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Thread: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

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    Default Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    With the April 15th tax return filing deadline approaching, 'independent contractors' might want to read this

    from

    (snip)Small businesses and the self-employed stiff the federal government on billions of dollars (PDF) in unpaid taxes each year, according to IRS estimates of the tax gap. That’s the difference between taxes owed and the amount actually collected. States also have tax gaps: California’s is about $10 billion annually, and the Golden State is investing $670 million over five years in technology to improve its collections, expected to raise an additional $1 billion a year in tax revenue.

    California isn’t alone. According to interviews with revenue officers from 30 states published last week by Bloomberg BNA, states are betting on new compliance tools aimed at collecting billions of dollars in unpaid taxes. While those efforts aren’t focused solely on Main Street, there are plenty of developments small business owners would do well to keep up on. Here are four takeaways from the BNA report:

    Big data is for tax collectors, too. We hear plenty about how big data can help companies, large or small. Tax collectors are finding new ways to use data, according to BNA. Florida is working on a program to use car sales data collected by its Department of Highway Safety to make sure auto dealerships report sales figures accurately. Tennessee and Texas have similar programs to keep beer and tobacco retailers honest by gathering data from wholesalers. Georgia, Indiana, Louisiana, and Massachusetts are among states working with legal information company LexisNexis to cross-reference tax filers’ personal information against historical addresses.

    Licensing leverage. State tax collectors are also working with other agencies to put pressure on delinquent taxpayers. Connecticut is withholding permits to retailers that owe state taxes. New York is working on a similar plan, and North Carolina may soon prevent businesses that owe taxes from getting or renewing liquor licenses.

    Good neighbors. Kansas and New Mexico are sharing data with other states to keep tabs on fraudsters, according to BNA. California and New York have entered into a formal partnership: If a taxpayer is due a refund in one state, but owes a tax debt in the other, the refund will be automatically used to pay the state holding the tax debt. Nevada, meanwhile, is watching for residents and businesses that buy expensive items such as cars and aircraft in states that don’t charge sales tax.

    Jail time. In Illinois, judges are increasingly willing to lock up tax cheats. A series of investigations targeting gas station owners helped the state collect $90 million in tax revenue and resulted in jail time for unscrupulous business owners.(snip)

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    If you make under a certain amount, do you still pay taxes?
    The only way to get rid of a temptation is to indulge in it...


    ~I have no roots. I stay away from groups and communities. I wander, an itinerant lone wolf. I have nowhere to go back to. I either burn the bridges or keep walking. I never look back. I detach and vanish. In my mind, I am not human. I am a machine at the service of a madman that snatched my body and invaded my being when I was very young~




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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    ^^^ as an 'independent contractor' the amount of income which forces you to file a tax return is $600 in a single year.

    As to what level of income will actually require you to 'pay' taxes ... versus receiving a 'refundable tax credit' based tax refund check ... depends on a bunch of individual factors like actual income level, single / married / head of household filing status, having children living in the household, etc.

    The larger point of this thread, of course, is that the IRS as well as states which levee their own state income taxes are now starting to specifically 'target' small businesses / 'independent contractors' ... because they represent the best 'return on investment' i.e. the highest potential additional tax dollars to be collected versus IRS / state auditor effort expended.

    Also, while not specifically listed by the author of this article, the IRS statistics also show that of all of the different kinds of small businesses / 'independent contractors' out there, those related to the 'adult' industry have a particularly 'bad' tax compliance rate overall. Thus IRS / state auditors may direct even greater increased attention toward 'independent contractors' working in the 'adult' industry.
    Last edited by Melonie; 04-10-2014 at 12:23 PM.

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    ... yet more info trickling out from the IRS ... from


    (snip)"Facebook, Instagram, and Twitter have all become places where people post intimate details about their lives: vacation photos, work successes, buying a new house, car, or other cool stuff.

    However, this information is also up for grabs by the Internal Revenue Service.

    The taxman is reportedly using data from social media on people who file fishy-seeming taxes or don't file at all, according to Marketplace. The IRS loses roughly $300 billion per year to tax evasion; and in times of budget cuts, with a smaller staff, the agency has allegedly turned to both data mining and data crunching.

    In its quest to find and audit tax dodgers, the IRS is said to use online activity trackers to sift through the mass amounts of data available on the Internet, according to Marketplace. This data is then added to the information the agency already has on people, such as Social Security numbers, health records, banking statements, and property.

