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Danbury Tax Law Blog

A bit about use tax and how it affects business owners

In Connecticut, business owners have to pay various taxes to the state. Failure to pay all applicable taxes can have significant consequences. There is one type of tax that some may not understand or think applies to them, and that is use tax. This week, this column will discuss a bit about use tax and how it varies from sales tax. 

Sales tax is the money collected by business owners on items that the state requires to be taxed. This money is then forwarded on to the Department of Revenue. Use tax, however, is money business owners need to pay for items they purchase in or out of state, for use in state, only if the retailer collected no Connecticut sales tax. 

Common income tax problems some will see this next tax season

The 2020 tax season is not too far off. That means that Connecticut residents only have a short time left to address some issues so that there are not problems when they eventually file their income tax returns. What are some of the common problems people are expected to deal with this coming tax season if they choose not to take action to address specific issues now?

Problem number one: Failure to pay estimated taxes or the underpayment of such taxes. Quite a few Connecticut residents are self-employed. These individuals are generally required to pay estimated taxes throughout the year. Failing to do so or failing to pay enough could result in one owing a lot come April.

Is your passport at risk because of tax debt?

Falling behind on your taxes is not difficult. Each year, you complete your tax forms and find you owe even more than the year before. You may try adjusting your withholding as much as you can and still be able to pay your bills, but your debt to the IRS keeps growing. In fact, at some point, you may have even decided to put it out of your mind since you couldn't possibly catch up.

Unfortunately, the IRS will not put it out of mind. For those whose overdue tax bill is more than $52,000, the government is ready to enact a new method of enforcing payment. If you are one of many in Connecticut who travel outside the country on a regular basis, you may want to reach out for help dealing with your tax debt before the U.S. State Department places travel restrictions on you.

How the SECURE Act will affect taxes

Anyone who keeps up on the news has likely read or heard about the Setting Every Community Up for Retirement Act that recently passed the House vote. The Senate is set to vote on it, and it is expected to pass without issue. The name of the bill certainly sounds like it is meant to help people, but will it? In the end, it will affect how much people in Connecticut and elsewhere have to pay in taxes. 

The SECURE Act will change the way that retirement funds are distributed when their account owners die. If someone names a beneficiary to their account, currently, that beneficiary can slowly withdraw the funds over time, which will limit his or her tax liability. The proposed law will make it so that account funds have to be fully removed in 10 years -- 5 years if the account does not have a designated beneficiary -- with a few exceptions. This will increase the recipient's taxable income, therefore increasing his or her tax burden.

The consequences associated with tax evasion

Tax law is confusing. Paying taxes is not always a straightforward thing. Many Connecticut residents do their best to file and pay on time, but some make mistakes or let their taxes slide. Those on the latter side of this equation could face some severe consequences if they are ever accused of committing tax evasion.

Tax evasion is purposely avoiding paying taxes or lying on tax returns in order to reduce the amount owed. The consequences for such actions include jail time and fines, on top of paying the taxes owed along with any interest and penalties tacked on by the Internal Revenue Service. At the end of the day, committing tax evasion is just not worth it.

Connecticut fighting to keep charitable deduction tax benefit

For a long time, taxpayers in Connecticut have been able to fully deduct state and municipal tax payments on their federal returns. Law changes, which took effect in 2017, ended that tax benefit for the time being. As such, the state of Connecticut created a workaround, which allowed residents to make charitable contributions to local organizations so they can claim higher deductions on their federal returns. While this seems a reasonable solution to the problem, the Internal Revenue Service responded by saying such contributions could not be deducted.

According to a recently published article, the Attorney General filed a lawsuit in federal court seeking a rule change. To goal is to walk away from court proceedings with the right to allow Connecticut residents the ability to claim full deductions on charitable contributions that they make toward local organizations. This would help numerous residents of the state reduce their tax burdens.

The following things raise your risk of being audited

Filing taxes can be a pain. No one wants to go through this process every year, and no one wants to pay more than they think they should have to. There are certain things some Connecticut residents may do when completing their taxes to help lower their tax liability. Unfortunately, some of those things may increase one's odds of being audited. What does the Internal Revenue Service look for when deciding who to audit?

In short, the IRS looks for anything out of the ordinary when determining if an audit is called for. With limited staff and resources, fewer people are being audited than ever before. According to reports, roughly 0.6% of all individual tax returns end up being flagged for audit. This does not mean that now is the time to push certain things through in hopes that one will not get caught. 

Do you have concerns over payroll taxes?

When you first started your own company, you may not have anticipated its growth. Now, rather than running a solo operation, you have employees who work for you. While that may make you feel important and proud because it means that your company has grown and seen at least some successes, it also means you have more responsibilities.

In particular, you have the obligation of processing payroll for your employees. This includes addressing payroll taxes. Of course, when it comes to handling any type of tax obligation, complications can ensue, so you certainly want to make sure that you handle your payroll correctly.

Connecticut tax crime: Man sentenced in tax fraud case

Tax fraud is something that the state and federal governments will not treat lightly. Those accused of committing this type of tax crime, if ultimately convicted, could face some severe consequences. A Connecticut man just found this out the hard way.

A news article was recently published about a West Haven business owner who was accused of writing off personal expenses as business expenses, using his business credit card to cover personal costs and understating his income for several years. The 62-year-old pleaded guilty and was just recently sentenced to probation for a period of three years. He is to remain at his home for the first six months. He is also to pay a fine of $2,500 on top of the restitution he has already paid to the Internal Revenue Service -- which totaled near $300,000.

Changes to taxpayer rights

On July 1, 2019, a bill was signed by the president that is intended to protect taxpayers. Taxpayer rights are not new, but many felt that changes to these rights were long overdue. How will the Taxpayer First Act of 2019 benefit Connecticut residents?

Benefit number one: Change in the reviewing of innocent spouse cases. When married, one might face certain tax issues due to the actions of a spouse. Filing an innocent spouse claim is possible to seek relief when this happens. Unfortunately, many of these claims have been shut down and relief not granted. Now if that happens, those filing have the right to request that their petitions be reviewed in court for fresh eyes to look into the facts of the case before the granting or denying relief.

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