Tax Issues at IACCGH Seminar: Part II

By Manu Shah

HOUTON: On February 28, an informative tax seminar was organized by the Indo American Chamber of Commerce of Greater Houston at India House. The speakers were renowned CPAs’ and tax consultants who touched on various topics that affect the tax payer including the significant IRS regulation that required US citizens or Green Card holders who had overseas assets to declare them to the IRS.

The highlights of three presentations were published in last week’s issue dated March 4,2016. The remaining three presentations are published below.

Maximize savings and Minimize Taxes by funding your Retirement Plan was the topic of presentation by CPA Rimple Mashruwala.

Saving early can have a big impact on retirement funds. Experts recommend saving 10%-15% of our income for retirement but a study by LIMRA showed that people were actually saving less than 5% of their income.

According to Rimple Mashruwala, compound interest and time are key to a good retirement fund. The money invested is tax deferred and Compound interest earns more money. Citing an example, she stated that just saving $30 a month could generate $75,000 after 30 years!

She also touched upon different types of Retirement plans such as Traditional IRA, Roth IRA, Simple IRA and SEP IRA. The Rollover IRA is useful for those who change jobs and leave their 401(K) behind for the Company to manage. At the time of retirement, the individual can consolidate multiple retirement accounts in the Rollover IRA.

Chair of the event, CPA Swapan Dhairyawan spoke about the “Dirty Dozen” scam list that targets innocent taxpayers under the guise of the IRS.

Identity theft, a growing nightmare, has increased by 400% since the past year with 1400 incidents in the month of January itself.

Telephone scams continue to threaten tax payers with deportation and arrest if they don’t pay the scam artists.  These calls can be dismissed as the IRS never gets in touch through the telephone – they always send a letter as a prior contact.

Phishing involves fake emails from the IRS sent by scam artists looking to steal personal information from your computer. Once again, these can be disregarded as the IRS never sends emails – always a letter. Some safeguards were suggested by the speaker.

Return Preparer Fraud – involves dishonest tax preparers who perpetuate refund theft. One should also guard against those tax preparers who promise inflated refunds.

Some of the other scams were Offshore Tax Avoidance and Fake Charities.

Swapan also offered statistics on those who get audited based on Tax year 2013 data.  Those with no gross income had a 5% probability rate of getting audited, those in the income bracket of $100,000-200,000 had a 93% chance, $200,000-1 million had a 4% chance while those with more than $10 million AGI and above had a 16% chance of being audited.

Nonprofit organizations are not exempt from the scrutiny of the IRS. The most common charitable organization is the 501 (C) (3). Most nonprofits are exempt from taxation but some are not.  All nonprofits are required to file Form 990. Non filing could result in severe penalties and losing their status as a nonprofit.

The last presentation was by CPA Vikas Patel on the different kinds of business entity structures and their pros and cons. They are:

Sole Proprietorship which doesn’t have many regulations but can face difficulty raising additional capital and heavy burden administratively.

Partnership which includes General and Limited Partnership offers shared risk and responsibility but can result in disagreements and disruption of business.

Limited Liability Company or LLC’s offer limited liability for business debts and obligations.

Corporations which could be an S Corporation or a C Corporation. The S Corporations are designed for small businesses, has Independent Entity Life, business expense write off are easier but its disadvantages are shareholder compensations requirements and operational hurdles.

The C Corporations have limited liability, has its own identity, freedom to generate capital but has double taxation.

By default, a new business is treated as a C Corporation.

The non-tax issues that need to be considered while starting a business are Legal liability and Protection – to protect yourself from litigation, Capital Structure, Flexibility, Buy/Sell Agreement, Nature of your business and State Laws.

The tax issues to be considered are: Tax rates, Treatment of Losses, Liquidation/Selling of Business, Compensation, Distribution of Profits, and State Laws.

In the Q & A session several clarifications were offered such as:

Excess refund by the IRS must always be returned or face severe penalties.

Money sent to parents in India with your signature authority must be reported to the IRS if the amount in the account is more than $10,000.

It is advisable to obtain a PAN number in India. Mutual funds are a special category of foreign assets and subject to taxes on their appreciation even if not sold.  Disclaimer: This seminar was for advisory purposes only.