Accountants and Consultants
After briefly plunging over the “fiscal cliff” – the combination of tax increases and spending cuts that automatically came into effect on January 1, 2013 – Congress quickly passed the American Taxpayer Relief Act of 2012 (the “Act”), which has now been signed into law by President Obama. Following is a brief summary of those aspects of the Act that we believe are most relevant to our clients in the areas of (i) gift and estate taxes, (ii) personal income tax, and (iii) business tax.
Gift and Estate Taxes
Personal Income Tax
Further Developments to Come
While the Act describes many of these changes as “permanent,” this term can be misleading. In this context “permanent” merely means that the provisions are not scheduled to expire automatically, so any “permanent” provision can be changed by future legislation. Though the Act took steps to pull us back from the fiscal cliff, the coming months are expected to bring two major debates that may re-open discussion of any or all of these provisions: one over the debt ceiling and one over the automatic spending cuts that were postponed to February by the Act. Both political parties continue to discuss reform to the tax code for individuals and corporations as a means of raising revenue, and we expect to see further developments this year.
In an ever-increasing effort to close the tax gap, the IRS is showing a commitment to focusing on small businesses and the self-employed. The latest effort includes a website and a free bookmark that "are part of a year-long campaign to help educate business operators about federal tax responsibilities and filing Schedule C, profit and loss from business forms" say IRS officials.
The "Self-Employed Individuals Tax Center" is a new section of the www.IRS.gov website which acts as a starting point for self-employed and small business owners. The free laminated bookmarks offer a list of key search words to use when trying to locate specific information on IRS.gov related to being self-employed or small business.
With these latest tools, the IRS has shown that it is beefing up it's pursuit of tax money. The IRS is looking for around $136 billion to $158 billion of 'under-the-table' money - money that’s not being reported as income. According to the IRS, most of the understated income comes from business activities, not wages or investment income.
These latest IRS tools are a nice guy tactic - providing information to assist small businesses and the self-employed, however, once the IRS is forced to step in and pursue their money, things might not be so nice.
By not taking action and facing an IRS debt problem, a small business owner or self-employed person could face wage garnishment, seizure of real estate, Social Security benefits, 401(k)s, IRAs, and property such as cars, boats, houses. If anyone suspects they are in trouble with the IRS, they shouldn't wait until the IRS comes knocking at their door, call our firm today.