Supreme Court decision may open door for refund claims
If you earn income in multiple states, a recent U.S. Supreme Court decision may provide an opportunity for a tax refund. Comptroller of the Treasury of Maryland v. Wynne involved Maryland taxpayers who owned stock in an S corporation that did business in several states and, therefore, paid taxes on income apportioned to those states.
Like most states, Maryland offered its residents a tax credit for taxes paid to other states. But it allowed the credit to offset only the state portion, not the county portion, of its income tax. The Supreme Court found this unconstitutional.
If you live in a state with a similar income tax regime, consider filing a protective refund claim for open tax years to preserve your right to a refund in the event that Wynne is applied in your state.
Watch out for phone calls “from the IRS”
If you receive a phone call from someone claiming to be with the IRS, be very skeptical. The IRS has warned taxpayers of an aggressive, sophisticated phone scam. Callers sound convincing, know a lot about their victims, and often provide fake IRS identification badge numbers. They may even alter the caller ID so it looks like the call is coming from the IRS.
The scammers tell victims that they owe money to the IRS and demand prompt payment through a wire transfer or preloaded debit card. If victims don’t cooperate, the scammers threaten arrest, deportation or suspension of a business or driver’s license.
Always keep in mind that the IRS will never call you about a tax bill without first communicating by mail, will never demand immediate payment without an opportunity to ask questions or file an appeal, and will never require you to use a specific payment method. And the IRS will never ask you for credit or debit card numbers over the phone or threaten you with arrest.
Beware of the accumulated earnings tax
Ever since the 2008 financial crisis, many businesses have held higher levels of cash to cushion the blow of future economic downturns. But if your business is structured as a C corporation, watch out for the accumulated earnings tax. This 20% penalty applies to corporations the IRS perceives to be retaining unreasonably high levels of earnings in order to avoid or defer taxes on dividends paid to shareholders.
There’s no bright-line test for determining whether accumulated earnings are reasonable, so it’s important to establish and document the company’s reasonable need to retain earnings for working capital, business expansion, equipment purchases or other purposes.
© 2015