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Bookkeeping

04/13/2017

Taxes on Tips

While tips are discretionary and reflect a happy customer, taxes on tips are not optional and, if overlooked, can cause unhappy headaches for both taxpayers and their employers.

Tip jar picAll cash and non-cash tips are considered income and are subject to Federal income taxes. Tips include cash left by a customer, tips added to debit or credit card charges, and tips received from other employees or employer through tip sharing, tip pooling or other arrangements.

Employees who receive tips regularly are responsible for keeping a daily tip record and reporting all tips on their individual income tax return.  They must report tips that total $20 or more in any month by the 10th of the following month regardless of total wages and tips for the year.

If an employee doesn’t have or isn’t assigned a tip-tracking and reporting tool, the IRS provides a Daily Record of Tips (Form 4070) that an employee may use to document tips in the manner which is considered sufficient proof of tips received. Reliable proof of tip income would include copies of restaurant bills and credit card charges that show the amounts customers added as tips.

Automatic service charges that are often added onto bills are not considered tips, but rather are treated as regular wages so any taxes owed would be withheld by an employer on an employee’s next paycheck. Examples of service charges include things like bottle service charges, gratuity that is automatically added to a bill for large parties, delivery charges, and room service charges.

Employers must withhold income, social security and Medicare taxes on tips just as they would on other income earned by their employee.  If tips are not reported to an employer as required, an employee may face a penalty of 50% of the unpaid social security and Medicare taxes due.

If there are any unreported tips, a taxpayer must file a report of the income through another Form 4137 "Social Security and Medicare Tax on Unreported Tip Income" which helps the employee figure the amount that is subject to tax and how much is owed.

It can be a tedious process especially for workers who make money through a predetermined hourly wage with unpredictable tip income added to the total.  Workers who receive their tips at the end of each shift must make certain they record the tip amounts on their monthly tip report to their employers.  The taxes owed would then be deducted from their next paycheck. It’s possible that hourly wages may not cover the taxes owed. When this happens, any remaining taxes owed can paid out of the next paycheck through an employer agreement. This is the area where most problems occur as tax obligations on tips for one month may impact several paychecks.  It’s up to the employee to keep track of required tax payments so that there are no outstanding payroll taxes owed at year’s end.

If you need more help understanding how to record and report tip income, please contact one of our tax preparation experts at McRuer CPAs.

12/15/2015

Standard Mileage Rates Go Down in 2016

Standard mileage rateThe IRS has released the standard mileage rate allowances for the 2016 tax year. The deductible amounts will be less per mile than in 2015. 

The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates.

Click here to read the complete IRS release on the 2016 rates.

If you need more information or have a question, contact us at McRuer CPAs.

03/28/2015

Tax Tips on Tips

Consumers debate about how much they should tip a server at a restaurant with the general understanding that an average 10% to 15% tip indicates the service was good and up to a 20% tip
indicates it was exemplary.  As the food and service bill total is tallied, they usually don’t consider that the employee will be paying taxes on the tips.

Waiter with tip jarIRS rules require restaurant employees to report their tips daily from both cash and credit or debit card payments. Restaurant employees and employers must both pay social security and Medicare taxes on the tips, and the employee must pay income taxes on them just like other wages.

Employers are required to ensure that the total tip income reported by employees is at least equal to 8% of total receipts collected during each pay period.  The rules generally apply to food or beverage establishments with 10 or more employees. So, when a restaurant customer leaves no tip for a server, it can cost that employee and the entire wait team more than embarrassment.

03/13/2015

IRS Cuts Affect Tax Refunds and Audits

As we file 2014 individual tax returns and pay federal income taxes, it’s hard to imagine the IRS having on-going budget troubles. Yet, IRS Commissioner John Koskinen is requesting an additional $2 billion to keep up with service requests, timely refunds and enforcement actions such as tax audits on individuals and businesses.

