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At the request of Senators Carl Levin (D-Michigan) and Tom Coburn (R-Oklahoma), the Government Accounting Office (GAO) recently conducted a study of the actual tax rates paid by companies that had $10 million or more in assets, a recent article from The Hill has reported.
The subsequent report revealed that in 2010 these large, profitable corporations paid an effective federal tax rate of 12.6% in spite of the fact that the statutory rate was 35%. 
Even when adding in local, state and foreign taxes, the rate paid climbs to only 17%.
How can that be, you ask. The answers lie buried in the Internal Revenue Code, which happens to be about 10 times the size of the Bible. Therein, savvy tax professionals find plenty of exemptions, deferrals, tax credits and other incentives which enable large corporations to dramatically reduce the actual taxes they must pay to Uncle Sam. 
Of course, the tax burden thus avoided gets shifted onto hardworking families and small businesses, many of whom at that point are paying a higher effective rate than the big boys.
According to Coburn, “giveaways and loopholes” bolster the case for comprehensive tax reform. I, for one, am skeptical whether any meaningful reform will ever see the light of day, but one never knows.
http://thehill.com/blogs/on-the-money/domestic-taxes/308781-gao
At one time or another we are probably all guilty of slipping a little “bizspeak” into our conversations.
But if you are really interested in acquiring clever phrases and made-up words to embellish your written (and oral) business communications skills, then you should check out a recent Harvard Business Review blog on the subject.
The buzzwords and phrases contained therein such as “right-sized”, “smart-sized”, “mission critical” and “paradigm shift” are only a few of the bizspeak expressions we are often subjected to in today’s business communications.
The author argues that your “plain-English skill set” really should be put to more effective use in your day to day communications. In other words, ditch the bizspeak expressions that are really just intended to impress your audience. Try to kick the buzzword addiction and lose the clichés.
So instead of “Thank you in advance for your courtesy and cooperation in this regard. Please do not hesitate to contact me if you have any questions regarding this request”, how about “Thank you. If you have any questions, please call”.
If you give it a try, “at the end of the day” you will be a much more effective communicator.
The IRS reported that National Taxpayer Advocate Nina E. Olson recently issued her annual report to Congress. In it she stated that tax reform was the overriding priority in tax administration.
“The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns”, Olson stated.
Since 2001, Congress has made nearly 5,000 changes to the tax code, an average of more than one a day, and the number of words in the code has approached nearly five million. To reduce the burden on taxpayers and improve the public’s confidence in the integrity of the system, the report urges Congress to simplify the tax code. If Congress were to eliminate all tax expenditures, i.e. income exclusions, exemptions, deductions and credits, the indications are that individual income tax rates could be cut by 44 percent.
The report suggests that a tax break should be retained only if a compelling argument can be made that the benefits of that break outweigh the complexity burden it creates. Does the incentive provided make sense? If so, can it be administered without imposing unreasonable burdens on either taxpayers or the IRS?
The report recommends that Congress take several steps, including:
To accomplish such a dramatic change in congressional thinking seems insurmountable, but the report does offer serious food for thought.
For tax years beginning after 2013, U.S. Citizens and legal residents, with few exceptions, will be required to maintain health insurance coverage.
A number of programs such as Medicare, Medicaid, eligible employer-sponsored plans, plans in the individual market, certain grandfathered group plans and other plans recognized by Health and Human Services (HHS), will be approved to provide this coverage.
The coverage requirement does not apply to:
Others may apply to HHS for an exemption due to hardship in obtaining coverage.
In a recent report, the Congressional Budget Office (CBO) has estimated that, beginning in 2014, approximately 6 million people will pay a penalty tax for not carrying this coverage. The monthly penalty for failure to maintain this coverage will be equal to 1/12 of the greater of a flat dollar amount or a percentage of household income (reduced by the dollar threshold for filing) starting at 1.0% in 2014, rising to 2.5% by 2016 and adjusted for inflation thereafter.
