Category: Federal Income Tax

Good for the goose? Deferred Comp for Private Equity Fund Managers

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.”

Alfred Eisenstaedt/Time & Life Pictures, via Getty Images

Learned Hand, the federal appeals court judge.

— Judge Learned Hand, 1934

Private Equity fund managers use waived management fees to make required contributions to fund a new acquisition of their funds. This is similar to receiving a partnership interest for services which is clearly taxable. Ultimately, the managers pay the cap gain rate on this investment rather than the ordinary income rate.  Why doesn’t the IRS challenge this?

A Private Equity Tax Tactic May Not Be Legal – High & – Low Finance – NYTimes.com.

Per Diem Trivia

Thanks and a hat tip to the US State Department:

The General Services Administration establishes Per Diem Rates for the 48 continental United States and the District of Columbia.  The rates, known as CONUS rates, are normally established in October of each year.  GSA also establishes maximum rates of reimbursement for use of personally owned vehicles (POV).

The Per Diem rates for non-foreign, non-contiguous U.S. areas are established by the Department of Defense Per Diem, Travel and Transportation Allowance Committee (PDTATAC). PDTATAC establishes Per Diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U.S. Virgin Islands, Wake Island and other non-foreign areas outside the continental United States.   Updated information on non-foreign area per diems are published periodically in Civilian Personnel Per Diem Bulletins.  The Per Diem Committee also establishes maximum per diem rates for U.S. military bases.
For Per Diem rates for foreign locations, click on Foreign Per Diem Rates by Location.

 

The Nanny Tax

In January 1993, Clinton’s nomination of corporate lawyer Zoë Baird for the position of attorney general came under attack after it became known that she and her husband had broken the law by employing two illegal aliens from Peru as a nanny and chauffeur for their young child. They had also failed to pay Social Securitytaxes for the workers until shortly before the disclosures. While the Clinton administration thought the matter was relatively unimportant, the news elicited a firestorm of public opinion, most of it against Baird. Within eight days, her nomination lost political support in the U.S. Congress and was withdrawn. (Nannygate)

Do you have a Nannygate problem?  Employing undocumented workers is not the critical issue here, it is the non payment of employment taxes for services provided in your home by an employee.

From IRS Publication 926:  It is unlawful for you to knowingly  hire or continue to employ a person who cannot legally work in the United States.  You must complete a Form I-9  on each person that regularly works for you.

If you will pay cash wages of $1800 or more to any one household employee, then you need to withhold and pay social security and medicare taxes and give that employee a Form W-2.  State and federal unemployment taxes may be due, also.

Household Employer’s Checklist

You may need to do the following things when you have a household employee.
When you hire a household employee: □ Find out if the person can legally work in the United States.
□ Find out if you need to pay state taxes.
When you pay your household employee: □ Withhold social security and Medicare taxes.
□ Withhold federal income tax.
□ Decide how you will make tax payments.
□ Keep records.
By January 31, 2013: □ Get an employer identification number (EIN).
□ Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement.
By February 28, 2013 (April 1, 2013, if you file Form W-2 electronically): □ Send Copy A of Form W-2 to the Social Security Administration (SSA).
By April 15, 2013: □ File Schedule H (Form 1040), Household Employment Taxes, with your 2012 federal income tax return (Form 1040, 1040NR, 1040-SS, or Form 1041).
If you do not have to file a return, file Schedule H by itself.

 

Form 944 – Am I Eligible?

To file Form 944, Employer’s Annual Federal Tax Return,  you must be notified by the IRS that you are eligible to file Form 944.    If you estimate that your annual payroll tax liability for 2012 will be $1,000 or less and would like to file Form 944 instead of quarterly Forms 941, now is the time to contact the IRS to request to file Form 944.

To File Form 944 for calendar year 2012, you must call the IRS at 1-800-829-4933 by April 2, 2012, or send a written request postmarked by March 15, 2012.  The IRS will send you a written notice that your filing requirement has been changed to Form 944.  If you do not receive this notice, you must file quarterly Forms 941 for calendar year 2012.

 New employers are also eligible to file Form 944 if they will meet the eligibility requirements. New employers filing Form SS-4, Application for Employer Identification Number, must complete line 13 of Form SS-4 indicating the highest number of employees expected in the next 12 months and must check the box on line 14 to indicate whether they expect to have $1,000 or less in employment tax liability for the calendar year and would like to file Form 944.

Generally, if you pay $4,000 or less in wages subject to social security and Medicare taxes and federal income tax withholding, you are likely to pay $1,000 or less in employment taxes. New employers are advised of their employment tax filing requirement when they are issued their EIN.

Written requests to file Form 944 should be sent to: Department of Treasury, Internal Revenue Service, Ogden, UT 84201-0038 or Department of Treasury, Internal Revenue Service, Cincinnati, OH 45999-0038.

Wikipedia vs Wikileaks

During tax prep time, a client was aghast that her husband had given money to Wikipedia since that was the organization that leaked confidential information.

These two organizations are not the same thing.  From Wikipedia:

WikiLeaks is not affiliated with Wikipedia or the Wikimedia Foundation.

WikiLeaks is an international self-described not-for-profit organisation that publishes submissions of private, secret, and classified media from anonymous news sources, news leaks, and whistleblowers.

I think that as often as we all use Wikipedia, we should support The Wikimedia Foundation.

Wikimedia Foundation Fundraises to Keep Wikipedia Going: Accounting Today.

Super committee: Let Bush tax cuts expire and your work will be done – CSMonitor.com

Super committee: Let Bush tax cuts expire and your work will be done – CSMonitor.com.

President Obama extended the Bush tax cuts through December 2012.  These tax cuts are costing the Treasury $11.6 million dollars PER HOUR.  The alternative view is that tax dollars are taxpayer dollars, not government dollars, and we need to cut spending.

However:

A record number of Americans — 49.1 million — are poor, based on a new census measure that for the first time takes into account rising medical costs and other expenses.

The numbers released Monday are part of a first-ever supplemental poverty measure aimed at providing a fuller picture of poverty. Although considered experimental, they promise to stir fresh debate over Social Security, Medicare and programs to help the poor as a congressional supercommittee nears a Nov. 23 deadline to make more than $1 trillion in cuts to the federal budget.  (Washington Post)

Sales Tax Deduction on Large Purchases-Easily Overlooked

Taxpayers that elect to deduct sales tax instead of income tax paid typically use the sales tax deduction calculator to calculate their deduction instead of saving receipts and totaling the sales tax paid.  An easily overlooked deduction is the sales tax paid on large purchases that may be added to the amount computed with the calculator.

Large purchases include:

  • A motor vehicle (car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle) whether purchased or leased.
  • An aircraft or boat.
  • A home (including a mobile home or prefab home or a substantial addition to or major renovation of a home) with certain restrictions.