1040 form with glasses and penniesIn a previous edition of The ReSource, we have given details of the delays and complaints associated with the decline in IRS customer service responses as the IRS has cut its staff and switched to more automated systems.  Now, political payback is cutting deep as the agency faces ongoing heat for mixing politics with taxes due to allegations of targeting conservative groups and paying for expensive “training” retreats.

Last month, Congress approved a $10.9 billion budget for the IRS for fiscal year 2015, which ends in June.  It is the lowest level of funding for the embattled agency since 2008 with total budget amounts declining $1.2 Billion in the last 5 years. 

Whether a taxpayer thinks there should be more or less of the IRS, the budget push-me-pull-you debate is affecting the taxpayer’s experience in a number of ways.  Commissioner Koskinen describes it as “changes” in how the IRS will do business with taxpayers this tax season.

Here are some of the issues that may impact you directly:

Refund Delays:  Nearly 8 out of 10 tax filers receive a federal tax refund. The average amount paid is close to $2,800, according to the most recent filing statistics.  Refunds from electronically filed returns are usually processed in about 3 weeks, but the IRS warns staff cutbacks have increased processing time up to an average of 5 weeks. Taxpayers who file paper returns are now being told their refund check might not be processed for 7 weeks.

Audit Declines:  The number of audits in 2014 declined 6% overall from the previous year while experts cannot agree on what the audit numbers will be in 2015.  The audit predictions range from roughly 1% to 6% of total individual and business tax returns. 

Some taxpayers may be relieved that the risk of being audited has decreased slightly, but the conclusions are based on the percent of audits compared to the number of tax returns filed.  More fraudulent tax returns are being filed each year due to tax-related identity theft.  Fewer audits may mean it will be more difficult to detect this kind of tax fraud just as new enforcement agencies are gaining steam.

Audit Hassles: Even though last year’s audit numbers report a decline, taxpayers complain they are receiving more correspondence audits, which are computer-generated letters triggered by an automated tax form-matching program.  The correspondence letters request timely answers, but there are mounting frustrations due to the inability to connect with a “live” IRS auditor.

Hiring Freeze:  IRS officials say budget cutbacks and the resulting hiring freeze will result in nearly 4,000 fewer full-time employees at the agency by the end of June.  When those numbers are added to the headcount losses in the last 6 years, the IRS has lost nearly 17,000 full-time workers.

Less Taxpayer Help:  Officials’ statements warn that fewer than half the taxpayers that call the agency for help will be able to get through to an actual person.

Technology Timing:  Updates that were in line for streamlining IRS internal and processing systems are being delayed to avoid taking up staff time for training and testing the new systems.  Among the updates included the latest taxpayer protection tools against identity theft.

Possible Shutdown:  Commissioner Koskinen says the agency may implement a money-saving temporary shutdown as a last resort.  To minimize disruptions, he says the agency may close for two days after the main tax-filing season, possibly in May or June.

The best taxpayer defense is to make certain your federal income tax return and necessary documentation is mistake-free to avoid audits and delays. 

If you have questions about how the IRS cuts may affect your federal income tax filing, contact us at McRuer CPAs for more information.

02/21/2015

How to Know When You Need a CPA

The DIY (Do It Yourself) industry is flourishing these days.  This trend also extends to accounting and income tax services.  The availability of affordable computing power, improved entry-level accounting and income tax software, and cloud-based applications and storage options are attractive because they may help you save money by doing it yourself.  Added to that is some very effective advertising claiming that at the push of a button your business accounting and income tax filings will be worry free.  However, be warned; our clients often turn to us when their experience with DIY solutions show the ease and efficiency of using these products has been oversold.

In today’s highly regulated environment, innocent omissions and mistakes from simply not knowing An-accountant-helping-clientshow transactions should be recorded, or how to properly comply with new federal, state or local tax
law, can be costly, and sometimes devastating.  Instead of spending time increasing sales, improving processes and growing their businesses, some business owners say they grow frustrated and waste time trying to learn to use and update the latest software as well as keep up with filing deadlines and regulations by themselves.  That’s when they call us.