The flat dollar rate is set at $95 for 2014, $325 for 2015, $695 for 2016 and adjusted for inflation thereafter.
Since this estimate is considerably higher than the original 2010 estimate, get set for more heated political debate over the Affordable Care Act.
Next year, unless Congress acts before the end of 2012, year-end tax planning will be challenging. Since 2013 tax rates are set to go up, the conventional wisdom of deferring income into subsequent years should be reconsidered. 
Thus certain high-income taxpayers may want to actually accelerate income into 2012 rather than deferring income into 2013 when the tax rate will probably be higher.
If you expect to be in a higher tax bracket in 2013, there are a few tax planning strategies you should consider:
• Consider selling real estate, securities and other assets held more than one year in 2012, rather than deferring such gains to future years.
• The tax rate on qualified dividends could go from 15% to as high as 43.4% in 2013. Regular corporations and S corporations with excess earnings and profits should look at making dividend payments before the end of 2012.
• Business owners may want to consider pushing into a subsequent year such deductions as retirement plan funding contributions, year-end bonuses and other controllable expense deductions. Asset acquisitions eligible for Sec. 179 expensing could be deferred until 2013, and not electing the 50% bonus depreciation on 2012 assets purchased could be considered in order to increase depreciation deductions in later years.
• Estate and gift tax rates are set to rise from the current 35% rate to a maximum 55% and the lifetime exclusion is decreasing from $5.12 million to $1 million. Thus taxpayers with even modest sized estates should undertake a thorough estate plan review.
Of course, it is difficult to know if Bush tax rates will be extended again for all or just some taxpayers. However, you should be prepared to implement these strategies if tax rates go up significantly.
If you recently got an e-mail telling you that on January 1st all real estate transactions will be subject to a 3.8% federal sales tax, don’t believe it. That is simply not true.
The facts are as follows:
• First of all, the new tax is applicable only to the gain on sale, not the entire sales price.
• The tax applies only to single taxpayers with modified adjusted gross income in excess of $200,000 and married taxpayers with modified adjusted gross income over $250,000 if filing a joint return, or $125,000 if filing separately.
• The tax is actually only equal to 3.8% of the lesser of the taxpayers’ “net investment income” or the amount by which their modified adjusted income exceeds the threshold amount.
• Only taxpayers with modified adjusted gross income over $200,000 (or $250,000 if married filing jointly) who sell their principal residence AND realize more than $250,000 in GAIN ($500,000 if married filing jointly) will be subject to the 3.8% tax and only on the amount of gain they realize OVER the $250,000/$500,000 threshold (and on their other net investment income).
During the 2011 Nevada state legislative session the specter of a Texas-type margin tax was raised as a replacement to the Modified Business Tax we now “enjoy”. Fortunately, it never got traction. But guess what? Its back and now it is being proposed in ADDITION to the Modified Business Tax, not in lieu of.
How would this new Margin Tax work? It seems simple enough, but the devil is in the details.
As proposed, the tax would apply to firms with annual taxable revenues over $1,000,000. Such entities would have to pay a 2% tax rate calculated on a tax base of their choosing:
Having to choose amongst these various tax bases makes the process considerably more complicated, partly because the costs included in “cost of goods sold” can be subject to interpretation. Furthermore, such a tax could potentially penalize businesses that are actually incurring net losses due to other operating expenses, but still have a positive gross profit.
The Texas margin tax has been judged an abject failure. Let’s hope we here in Nevada do not step into the same trap that has ensnared Texans.
Our nation’s founders believed in certain core values that have served as the foundation upon which this great country has survived and thrived – prudence, thrift, limited debt, savings and stewardship. However, in the last several decades, our country and many of its citizens have strayed off course. Our future is now at risk. If we do not address the huge structural debt we face and re-order our nation’s finances, our position as a world leader and our overall standard of living is in jeopardy.
