TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

Cash is a good way to get clobbered for taxes! For many years, small restaurants, bars, pizza parlors, ice cream stands, and other food establishments have used all cash systems to hide their income and not pay sales tax and income tax on the full receipts. In New Jersey, the Division of Taxation has created a very aggressive system where they make up excessively high mark ons from food and liquor purchases, and absolutely slaughter businesses that don’t keep good records. The way this tack works by the New Jersey division of taxation is they subpoena the records from the major food suppliers and liquor distributors. The tax authorities then compared the expenses listed on the tax return to what these third-party sellers reported. Often a business that is trying to hide income lessons the income reported but also lessens expenses but only slightly. The division of taxation then takes the actual expenses and uses very high multiples of the expenses to with the growth should be. Usin...

IRS Letter 5043 - New way IRS Attacks Small Business Attempt to get "Cash" businesses The IRS has been pushing for many years to capture cash income of small businesses and force him to pay taxes.  That is one of the reasons that the IRS is requiring credit card merchant service companies to report a 1099-K for businesses to the IRS.  This form lists the amount of credit card payments made to the business by its customers.  The IRS then takes this information, comparing it to the gross sales of the business.  If the business has too high of a percentage of credit card sales, the IRS issues a letter 5043. This letter starts out that "your gross receipts may be underreported."  This is the beginning of a long series of letters and correspondence which could eventually lead to an audit in an attempt to force businesses to report cash income.  Most of the letters seem to be going out to clients that are restaurants, pizza parlors, bars and other s...

Senate Misses the Boat - US High Taxes force Businesses to Move to Other Countries. (see Cat.com) Once again, Congress is focusing on businesses that have used smart planning in order to avoid the excessive US corporate and personal tax rates as well as the extremely complex compliance costs.  Instead of focusing on how to lower US taxes and make tax compliance easier and less expensive, the US Senate is now picking on Caterpillar as a so-called "tax dodge". The US has extremely high corporate tax rates of 35%.  This means if a corporation makes a $100 profit, it pays $35 federal tax (plus State tax which could be 10% or higher).  The remaining money when distributed to the shareholders gets taxed again at the shareholders rate which could be up to 39 1/2% plus State tax. So for example $100 of earnings would be $35 of federal tax, $10 of State tax leaving $55.  The $55 would be taxed at the individual level with a combined federal and State...

Lauryn Hill is out of Jail, but the IRS keeps Hounding Singer songwriter Lauryn Hill was thrown into jail for 3 months for tax evasion, with another 3 months of home confinement.  This is all based upon her following some scheme by phony tax advisors claiming that she did not need to file and pay income taxes.  Like many people, from physicians to celebrities, she fell prey to the tax protesters coaxes. The IRS had a great time spending tens of millions of dollars prosecuting her but got incredible amounts of publicity to scare other people into filing their tax returns.  That is the basis of our "voluntary" tax system. Without people being scared of being thrown in jail, the system would collapse. Now, just before the tax filing deadline, the IRS is using Lauryn Hill's name to keep scaring taxpayers.  This time they are announcing the filing of federal tax liens.  Even though she already had tax liens and obligations, the refiling of these to include a...

Are you Married for Tax Purposes? You are married for tax purposes as of December 31. So, if you were married on or before December 31,  2013, you would be single (or head of household depending upon the circumstances for the 2012 tax year, but you would be Married for 2013 . Even if you were married on December 31. 2013, you are married for the entire year. As a married person. you may file jointly with your husband or wife, or as married filing separately .  You may not file as single or head of household. Note, if you and your spouse are both employed, especially if your income is similar, you may end up paying more tax being married (especially if you previously filed as head of household.) This is called the "marriage penalty." Here is a handy marriage penalty calculator: Marriage Tax Penalty Calculator

Scam IRS Calls! I am getting many calls from clients and potential clients saying the are getting calls from the “IRS” and are given strange numbers to call.  These are scam telephone calls trying to get personal information such as social security numbers, dates of birth, bank account information so that they can take money from your accounts and uses information as part of identity theft rings.  One typical sign of the scam fraud is the caller stating “you were going to jail”. You will Never Get a Call from IRS without First Receiving a Letter In fact, you will never get a call from the IRS threatening you in any way about jail, criminal matters or demanding that you give them information over the phone right away .  Before you get such a call, you will get a written notice from the IRS.  These notices will demand payment of tax and will either be from the IRS/ACS which does have 800 numbers, or from a local “Revenue Agent” who is in IRS employee and collect...

Once again, New Jersey is being unnecessarily dragged through the mud. First, the unfounded attacks against Gov. Christie. Then, not correctly attributing the SuperBowl to the correct State (the Meadowlands is in NJ, not NY), and now Rob Andrews is getting the "tommy-gun" from the press in an attempt to ignore the real issues in our Federal Government. Rob Andrews is resigning from Congress under an ethical cloud.    This is unfortunate since he certainly has been a highly energetic and active Congressmen for Southern New Jersey.  Even though I disagree with many of his viewpoints, he certainly always had an open door to me and any other constituents. Years ago, I sponsored a dinner honoring James Corbett, a retiring member of the Camden office of the SBA.  Rob was gracious enough to come speak at the event, and lend his staff for event assistance. He was a hard-working Freeholder Director before he got into Congress and he never forgot how important local...