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IRS Announces Extensive Employment Tax Audits; Is your contractor really an employee?

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As you can imagine, with the economy still reeling and tax collections dropping the importance of the governments' oversight of our system of taxes becomes ever more critical. From both the federal and state levels we continue to read about new and improved compliance measures being put in place. Take one of the recent announcements at the end of 2009 from the IRS as an example.

The IRS has announced it will conduct intensive employment tax audits under its National Research Program (NRP) starting in 2010. This is a multi-year program with random audits scheduled to begin in February 2010. The IRS has said it will audit U.S. companies under this program. The NRP is a study and data collection project that helps the IRS update its noncompliance estimates and update its computer-based audit programs. "Normal" audits do not yield as valuable compliance data as random audits because the IRS, in normal audits, is intentionally targeting the taxpayers they believe have noncompliance problems. NRP audits on the other hand, are random to allow the IRS to statistically measure the total amount of noncompliance in a specific area. The IRS then uses this data to update its computers and estimates of the tax gap—the difference between total taxes owed and the amount actually paid by taxpayers.

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Fuel for Tax Rate Increases - The Capital Gain Tax Debate

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With the recent release of some IRS statistics that the 400 highest-earning U.S. households reported an average of $345 million in income in 2007, up 31 percent from a year earlier and  the average tax rate for these households fell to the lowest in almost 20 years you can imagine the political hay that may be made.

Each household in the top 400 of earners paid an average tax rate of 16.6 percent, the lowest since the agency began tracking the data in 1992, the Internal Revenue Service statistics show. Their average effective tax rate was about half the 29.4 percent in 1993.

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What does being "agnostic" about raising taxes really mean? Probably that our pockets are about to be emptied.

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Never let it be said that these aren't some interesting political times. Our federal government has been spending money faster than the printing presses can create it and the politicos have yet to figure out how they plan to pay for it all. Forget the debate of right or wrong on the spending, the fact is the bill will be coming due.

If you'd like to get an idea of what may be coming down the pipe for us, Bloomberg BusinessWeek had an interview with the President you really should read.

President Barack Obama said he is “agnostic” about raising taxes on households making less than $250,000 as part of a broad effort to rein in the budget deficit. Now that's a new way to be wishy-washy with an answer.

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Making the Most of Your Aircraft Deductions

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More than ever, the media, IRS and the Securities and Exchange Commission have expressed their disapproval of private aircraft use by businesses. They each hold a general perception that personal use of business aircraft is extravagant and difficult to justify. But, your purchase, lease, or charter of an aircraft by you or the corporation you own (remember if you’re married, “you” includes your spouse as well) can still create open the opportunity for significant tax benefits.

As you might imagine, the IRS does not take as kind of a view of the tax benefits of aircraft ownership as you or I might. The American Jobs Creation Act of 2004 reversed the favorable aircraft deduction strategies previously available to you as identified in a key Tax Court case (Sutherland Lumber-Southwest, Inc. v Commissioner).

An IRS notice now restricts certain aircraft deductions, requires specific treatment of business owners, and requires stricter, more detailed records of aircraft use. Even with these restrictions though, you can still increase your financial wellbeing by making the aircraft rules work for you.

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Important reminder to most Californians; Don't forget to file new use tax filing due by April 15.

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The state of California is getting even more aggressive at collecting all the taxes the law allows — no matter how small. Use tax is the latest way for the state to look for cash. The Legislature has enacted strict new registration and filing requirements for businesses with gross income of $100,000 or more.

Use tax is like sales tax but you pay it directly to the state, rather than to the retailer. The rule of thumb is: You owe use tax if what you bought would have been subject to sales tax if you purchased it at a local store and you did not pay California sales tax. You generally owe California use tax when you use, store, or consume — in California — tangible personal property purchased from an out-of-state vendor. If the vendor does not collect the California tax on the purchase, the purchaser must pay the tax directly to the state. If you don’t report and pay your use tax in a timely manner, such as with your income tax return, the state will assess penalties and interest.

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Do you have to file a tax return?

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It's that season of the year, that dreaded one following the holiday season... Tax Season.  Every year about this time we begin to get lots of calls and emails from students, retirees, etc. all asking, "Do I need to file a tax return this year?"

Well, besides just income level there are plenty of reasons why you may need -- or even want to -- to file a tax return.

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive. Here are the general guidelines.