Chicago Tax Lawyers

There has been a fair amount of reporting about the Internet Tax otherwise known as the Marketplace Fairness Act of 2013.  Some of the reporting speculates that small sellers and small businesses would be unduly prejudiced by having to collect sales tax for the thousands of sales tax jurisdictions in the United States.  Without the resources a large retailer, it is near impossible for a small business to keep track of all the taxes thereby giving the large businesses a distinct advantage.  Yet, a closer reading of the proposal working its way through the Senate reveals two little talked about provisions which, if they survive into the final Act presented to the President for signature provide some relief to this tax collecting burden.

The first little talked about provision requires “Minimum Simplification” of the administration of audits and collection and “streamlined filing”.

The second little talked about provision provides a “Small Seller Exemption” for businesses whose annual online sales do not exceed $1,000,000.00.

It will be interesting to see if these two provisions find their way into the final Act thereby offsetting some of the disadvantageous disparity between large businesses and small businesses.

Horowitz Law Offices represents clients in Illinois Sales Tax, Illinois Use Tax, Illinois Motor Fuel Tax and other Illinois Department of Revenue Matters.  Please contact us for more information.

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Recent news includes President Obama seeking to forestall sequester cutbacks with a cost cutting and revenue raising package.  The revenue raising focuses not on rates as did the American Taxpayer Relief Tax Act.  Rather, the revenue raising is reported to be through closing tax loopholes.  The exact difference between closing tax loopholes or income tax rate increases is somewhat a matter of perspective.  Whatever it’s called, at the end of the day either the amount of tax you pay goes up or goes down.

Details at this point are scarce although digging deep into some of the available information indicates the  guidelines for closing tax loopholes and in fact the definition of what a loophole is revolves around tax breaks,  deductions, credits and other tax reduction mechanisms that are not widely used by the majority of the country.  Although these loopholes are technically available to every taxpayer, the typical taxpayer for example has no use for tax incentives available to large oil companies or a what’s known as the carried interest rule that affects hedge fund managers and other executives of certain investment vehicles.  It seems tax loopholes utilized by the widest group of taxpayers will be mostly unaffected if in fact the drafting stays true to these guidelines.

As a result, some taxpayers will not be touched by tax increases while other taxpayers utilizing less common tax loopholes will see a tax increase.

For more information on how this affects your tax situation or for assistance with other law concerns, contact Horowitz Law Offices.

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There has been much chatter of late about various states, Louisiana, Nebraska and North Carolina, to name a few, considering the repeal of their personal and corporate income tax statutes.  As you might expect, the idea engenders strong opinions from its supporters and its detractors alike.

Although many of the details of state income tax elimination plans are yet to be released, it is clear many of the tax elimination plans include increases to or adjustments to the state sales tax via elimination of sales tax exemptions.  Advocates of the changes say they would be revenue neutral.  Taxes lost from eliminating income tax will be covered by increased sales tax revenue.  Those opposed to elimination of state income taxes argue this will place a higher burden on those with lower income and magnifies by a large margin the inherently regressive nature of sales taxes.

Supporters of income tax elimination argue it will make their state more attractive to individuals and businesses and encourage them to relocate to that state.  This further helps the push for revenue neutrality.  A lower rate on a broader base can, of course, equal the revenue of higher rates on fewer people and businesses.  New businesses would also bring other benefits like jobs.

Looking deeper into the nature of a shift to sales taxes from income taxes is more broadly defined as a shift from an income tax structure to a consumption tax structure. From time to time this broader dimension is talked about on a national level.  Although the differences between an income vs. consumption tax system can get quite complicated, the briefest explanation is that consumption tax system avoids the taxing of savings and investments and these over time create more income to be taxed on a long term basis.  Said another way, the consumption tax system lets the individual to decide how to invest excess assets whereas the income tax system provides for the government deciding how to invest excess assets.  Put another way, income tax systems let the government decide how to invest  in the state and a consumption tax structure gives that power to individuals—which is likely to be the better decider is, of course, a subject of debate.

In general, those in favor of consumption (sales) tax plans over income tax structures tend to be more focused on the shorter term goals of bringing new businesses and jobs to their states and reducing the tax burdens of their citizens, while advocates for an income tax model often speak more to longer term investments.

For more information on this or other tax law matters, contact Horowitz Law Offices.

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By now, everyone knows the American Taxpayer Relief Act of 2012 raised the income tax rates for the highest earners to 39.6%.  Most everyone knows the American Taxpayer Relief Act of 2012 continued the estate and gift tax exemption of $5,000,000.00 per person or decedent ($10,000,000 for a married couple) adjusted for inflation (the 2013 exemption is estimated at   $5, 250,000).

Let’s discuss the consequences of this in your estate documents sitting your vault or your lawyer’s vault or a safe place in your home.  If those documents in 2013 are the same documents you had in 2012 or 2009, their consequences of implementation can lead to unsatisfactory results.

These exemptions which for the past two years have been substantially higher than exemptions in recent years have been temporary and this may have caused some to hold off on updating their estate documents.  Now that they are permanent, you will definitely wish to review your estate plan to ensure it takes best advantage of the new law.