    "It seems they may be using predictive analytics," University of Pennsylvania's Annenberg School of Communication Professor Joseph Turow told Marketplace. "That takes a huge amount of data and puts it together in a big pot to see if they can predict which individuals don't pay their taxes."(snip)

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    Lol. I've been telling friends and clients for years NOT to post anything private or personal on Facebook and twitter that they don't mind LE and/or the IRS reading.
    More than one plaintiff in a personal injury case got screwed because they posted photos and videos of themselves dancing , playing sports etc. when they were supposed to be injured. A bunch of retired cops and firemen in NYC will be pleading guilty soon because their own postings show them to be very physically active when they were collecting permanently disability.

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    I would add that there also seems to be a huge contradiction in news reports regarding this year's IRS audit capabilities. On the one hand, we get news stories like this one from

    (snip)As millions of Americans race to meet Tuesday’s tax deadline, their chances of getting audited are lower than they have been in years.

    Budget cuts and new responsibilities are straining the Internal Revenue Service’s ability to police tax returns. This year, the IRS will have fewer agents auditing returns than at any other time since at least the 1980s.

    Taxpayer services are suffering, too, with millions of phone calls to the IRS going unanswered.

    ‘‘We keep going after the people who look like the worst of the bad guys,’’ IRS Commissioner John Koskinen said. ‘‘But there are going to be some people that we should catch, either in terms of collecting the revenue from them or prosecuting them, that we’re not going to catch.’’

    Better technology is helping to offset some budget cuts.

    If, for example, you report making $40,000 in wages and your employer tells the IRS you made $50,000, the agency’s computers probably will catch that. The same is true for investment income and many common deductions that are reported to the IRS by financial institutions.

    But if you operate a business that deals in cash, with income or expenses that are not independently reported to the IRS, your chances of getting caught are lower than they have been in years."(snip)


    but we also get sporadic reports of 'hard facts' like this one from

    (snip)an army of 2,137 IRS agents are gearing up to implement and police numerous aspects of Obamacare. Their enforcement of the law is under the leadership of Sarah Hall Ingram, the person in charge of the tax-exempt unit from 2009 to 2012 ***

    The IRS says that Ingram “has been assigned full-time to ACA [Affordable Care Act—Obamacare] activities since December 2010.” However, as ABC News has pointed out, “Ingram maintained her title as commissioner of tax exempt and government entities(snip)


    The only factual way to resolve this apparent contradiction is to assume that the 2,137 ( recently added ) IRS agents who have been specifically assigned to ACA related tax enforcement are not being counted in the published 'official' number of IRS agents assigned to audit tax returns in general. However, in practical terms, I doubt that having IRS attention drawn to one's tax return for some ACA related reason, versus having IRS attention drawn to one's tax return for other reasons, makes any real difference in the final outcome.

    No matter what the real story is in regard to IRS audit staff head count, there is no question that the IRS will 'target' their resources toward taxpayers who potentially offer the highest amount of additional tax revenues versus the lowest amount of IRS effort. And that essentially boils down to high earners, plus those operating in a 'cash' business environment.
    Last edited by Melonie; 04-17-2014 at 12:49 AM.

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    The real trick is staying off of their radar. Since they do not tell us what the red flags are, we have to guess.

    If you live small, live with roommates, drive a used car, spend cash rather than run it through the bank, you can stay un noticed.

    The biggest problem is your workplace. It your club is cheating, they are a big target, and shit runs downhill. If they get audited, you get audited. Lots of restaurants cheat on employment taxes or sales taxes and get busted by the state, then the feds sniff around.

    Pay a realistic amount of taxes. Honestly at the levels we are talking about here, they are not going to waste a lot of effort squeezing you for money.

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    The real trick is staying off of their radar. Since they do not tell us what the red flags are, we have to guess.
    Well, we do know a few 'red flag' areas ... a pattern of medium sized cash deposits being noted by banks ... single large cash transactions being noted by money order sellers, retailers, banks etc. ... registering the title to a car or house ... large tuition payments being observed by college bursar's offices without corresponding FAFSA grants or loans ... having the total monthly cost of expenditures appearing on credit reports exceed 'reasonable' levels for a person who supposedly falls below the official 'poverty' level in terms of reported income ...


