New Tax on Medical Devices

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Beginning on January 1, 2013, medical device manufacturers will have to pay a 2.3% tax on the gross income from many of their products.

The excise tax is on the medical device manufacturers and importers (who) will now have access to 30 million new customers due to the health care law.

~ Treasury Department spokeswoman, Sabrina Siddiqui

I’m not sure what is meant by this statement.  She appears to be justifying the new law in hopes that these companies won’t see it as the tax problem that it is.  She appears to be saying that the new tax should not be difficult to pay since medical device makers will have so much more business under Obamacare.

The new tax does not cover over-the-counter medical products such as hearing aids, eyeglasses, or cotton swabs.  It mostly applies to devices used by doctors and nurses inside medical facilities. There seems to be some ambiguity in the law with respect to items that could be considered medical or non-medical, such as latex gloves. Job security for the tax attorney, I suppose.

Year-end Tax Tips

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Tax attorneys typically come in two flavors.  There are those who help you to avoid tax problems through tax planning.  These tax attorneys will advise you on the tax consequences of transactions and will help you to avoid paying more taxes than necessary.  And there are those who try to clean up the mess that has happened through poor tax planning.  These “tax relief” attorneys will help you with tax controversies and help you in situations where you owe taxes and cannot pay.  Our firm focuses on the latter, but today I want to pass along a few tax planning tips from Fox News writer, Kay Bell.  These are her year-end tax strategies, and they are specifically geared for what may lie ahead for us in 2013 (i.e., the “fiscal cliff”):

  1. Accelerate your income into 2012, if possible, to avoid having to pay higher taxes at a higher rate next year. However, be careful you are not illegally manipulating when you receive the income; the IRS looks at when you had a right to the income.
  2. Take capital gains in 2012 to avoid potentially higher rates.
  3. Sell major assets that have lost value (unless capital gains tax go up in 2013).
  4. Get medical and dental work done now that you can still easily claim itemized medical deductions.
  5. But some may want to defer itemized deductions until next year in order to offset potentially higher tax rates.
  6. Convert your traditional IRS to a Roth IRA

As always, these are very generic tax tips and you should consult a CPA, tax attorney, or other tax professional who is familiar with your individual circumstances before making these types of decisions.

 

State of California Holding $14 million in Tax Refunds

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In these dismal economic times, so many hard-working citizens have tax debt up to their eyeballs and are desperately seeking tax relief.  It’s hard to believe there are taxpayers out there who let their refund go unclaimed or who don’t notice when it doesn’t come in the mail.  But every year state and federal taxing agencies publish data about the millions and millions of dollars in refund checks that bounce back to them due to a bad address.  Today the California FTB announced in a press release that it is holding over $14 million in refunds.

Granted, some of these refunds are so small that it is hardly worth a taxpayer’s time to call FTB and update his address.  But FTB stated that at the high end of the spectrum we’re talking about refunds in the $35,000 range.  I suppose some of these taxpayers are very wealthy and don’t need the money.  But I wonder how many of them have moved and don’t want the FTB to know their new address.  Or how many of these refunds are not claimed because the taxpayer knows they are the result of questionable tax strategies?

FTB reminds us that the best way to avoid the problem of a returned refund check is to sign up for direct deposit.

Communist Taxes – No Longer an Oxymoron

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Very few people in the United States could possibly remember a time when there were no income taxes, since Uncle Sam has been collecting them for the past 100 years now.  But in the communist nation of Cuba, few people remember what it is like to pay any kind of taxes at all.  Taxes are usually imposed on people who earn money for themselves and accumulate property; communists work for the state.  It will be interesting to see how Cubans respond to the comprehensive new tax code that goes into effect beginning next year.

The state-run businesses which turn all their earnings over to the government appear to be on their way out in Cuba.   The government will still be getting its share, but now through steep taxation instead.  How someone making $2000 per year can afford to pay a 50% tax, I’ll never know.  Many Cubans will need tax relief from day one, or they won’t be able to feed their families.  The plan is to codify 18 other taxes as well (inheritance tax, property tax, sales tax, etc.).  And what about tax collection?  It is a problem in the U.S. even after 100 years, so I expect it will be an even greater challenge for the government of Cuba.

Bill Would Allow IRS to Levy Federal Employees More Easily

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A new bill making its way through the legislature would allow the IRS to levy Thrift Savings Plan (TSP) accounts.  A TSP is offered to employees of the federal government as a way to save for retirement and is modeled after the private sector 401(k).  But unlike a 401(k), a TSP has always been safe from IRS levy due to provisions in the original 1986 statute.  If this bill makes it past the Senate and becomes law, which is expected to happen before the end of the year, the IRS will be given an additional arrow in its tax collection quiver.  Federal employees have always been vulnerable to wage garnishment and bank levy if they have delinquent tax accounts, but now their TSP accounts won’t be safe either.  Compared to other taxpayers, civil servants are generally better about paying their taxes (an impressive 96% compliance rate).  However, this new legislation is supposed to result in collection of more than $24 million in revenue over the next 10 years due to the sheer number of present and former federal employees.