Most estate plans establish a marital trust, a residuary trust and a generation skipping trust.  The permanent effect of the higher exemption when applied to documents drafted more than two years ago (even within the last two years if care was taken to avoid adverse results) can result in leaving substantially less or even no funds subject to unfettered control by your spouse.  Moreover, any amounts you thought you left to your children, are now in the hands of your grandchildren and your children received substantially less than you anticipated.

At the very least, you will want to review your estate documents to determine if inserting minimum amounts for unfettered distribution to your spouse and children is desired.

For more information on the American Taxpayer Relief Act of 2012 or for other tax law matters, contact Horowitz Law Offices.

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By now, everyone knows the American Taxpayer Relief Act of 2012 raised the income tax rates for the highest earners to 39.6%.  Most everyone knows the American Taxpayer Relief Act of 2012 raised capital gain and qualified dividends rates for the highest earners to 20% (before adding the Obama care 3.8%).  Some people even know the American Taxpayer Relief Act of 2012 reinstated phase-out’s of personal exemptions.  Finally, whoever has received a 2013 paycheck already knows their take home pay is reduced due to the expiration of the 2% Payroll Tax Holiday.

In this series of posts, we’ll look at some of the provisions of the American Taxpayer Relief Act of 2012 that aren’t getting as much coverage but which may have significant consequences to many taxpayers.

One of the topics not receiving as much coverage as other aspects of the American Taxpayer Relief Act of 2012 is the Alternative Minimum Tax (AMT).  For years, many taxpayers have been surprised to find themselves subject to the AMT.  A number of factors can lead to a taxpayer finding him or herself subject to the AMT.  As background, the AMT is a flat tax applied to all taxpayer whose gross income exceeds a certain amount.  Taxpayers must pay either their regular tax or their AMT, whichever is greater.  For several yeas, the cutoff for the AMT remained stagnant and required Congress to raise it.  The American Taxpayer Relief Act of 2012 provides from AMT to be automatically adjusted for inflation.

The point is, although tax rates for the highest earners have gone up, for some taxpayers the actual tax they pay will not if AMT is already higher than your regular tax.

For more information on the American Taxpayer Relief Act of 2012, alternative minimum tax, or other tax law concerns, contact Horowitz Law Offices.

Disclaimer.

By now, everyone knows the American Taxpayer Relief Act of 2012 raised the income tax rates for the highest earners to 39.6%.  Most everyone knows the American Taxpayer Relief Act of 2012 raised capital gain and qualified dividends rates for the highest earners to 20% (before adding the Obama care 3.8%).  Some people even know the American Taxpayer Relief Act of 2012 reinstated phase-out’s of personal exemptions.  Finally, whoever has received a 2013 paycheck already knows their take home pay is reduced due to the expiration of the 2% Payroll Tax Holiday.

In this series of posts, we’ll look at some of the provisions of the American Taxpayer Relief Act of 2012 that aren’t getting as much coverage but which may have significant consequences to many taxpayers.

Let’s discuss itemized deductions.  In the roll up to the passage of the American Taxpayer Relief Act of 2012 there was significant chatter in both the Democratic and Republican camps about limiting itemized deductions to $17,000.00 or $25,000.00 or a percentage of income.  The American Taxpayer Relief Act is passed on New Year’s Day and all the buzz is about phasing out itemized deductions at the $250,000 level for single taxpayers and $300,000 for married taxpayers filing jointly.  What is lesser reported is that Congress did not write a whole new itemized deduction limitation in frenzy to pass some form of tax relief.  Instead, Congress reverted back to the phase-out structure known as the PEASE limitations put in place by Republican George H.W. Bush (the father) through the Omnibus Budget Reconciliation Act of 1990 during the “read my lips”  “no new taxes” era.  What is not reported as widely is that under PEASE itemized deductions cannot be eliminated by more than 80% and all taxpayers will receive at least 20% of their itemized deductions.

And there is more.  Under current law, miscellaneous tax deductions such as unreimbursed employee business expenses and tax preparation fees are already have a limitation of 2% of adjusted gross income.  Therefore, for those taxpayers for whom unreimbursed employee business expenses represents a substantial part of their itemized deductions, your deductions are subject to two limitations and may bump them against the phase-out limit of 80% of itemized deductions.  Said another way, for sales people who pay for their own travel and entertainment, your itemized deductions may be more limited than first meets the eye.

For more information on how the Taxpayer Relief Act of 2012 affects you or for other tax law concerns, contact Horowitz Law Offices.

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As of August 2012, Illinois now has an official tax court–although it won’t begin operating until July 1, 2013.  The official name of the tax court is the Illinois Independent Tax Tribunal.  The Tribunal will operate closer to a courtroom setting rather than the much looser current system of hearings conducted by the Illinois Department of Revenue.

Several other states have preceded Illinois in creating official tax courts to resolve tax disputes of state tax matters including state income tax, use tax, sales tax, and other state tax matters.

For more information on the Illinois Independent Tax Tribunal, state tax controversies and disputes, or other tax law concerns, contact Horowitz Law Offices.

