We Hope This is The Final Update on # of W2s
As we mentioned in our previous two posts, our software provider (CCH ProSystems FX) had indicated that we would need to input the number of W2s in order to efile our business tax returns. After much internal discussion, CCH has now indicated to us that their interpretation of the IRS rules was incorrect and you do not need to provide this information. This is good news other than the fact that we communicated this to our readers in error. For that, we apologize. We reported what we knew at the time and that has now changed for the better.
On another subject, there is quite a bit of chatter out there about the new Destination Based Cash Flow Tax. This tax is designed to replace the corporate income tax (and flow through taxation also). We had posted on this, but what we wanted to post on this today is the “inaccuracies” out there about this being a 20% tax on imports. Much of the media seems to be using this 20% number. What is correct is that if a company imports goods into the US, they will not be able to deduct those costs on their income tax returns (including farmers). Since the tax rate is 20% for corporations, most media says this is a 20% tax on imports. However, other costs related to the sale of this item are deductible, therefore, the actual “tax” rate should be lower.
As an example, assume that a retail company sells a widget for $1.00. They purchase this widget from China for 45 cents which is non-deductible; therefore the “true” tax on this import would be 9%, not 20%. The retail company may pass this onto the consumer in the form of higher prices, but it would not go up by 20%. The one industry that could see a dramatic increase in prices due to this new tax is the oil refining industry. But again, the actual total cost of the imports as an overall percentage of the total sales price still should result in a net price increase of likely no more than 15%.
We will keep you posted as these tax proposals wind their way through Congress.