How to Enter

Entering is simple. All you have to do is go to the BTH Tax Blog Facebook page and click the “Like” button by February 29th.

Contest Rules

• Anyone can enter between the dates of 2/1 – 2/29
• 2 grand prize winners will receive copies of TurboTax Deluxe Edition 2011 (includes free e-filing for both Federal and State tax returns)
• You must “Like” us from your personal Facebook page. Business fan pages are not eligible.
• Winners will be announced on the BTH Tax Blog Facebook page on March 1, 2012

Win or lose, you’ll receive valuable tax saving tips to help ensure that you never overpay on income taxes.

Good luck…and Happy Tax Filing!

Related posts:

1. TurboTax Review: TurboTax 2011 Edition for 2010 Taxes
2. Start Now: Get Organized for Tax Filing in 2010
3. How the IRS Free File System Works: Who Can Use & Where to Find

Thankfully, the California Tax Amnesty program – which runs from August 1, 2011 to October 31, 2011 – can help certain tax payers who come clean to avoid penalties and criminal prosecution.

The California Tax Amnesty is a voluntary program, wherein the FTB contacted 47,000 taxpayers who may have under-reported their tax liability by failing to report offshore income or by using tax avoidance transactions. The FTB asked these taxpayers to voluntarily come forward and amend their 2010 and older tax returns and pay the taxes and interest in full.

California Senate Bill 86 authorized California’s Tax Amnesty program. It is well-timed for affected tax payers to also take advantage of the federal voluntary disclosure program, which also provides amnesty to taxpayers who come forward to correct previously unreported foreign income. However, the California program goes until October 31, while the federal program ends August 31, 2011.

Why California Tax Amnesty is a Good Opportunity

Stepping forward and amending your California tax return to report your full tax liability may seem antithetical, but it is a wise move. After all, the Franchise Tax Board is likely to come after you eventually, which, for you, will result in your being assessed large penalties on top of the taxes and interest that you already owe. Additionally, the FTB may seek criminal prosecution in some cases. By taking advantage of the California Tax Amnesty program, you can avoid a lot of these risks.

Illegal Tax Under-Reporting Scenarios

There are two scenarios that the Franchise Tax Board is targeting in this year’s California Tax Amnesty program:

An abusive tax avoidance transaction refers to either a “tax shelter” as defined by Internal Revenue Code Section 6662(d)(2)(c), a listed transaction, an undisclosed reportable transaction, a non-economic substance transaction, or a gross misstatement per Revenue and Taxation Code Section 19774.

An offshore financial arrangement generally refers to a transaction that is used to shirk California franchise or income tax liability by utilizing offshore entities or payment cards. Such a transaction is typically made through a debit or credit card that has been issued through a foreign financial institution.

Naturally, the FTB strongly encourages anyone who qualifies for the California Tax Amnesty to come clean. With the way the FTB is capable of sharing information with other agencies, including the IRS, as well as advancements in technology, the FTB is better able to identify taxpayers who may have used these schemes to under-report their tax liability.

For more information, visit the voluntary compliance page of the FTB website or call 1 (888) 825-9868. Taxpayers who are considering the California Tax Amnesty program should consult with a well-qualified tax attorney.

Related posts:

1. Florida Introduces Amnesty Program to Provide Back Tax Relief
2. Pennsylvania Tax Amnesty: Remove 100% of Penalties & 50% Interest
3. Philadelphia Tax Amnesty Ends June 25th – Act Now!

Until now, California law, based on a 1992 U.S. Supreme Court ruling, has stated that any company with a physical presence or nexus – which includes workers, offices and warehouses – in the state of California must tax customers. By building its facilities in other states, Amazon has avoided collecting sales tax in the state since the company’s founding in 1994.

Not collecting taxes has given Amazon what some consider to be an unfair competitive advantage over its rivals – including small businesses and big-box retailers such as Target, Wal-Mart and Best Buy – who have a presence in California and therefore must collect sales tax from customers.

Additionally, because many online retailers don’t charge sales tax, customers carry the responsibility of declaring purchases on their state tax form. Although residents are legally obligated to report this information on their tax returns, few actually do, making them susceptible to a tax audit and contributing to the estimated $1.2 billion in unreported purchases that the state of California is missing out on.

The aim of the bill passed last Wednesday is to close the loophole that Amazon.com and other out-of-state retailers have enjoyed thus far and to minimize the financial impact that undeclared purchases have on the state.

The new statute broadens the definition of a nexus to include a company’s affiliates, related companies and subsidiaries. This means that sellers who pay commission to California-based Internet sites for referring buyers, as well as sellers who have a related company operating in the state, will qualify for the new sales tax requirement.

