Net Operating Loss Deduction in the News

Posted on October 10, 2016 by Kursti Nakagawa

Net Operating Loss in the News

A net operating loss occurs when the allowable business tax deductions for any given tax year exceeds gross income for that year, thus generating a negative taxable income. Beginning with the Revenue Act of 1918, tax law has allowed for the carryover of such losses, making them a valuable tax planning tool for reducing taxable income in any year where a profit is generated. The federal carryback and carryforward periods, which have fluctuated over the years, are currently set at two and 20 years, respectively. Many states also permit the carryover of a net operating loss although the allowable the time periods and rules governing the deduction vary considerably from state to state. At the present time, the majority of states allow the corporate net operating loss deduction to be carried forward for some period of time while a much smaller number allow it to be carried back.

Although the net operating loss deduction is most commonly used on corporate tax returns, losses from various pass-through entities such a partnerships, limited liability companies and s-corporations can be used to cancel out income on personal returns. Such was apparently the case with the personal tax returns of Donald Trump which is why the carryover of a net operating loss has made the news headlines in recent weeks. Although Trump’s tax returns have not officially been released, the portions of his 1995 state income tax returns for New York, New Jersey and Connecticut that were recently uncovered by the New York Times showed him claiming a negative income of over $916,000 million for that year. Although it has not been confirmed, speculation is that this negative income represented a net operating loss from businesses that were set up as pass though entities. If this is the case, those losses have been available to cancel out income from these various businesses and thus reduce the taxes owed by Mr. Trump over much of the time that has transpired between 1995 and the present.

Regardless of the specifics of Donald Trump’s tax returns, it is certain that the carryover of a net operating loss can be a valuable tax saving tool for businesses of any size, maturity level or business structure. Using this deduction, companies with fluctuating income can take full advantage of deductions that would be otherwise be lost in years where expenses exceed income. In fact, the carryover of a net operating loss is one of the only means by which the taxes owed by a business in any given tax year can be reduced by anything other than tax credits or tax deductions earned in that specific year. Although certain items such as personal exemptions and non-business deductions including contributions to charities, deductible IRA contributions and medical deductions cannot be used to calculate a net operating loss, it is nevertheless a valuable tax saving and tax settlement tool available to businesses across the board.

If you have tax questions or a tax debt you are unable to pay, our experienced tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. Our CPAs, Enrolled Agents and other skilled accountants have a thorough understanding of tax law together with the experience necessary to know which tax settlement option will be the best fit for your specific set of circumstances.

Two Candidates – Two Different Tax Plans

Posted on August 24, 2016 by Kursti Nakagawa

Two Candidates – Two Different Tax Plans

Although both Donald Trump and HillaryClinton seem to agree on certain points such as making the country’s tax structure more attractive to business, ending the carried interest tax break and expanding the tax deduction for childcare, they differ on how to best accomplish these tasks. Their tax plans deviate from one another on other important issues as well. These include individual income tax brackets, capital gains tax rates and the estate tax, among other things. Clinton’s tax plan includes many of president Obama’s current tax proposals while Trump’s strategy has adopted many of the line items suggested in the tax reform agenda set forth by congressional Republicans.
The following is a comparison of some of the important differences between the Clinton and Trump tax plans, although the list is by no means exhaustive.
• Business Tax Rates
Trump’s tax plan proposes lowering business tax rates across the board with the aim of encouraging businesses to keep their headquarters at home rather than moving them to foreign soil to avoid high taxes. His tax strategy includes lowering the corporate income tax rate from 35% to 15%, assigning the same 15% tax rate to income from pass–through entities such Partnerships and LLCs and allowing companies to repatriate overseas earnings at a tax rate of 10%. While Clinton has not presented a specific proposal in the area of business taxes, she has stated that she will fund infrastructure improvements through business tax reform.
• Individual Income Tax Brackets
Trump is in favor of using the four tax brackets – 0%, 10%, 25% and 33% – suggested in the tax plan proposed by House Republicans. While Clinton has not specified tax brackets, she has made several suggestions which would result in tax increases for those taxpayers with high incomes. Her tax plan includes adding a 4% surcharge to the tax rate of anyone with an adjusted gross income in excess of $5 million. It also suggests setting a ceiling of 28% for the total amount of deductions and exemptions and requiring that any taxpayer who earns more than $1 million be subjected to a minimum tax rate of 30%.
• Estate Taxes
While Trump’s tax plan proposes eliminating estate and gift taxes altogether, Clinton is in favor of increasing them. Her proposal suggests reducing the estate tax exemption to $7 million per couple and increasing the tax rate on amounts above that limit from 40% to 45%.
• Capital Gains Taxes
Trump is in favor keeping the current long term capital gains tax rates of 0% to 20%, depending on a person’s tax bracket. Clinton’s tax plan, on the other hand, contains items that will result in an increase in capital gains taxes. She proposes extending the holding time for short term capital gains from one to two years as well as increasing the tax rates for gains on investments held for less than six years to as much as 47.4%.
• Childcare Tax Credits
Trump is proposing a tax deduction for childcare expenses that would be available to anyone who files a tax return regardless of whether they claim the standard deduction or itemize deductions. Furthermore, he is a suggesting that individuals who do not owe any taxes should be able to deduct childcare expenses from their payroll taxes. Clinton’s tax plan includes expanding the current childcare tax credit with the overall aim of capping a family’s childcare costs at 10% of their adjusted gross income.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

Taxes Due Today!

