Ronald J. Cappuccio, J.D., LL.M.(Tax)

Ronald J. Cappuccio, J.D., LL.M.(Tax)
Tax Attorney and Business Lawyer

Friday, September 23, 2016

Candidate Clinton wants to increase Estate/Death Taxes

Not surprisingly, Hillary Clinton is proposing to increase federal estate taxes from 40% to 45%. Right now, the rate starts at 40% for people who die with an estate, including all assets such as insurance, in excess of $5.45 million. Clinton has repeatedly stated she wants to reduce this exemption to a lower figure so more people have to pay tax and she now is revealing that she wants to also increase the estate tax rate.

Many people forget that prior to President Reagan's estate tax reform in the 1980s, anyone within an   of $60,000 or more had to file a federal estate tax return and was subject to federal estate tax. This affected most people. As a result of the estate tax reform, very few people need to file federal estate tax returns. In states where the cost of housing is very high, lowering the exemption rate to $1 million would require many people to file estate tax returns with the IRS.

Once again, instead of hearing about tax simplification and tax reduction, candidate Clinton wants to increase the complexity of the Internal Revenue Code and increased taxes. Not a good idea!

One more comment, let us look at the debates, even though they exclude Libertarian Party candidate Brown, and Green Party candidate Stein, to see if either Clinton or Trump will talk about true tax reform, simplification and reduction.

Friday, August 19, 2016

Applicable Federal Rates for September 2016 

Rev Rul 2016-20
The Applicable Federal Rates for September 2016 are reproduced below.
Table 1
                Applicable Federal Rates (AFR) for September 2016
                          Period for Compounding
                Annual         Semiannual       Quarterly        Monthly
     AFR         .61%           .61%             .61%             .61%
110% AFR         .67%           .67%             .67%             .67%
120% AFR         .73%           .73%             .73%             .73%
130% AFR         .79%           .79%             .79%             .79%
     AFR        1.22%          1.22%            1.22%            1.22%
110% AFR        1.34%          1.34%            1.34%            1.34%
120% AFR        1.47%          1.46%            1.46%            1.46%
130% AFR        1.60%          1.59%            1.59%            1.58%
150% AFR        1.84%          1.83%            1.83%            1.82%
175% AFR        2.15%          2.14%            2.13%            2.13%
     AFR        1.90%          1.89%            1.89%            1.88%
110% AFR        2.09%          2.08%            2.07%            2.07%
120% AFR        2.28%          2.27%            2.26%            2.26%
130% AFR        2.48%          2.46%            2.45%            2.45%
Table 2
                         Adjusted AFR for September 2016
                          Period for Compounding
                   Annual         Semiannual        Quarterly        Monthly
adjusted AFR        .45%            .45%              .45%            .45%
adjusted AFR        .91%            .91%              .91%            .91%
adjusted AFR       1.41%           1.41%             1.41%           1.41%
Table 3
                    Rates Under Section 382 for September 2016
Adjusted federal long-term rate for the current month                  1.41%
Long-term tax-exempt rate for ownership changes during the current
month (the highest of the adjusted federal long-term rates for the
current month and the prior two months)                                2.08%
Table 4
                Appropriate Percentages Under Section 42(b)(1)
                                for September 2016**
Appropriate percentage for the 70% present value low-income
housing credit                                                         7.36%
Appropriate percentage for the 30% present value low-income
housing credit                                                         3.15%
Table 5
                    Rate Under Section 7520 for September 2016
Applicable federal rate for determining the present value of an
annuity, an interest for life or a term of years, or a remainder or
reversionary interest                                                  1.4%

**Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after Sept. 30, 2008, will not be less than 9%.

Friday, June 24, 2016

Let's end the draft started by Pre. Lincoln in the Civil War!

