STATE TAXATION ON MAIL ORDER

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Quill Corp. vs. North Dakota

On May 26th, 1992, United States Supreme Court held that a mail order house, may have the minimum contacts necessary in accordance with the due process clause of the constitution with the taxing state relative to imposition of tax, yet lack the substantial nexus, as required by the Commerce Clause, with the state to have such tax imposed. Therefore, mere lack of physical presence in a taxing state does not in and of itself bar the taxing state from asserting a tax against such company.

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TAX TIPS

Posted by Richard Colombik, JD, CPA on

On August 5th, 1997, President Clinton signed the Tax Relief Act of 1997.  The majority of the changes apply for years beginning after December 31st, 1997.  Exceptions to this include the Capital Gains Tax relief and the new exclusion for sellers of their principal residence.

HIGHLIGHTS OF NEW TAX ACT

TAX CREDIT FOR EACH QUALIFYING DEPENDENT CHILD UNDER AGE 18.

Beginning in 1998 parents get a tax credit equal to $400.00, $500.00 after 1998, for each qualifying dependent child under age 18.  A phase out of the tax credit applies for joint taxpayers whose adjusted gross income exceeds $110,000.00.

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IRS Debt

What the IRS Giveth the IRS Taketh Away

Posted by Richard Colombik, JD, CPA on

In a prior column I wrote extensively on the usage of private annuities to sell one’s business, real estate or any large assets with the current incurrence of income tax.  IRC §72 and Rev. Rul. 69-24, 1969-1 C.B. 43.  Case law supported this view point and there had not been much if any current litigation on this issue.  Bell v. Comr., 60 T.C. 469 (1973), 212 Corp. v. Comr., 70 T.C. 788 (1978).

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Corporate Taxes

Debt vs. Equity?

Posted by Richard Colombik, JD, CPA on

How is your practice set up?

Is it a C corporation, or a flow through entity, S corporation, Limited Liability, or Partnership?  Or are you a sole proprietor?

If a C corporation, the reason this simple question is important, is that payments of dividends are not deductible by a corporation, but the payments of interest are deductible.  Therefore, the payment of interest reduces corporate taxable income, and corporate income tax, whereas the payment of a dividend, being non deductible does not decrease corporate taxable income and does not reduce corporate income tax.

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off shore trust

What is an Off Shore Trust? – PART 1

Posted by Richard Colombik, JD, CPA on

An offshore trust is a primary legal tool involved in offshore planning.  The offshore trust is generally a “self-settled trust.” This is a trust where the settlor and the beneficiary are both one and the same.  The trustee is a person who is nominated by the settlor and is either an individual who is not a U.S. citizen or a business having no U.S. offices or affiliation.  An offshore trust has additional people who serve as trust advisors or trust protectors.  These individuals are not under the settlor’s control, but they have certain powers in the administration and protection of the trust and its assets. Offshore trusts provide a method of transferring assets between generations, probate free.  The trust will usually provide that assets will automatically pass to named successor beneficiaries upon the settlor’s death.

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Tax Free Charity

A Charitable Tax Break

Posted by Richard Colombik, JD, CPA on

The problem with most tax planning is that you have to give up something to get something. To get an income tax deduction you must spend a dollar to save taxation on a dollar. To get a deduction for a business expense, you must incur a business expense. To get a personal deduction you must pay a deductible expense.

Income taxes are not at a 100% rate thankfully, so one normally thinks wisely before spending a dollar to save tax on a dollar, usually about 40% (35% federal plus state tax). Then if you save the dollar long enough your estate may become so large that it has to pay an estate tax of almost 50% (currently 47%). Let’s not forget FICA and Medicare, both sides being around 15%. Phew, it’s no wonder why most people loathe the IRS and tax time.

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LLC Tax Savings

ADVANCED TAX ISSUES FOR LLC’S – Part 2 of 10

Posted by Richard Colombik, JD, CPA on

Changing The Status Of Entities

Organizations that are eligible and wish to change their classification may do so by filing an election.   Once the classification has changed, the organization must keep that classification for at least five years.

Potential Tax Impact on Changing Classification

A change in tax classification will have tax consequences.

Corporation Status Elected

When a partnership elects to be classified as a corporation, it will be considered to have contributed all of its assets and liabilities to the corporation in exchange for stock in the corporation. 23  The partnership is deemed to liquidate by distributing stock in the corporation to its partners.

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ADVANCED TAX ISSUES FOR LLC’S – Part 1 of 10 Parts

Posted by Richard Colombik, JD, CPA on

Examination of the Check-the-Box Regulation

Effective January 1, 1997, the IRS issued final regulations that implemented the entity classification system.  These “Check-the-Box” rules allow unincorporated organizations to elect to be treated as either corporations or partnerships for federal income tax purposes.  Certain business entities that are excluded from these rules are corporations organized under state statutes, foreign entities that resemble U.S. corporations, entities taxable as corporations under special Code provisions, and trusts. 1

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CAN MORE THAN ONE BUSINESS MAKE YOUR HOBBY PROFITABLE?

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CAN MORE THAN ONE BUSINESS MAKE YOUR HOBBY PROFITABLE?

Internal Revenue Code §183 disallows losses taken regarding any alleged business where there is not a profit motive.  If a transaction is not being engaged in for profit, the Internal Revenue Service will disallow all losses related to such activity.  The service provides various safe harbors, such as showing a profit three out of five years or five out of seven years.  This will establish a presumption that a hobby is not present, but an actual business is.  What happens when you run more than one trade or business that are related and one activity creates a loss while others create a profit.

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