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I’VE BEEN THINKING ABOUT TAXES IN INDIA

While we American businesses complain about our tax burdens, at least the overall system is timely and somewhat consistent!

In the huge nation of India, tax disputes over mergers and acquisitions have landed international conglomerates such as Nokia and Vodafone Group in court with billions of dollars at stake. One irritating law even allows tax collectors to reach backwards in time.

Bloomberg News recently described India’s tax practices as “whimsical.” In fact, the news service says none of 21 major insurance companies doing business in India will write what is called “tax indemnity” insurance, a common coverage in cross-border mergers. Underwriting deals in a place “where the law changes retrospectively is a challenge,” one official from a worldwide insurer said in a recent Bloomberg article.

India is not the only country considered by insurers to be too big a risk. On the other hand, the United States ranks among countries with relatively stable and transparent systems where insurers will offer the tax-related coverage, the official said.

ERIC’S TAKE!

 While our U.S. system needs more funding to improve services to taxpayers along with simplification of its tax codes, it’s much better than most tax systems.  Next up?  How about fixing how politicians spend our tax dollars? Maybe we should be pairing elected officials with an “accountant” administrators to keep them from overspending!

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BE ON GUARD IF THEY SAY “IRS CALLING”!

The Internal Revenue Service is warning that scammers are getting more sophisticated.

They’re still using past ploys, such as posing as IRS agents and sending emails or letters with official-looking letterhead. Now the thieves also are spoofing the caller IDs on taxpayers’ phones, making it appear that the call is coming from the IRS. Some even are giving panicked victims directions to local banks for money or debit cards to pay taxes. And, in another new twist, some are embellishing their scams by providing a real IRS address for victims to send receipts after a supposed payment.

The tax agency says scare tactics often are part of the con artists’ pitches.

SIGNS OF FRAUD

Here are some ways to tell if you’re being scammed. The IRS says its representatives will NOT:

o Phone you about taxes – even if you do owe money – until the agency has sent you a formal bill. IRS agents also do not demand immediate payment by phone or computer. And they don’t get angry and badger taxpayers.
o Threaten to have you arrested by local police or any other agency for not paying taxes.
o Request credit or debit card numbers over the phone – or require a certain type of payment, such as a debit card.
o Discuss any payment without offering you an opportunity to question or to appeal the amount due.

Also, the IRS says it does not send emails, text messages or social media messages asking for any kind of personal or financial information.

TAKING IT FURTHER

If you actually do owe taxes, call the IRS at 1-800-829-1040 for official help.

If you’re sure you don’t owe taxes, you can report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484. You can also contact the Federal Trade Commission at https://www.ftccomplaintassistant.gov and include “IRS Telephone Scam” in your complaint.

Sadly, these illegal tax scams sometimes do succeed. The U.S. Treasury reports close to 4,000 taxpayers nationwide have lost about $20 million to tax thieves since fall 2013.

For more information, visit www.IRS.gov and type “scam” in the search box.

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PHONE TIP CAN BACK UP SCHOOL SUPPLIES DEDUCTION

Parents, that smartphone you’re carrying can do more for school shopping than reach the children at the other end of the discount store. It could be a convenient way to prove a tax break.

Many Minnesota families with children attending grade schools, high schools and home schools can subtract costs of school supplies and other expenses from incomes on state tax returns. Even better, some families with limited incomes can qualify for tax credits, the most powerful breaks available. Credits offset state taxes on a dollar-for-dollar basis.

While stocking up on pens, notebooks, erasers, calculators, etc., this month, try this tip:

o After check-out – perhaps in the car between stores – take photos of  those itemized receipts with your cell phone.
o Give each picture a name to describe the purchase, such as “2015 school supplies John.”
o Place the photo in a folder in the phone’s memory, or, better, email it to yourself for saving with other tax notes. You’ll have it when you need it next April.

That little click of the phone’s camera could have a significant effect. The Minnesota subtraction can lower income on your 2015 tax return as much as $1,625 for grade school students and $2,500 for high schoolers.

How do you know which expenses will qualify and which won’t? Minnesota’s Department of Revenue offers two fact sheets to help with those details. Look online for Income Tax Fact Sheet 8, called “K-12 Education Credit and Subtraction.” Eligible expenses for home schooling are spelled out in Income Tax Fact Sheet 8a.

In case you’re wondering, that handy smartphone can help bag a tax break for education, but it can’t be one. “Cell phones” is the first item on Minnesota Revenue’s do-not-include list in the fact sheet about the K-12 deductions and credits.

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PROCRASTINATORS BEWARE; HEALTH PREMIUMS MIGHT BE AT RISK!

