Obama wants to raise $200 billion by closing offshore tax loopholes

The Obama administration will unveil its plan to close offshore tax avoidance loopholes today, which target both U.S.-based multinational corporations and wealthy individuals, according to The Wall Street Journal. Up until now, the administration's main focus has been wealthy individuals who hide assets in foreign banks, the primary example being the ongoing IRS case filed against UBS.

The new plan, if passed by Congress, could raise up to $200 billion by closing four loopholes:

  • Curb the practice known as "deferral," where companies defer taxes indefinitely on many of their profits by leaving them in overseas banks and avoiding taxes until the money is repatriated back to the U.S. The administration expects to raise $60.1 billion through 2019.
  • Revise "check-the-box" rules that allow companies to decide where their subsidiaries should be taxed, which enables companies to take advantage of low-tax haven countries. The administration estimates this change could raise $86.5 billion through 2019.
  • Toughen rules on the use of tax credits granted to companies to offset taxes paid to foreign governments. The administration estimates increased tax collections of $43 billion through 2019 with this change.
  • Crack down on offshore individual bank accounts. The plan would increase information reporting and tax withholding as well as penalties to make it harder for foreign account-holders to win cases in court. The administration estimates increased tax collection of $9 billion through 2019.

The two industries that will be hardest hit by these changes are the pharmaceutical and technology industries. John Earnhardt, a spokesman for Cisco (CSCO), told the Journal, "If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S." He went on to say that this change will make it harder "to compete against foreign competitors who are not subject to this U.S. tax."

The administration believes that current tax loopholes encourage multinationals to move jobs overseas. Instead the administration wants to use this tax plan to increase incentives for job creation in the U.S. Some of the tax collections will be used to cover the cost of extending the soon-to-expire federal tax credit for research costs.

By adding the tax incentives to the program, the administration may find it easier to get this legislation through the Congress. But do expect major business opposition to water down the bill.

Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies.

What is Form 8958: Allocation of Tax Amounts Between Certain Individuals in Community Property State

Several states have "community property" laws, which say that most income earned and most assets acquired during a marriage are the equal property of both spouses, regardless of whose name is on the check or the title. This can sometimes create additional work for couples filing separately for federal income taxes. The Internal Revenue Service (IRS) created Form 8958 to allow couples in community property states to correctly allocate income to each spouse that may not match what is reported to the IRS.

Read More

Brought to you by TurboTax.com

What Is the IRS Form 8863?

If you plan on claiming one of the IRS educational tax credits, be sure to fill out a Form 8863 and attach it to your tax return. These credits can provide a dollar-for-dollar reduction in the amount of tax you owe at the end of the year for the costs you incur to attend school. Before preparing the form, however, make sure that you satisfy the requirements of an eligible student.

Read More

Brought to you by TurboTax.com

Getting Divorced

If you're going through a divorce, taxes may be the last thing on your mind, so we're here to help. We've got tips for you on which filing status to choose after the divorce, who can claim the exemptions for the kids, and how payments to an ex-spouse are treated for tax purposes.

Read More

Brought to you by TurboTax.com

Tax Tips for Bitcoin and Virtual Currency

Virtual currency like Bitcoin has shifted into the public eye in recent years. Some employees are paid with Bitcoin, more than a few retailers accept Bitcoin as payment, and others hold the e-currency as a capital asset. Recently, the Internal Revenue Service (IRS) clarified the tax treatment of Bitcoin and Bitcoin transactions.

Read More

Brought to you by TurboTax.com
Read Full Story