Let’s consider how engaging professional help with your business accounting and finances can pay big benefits that will help your bottom line both short-term and long-term. 

For those business owners who have a solid accounting or bookkeeping background and a good understanding of business finances, with McRuer CPAs’ MyMcRuer/BackOffice service offering you may benefit by a combination of some DIY and some professional on-demand services.

MyMcRuer/BackOffice helps business owners control costs by personally managing their business’s books.  In addition, when a difficult issue or a question arises, they have access to a local experienced accounting professional who will view the issue real time to identify the problem and quickly provide a solution.  Then as the business grows and its operations need more of an owner's or manager’s time, a smooth transition can be made to full-time professional accountants and bookkeepers who already know the business.

If you intend to grow your business, the benefits of professional accounting services cannot be overestimated.  Is it time that you utilized a professional for your combined personal and business tax preparation?  When is it cost effective to hire an accounting firm’s experts to help with your business accounting and bookkeeping needs?

Consider the following as a mental checklist to help you find an answer to the question: 

How Do I Know When I Need a Professional Accountant or CPA?

You know you need a professional accountant or CPA when…

(circle the sentence numbers that apply to you and when finished add up the total number of sentences that describe your financial situation)

  1. You are considering investing significant time, money and passion into a business idea. Before you “take the leap” you want input about your business plan from an independent professional who will review the numbers and help you analyze your idea’s future growth potential.
  2. You are starting a new business and want to select the best business structure that fits the marketplace, your proficiency and your goals.  You have been told there are different types of business entities that may limit your personal liability for your business activities, but you don’t understand the tax consequences of this decision.
  3. Your income and deductions have changed and you no longer file a simple tax return, or you suspect you must make quarterly estimated tax payments.
  4. You need new or additional business financing, and your lender or insuror is requesting financial information that must be provided by a third party.
  5. You want to better understand your business’s financial information, and use it to improve profitability, inventory management, and cash flow.
  6. You need more information in order to prepare to sell your business.
  7. You are shutting down your business.
  8. You hire other people to help you, and you need information about employees versus independent contractors.
  9. You have become responsible for another person’s affairs, either during their life or after their passing.
  10. The IRS or another regulatory agency has contacted you about an upcoming audit or other collection actions.
  11. You wish to develop and act on a plan to provide for your financial future, including saving for retirement, your childrens’ education, and/or other obligations.
  12. You want to ensure you have the best estate plan in place by understanding the tax, financial and time-based consequences of that plan.
  13. You want to create a succession plan for passing your business on to the next person when you’re ready to retire or sell.
  14. You want to take responsibility for your business and personal financial affairs, and want a trusted advisor to help you succeed.
  15. You must prepare and file Forms W2 and 1099 annually.
  16. You need to understand your best choices on property purchase versus equipment leasing.

How many of the above statements apply to you?

These are just a few of the practical reasons that you need a professional accountant on your business’ financial team.  If you circled 3 to 5 of the above business and personal accounting points, it’s probably time you considered using an upgraded business accounting tool that provides a live accountant when you need one.  If you circled more than 5, it’s time you connect with a professional accountant long-term with comprehensive services and experience to ensure business success.

Accountant over shoulderConsider using a CPA (Certified Professional Accountant) that is experienced and trained specifically to be your business and personal financial planner, management consultant, management information specialist, business consultant and more. 

Yet, don’t forget to consider whether the professional you bring on board is someone you get along with personally.  Financial decisions are a reflection of the production and goals of real people like you who are working to make profits in order to enjoy the life you love.  It’s important to find an accountant who will work well with your business team and shares your concerns about accuracy, reliability, efficiency, and long-term effectiveness.

When you know you need an accountant, we’re here.

At McRuer CPAs, we know business “numbers” are personal and we make the extra effort to match the personalities of our professional accountants with you and your business team.  You may discover the latest online tools with the on-demand help of a CPA are the best choice for you and your business.  Maybe it's time to have a full-time accounting professional join your team?  How do you what to do?