The Draft is Slavery. End it.
Congress has been debating the merits of adding women into Selective Service to be drafted with men during times of national emergency.
Sen. Rand Paul has suggested that it would be better to end the draft.
The Libertarian Party agrees.
"The draft is simply slavery by another name. Drafting people to go abroad and kill or be killed is barbaric and a discredit to our military and country," says Nicholas Sarwark, chair of the Libertarian National Committee.
If a national emergency is so severe to merit mobilizing extra troops, Americans from all backgrounds, ages, and genders will pitch in to do what is needed.
The Libertarian Party urges elected leaders to end the draft and also to pursue foreign policy which is less dependent on military might.
The United States has many tools of foreign policy at our disposal that do not require force. Military force should always be a last resort and only in defense.
The Libertarian Party is the only political party in America devoted to protecting all rights, of all human beings, all the time. The Libertarian Party also strongly condemns the use of force except in self defense.

Monday, June 20, 2016

Sugar tax on soft drinks helps beverage companies!

This past Thursday, Philadelphia city Council, under the prodding of its mayor James Kenney, imposed a 1.5 sent tax per ounce of "sugary" soft drinks. The idea is to prevent obesity. Of course, this will prove to be totally useless for several reasons.

First, even though the beverage industry is fighting these taxes, the truth is no one could be happier than the beverage industry. It is much more expensive to make a soft drink with sugar or high fructose corn syrup than with NutraSweet or any other varieties of artificial sweeteners. Even though study after study has shown that people who drink "diet" drinks do not lose any weight and fact may have a tendency to gain weight, the beverage industry pushes diet soda to make more profit.

Now, Philadelphia, like some other big cities, has decided to play right into the hands of the beverage industry. More people will choose to save the tax (on a 20 ounce soda it is $.30) and start to drink diet sodas. The beverage industry will make more profit, no weight will be lost, and for those people that are stuck buying regular soda they are forced to pay the tax, Philadelphia found a sneaky way to collect more taxes.

For those people that really want to drink soda, this will encourage people in Philadelphia to just drive over the bridge and do more shopping in New Jersey (where there is a tax on carbonated beverages, but not noncarbonated beverages and other foods), Delaware (where there is no sales tax) or just simply go over the border into the neighboring communities in Pennsylvania.

Once again, this is another political attempt to to pretend that politicians are doing a good law, when in fact they are just simply raising taxes. This is really a dumb idea!

Thursday, June 02, 2016

European and State Governments Squeezing Businesses for tax Dollars!

European governments are attacking American businesses trying to get as much tax money as possible. The latest leader in this witchhunt is France. They are not only going after companies for large civil taxes but they are at going after the businesses and the employees of the business for criminal penalties and possibly jail. Leading the list are Google, McDonald's and All these companies have some relationship to France by having services sold through subsidiaries, but the French do not care about legal structures of business. They just want their tax!

This sounds a lot like many State governments. New Jersey is always trying to find "nexus" to pull in out-of-state businesses as being subject to New Jersey taxes. Also any business located in New Jersey is subject to grueling sales and use tax audits and lengthy appeals and court hearings. It is a real problem particularly when the company tries to handle it themselves or have an accountant represent them in the tax audit process instead of a tax attorney.

Thursday, April 28, 2016

Prince Estate  loses "Prncely" sum!

Prince may have known music, but he forgot to plan for his family.  Like 70% of America,  he died without an Estate  Plan or Will. As a result, the IRS and States will get about 50% of his estate. All of his hard work goes to the Government rather than his family  and the charity of his choice.  So sad!

I  wonder how many readers don't have a current Will and Estate Plan?

Friday, April 15, 2016

European governments attack business!

Thursday, European governments got together to attack people trying to own and control their businesses anonymously. The governments of France, Britain, Germany, Italy and Spain got together to create laws and try to enforce treaties to force banks and governments to reveal owners of businesses in other countries. For many years the high tax countries such as the US and Europe have been trying to find ways to attack developing countries from encouraging people to start businesses. Obviously if the business can be run in a lower tax jurisdiction it is prudent for the business owners to do that. Now, with the release of the "Panama papers" which were thousands of stolen documents from a Panamanian law firm listing the names and ownership of Panamanian registered companies, European governments are using this as an excuse to limit freedom of their citizens.

