Trade wars

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Large tech companies (with global operations) are increasingly on the radar of taxing authorities.
Canada is proposing a 3% digital services tax.
(On companies with more than C$1 billion worldwide revenues.)
The tax is set to take effect in April, 2020.

Tax regulators in Italy, Turkey, Hungary and other countries have either proposed or already approved a digital tax.

France is leading the way.
Its 3% digital services tax applies to companies with over $800 million worldwide revenue.

What do Americans think about this tax?
They say the tax unfairly targets U.S. companies (Facebook, Google, and Amazon).

“The French digital services tax is unreasonable, protectionist and discriminatory,” said top Republicans and Democrats.
(Republicans and Democrats agreeing on something — amazing, isn’t it?!)

The tax has prompted the U.S. Trade Representative’s office to launch an investigation.
The investigation (Section 301)  has found the French tax to be “inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected U.S. companies.”

The French stand their ground:
“We will not give up on taxation” of digital firms.

Americans threaten to retaliate with 100% tariffs on $2.4 billion imported products from France.
Including French cheese and wine.

And that is really bad news!
What’s gonna happen to all Gruyere cheese lovers?!

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/Comments/in Management,Money,Taxes/by Mariana Fieraru

Retirement question — open letter to client

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Dear M and J,

Regarding your retirement question
here is some information to help you make a decision.

Taking a lump-sum distribution can be detrimental.
Mainly because “emergencies” always seem to pop up (for all of us).
And before you know it, you’ve spent all the money you had.
Leaving you with nothing for retirement.

Additionally, because these are pre-tax money (meaning this income has never been taxed)
you would have to pay tax when you take the lump-sum distribution.
And that would put you in a higher income tax bracket.

Here are some choices that would not trigger any high taxes for you.
And would keep your money safely tucked away for retirement.

  1. IRA account.

Open either a traditional IRA or a SEP IRA and have the pension rolled over into that account.
You can then continue to make pre-tax contributions every year.
(When you have available funds, of course).

 

  1. Solo 401(k) Plan

This plan is designed for self-employed/individual business owner.
It’s available to the spouse as well.
And you can save higher amounts to this type of plan. (Again, when funds are available.)

 

  1. Monthly payments

You can keep the money where they are and take monthly payments.
As long as the monthly payment provide a good ROI (return on your investment).
If not then either option 1 or 2 would be a better choice.

Fidelity, Vanguard, and others offer IRA’s and Solo 401 (k)
You can decide to stay with Fidelity (where your pension is now) or check out the other guys.

Make sure you find out about fees (if any) to maintain any of these retirement plans.
Even more importantly, make sure their retirement plans allow the rollover (of your pension).
Hope this information makes it easier for you to make a decision.

Wishing you the best,
Mariana

 *     *     *     *     *

Hope this letter helps those of you who are in a similar situation.

Wishing you success in all you do.

 

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/Comments/in Management,Money,Taxes/by Mariana Fieraru

Tax Court: Horseless horse business

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For decades Denise M participated in activities connected with horses.
A trained dressage rider, she and her horse took part in competitions.
And other related activities.

Then things changed.
After 2008 Denise didn’t own any horses
She was supporting herself with income from her IT business — working 5 to 6 hours daily.
Denise also spent considerable time on a litigation process with her homeowner association (HOA).
(She sued her HOA disputing construction defects and other nuisances.)

In 2010 Denise and IRS found themselves in a disagreement.

Why?

$70,000 settlement
In 2010 Denise received a $70,000 settlement from the HOA.

She didn’t think she had to include all of the $70,000 settlement in her income.
Denise claimed some of that sum was for pain and suffering.
(Therefore not includible in income.)

The Tax Court looked at the $70,000 settlement documentation.
And found no mention of “pain and suffering.”

Horseless horse business
She also claimed losses from her horse business.
The IRS didn’t agree with that either.
Especially given the fact of how she spent the majority of her time
(IT business and litigation process).

The Tax Court looked at other factors as well:
Business plan, timeline, ROI, etc.
After analyzing all the facts, The Tax Court didn’t agree with Denise.

And that’s the story of the horseless horse business.
(Horsefeathers?)

*    *    *

The moral of this story?
When filing your income tax don’t let your imagination run wild.
The numbers you put down need to be based in reality.

When you start a business ask yourself:
Do I intend to make a profit?
Or it’s just a hobby?

How you answer will make a world of difference at tax time.

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Thanks for visiting.
/Comments/in Money,Taxes/by Mariana Fieraru

Tax Court Files: A Conspiracy Theory

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Mark D is selling his business.
All goes well. And the sale is finalized.
But then he sees how much tax (capital gains) needs to be paid.
So Mark decides to solve the problem by using a tax shelter.

Once that is accomplished he lets out a big sigh of relief.
And congratulates himself on the success of the operation.

Time passes. All is well.
But then it happens.
IRS comes knocking.
And agents start examining his records.

Mark doesn’t like the results of the audit:
IRS determined the only reason he used that tax shelter was to get out of paying taxes.
What can Mark do now?!

He files for bankruptcy.
But the Bankruptcy Court doesn’t solve his problem.
He is still liable for the unpaid taxes.

The IRS then refers the case to the Justice Department.
The government wants to collect.
Even if that means less money.

The unpaid tax is reduced to almost a half a million dollar.
($491,513 plus interest.)
And a judgement is entered against Mark.
What can Mark do now?!

He files a complaint against IRS.
Alleging conspiracy.

Mark alleged that the IRS conspired to deny him his constitutional rights.

*    *    *    *   *

For now the complaint has been dismissed.
But we’ll see what happens next.
With half a million at stake, most likely the saga will continue.

Sharing this site with your friends is much appreciated.
Thanks for visiting.
/Comments/in Money,Taxes/by Mariana Fieraru