Let’s find out what will work best for you.  Contact us for a strategic planning session by calling 816.741.7882 or contact us through our confidential online resource.  We’ll review your goals and help you make the best choice.

02/19/2015

Tax Software vs Professional Accountants

As we enter into the peak of tax preparation season, we are often asked about the difference between using tax preparation software and using the services of a professional accountant.  Today there are dozens of preparation software options online and in software packages that can help a taxpayer complete their tax return.  This as today's tax liabilities and concerns are growing more complicated than they've ever been. 

1040 form with glasses and penniesA recent Wall Street Journal article revealed as taxpayers try out new tax software tools, they are making more and more mistakes.  Often, it has to do with not knowing the right questions to ask to discover their best options.  Many times, incorrectly entered numbers cause automatic equations to produce the wrong totals.  

Don't misunderstand, there are good reasons to choose tax software to help you complete your income tax return on your own.  There are also good reasons to choose a professional accountant.  We came across an interesting and concise article online on Investopedia that explains your options clearly.

Here is that article for your consideration as you choose the best steps to take regarding the preparation of your federal and state income tax returns. 

Tax Software Vs. An Accountant: Which Is Right For You?    By Jason Steele | Updated January 29, 2014

""With every important job comes the question of whether or not individuals should do it themselves or hire a professional. While the ever-improving selection of tax preparation software certainly makes it easier to do your own taxes, it has hardly put Certified Public Accountants (CPAs) and other personal tax preparers out of business. 

The Advantages of Using Tax Software
Price
There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $10 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. 

The Advantages of Using Tax Software
Price
There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $10 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. 

The Benefits of Hiring a Professional Accountant
Better Software
Accountants pay around $1,000 to $6,000 for their software, which is far more sophisticated than the products sold to consumers. These more advanced programs have the ability to quickly scan your information and organize line items and forms correctly. By automating much of the data entry and organization, there's less chance for human error to hurt your tax return.

Human Touch
Like a good family doctor that knows your medical history, you can develop a relationship with an accountant so that he or she understands your family's financial situation and future goals. According to Wehner, who has been preparing taxes for 45 years, "A tax professional is often able to make valuable tax savings suggestions that a software program just can't anticipate." The value of this advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can provide you advice on tax-friendly ways to save for your children's education, or how to reduce taxes on your capital gains.

Accountants Can Answer Your Questions Year Round
As a trusted professional, a good accountant will be able to answer important questions that arise not just during your annual consultation, but at other times during the year.

Calculator help and form 1040A CPA Saves You Time When Handling Complicated Issues
Taxpayers who find themselves at the center of complicated business and investment matters may even have the skill to sort through their taxes on their own, but is it worth their time? A professional tax preparer is so familiar with the system; he or she can quickly and easily accomplish tasks that might take even skilled taxpayers hours of research. For busy non-tax professionals, their time can generally be better spent earning money in their area of expertise. Even if your tax situation is straightforward, hiring a professional will save you the time and stress of doing your taxes.

The Bottom Line
Ultimately, there is no universally correct answer to the question of hiring a tax professional or doing your taxes yourself with software. Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor. Those with a single employer and few investments may save hundreds of dollars by preparing their own taxes, while those with business income or rental properties will find the expense of hiring an accountant to be worth their peace of mind and potential tax saving.""

##  So, as we add one final thought to the article above, consider that the more complicated your taxes are, the more likely you need comprehensive accounting services and an accounting professional to help you make the best decisions. For us at McRuer CPAs, it's all about making certain you pay no more taxes than you owe.

If you have any questions, or would like to review your income tax situation with an accountant, contact us at McRuer CPAs to set up a consultation.  We'll take a look and provide you options so you can make the best choice.  Call us:  816.741.7882 or contact us online.

 

02/09/2015

Employer Health Care Choices Raise Questions

With the launch of tax season, employers are asking a flood of questions about mandates in the Affordable Care Act (ACA aka ObamaCare ) and whether they are understanding the choices that are available.  