This follows the actions by the Obama administration in the US requiring extensive financial reporting under threat of jail time for Americans that own foreign businesses.

These actions are a great boon to residence some of the other countries that do not have to deal with these regulations and high taxes.

Maybe the problem really is not business secrecy but rather is high taxes and worse, higher regulation for many countries.

Friday, November 27, 2015

Establishing an online business in the US - Corporations

Corporations - the traditional business

Corporations are the prime type of entity used in publicly traded companies, larger entities, and when the owners want a separate taxable entity from the individuals. A corporation is set up by filing a certificate of incorporation or articles of incorporation in the state of choice. In addition to getting a separate tax identification number, the corporation should have bylaws detailing the officers, the operation of the business and the amount of shares and any particular rights in different classes of shares. Liberation files a separate tax return and pays income tax on the income earned to both the state and federal governments. After pays taxes if it wants to distribute some of the profit to the owners, these distributions are called dividends and are taxed in the income of the shareholders. This can lead to the famous "double taxation" where the corporation is taxed and then the same income is taxed again at the shareholder level.

In order to avoid double taxation problem, there is an option to elect "S" status for a corporation. One of the core requirements to be an S corporation is that all of the shareholders must be either US citizens or permanent US residents parens green card holders on friends. This limits the option for most foreign owned corporations to being a C corporation only. Nevertheless, if an S corporation can be elected then the corporation files a tax return is usually taxed at the shareholder level rather than the corporate level. This eliminates the double tax issue but also there are number of restrictions as to the amount of shareholders and also the classes of stock. Unlike a C corporation which can have many classes of stock with different types of interest, an S corporation can have only one class of stock. It has a 2nd class of stock must simply be a nonvoting version of the first class of stock but otherwise have the same economic rights. This leads to the problem of "a shareholder being a shareholder. Quote that means a person owns one share of stock it is the same as another one share of stock and not different sets of rights if it is an S corporation. If it were irregular, or C corporation, shares can be set up to be preferred shares that may have rights to income, nonvoting shares, voting shares and other kinds of restrictions and benefits.

An advantage to non-US residents and citizens of having a corporation, particularly a C Corporation, is that the corporation is taxed not the shareholders. This means it blocks taxation of the individual shareholders on the income earned until such time as it is distributed as a dividend. It therefore allows a buildup of capital in the US entity.

There are other limited liability entities such as a limited partnership, but these are much less frequently used and are more complex to establish and operate.

Tuesday, November 24, 2015

Establishing an online business in the US - LLCs

The LLC is the most popular form of business in the US

The limited liability company is taxed like a partnership in the US as the default rule. There can be other types of taxation elected, but that is generally not advisable. The limited liability company is established by filing a certificate of formation or articles of formation with the state. This is like the cover page of a book. It s just a bare outline of the business. It lets the public know that the entity is formed. The legal documents which control the limited liability company is the operating agreement and a buy and sell agreement. The operating agreement establishes all the terms of the LLC, the rights of the membership, the control of the LLC, and its tax attributes. The LLC is an extremely flexible type of entity. Similar to a partnership, it is as flexible as the attorney and the owners can be in drafting the documents.

If the owners of an LLC simply adopt a form that they grab off the Internet or some service, they will be missing the main advantages of formation of the business. One example could be that you can have several different classes of membership interest. Control can be vested in one group and the investment return could be put in another membership interest. It is also good for expanding the ownership to new members without losing control.

Because of the extreme flexibility and the favorable tax treatment, most new closely held businesses in the US are limited liability companies. When a business is established, tax and business attorneys normally presume that the LLC would be the best choice of entity unless there are certain reasons to choose another form of entity.

It should be clarified that LLC's do not have to be taxed as either a sole proprietorship, which is known as a "disregarded entity" for tax purposes, or a partnership for tax purposes. The LLC can elect to be taxed as a regular corporation or as an S corporation. Even though those choices are available, there are only very limited circumstances where a person would set up an LLC and then lashed the other tax treatment.