    The biggest problem is your workplace. It your club is cheating, they are a big target, and shit runs downhill. If they get audited, you get audited
    Indeed. Personally speaking, this has been the underlying reason for my own taxes being audited more than once ! Also, as a side note, the same thing can happen if another dancer working at the same club is caught 'cheating' !


    Pay a realistic amount of taxes. Honestly at the levels we are talking about here, they are not going to waste a lot of effort squeezing you for money.
    Unfortunately, where undocumented 'cash' businesses like exotic dancing are concerned, this is sometimes no longer the case. If the IRS or state auditor makes a 'judgement call' that the dancer's apparent standard of living is higher than it 'should be' for the reported amount of income, and if that auditor is given any reason whatsoever to doubt the 'credibility' of financial records, that IRS or state auditor can in turn 'estimate' that the actual cash + documented income is far higher than the level of income that was 'officially' reported. And this auditor's 'estimate' can apply not only the most recent year's income level, but also to income levels for previous years. Because of this, it's easily within the realm of possibility for auditors' 'estimated' income levels to be $10k-20k-30k more than the dancer's officially reported annual earnings. Over the course of three years worth of tax filings, these 'estimated' income levels can result in a bill for $10k-20k-30k of additional taxes !

    Lacking any 3rd party documentation to conclusively prove that she did NOT actually earn the amount of money the auditor 'estimates' she did, the dancer can then be faced with a serious dilemma ...

    A. attempt to dispute the auditor's 'estimated' income level in tax court ... with the IRS / state tax dep't 'freezing' her assets ( bank account, investment account, car and house titles etc. ) in the meantime ,,, which in turn makes it nearly impossible for the 'defendant' to pay for competent legal / tax counsel, or

    B. accept a Settlement Offer which requires the dancer to pay a reduced, but still significant ( maybe $5k-10k-15k ), amount of additional taxes levied on 'estimated' income she didn't actually earn.

    For better or worse, this scenario is becoming more frequent. This is undoubtedly due, at least in part, to certain dancers 'advertising' in mainstream media news reports that they are earning thousands of dollars every night - as well as due to certain dancers being 'caught' earning large amounts of undocumented cash while at the same time collecting food stamp / medicaid benefits. And, as pointed out above, in the absence of highly 'credible' financial records / 'professional' business banking records, accused dancers are highly vulnerable to 'real world' consequences forcing them to accept the Settlement Offer. This obviously amounts to 'easy money' for the IRS / state tax dep't auditor in exchange for a single day's work !
    Last edited by Melonie; 04-20-2014 at 07:18 AM.

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    The $600 limit is incredibly stupid. It was in effect, I think, since the 1950s. Look at how the standard deduction has been raised. This is just an indicator at how ancient the existing tax code is.

    Look at another one; if you file a Schedule A, the deductible on medical expense is 10% of AGI; last year it was 7.5% and a decade ago it was 5%. But oddly they want everyone to have medical insurance so they can be healthier. Further why is unemployment income taxable?

    Why do they require tax on income used for basic living expense when a person is unemployed? We all know why they do it -- no one wants to be seen raising tax rates, so they eliminate what used to be called useful tax incentives. Things you haven to research to find out about.

    Congress is full of meek, lying, cynical miscreants, and that likely includes your Senator and Congressman too. And the populace is full of short-sighted ignoramuses with little to no social responsibility for voting these creeps that destroy us and our government.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    ^^^ political comments aside, I'll agree with you that the $600 annual 1099 reporting limit is asinine. But it's also a matter of absolute fact that it was the ObamaCare based tax changes which extended 1099 issuance mandates from the realm of major corporations down to local small businesses ... which has impacted dancers and camgirls in a major way.

    I'll also rephrase the financial part of your commentary, in that there has indeed been a recent trend to both greatly increase the amount of 'automatic' interchange of financial information regarding particular individuals by banks, colleges, small businesses etc., as well as a recent trend to reduce or eliminate tax deductions and exemptions. The arguable goal of course is to generate higher tax revenue dollars without having to 'take the heat' by officially increasing tax RATES. Arguably, the increased 'crackdown' by tax agencies on 'cash' businesses is a direct result.

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    Default Re: Tax News Update - 'How States Are Cracking Down on Small Business Tax Cheats'

    Greater tax liability gained from illegal underreporting is a goal as far as practical. What was impractical is reporting tipouts by individuals in the face of revealing identity information to sketchy individuals. IRS should do their own investigating and not rely on private citizens.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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