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Not everyone will be celebrating. August 2012 marked the second anniversary of the Illinois Attorney General’s crackdown on gas station owner’s unpaid sales tax.  Since the crackdown began 24 months ago, more than 30 indictments have been handed down against gas station owners and the month did not come to an end before the Attorney General added another indictment notch.   The indictment included charges of mail fraud and sales tax fraud which are both felonies. While making the announcement, the Illinois Attorney General signaled this is not the end of the enforcement crackdown. Rather, Attorney General Lisa Madigan promised future aggressive prosecutions.   In fact, law enforcement has a new tool to deal with underreporting and underpaying any Illinois Sales Tax in the form of a new crime entitled “Sales Tax Evasion”.

August 2012 marked the second anniversary of the Illinois Attorney General’s crackdown on gas station owner’s unpaid sales tax.  Since the crackdown began 24 months ago, more than 30 indictments have been handed down against gas station owners and the month did not come to an end before the Attorney General added another indictment notch.   The indictment included charges of mail fraud and sales tax fraud which are both felonies.

While making the announcement, the Illinois Attorney General signaled this is not the end of the enforcement crackdown. Rather, Attorney General Lisa Madigan promised future aggressive prosecutions.   In fact, law enforcement has a new tool to deal with underreporting and underpaying any Illinois Sales Tax in the form of a new crime entitled “Sales Tax Evasion”.

For more information on this or other tax issues, contact Horowitz & Weinstein.

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Earlier this week in a posting entitled Could Dealing With the IRS Become An Olympic Sport we compared the IRS position with regard to Olympic Medals s vs. the IRS position with regard to Oscar Statuettes awarded by the Academy of Motion Picture Arts and Sciences at its annual Academy Awards Ceremony.

In that previous posting, we pointed out the IRS agreed to value the Oscar Statuette not at its fair market value on the open market but rather its nominal value after the Oscar recipient signs an Academy of Motion Picture Arts and Sciences agreement not to sell the Oscar Statuette.  That is, not to value the statuette at the price one might expect to pay on E-Bay or at an auction house, but instead simply the price of the materials used to make it.

Going one step further is the case pending before the United Sates Tax Court of the Estate of Ileana Sonnabend, Deceased, originally scheduled for trial on October 22, 2012 although that trial date has been continued.   In what appears to be consistent with the IRS original view of the Oscar Statuette of the Academy of Motion Pictures Arts and Sciences, the IRS is seeking to value an art sculpture that includes a stuffed bald eagle which the Petitioners believe was killed and stuffed during the time of Teddy Roosevelt’s Rough Riders.  Since it is illegal to sell bald eagles the issue is whether the value is nominal because it cannot be sold on the open market or some other value which the IRS has computed as $65,000,000.00.  It has been speculated the sculpture could command a higher value if the IRS considers its value on the Black Market.

For more information on this or other tax law concerns, contact Horowitz & Weinstein.

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In recent days the IRS and the Olympics have become strange bedfellow .  Several articles have appeared discussing the two tax consequences of Olympic Medal winners.  The first tax aspect is the tax treatment of the cash awards given to Bronze Olympic Medal winners, Silver Olympic Medal winners and Gold Olympic Medal winners.  This is fairly straight forward: those cash awards are taxed at ordinary income rates.  Since it is presumed many of the Olympic Medal winners will have productendorsement deals it can be further presumed the cash awards will be taxed at the highest tax rates.

The second tax aspect though is the value of the Olympic Medal itself.  Many of the recent news articles focus attention on the precious metal value of the Gold Olympic Medals, Silver Olympic Medals and Bronze Olympic Medals with values ranging in the several hundred dollar range depending upon which Olympic Medal.  If that were the taxable amount then the tax due would be negligible.  What is not mentioned in the numerous articles is the value of the medal itself on the open market in places like EBay, Craigslist and other online auction and sales venues.  If an Olympic Medal were to be sold, then its value on the open market could be substantially more than its pure precious metal value.  In fact it is reported that several Olympic Athletes over the years have sold their Olympic Medal and then donated the proceeds to charity.

The interesting part is the precedent set by the Internal Revenue Service regarding the Oscar Statuettes given by the Academy of Motion Picture Arts and Sciences at their annual Academy Awards ceremony.  It is reported the IRS wanted to tax the intrinsic value of the Oscar Statuettes rather than just the material value (analogous to the pure precious metal value of the Olympic Gold, Silver and Bronze Medals).  Once again, it is presumed the intrinsic value is substantially more than the pure material value.  In fact, according to the reports, the Academy of Motion Picture Arts and Sciences avoided this tax treatment by agreeing to require Oscar Statuette recipients sign a “no sale” provision which presumably would drastically drop the value of the Oscar Statuette for tax purposes.

We are not aware of any such “no sale” provision regarding Olympic Medals which leads one to wonder whether some day Olympic Medal recipients will be dealing with the IRS over the value of their Olympic Medal.  If we were facetious we would speculate those negotiations with the IRS could become an Olympic Sport.

For more information on tax law concerns, contact Horowitz & Weinstein.

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