Monthly Archives: May 2017

History of The Income Tax In The U.S. Part 2: 1980-1999

As perhaps would be expected, taxes were not much a part of our nation’s early history. Then the high cost of the War of 1812 brought about a need for revenue at the federal level and the nation’s first sales taxes were implemented. Fifty years later, Abraham Lincoln enacted emergency measures to pay for Civil War. In 1954, the 875-page Internal Revenue Code of 1954 was formulated. It was perhaps the most monumental overhaul of the federal income tax system to date. In 1969, the Tax Reform Act contained major amendments to the 1954 Tax Code.

Reagan-Bush Era

History of The Income Tax In The U.S., Part 1: The First Two Hundred Years

Our nation has existed since 1776. Some wonder whether the income tax has been around for as long. As perhaps would be expected, taxes were not much a part of our nation’s early history. After all, the Boston Tea Party involved a protest over a tariff, the Tea Act of 1773, imposed by the English crown. In the period directly preceding the 19th century, the United States imposed internal taxes on distilled spirits, tobacco, refined sugar, slaves, carriages, corporate bonds, snuff, and property sold at auction.

The 19th Century

Most Confusing Parts Of The Income Tax Code, Part 8: The First-Time Homebuyer Tax Credit

Many provisions of the Internal Revenue Code are complicated. Proper interpretation of the rules and regulations contained in these provisions requires the assistance of an experienced and knowledgeable tax professional. This part of our series about the most confusing provisions of the Internal Revenue Code addresses the gone but not forgotten first-time homebuyer tax credit.

Why Is It Confusing?

  • Different versions for different types of home buyers
  • Most credits have expired but their effect is long-lasting

§179 And Bonus Depreciation in 2017

Pursuant to § 179 of the Tax code, businesses may deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. The “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) expanded the Section 179 deduction limit to $500,000 and it will remain at this amount for 2017. Here’s § 179 at a glance for 2017.

The § 179 Deduction Explained

The Internal Revenue Code through Section 179 permits businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. Thus, if qualifying equipment is purchased or leased, the full purchase price may be deducted from gross income.

The § 179 deduction is a tax-savings incentive to encourage businesses to increase assets by purchasing equipment and self-invest. This deduction is affected by the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) that was signed into law in 2015. This bill expanded the Section 179 deduction limit to $500,000, where it will remain for all of 2017.

Most Confusing Parts Of The Income Tax Code, Part 7: Green Tax Credits

Many provisions of the Internal Revenue Code are complicated. Proper interpretation of the rules and regulations contained in these provisions requires the assistance of an experienced and knowledgeable tax professional. This is another installment of our series about the most confusing provisions of the Internal Revenue Code. It addresses green or energy tax credits, such as the Solar Investment Tax Credit. A tax credit is a dollar-for-dollar reduction of the income taxes that an individual or business taxpayer claiming the credit would pay the federal government.

Why Are They Confusing?

  • Rule changes occur frequently causing taxpayer confusion

Who Qualifies As A Responsible Person To Pay A Trust Fund Penalty?

The IRS utilizes a very broad definition of “responsible person” in the context of trust fund recovery penalties. The term, which may extend to more than one party within a corporation, partnership or LLC, applies to any person who willfully fails to perform a duty to pay trust fund taxes. It may be a corporate officer, director, employee, or shareholder, as well as a manager, employee, or member of a limited liability company. If a person is in any of the aforementioned positions where he or she controls a business’s financial affairs, liability as a responsible person for trust fund recovery penalties is a genuine possibility.

The Trust Fund Penalty – No One Is Safe

Employers are required to withhold federal income and payroll taxes from their employees’ wages for payment of payroll taxes such as federal income taxes and FICA (Federal Insurance Contributions Act) taxes. Such taxes are held in trust by an employer until it makes a federal deposit of the due amounts.

The IRS applies a term, “Trust Fund Recovery Penalty” (TFRP), for the fine related to an employer’s willful failure to pay over necessary federal income and FICA taxes. “Responsible persons” making such payments may be subject to criminal charges for any willful failure to remit these taxes. Most TFRP cases involve corporate officers and companies that are no longer in business, in which case the IRS may only collect TFRP from “responsible persons.”

Most Confusing Parts Of The Income Tax Code, Part 6: Taxes On Social Security Benefits

Many provisions of the Internal Revenue Code are complicated. Proper interpretation of the rules and regulations contained in these provisions requires the assistance of an experienced and knowledgeable tax professional. The sixth part of the series about the most confusing provisions of the Internal Revenue Code addresses taxes on social security benefits.

Why Is It Confusing?

  • Complicated formula to determine benefits
  • Requires a lengthy multi-step worksheet to calculate

Hobby v. Business Loss – Ramifications Of The Herb Vest, TC Memo 2016-187

The rules for reporting the income and expenses associated with a “hobby” or “pastime” is dependent upon whether or not the activity has the genuine purpose of making a profit. The Herb Vest case is an interesting Tax Court Memorandum decision regarding a wealthy taxpayer’s attempt to deduct from gross income, expenses related to the investigation of his father’s mysterious death. Among several issues discussed in the case, the Tax Court discussed not-for-profit activities and the factors considered in determining profit objective.

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