the last 6 months
- You had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt
- You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member
By Melinda Nelson, CPA-- Older Entries »
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- Considering Exposure to VAT
- The Taxpayer Advocate Service: A Voice for Taxpayers
- 2015 IRS Inflation Adjustments
- New Sales Tax Requirements for Arizona Construction Contractors
- Updates on TPT and License Renewals for 2015
- Phone Scam Warning: Hello…It’s the IRS Calling
- Lose Your Wallet or Purse? Contact the Cops, Then the IRS
- Throw a Party, Catch a Tax Deduction
- Substantiating Non-Cash Charitable Contributions
- Apply Early if You Need a Hardship Exemption from Obamacare