Boston Tax Law Blog

Tax Day 2018 has almost become a live blogging event. The IRS reported that its computer systems are “experiencing technical difficulties.” The extent and the cause of the outage were not specified. The agency recommended filing as usual.

The issues may affect the ability to make direct payments as well. The Wall Street Journal reported a congressional aide familiar with what was going on believed it to be a hardware failure and the agency was rebooting systems.

The beginning of April is a very popular time to talk about tax refunds; unless, of course, you are poised to owe Uncle Sam money. Nevertheless, it is still important to think about your tax return in terms of the interest free loans that you may be giving to the federal government because of the withholdings in your paycheck.

It is a common norm that taxpayers who have too much withheld in taxes through their monthly (or weekly) paychecks stand to receive a refund after they file their annual return. This brings about a highly debated question: is it better to receive an income tax refund or a larger paycheck?  

The Foreign Accounts Tax Compliance Act (FATCA) is now operational and the Internal Revenue Service is reportedly poised to start issuing penalties for non-compliance. FATCA requires foreign banks to disclose to the federal government Americans who have foreign accounts with more than $50,000. The 30 percent withholding penalty on foreign transactions was supposed to be a deterrent; but with few withholdings taking place and more to come, the deterrent may not have had its intended effect.

However, it appears that the IRS is getting ready to make good on its promise to get tough on foreign depositors. FATCA requires banks to inquire as to whether you are compliant with federal law. And the list of banks that show up in the IRS’ Offshore Voluntary Disclosure Program (OVDP) is growing.

While the potential for a startup company to be worth millions of dollars after inception drives many entrepreneurs, the reality is that new businesses do not always realize a profit in their first year of operation. Some many not may not make money for a couple years before becoming profitable (e.g. Amazon). During this period, new businesses may not be required to pay federal income taxes (because of the lack of profit), they still must be responsible for payroll taxes; an expense that is not tax deductible, of course.

However, federal law now enables small startups to take advantage of tax breaks that large enterprises have been benefitted from for years. Essentially, startups may claim the coveted research and development credit (R&D credit) that could help in securing the additional cash that small businesses covet.