Monday, November 23, 2015

Establishing an online business in the US - Partnerships

Basic Entities in the United States - Partnerships

Partnerships are similar to a sole proprietorship in that the individuals have personal liability. This means that each partner is liable for their own actions and the actions of the other partners. That is a big negative of the partnership versus a limited liability entity.

For tax purposes, partnerships are generally disregarded and the attributes of income and deductions are passed through to the individuals. That is why they are referred to as "pass-through" entities The partnership will file a federal partnership tax return as well state all partnership tax returns, but it usually does not have any taxable income at the partnership level. Rather, the taxable income is solely pass-through to the partners. Partnerships can also have some interesting tax issues. For example if people simply contribute cash to the partnership for their interest, it is easy. But if one person contributes cash and another person contributes assets, such as machinery and equipment or real estate, the basis of the asset in the partnership is dependent upon the basis in the individual member. This can present some interesting issues and differences between members and can result in different tax treatments for similar distributions.

Unfortunately, the personal liability of the individual partners for their own actions and the action of the other partners makes this undesirable for the operation of most businesses.In order to limit the liability of the owner of the business, it would be necessary to set up a limited liability entity. The two most popular entities in the United States are corporations and limited liability companies. Limited liability companies are a US creation and do not exist in most other countries. Corporations or other limited liability entities similar to that are available in many countries.

Thursday, November 19, 2015

Establishing an Online Business in the US

Basic Entities in the United States.

Anyone, even a non-US citizen and non-US resident can establish a sole proprietorship. This is simply operating the business under your own name. You have personal liability for the actions of any employees or any actions taken in the name of the business. The business can also have a trade name also known as a " doing business as" name which is typically filed with the state. The advantage of a sole proprietorship is simplicity. There is not much you need to do to set up the business other than obtaining a tax identification number and possibly a trade name certificate from the state. Depending on how the services are rendered are rendered, there may be some licenses that are required but for most online businesses that it is not necessary.

Another advantage of the sole proprietorship is that it is taxed on the individual tax return. There is no double taxation. The sole proprietorship is simply taxed at the individual level for both federal and state purposes. Nevertheless, a significant disadvantage of a sole proprietorship is that if you want to add an additional owner to the business, it gets converted into a partnership. This requires a change in entity, a change in taxation and other issues.

Wednesday, November 18, 2015

Establishing an online business in the US

Unlike many countries, you do not have to be a citizen of the United States, or a resident, in order to establish a business in the US. A non-US citizen and resident establish a business without having any kind of immigration visa or any special. That person will be treated the same as a resident and citizen of the US.

Also unlike many countries, the United States, is exactly what its name indicates: "states". Each of the 50 states, and the District of Columbia have different laws and requirements for establishing a corporation, limited liability company, limited partnership or any of the various business entities. Also just because a business is established in one state does not mean that it is authorized to set up an office, warehouse or manufacturing plant in another state. For example if an online business were established in Delaware, and decided to have a warehouse employees in New York, you need to have that Delaware corporation or LLC authorized to do business in New York. This would require state corporate filings as well as tax returns and payments. Therefore, setting up the business in the US can be a little bit tricky because of different state laws.

Forming a business in the US does not require any additional service. Most smart business owners retain a good tax and business attorney to form the business in the appropriate jurisdiction. This assures that the business is set up for tax purposes as well as for state and federal law purposes. Although an individual is allowed to establish a business on their own, and some people attempt this by using either the state's individual online websites or an on line service that promises cheap business establishment, in reality, it is a waste of money for most people.

At this point it is important for you to understand that setting up a business is not a commodity. You are not seeking documents, rather you are seeking advice. Determining the correct state where the business should be formed, the type of business entity, the tax treatment of the business entity, and the contracts and agreements with employees and independent contractors requires planning and thinking. It is not a matter of pressing a button on a word processor and printing out a document.

The only people that are trained and authorized to provide services for the tax and business law planning are tax and business lawyers. Even though other people such as accountants, financial planners and companies promising all kinds of benefits attempt to do this, they are not providing the real service that you need. The service is the thinking, the planning and designing the actual organization