Did Obamacare help pay for some of your health insurance premiums in 2014? If so, you might have to act now to assure that you’ll receive similar payments next year, in 2016.

Taxpayers who filed their 2014 income tax returns on time – and that is most of us – don’t need to worry. Neither do people who have private coverage through their employers or private insurance programs.

But anyone who was insured through the public “health insurance marketplaces” AND has not yet submitted a 2014 tax return needs to get it filed, pronto. The Internal Revenue Service is saying that any 2016 assistance in paying premiums depends on it. Even taxpayers who received automatic extensions until Oct. 15 should get their 2014 returns in as soon as possible.

Here’s why. Under the cost-sharing system in the Affordable Care Act (aka “Obamacare”), the government helps people pay insurance premiums through a “premium tax credit” on their income tax returns. People also can choose to have the government pay those premiums to insurance companies when bills are due. Anyone who filed a federal income tax return already should have accounted for those “advance payments of the premium tax credit,” abbreviated APTC.

But, apparently, about 710,000 taxpayers who received APTC had not filed their 2014 returns by the end of May. On July 17, IRS Commissioner John Koskinen told Congress, “We are urging these taxpayers to file an electronic tax return to reconcile their APTC within 30 days.”

Another 360,000 filed for automatic extensions, and the IRS wants to get those returns in “as soon as possible,” according to an announcement.

The government and the marketplaces will be figuring out who can receive 2016 payments this fall. In short, if you haven’t filed a tax return with proper paperwork, the government might not send out the critical premium payments on time or at all.

By the way, people receiving government help with premiums payments must file a tax return – even if they would not normally file one because of low incomes or other reasons.

The 2014 tax return is the first one to include health insurance reporting under Obamacare. EricJohn Ltd. is equipped to file your late or extended return. Of course, we’ll also deal with the advanced premium tax credit.

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MINNESOTA REMINDER!

Homeowners and renters, don’t skip one last piece of 2014 paperwork!

The preferred date for claiming a state property tax refund is Aug. 15, just about a month away.

Not every homeowner or renter will reap a refund. But it might pay to crunch a few numbers nonetheless. Check into the prospects with the Minnesota Department of Revenue’s form, called the “Homestead Credit Refund for Homeowners and Renters Property Tax Refund.”

It’s available online at www.revenue.mn.us, navigate to “For individuals” and you’ll see “Property Tax Refund.”

Minnesota Revenue really wants you to file by Aug. 15 this year, but the final deadline actually is Aug. 15, 2016.

More later about the details. Of course, check in with us at EricJohn Ltd. for personal guidance on refunds and taxes.

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GOODBYE (FOR NOW) TO MINNESOTA REFUND FOR POLITICAL GIVING!

Planning to back your favorite state politicians with a few bucks in 2016? Feel free to send them a check, as always. But don’t expect the state to reward your political action with a refund, as in past years.

On July 1, Minnesota lawmakers are shutting the door on refunds for political contributions. Minnesota’s Department of Revenue used the word “suspended” to announce the change; it lasts until June 30, 2017.

State residents have been able to claim a refund as large as $50 a person ($100 for married couple) for donations to Minnesota political parties or to individual candidates for major elected offices, ranging from governor to state representative. It’s done on Minnesota Form PCR and requires receipts.

There’s still a little time left. Contributors can capture the refund for any donations made through June 30, 2015, Minnesota Revenue says. The PCR form must be submitted as of April 18, 2016.

http://www.revenue.state.mn.us/individuals/individ_income/Pages/Refund_for_Political_Contribution.aspx

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FASTER TAX BREAK FOR MANUFACTURERS, BIG OR SMALL!

This ought to speed things up for some Minnesota businesses.

On July 1, the Minnesota Department of Revenue changes the way it exempts “capital equipment” from state and local sales taxes. The tax break pertains to equipment used to make products that eventually will go to retail markets for sale.

Businesses buying or leasing this manufacturing equipment actually have been able to claim a refund of state and local sales taxes after the purchase. To capture it, they submitted a form (ST11), which involved creating a worksheet with numerous details. In addition, they were limited to two refund requests each year, which might mean tying up sales tax refund dollars for months in some cases.

That cumbersome system changes on July 1. Businesses buying/leasing capital equipment will capture the sales tax exemption at the cash register, so to speak. They get it right away, at the time of purchase, Minnesota Revenue says.

The buyers do need to present one form, called a Certificate of Exemption (Form ST3), to the equipment seller. It looks a lot less demanding than the prior refund request.

First, does your purchase qualify as “capital equipment?” Generally, it will if the machinery is essential to make something that ultimately is sold to consumers. The exemption has a surprisingly long reach, even to the roots of production, such as research and development equipment.