State legislators expect the new tax collection requirement to raise an estimated $317 million a year in new state and local government revenue. However, it may ultimately cost the state.

Amazon.com has responded to the new bill by cutting off thousands of its California Internet marketing affiliates, telling them that in order to continue earning commissions for referring click-through customers, they would have to move to another state. Amazon has approximately 25,000 California-based affiliates, from which the state collected a total of $152 million in income taxes last year. Many of these affiliates are likely to heed Amazon’s advice and leave the state.

Since 2008, New York, North Carolina, Rhode Island, Connecticut, Illinois and Arkansas have all begun taxing out-of-state Internet sales. California becomes the seventh and most populous state in the U.S. to enact such legislation. Amazon.com is currently battling the issue throughout the country and is expected to fight the new California law in court.

Related posts:

1. Texas Pursues Amazon for Sales Taxes
2. 2011 California Tax Amnesty Program: 8/1/11-10/31/11
3. New National Sales Tax and Other Tax Changes to Reduce Deficit?

The Small Business Tax Climate Index (SBTCI) can be used by policymakers for determining what changes need to be made to their tax systems to improve the state in relation to other states.

The Top Ten States With The Best Business Tax Climate:

1.    South Dakota

2.    Wyoming

3.    Alaska

4.    Nevada

5.    Florida

6.    Montana

7.    New Hampshire

8.    Delaware

9.    Washington

10. Utah

States which are known to have good tax systems for businesses will obviously have an easier time attracting new businesses.  They’ll have stronger employment growth and better economies than states with a lower quality business tax climate in general.

Tax competition between neighboring states puts a restraint on both state and local taxes.  Some businesses will literally cross the border in order to reside in a more competitive business tax state. Of course, there are more than taxes that affect the business climate of a state.  Whether or not a state has access to raw materials, skilled workers, a strong education system, and perception of a state’s quality of life all come into play when one may consider location to start a business.  However, as opposed to state taxes, these factors cannot be modified by the state government, so thus lawmakers try to improve their tax systems in order to attract potential business owners.

Calculation of the State Business Tax Climate Index

How did the states above achieve the top “10” business tax climate?  Calculation of the SBTCI involves 112 variables within 5 component indexes.  Each index measures a different sector of the state’s tax climate for businesses, and include:

• Corporate Tax Index
• Individual Income Tax Index
• Sales Tax Index
• Unemployment Tax Index
• Property Tax Index

Each of the five component indexes receive a score between 0 and 10, with 10 being the best. The total score for the state is then calculated.  The higher the state score, the more favorable that state’s tax system is for businesses.

The Ten States With The Worst Business Tax Climate:

41. Vermont

42. Wisconsin

43. Minnesota

44. Rhode Island

45. Maryland

46. Iowa

47. Ohio

48. California

49. New York

50. New Jersey

It is important to be aware of all that effects a business when making the decision of where to conduct. While State taxes should not be a sole consideration for business endeavors, they can have a significant impact on profit and should be realized. With the help of the tax foundation, hopefully your decision as to where to open or move your business has become slightly easier.

Related posts:

1. Why the State Corporate Income Tax Should be Eliminated
2. 2010 Year End Business Tax Planning: Ways to Pay Less
3. Tax Scam: Abuse of the Home Based Business

In Florida’s case, because the state has no income tax, the amnesty period proves less intense. Regardless, the tax period still helps everyone. For the state, more unpaid taxes are returned- bringing valuable money back to public use.  For the individual, more money is saved, because less money goes to tax penalties and interest.  It becomes a win-win situation for all.

Which taxes, or actually, unpaid taxes, are eligible? All Department of Revenue administered taxes due before the starting date of the program (July 1, 2010) are entitled to relief.  However, unemployment taxes and the Miami-Dade County Lake Belt fees are not included in the arrangement. Furthermore, there are a few guidelines. For one, your tax liability must not already be covered by an existing settlement. And two, you must not be convicted or under criminal investigation for violating a Florida revenue law. If you meet the requirements, and of course owe back taxes to the state of Florida, visit www.myflorida.com/dor/amnesty to fill out a Tax Amnesty Agreement form asap. If you cannot pay your taxes by Sept 30, 2010 (the end of the program) an installment agreement may be your best option.

What if you owe money that has not yet been identified? It’s in your best interest to own up and participate in the program, as the interest required on the amount will be cut in half. If your liability has already been identified, the interest amount will still reduced, but by one fourth. As for penalties- they will be completely waived, regardless of situation.

Related posts:

1. 2011 California Tax Amnesty Program: 8/1/11-10/31/11
2. Pennsylvania Tax Amnesty: Remove 100% of Penalties & 50% Interest
3. Philadelphia Tax Amnesty Ends June 25th – Act Now!