Posted on April 18, 2016 by Kursti Nakagawa

Tax Day 2016!!!!

Taxes Due April 18th, 2016

April 18, 2016 is the deadline for filing taxes and is the income tax due date.

Tax Fraud Back in the Limelight

Posted on February 15, 2016 by Kursti Nakagawa

Tax Fraud Back in the Limelight

The subject of tax fraud often makes the news headlines somewhere around the opening of tax season and it appears that Tax Season 2106 is no exception. Numerous state tax agencies, including Illinois, Hawaii, Utah and, most recently, South Carolina, have already announced tax refund delays due the threat of identity theft and tax refund fraud. Although the Internal Revenue Service has not issued any similar notices of delay, they have nonetheless issued bulletins warning taxpayers of potential fraudulent activity and suggesting precautions to take to combat it.

The refund delays announced by certain states are the result of increased security measures that have been put in place to prevent identity theft and other types of tax fraud. A spokesperson for the Illinois Department of Revenue, which has announced that they are unlikely to issue any tax refunds before the middle of March, has said that efforts used last year “illustrate the positive impact that additional delays and scrutiny have had in combating tax return and identity theft.” Other states have followed suit. The Hawaii Department of Taxation announced that refunds may be delayed by as much as 16 weeks while the Utah legislature actually passed a law prohibiting the issuing of tax refunds before March 1st unless all returns and required forms were submitted by January 31st. Veranda Smith of the Federation of Tax Administrators has said that the general trend for tax agencies will be to move in the direction longer lead times in order to allow more time for the matching of information sent from multiple sources.

In addition to the delays announced by certain states, the Internal Revenue Service continues to take steps to combat tax fraud. They have published security tips on their website and have met jointly with representatives of software companies and state tax agencies for the purpose of sharing data and standardizing online security protocol. On top of this, the software companies are taking their own steps to protect taxpayers from fraudulent activity. Some have published stepped up requirements for passwords while others, such as Turbo Tax, are requiring the use of a security code sent to the cellphone in order to log on to the tax software. While the 2105 Turbo Tax software required the use of this code for the initial use of theprogram, the 2016 version has increased this security measure by giving users the option of using the code each time they log in. All of these steps are part of a clear tend on the part of the IRS, state tax agencies and software companies to increase tax return security.

Where is My Tax Refund?

Posted on February 2, 2016 by Kursti Nakagawa

Where Is My Tax Refund?

Where is My Refund?

The IRS has announced that the recently opened 2016 tax season started off on a good note. In fact, they reported the receipt of thousands of tax returns on opening day with no major filing issues. It has also been reported that the average wait time for a tax professional to speak to an IRS representative is ten minutes in comparison to wait times of over an hour last year. Although it is still very early in the game, expectations are high for a smooth and easy tax season. This includes the issuing of tax refunds which is the aspect of tax filing that is usually of highest interest to taxpayers.

If you have filed your tax return and are anxiously awaiting your refund, you are well ahead of the game. This year, taxpayers actually have a few extra days to file their 2015 tax returns. The filing deadline has been moved ahead to Monday, April 18, 2016 (April 19, 2016 for taxpayers in in Maine and Massachusetts) due to the observation of the Washington D.C. Emancipation Day holiday on April 15th. That being said, once you or your tax preparer have filed your return, you can go to the IRS Refund app/tool on the IRS website https://www.irs.gov/Refunds to check the status of your refund. The IRS updates this site once per day, so there is no advantage to checking it constantly.

The “Where’s My Refund?” app/tool will guide you through the refund process in three easy steps:

1) Return Received – The site will let you know when your return has been officially been received by the IRS.

2) Return Approved – Most refunds are approved and sent via direct deposit unless you have requested a paper check. Once your return has been approved, the site will let you know when your refund is scheduled to arrive.

3) Refund Sent – Your refund is on its way. It usually takes about five days for direct deposits to arrive, whereas mailed refund checks can take weeks

The IRS predicts that most refunds will be issued in less than 21 days from the time the return is received. However, the process will take longer if there is a mistake, an inaccuracy, an omission of required information or the return is selected for further review. To avoid a delay in receiving your refund or even an audit, it is often best to use a professional tax preparer, especially if your return is complicated. If you have not received your refund within 21 days of e-filing (or six weeks of mailing your paper return), the “Where’s My Refund?” app/tool that will route you to direct contact with an IRS agent to get further information and assistance. Based on 2015 data which showed that the IRS processed over 109 million refunds, this streamlined refund process represents quite an accomplishment!