The Employer Shared Responsibility provisions became effective January 1st of 2015.  No Employer Shared Responsibility payments will be assessed for 2014, but employers are expected to use their 2014 number of employees and their hours of service to determine whether they are subject to the payments in 2015.

ACA in washingtonBusinesses in 2015 employing generally 50 full-time employees, or a combination of full-time and part-time employees that is equivalent to 50 full-time employees, will be subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code.   The IRS defines a full-time employee as an individual employed on average at least 30 hours of service per week.

The IRS says, "Under the Employer Shared Responsibility provisions, if these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), the employer may be subject to an Employer Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace (Marketplace)."

New Questions

One of the many issues that employers are asking about has to do with acceptable alternatives to providing a company health insurance plan for employees.  

Some businesses are asking if reimbursements to employees for premiums those employees may pay for health insurance (whether it is purchased through the ACA Marketplace or outside the Marketplace) is enough to meet regulations.  The IRS says an employer payment plan generally does NOT include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in case compensation.

Here is an IRS which provides a question and answer section on this issue:

"Q1.  What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)?

Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.  Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms.  Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.

Q2. Where can I get more information?

On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy.

The Department Labor (DOL) has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03. On Jan. 24, 2013, DOL and HHS issued FAQs that address the application of the Affordable Care Act to HRAs. On Nov. 6, 2014, DOL issued additional FAQs that address the application of the Affordable Care Act to HRAs and other payment arrangements."

There are a number of questions related to the ACA you may have, whether you employ 3 or 300 or 30,000 workers.  Answers depend upon a number of factors and can have a number of financial consequences.  Contact us at McRuer CPAs for a session with one of our tax experts to help you have confidence the decisions you make will be the best for the bottom line of your business.

12/22/2014

Last Minute Tax Act Passes New Details - Act Now!

McRuer CPAs closely monitors federal and state tax laws affecting our clients and friends using the CPA industry’s best research materials and services.

We recently learned from our Bloomberg/Bureau of National Affairs Tax Management Staff (Bloomberg/BNA) that President Obama had signed into law the Tax Increase Prevention Act of 2014.  We have monitored the slow progress of this Act since the summer.  The final version has a number of provisions that could affect your tax return.  We have put together a shortened summary with the information that we believe will specifically affect our individual and business tax clients highlighted in yellow.  Click on the link below to download the printable document for more information.

Please note that most of these provisions are only effective for ten days – through December 31, 2014.  Click here to: Download McRuer CPAs Tax Act Information December 2014

The summary uses part of the Bloomberg/BNA’s review of the Act.  Those topics of particular interest include:

  • Internal Revenue Code 179 expense elections restored to $500,000 with certain limitations
  • Bonus depreciation restored
  • Research and development credit restored
  • Deduction for educational expenditures extended
  • Tax-free retirement plan distributions for charitable donations extended

There is also a new provision increasing late payment and underpayment penalties to be indexed with inflation.

If you have questions about the opportunities this Act may provide you, please contact us at: 816.741.7882 or www.kccpa.com/contact_us.html.

 

10/22/2014

2015 Tax Brackets Now Available

Federal tax return with penEstimated taxable income brackets and rates are now available for the 2015 tax year.  Each year, the IRS adjusts more than 40 tax provisions for inflation to prevent “bracket creep”.  Bracket creep is what happens when inflation causes taxpayers to be pushed into a higher income tax bracket or have a reduced value from credits or deductions even though they may have had no actual real income increase.

The IRS adjusts income thresholds, deduction amounts and credit values using the Consumer Price Index (CPI) to calculate the past year’s inflation. Yet, in a bit more complicated approach, each tax provision is also adjusted from a specified base year.

In 2015, the standard deduction will increase by $100 to $6,300 for single taxpayers and $200 to $12,600 for married couples filing jointly. The personal exemption for 2015 will be $4,000.