What is the Deal With the Corporate Tax?

Under the current tax regulations, corporate earnings are being taxed twice. The first time they are taxed is when the corporation earns money. They are taxed a second time when the money is dispersed to the individual shareholders. The corporate income tax is considered to be a growth preventing measure that, if eliminated, would help cut wasteful tax distortions and allow growth in the short and long-term. It would also help to increase America’s competitiveness across the globe and raise wages in the future. Currently, the US has the second-highest ranking corporate income tax. Other chief competitors of the US have already reduced their corporate income tax rate, leaving America to be less competitive in business.

State corporate taxes are descendants of the federal income tax and as such, have flaws. Businesses are being double taxed at the agency and individual levels and essentially penalized as a corporation. There is also issue with the fact that business span across different states and the rules differ for corporate income in each state. Many believe that local government will use the corporate income tax as their own economic development account when they are used to offer tax incentives and credits to bring new business into the state. Overall, state corporate income tax does not bring in a lot of revenue. Some businesses skirt the system by establishing holding companies in states like Delaware to avoid the higher tax costs.

What Are States Doing?

Some states have already begun fundamental tax reform. For instance, California has proposed a BNRT, or business net receipts tax, which is based on a Value Added Tax that replaces the corporate income tax and reduces personal income and sales taxes. Ohio has done away with several business taxes. This includes the corporate income tax. They have replaced the eliminated taxes with gross receipts or the CAT (corporate activity tax).

Where Is the Solution?

Some have suggested dropping state corporate income tax across the board and requiring reporting of all business income. This will prevent companies from shifting monies to states with lowered or no taxes. Regardless of the many opinions on the tax issue, it doesn’t seem likely that elimination will happen. It is too easy for states to go along with the federal income tax legislation and regulations. While tax reform issues are still on President Obama’s agenda, it doesn’t appear it is a main focal point for change at this time, leaving America struggling for the competitive edge and job security.

Related posts:

1. The 10 Best State Business Tax Climates by the Tax Foundation
2. Oregon State Tax Amnesty for Back Taxes Ends 11/19
3. State Tax Agents Hunting Online for Individuals Who Owe Taxes

Residents who owe  Pennsylvania back taxes have incentive to pay off delinquent taxes during this period when 100 percent of tax penalties and 50 percent of interest will be waived.

Who qualifies for the program?

The amnesty program is available to any person, association, fiduciary, partnership, corporation, S corporation, limited liability company and any other entity required to pay or collect any of the eligible taxes, according the the program overview available online. Exclusions from the program include anyone under investigation for an alleged violation of a tax law, defendant in a criminal complaint for alleged violation of any law imposing an eligible tax or anyone under protection of Title 11 through bankruptcy court.

Do all tax liabilities qualify?

No. Only tax liabilities administered and owed to the Department of Revenue are eligible for the amnesty program. Federal, local or state taxes (outside of Pennsylvania) are not eligible for the program. The tax liability must be due as of June 30, 2009. Tax liabilities that are due after June 30, 2009 are not eligible for this program. In addition, the amnesty program is extended to tax liabilities that are both known and unknown by the Department of Revenue to include non-filed tax returns and unpaid or underreported taxes.

Conditions of the program.

In order to participate in the 2010 Tax Amnesty program you have to meet certain conditions set forth. Anyone who participated in a previous program (1995/1996) is eligible however by participating in the 2010 program you will be excluded from participation in future amnesty programs. Taxpayers who agree to participate in this program must forfeit the right to petition for a refund of money paid during the program. Any administrative or judicial appeals must be withdrawn prior to acceptance in the program.

Taxpayers interested in this program must complete the following steps:

Step 1- File an application for the program between April 26th and June 18th 2010. There will be no extensions offered for this program.

Step 2- All delinquent tax returns must be filed, including amended returns for years tax liabilities were underreported.

Step 3- All eligible delinquent taxes must be paid within the program period. Full payment for delinquent taxes and 50 percent of the interest will be required during this time.

Step 4- Participants agree to give up any right to petition for a refund of monies paid during the program.

Acceptable payment methods.

The following payment methods will be accepted by the Department of Revenue to pay off eligible tax liabilities:

• Credit card
• Check
• Money order
• Electronic transfer
• Cash (only accepted in Harrisburg, PA location- Strawberry Square)

Participants are allowed to make multiple payments during the program period to satisfy the tax liability. Each payment must be accompanied by a coupon that is printed from the program application.

Penalty for non-participation.

Anyone who has eligible tax liabilities, who chooses not to participate in the amnesty program will have a 5 percent non-participation penalty imposed on any unpaid liabilities. This penalty will not be applied to taxpayers who have an active deferred payment plan, active appeals or under bankruptcy protection.

