The Small Business Tax Help Blog

Archive for June, 2009

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

We often hear talk of the “hidden pleasures” of life, the little things, like enjoying the Sunday paper or catching the fleeting glimpses of a sunset. And as everything seems to have an inverse in this world, there are also “hidden antagonisms” of life, little nondescript and unapparent tortures which spring upon us at our most misfortunate position. Often they come in unassuming yet ominous forms, as is the case of one particularly devilish horror: Form 505 or The Maryland Nonresident Income Tax Return.

Its full name should give some clue as to the nature and power of the Demon, this is no lesser creature; it comes fully charged with the powers and relentless malevolence of a tax collector. However, its most insidious characteristic is one which we are at fault for: the ignorance of its existence. And this is one situation where ignorance has a steep price.

The scheme behind it is simple enough: anyone who has an investment in Maryland, such as a rental property or a sole proprietorship, should be taxed at Maryland’s exorbitant rates, regardless of whether they live there. The taxpayer is usually not warned that they must file anything and years can pass before they ever find out that they needed to file a MD form 505. If you work with a certified public accountant (CPA) he/she should pick up on this and advise the tax payer of their liability if there is one. Since this is common, Maryland can work with the taxpayer to file past returns and keep them in compliance.

For Example, consider this fact set:

Say you owned a rental property in Maryland from 2003 to the present while you held residence in Virginia. Today you have a net of $380k on the property which at 7% makes the Capital Gains tax $26.6k. Also, let’s say you earned $35.2k in income from the rental property which you paid taxes on in Virginia and you never filed a Form 505.

Today if you tried to dispose of the property you would be responsible for the cap gains tax of $26.6k, all the back taxes never paid on the $35.2k in income (regardless of the fact you already paid them to Virginia) and subsequent penalties for not filing Form 505. Clearly, an investor’s paradise.

Again, talking to your CPA is important to find out how to work with the state that you never filed the nonresident return. Most of the time, if you filed the non resident return and paid the taxes accordingly, you can offset resident tax liability as a credit from the nonresident tax liability you have to pay. So going back to this example, if the tax payer would have to pay the nonresident tax to Maryland, he/she could have taken an offsetting credit up to the amount he/she paid taxes to Maryland on his/her Virginia resident return. This helps avoid double taxation. Since each state has different tax rates, the credit may not be dollar for dollar of the taxes paid to the non resident state.

The Solution?

If you are going to invest in rental property or a business that is not in your state, consider speaking to your CPA or lawyer if there will be a nonresident state tax or other requirement for that state.

Personal bankruptcy filings rise fast

More people with high income and high education levels are among the 1.4 million Americans who filed for bankruptcy protection last year.

IRS Wage & Investment Commisioner Byrd Speaks about the EITC

Justice Department Files Six Lawsuits to Enjoin Preparation of Fraudulent Federal Income Tax Returns

Return Preparers Allegedly Prepared Thousands of Federal Income Tax Returns with Fraudulent Deductions & Credits Resulting in Millions in Lost Revenue to the U.S. Treasury

2008 Earned Income Tax Credit

Tax reform talk grows in Kentucky

FRANKFORT – As Gov. Steve Beshear and legislators prepare to tackle a $1 billion state budget shortfall, there is increasing interest in tax reform — and sharp differences about what it should include.

Small Business Tax Advice – Start-up Costs & Education Deductions – Part 10 of 10

Question: Small Home Business Tax Help (Canada only)?

I started a small home based business (Avon) primarily so I could potentially save on taxes (I’m a student who needs every cent I can get).

Could any tax experts or other home business owners please tell me:

-How much money do I need to make in order to claim write offs/tax credits? Do I just not claim my income if it’s below this amount?
-What exactly can I write off?
-What other tips and tricks should I know?

Thanks!

Answer: There is no specific amount of money that u need to make in order to claim the write offs and credits. However, the guideline is that there has to be a reasonable expectation of profit, meaning that your business will probably generate income (after expenses) someday.

The fact that you are a studuent and that your goal appears to be claiming taxes and credits may make your business not having a reasosnable expectation of profit. My tax exeperiences with home based comestics and amway business indicate that these "self employed" part-time persons get reassessed to disallow their expenses by the CRA for not having reasonable expecation of profit. Periodically, the CRA has audit projects on these self-employed businesses like yours. Most ended up with their expenses disallowed, and thousand $ of comestics, or tupperware sitting in their basement (not sold). In your case, you might end up with comestics that you will use yourself for years or decades. The only person that makes money is your supplier selling you the stuff. A waste of time and money.

But dont let the above discourage you. You might have a chance to make money and therefore eligible to claim expenses if you have a good business plan, and know lots of people and friends who will be your customers.

If allowed, you can deduct any expenses to earn the income, which include cost of housing space for your office and storing your supplies, CCA of office equipment, car expenses, etc. See attached link for other expenses http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/menu-eng.html

GOLDX(TM) to Offer 30% Tax Credits to New BC Investors

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Jan. 7, 2010) - CDN Gold Exchange Corp. ("GOLDXT") - GOLDXT which is being launched as a leading web based exchange for trading in allocated gold bullion and gold linked structured products announced today that it will begin offering BC investors 30% tax credits pursuant to a $5,000,000 financing which it expects to close shortly. CEO J. Bradley Hall ...

Dion Economic Vision Part 1 of 2

If it feels like your refund’s pokey, you’re not alone

Preparing taxes is nobody’s idea of a good time, but for most taxpayers, there’s a payoff: a sizable refund check. This year, though, residents of several states, including New York, will have to wait to receive their state tax refunds because of budget shortfalls.

How to Calculate for Salary, Withholding Tax, etc. (Part 2)