Our policymakers can address our fiscal challenges in a pre-emptive prudent manner OR they can wait for a crisis to provide political cover. Clearly, the preferred choice would be to put our fiscal house in order now, but this will require reasonable compromise and a healthy dose of political courage.
When you combine all our known liabilities with our various commitments, contingencies and unfunded debt, as of September 3, 2010 the U.S. was in a $61 trillion hole! That amounts to over $200,000 per person and over $500,000 per household. Contrast this with an annual median household income in America of about $50,000.
From a comparative standpoint, the U.S. now ranks 28th out of 34 for major nations in fiscal responsibility and sustainability, according to the recent Standard University Sovereign Fiscal Responsibility Index, which is essentially a fiscal fitness index.
It is time for our policymakers to design and implement a plan that will allow the U.S. and its people to move into a better fiscal neighborhood for our collective future.
Information for the preceding was taken from a report published by keepingamericagreat.org
So you think you have financial issues? Just listen to what Nina Olson, National Taxpayer Advocate, has to say about the IRS. In her annual report to Congress she suggested that the IRS’s increasing workload and declining resources are the most serious problems facing taxpayers. So how does she connect the dots to conclude that this is a “taxpayer” problem?
She reasons that the resulting inadequate taxpayer service, erosion of taxpayer rights and reduced taxpayer compliance are causing harm to the taxpayers. That’s how! I don’t know. Seems to me like an IRS problem rather than a taxpayer problem. But, then again, doesn’t the taxpayer always get stuck with the tab?
But wait. Maybe there is a solution that doesn’t stick the taxpayer with the bill. It turns out that increasing funding for the IRS might actually be a good investment. Current inadequate funding contributes to many of the problems facing today’s IRS. When the federal individual income tax was first enacted in 1913, it applied only to high-income taxpayers, which totaled about 358,000 people. That total today stands at 141.2 million with one tax return for about every two people in the United States. And believe me, the returns are a lot more complicated now than they were almost 100 years ago.
It seems that as the collection agency for the U.S. government, the IRS does a pretty good job. On a budget of $12.1 billion, the IRS collected $2.42 trillion in fiscal year 2011. That is to say that for every $1 that Congress appropriated for the IRS, it collected about $200. Now with the current “tax gap” at about 15%, every household is paying an annual “noncompliance surtax” of about $2,700 to enable the federal government to raise the same amount of money it would have collected if all taxpayers had reported their income and paid their taxes in full.
While I doubt that appropriating an extra $1 would produce the same collection rate when applied to the last 15% of noncompliance, I’ll bet it would provide an attractive return on the investment.
Did you ever wonder how many people do not actually pay their taxes under our “voluntary compliance” system here in the United States? Well, it turns out that the latest IRS estimates show about 15% of the total tax liability owed for 2006 was actually collected.
This rate is virtually unchanged from the 2001 compliance rate and amounts to $450 billion for 2006. This represents a $105 billion increase over the2001 estimated tax gap of $345 billion. Enforcement efforts and late payments reduce the net tax gap to $385 billion for 2006 which is still $95 billion greater than the $290 billion net tax gap in 2001. While these numbers are staggering, the growth in the tax gap somewhat mirrors the growth in total tax liabilities. Furthermore, the increased estimate may well result from better data and improved estimation methods.
This “tax gap” results from three different types of non-compliance: failure to file, underreporting taxable income, and underpayment of amount of tax due. Underreporting of income continues to be the largest contributing factor to the 2006 gross tax gap accounting for $376 billion of the $450 billion total. Tax non-filing and underpayment of tax accounts for $28 billion and $46 billion, respectively.
As you might imagine, non-compliance is lowest where there is third-party information reporting and/or withholding, such as wages and salaries. Conversely, amounts not subject to information reporting had a 56% net misreporting rate in 2006.
Just think how much progress we could make towards reducing our horrendous deficit if this gap were closed!