Also in 2015, the highest marginal income tax rate of 39.6% will be levied on single taxpayers whose adjusted gross income is $413,000 and higher and $464,850 and higher for married taxpayers.  The remaining federal income tax rates are:

  • $0-$9,225 single/$0-$18,450 married – 10%
  • $9,225-$37,450 single/$18,450-$74,900 married- 15%
  • $37,450-$90,750 single/$74,900-$151,200 married- 25%
  • $90,750-$189,300 single/$151,200-$230,450 married- 28%
  • $189,300-$411,500 single/$230,450 to $411,500 married- 33%
  • $411,500-$413,200 single/$411,500-$464,850 married- 35%

For more information on 2015 federal income tax rates, click here to see the Tax Policy Center’s Tax Facts chart.

Individual state and local income taxes are also complex and vary from state to state.  Their 2015 rates are harder to find and calculate.  To read more about 2014 state income tax rates, click here to see the latest review by a professional tax information organization.

10/15/2014

Wireless Device Service Fees & Taxes Out of Sight

Uncle-Sam-iPhone-TaxWireless communication services may be invisible, but the hefty tax bill attached to them can make a major household budget dent that’s hard to ignore.  A new report shows wireless telephone service fees and taxes are now at an all-time high.  In fact, with an average tax rate of 17.05%, the taxes you pay to use your wireless phone are now more than double most general state and local
sales taxes.

The Tax Foundation has released an extensive study comparing wireless device use tax rates to general sales taxes for each state as Congress is preparing to debate whether to levy new taxes on wireless Internet services.

Of the average 17.05% rate, 5.82% is a federal tax and the rest is made up of a combination of state and local taxes and fees.

The report shows consumers in seven states pay wireless taxes and fees that exceed 20% of their bills.  Those seven states include:

Washington – 18.6% + 5.82% federal tax

Nebraska – 18.48% + 5.82% federal tax

New York – 17.74% + 5.82% federal tax

Florida – 16.55% + 5.82% federal tax

Illinois – 15.81% + 5.82% federal tax

Rhode Island – 14.58% + 5.82% federal tax

Missouri – 14.58% + 5.82% federal tax

The state of Kansas is ranked 11th on the list with state and local wireless taxes and fees amounting to 12.87%.  Iowa is included with states that charge lower wireless taxes ranking 31st at 8.61%.  The states with the lowest state and local rates include Oregon (1.76%), Nevada (1.86%), Idaho (2.62%), Montana (6%) and West Virginia (6.15%).

The national average for general sales and use tax is 7.51%. So the report’s findings confirm taxes and fees on wireless telephone services are more than twice the average sales tax rates for most other taxable goods and services. In fact, if you happen to live in the cities of Chicago, Baltimore, Omaha or New York City, your effective tax rate for wireless services are in excess of 25% of the total bill.

The Tax Foundation’s summary calls the taxes and fees “excessive” and points out that “cell phones are increasingly the sole means of communication and connectivity for many Americans, particularly those struggling to overcome poverty.”  A government survey confirms that more than 56% of low income adults rely only on wireless communications and nearly 40% of all adults use only wireless telephone services.

The report is adding fuel to the heated debate about taxing access to the Internet and charging extra fees for high-speed Internet delivery services.  Currently, the Internet is considered an “information service” and access to it is not taxed.  The Federal Communications Commission has been in hot water since last April when a series of public hearings were launched on its plan to reclassify the Internet as “telecommunication services”.  The reclassification would make it easier to not only regulate, but also tax.

Reclassification has been a political hot potato.  Many Democrats argue it would help preserve the Internet as a communications tool for all Americans by guaranteeing unrestricted access while Republicans argue regulations would lead to taxation and eventual access restrictions because of higher costs.

Some Internet providers have requested Internet reclassification to support their efforts to charge website owners higher rates for faster consumer access.  Opponents argue that would allow only larger, richer companies to have more accessible ‘fast lane’ websites giving them an unfair advantage over competitors in the access ‘slow lane’.

Currently, a federal moratorium is in effect on state and local internet access taxes.  The news about the high wireless taxes on communications devices could put pressure on Congress to not only keep the moratorium in place, but also regulate the amount of state and local taxes that can be charged on all wireless services.

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