If you Don't Have a Friend Like Sheen

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Not everyone has a Charlie Sheen they can turn to when the IRS comes knocking.  You can blame your accountant for your IRS problem, or you can blame your ex-spouse, or you can blame the economy.  But chances are the IRS won’t care whose fault you perceive it is; they will just want the tax debt paid.

It is human nature to try to ignore the problem for as long as possible.  We procrastinate and we hope it will go away on its own.  Some of our clients don’t file returns when they become due for fear of incurring more and more debt.  However, in most cases, failing to file only makes things worse.  Some people ignore IRS notices or don’t even open IRS mail when it comes — again, this is not the best course of action.

The best way to get back on track with the IRS is to file all past-due returns and face the problem head-on by getting in touch with a tax professional as soon as possible.

Three Projects for the New Commish

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Forbes contributor Stephen Dunn recently blogged about the challenges facing the presently-unnamed IRS Commissioner.  He identified three problems that he feels should be given serious attention once the new commissioner takes office.

1. IRS practioners need a more efficient way to get their hands on taxpayer transcripts.  It is inconceivable that Dunn, as a 27-year tax attorney, would be unable to gain access to his clients’ transcripts through IRS’ E-services.  However, I can personally attest to the complications involved in registering for E-services.  There is no reason why a tax attorney should have to call the IRS simply to order transcripts.  The procedure needs to be simplified.

2. The IRS should change its federal tax lien (FTL) filing procedure.  Dunn believes that the current practice of public lien filing opens the door for abuse by shady tax resolution firms who use lien lists to mass mail thousands of fliers encouraging recipients to call for tax help.  I can see his point here too, even though the abusive tax lien mailers are pretty easy to spot.  Instead, Dunn proposes a solution whereby firms or individuals would have to affirmatively request FTL information from the IRS instead of having that information available to the public.

3. The IRS must stop sending out refunds based on fraudulent 1099 forms.  This popular scam has truly gotten out of control, with millions of dollars being paid to criminals each year.  And it really needs to be prevented on the front end because after the refund has been paid, it costs way too much to try to get the money back.

The new commissioner is certainly going to inherit a large “to do” list.  This is only the start.

Tax Considerations for MLB Free Agents

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Major League Baseball (MLB) free agents should consider the tax consequences of playing for a team located in a high tax state.  Players always go into negotiations with their agent at their side; should they maybe have a tax attorney on their other side?  Tax relief — it’s one of many variables that can be considered when changing teams, but it’s typically fairly low on the list of considerations.  Of course the teams located in states that do not have income taxes are going to flaunt that little benefit as much as possible (i.e., Seattle Mariners).

Due to Obama’s tax increase on salaries above $200,000 and the expiring Bush tax cuts,  taxes will increase for all MLB players beginning January 1, 2013, regardless of the teams they play for.  Thus, many free agents are negotiating for front-loaded deals that pay out as much as possible before the end of the year.  See full article for more information.

The Sacramento Gold Dust Mystery

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In these days of FATCA and offshore accounts, for some it is hard to imagine those days when the preferred place to hide money was under a mattress or in a backyard hole.  There could be many reasons for wanting to conceal one’s true wealth, but few of them tend to be very honest.  Although, I suppose some people just don’t trust themselves to spend their own money responsibly.

The technicians at Clark & Rush, a Sacramento-based heating & A/C company, found $300,000 worth of gold dust packed away in 12 old baby food jars.  They happened upon the stash in September while doing an installation on an old home in Sacramento.  The gold dust was given to the homeowners who requested that their names not be made public.  Looks like somebody has some secrets.

Some people try to illegally hide money and assets from the IRS, and there is literally no end to the creativity.  But whether it is done in an effort to pay less taxes or to escape the collection arm of the IRS in an asset seizure situation, it is the wrong approach to tax relief.  No competent tax relief attorney will ever advise you or help you to do this.  A tax attorney will assist you with tax avoidance so that you pay only as much as you are legally required to pay, but will never help you with illegal tax evasion.

IRSAC 2012 Report, Part II

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Identity theft is another prevalent issue for the IRS and another topic that the IRSAC has attempted to address in its report.  But I don’t think their recommendation for curbing identity theft would be popular with most taxpayers who (mistakenly) see their April refund check as the ultimate form of tax relief:

The IRS should strongly consider delaying refunds until after verification of the taxpayer’s identity. For taxpayers that rely on an early refund in January, the IRS should consider a process under which 25 percent of the refund is issued prior to verification, and the remaining 75 percent issued after verification.

Everything the IRS has done up until now has been aimed at speeding up the refund process and shifting over to a “real-time” tax system.  See IRS Real Time Tax Initiative.  But with the onslaught of fraudulent refunds obtained by using stolen identities, the IRS may have to backpedal somewhat.  The thought of having to wait a little longer will be very frustrating to the average taxpayer.  I imagine it would be somewhat like having to go back to a dial-up internet connection after being accustomed to DSL.  Of course, from a tax attorney perspective, the solution is to adjust your withholdings so you don’t end up with a huge refund in the first place.