It’s not only for industrial-sized manufacturers. Minnesota Revenue offers an example of a key-making machine in a hardware store as one eligible piece of “capital equipment.” Some hardware and software for online sales also might qualify, depending on the circumstance.
There also are a host of non-eligibles. For a rundown, see http://www.revenue.state.mn.us/businesses/sut/Pages/Qualifying_For_CE_Refund.aspx and Sales Tax Fact Sheet 103.

This is an area where professional interpretation of rules could help a small manufacturer or business owner. (For example, “capital equipment” is not the same thing as “capitalized assets,” Minnesota Revenue notes.) We at EricJohn Ltd. are equipped to tell you whether your business purchase qualifies for the sales tax exemption and how to capture it.

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IN APPRECIATION FOR THEIR SERVICE

Minnesota recognizes the service of wounded veterans and those who died in active duty with a major property tax break. In fact, last year, more than 13,000 taxpayers had the market values of their homes reduced by $1.8 billion, the Minnesota Department of Revenue tells us.

But they have to apply, and the deadline for claiming “market value exclusion” on their homes for 2015 is July 1. The 2015 market value is a primary factor for determining property taxes payable next year.

The exemption can erase as much as $300,000 of the market value of a homestead property from taxation. That’s the maximum for any veteran of the U.S. armed forces who is certified as 100 percent disabled by the U.S. Department of Veterans Affairs. Spouses of veterans who died while in active service also qualify. The state tax benefit can last as long as eight years.

Veterans who are considered 70 percent or more disabled can obtain an exemption covering as much as $150,000 of their home’s value. Surviving spouses also can claim it, if the eligible veteran dies. So can a Minnesota taxpayer who has federal approval as a “primary family caregiver” of a veteran with 70 percent or more disability from service, whether or not the veteran owns a home in the state.

Veterans who want to take advantage of the market value exclusion can find applications at their local county assessor’s office. If the application arrives by July 1, the exclusion will apply to property taxes payable in 2016, Minnesota Revenue says. The main exception to that rule is for manufactured homes, which are taxed as personal property in the same year as assessed.

Eligible veterans must apply each year for the tax benefit, according to the state agency.

While generous, the exclusion is detailed and requires service-related documentation, including an honorable discharge. One source to check is Minnesota Revenue’s Property Tax Fact Sheet 13, available at http://www.revenue.state.mn.us/propertytax/factsheets/factsheet_13.pdf.

Of course, we at EricJohn Ltd. also can help veterans deal with the details for this Minnesota tax break.

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YOUR CHILD MAY PAY LOWER PAYROLL TAXES BY WORKING IN THE FAMILY BUSINESS

Thinking of introducing the next generation to the family business early, maybe through a summer job?

Enterprising parents can find some encouragement waiting in federal tax codes, of all places. While their children do pay income taxes on earnings, they often need not pay Social Security (FICA), Medicare or federal unemployment taxes (FUTA) through most of their teens – under the right circumstances.

Yes, there are a couple of conditions necessary to qualify your children for those exemptions:
o Type of business – The family enterprise must be a sole proprietorship operated by a parent or a partnership of parents with no other partners, including other family members or non-parent spouses. Corporations and estates also do not qualify, even if they are operated entirely by the parents, according to the Internal Revenue Service.
o Ages of the employees – The children are exempt from Social Security and Medicare taxes until age 18; they are exempt from federal unemployment taxes until age 21.

Standard withholding for income tax on the child’s wages still applies.

Why might a small family business be interested in the exemptions for children? For one thing, if his/her child is not liable to those payroll taxes, the parent doesn’t have to pay the standard employer’s portions of them, either. Another advantage is that a sole proprietor can lower his or her own income – and tax – by paying his son or daughter for their work. CPA firm Riley & Associates PC of Newburyport, Mass., points out these and some other more complex advantages online at http://cpa-services.com/special_hir.shtml.

For the IRS’s take on family workers – including employing spouses and parents – see Publication 15 under “Family employees.”

We at EricJohn Ltd. also can guide parents through the intricacies of employment taxes.

Maybe this is the year your child can jump into the family business for learning and profit!

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QUICK DOWNTIME AHEAD

QUICK DOWNTIME AHEAD

The techs have to tinker, so the Minnesota Department of Revenue is turning its online systems off for a few hours on Wednesday evening (6/10).

It’s just scheduled maintenance, the state tax agency says. The outage is scheduled from 4:30 p.m. to 9:00 p.m.

Minnesota Revenue also reminds us that the downtime does not change existing tax and reporting deadlines.

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