Contact information.

Anyone with questions regarding this program can contact the Department of Revenue by mail at PO Box 281101, Harrisburg, PA 17128-1101 or by phone at 1-877-347-2987. There have been special offices and telephone numbers set up to handle taxpayer inquiries during the program period.

Related posts:

1. Massachusetts Tax Amnesty: Waive MA Tax Penalties 4/1/10 to 6/30/10
2. Florida Introduces Amnesty Program to Provide Back Tax Relief
3. 2011 California Tax Amnesty Program: 8/1/11-10/31/11

In an interesting statistic, it is noted that about half of taxpayers paid no federal income tax last year. While that sounds like a very high percentage of people not required to pay Uncle Sam, the statistic does not mean that these same people paid no taxes at all. Many still had to pay out for Social Security and Medicare payroll taxes. Property taxes were also paid plus a variety of sales tax had to be paid out as well.

Who’s Not Paying?

Those quick to criticize this statistical statement also claim that only the hard working Americans are paying taxes and those who are on welfare or even the mega-wealthy folks don’t pay out a dime. This is serious misconception. In reality, those people who pay no federal income tax are typically the elderly and those who do not make much money at all. Those families earning incomes of less that $20,000 will likely not pay out in federal taxes.

As we are still struggling to beat back the recession, it should be noted that there was a tremendous amount of job loss during the last few years. Along with no income or less income after taking a new job, the amount of income tax due also goes down. As time goes by, the number of Americans not paying federal income taxes will also decrease. As jobs become more plentiful and wages increase, so will tax responsibilities.

Tax Relief Measures

One of the biggest reason people have not had to pay out much, if at all, in federal income taxes is due to the Earned Income Tax Credit. This credit was brought about in 1975 and over the years has been expanded under different Presidents. People who are working at low wages can use the credit from low wages to cancel out their liability for income taxes. The Earned Income Tax Credit and the child care credit were established to encourage people to keep working.

Not a New Concept

Historically, not owing federal income taxes is not a new concept. Before World War II, rarely did an American pay income tax. In the 1950’s, most only paid a very small percentage in Social Security tax. Medicare taxes were not yet established then. Today, workers are actually paying more in payroll taxes than they are in federal income taxes.

While the 50% statistic can be startling to people at first glance, the percentage certainly dwindles down to near nothing when you consider all of the other taxes being paid out by both working and non-working individuals. It is easy for some to feed off the notion they are being cheated in the tax arena but for decades, the government has been making decisions based on removing low-income working families from the income tax lists. Right now the policy is working as it was meant to work. As income levels pick back up, the percentage of those not paying federal taxes will begin to decline rather quickly.

Related posts:

1. 67% of Americans E-Filed Their Taxes Last Year
2. Why the Richest Americans Pay the Least Amount of Taxes
3. Federal Employees Owe Over $3 Billion in IRS Back Taxes

The amnesty will cover penalties and 1/2  the interest attributed to those taxpayers who failed to pay, report, or who under-reported income. This allows taxpayers to come forward without being liable for penalties and half the tax interest. As such, the Comptroller can provide waivers if compliance and an agreement are reached.

If you owe taxes to Maryland, it is in your best interest to tackle the situation now before it gets worse by getting into compliance with the IRS.  State amnesty programs work and the reason states offer them is because of the tax revenue they usually obtain that they otherwise may have not collected.

You can download the form on the Maryland Comptroller’s website or you can call 1-800-638-2937.  If you need help with Maryland taxes, connect with a tax professional firm like ours for a free consultation and quote.

Related posts:

1. Philadelphia Tax Amnesty Ends June 25th – Act Now!
2. 2011 California Tax Amnesty Program: 8/1/11-10/31/11
3. Florida Introduces Amnesty Program to Provide Back Tax Relief

Minnesota and California are some of ths states using the social sites to find taxpayers with back taxes. The IRS declined to comment on whether they are using such tactics but it shouldn’t suprise anyone if they did after the UBS vs. IRS case.

As tax revenues decline for the IRS and State Revenue Departments, tax collectors are going to great lengths to fill some of those holes by collecting back taxes from a greater percentage of those who owe.

It is in your best interests to come forward with State Revenue Agents and the IRS to avoid possible persecution, further penalties, interest, tax liens and tax levies. As IRS Spokesman Eric smith stated, “If you find us before we find you, typically you won’t be prosecuted.”

If you are facing an IRS or State tax problem, give us a call or try our free tax analysis consultation today.

Related posts:

1. Oregon State Tax Amnesty for Back Taxes Ends 11/19
2. Robert Patrick Owes $176K in State and IRS Back Taxes
3. The 10 Best State Business Tax Climates by the Tax Foundation