What is money laundering?

What is money laundering?
What is money laundering?

Money laundering can be a serious offense. That’s why it is important for people to have a clear understanding on what is money laundering. Then you will be able to refrain from facing the negative effects that it would lead you to.

What is money laundering?

Money laundering is a generic term. It is representing the process, where people tend to disguise the original ownership of money. If you pretend that you are not the owner of money, you will be contributing towards money laundering. The main reason why people venture into money laundering is to keep themselves away from paying taxes.

How people use online money transfers for money laundering?

Everyone is talking about making money online and it would not be only you, who has been thinking about it, dreaming about it and even talking to friends to get a tip or two of how to go about it. You know that there is a lot of money online which can be earned without leaving the confines of your home, not commuting during the terribly busy hours and doing it in your own time.

You could have more time to spend with your family and friends and some cash to splash around too, because from what you have heard there is money online which others like you are earning. You would be your own boss and would not need to grovel before your superiors to get that increment you were entitled to half a year ago. Taking leave when you want and leaving on that cruise which you always wanted would be only dreams till you really take the bull by its horns and do what you always wanted to.

How you would get about doing what you have always dreamed of would be the biggest challenge because you would not know where to begin and leaning from those who are already doing it would not be an easy task as they are too busy to teach you. No matter how you earn money, you will need to make sure that you are properly reporting them to IRS. Otherwise, you will be committing money laundering.

You could have just escaped from the jaws of that Ponzi scheme which one of your acquaintances would have to sell you with some sweet talking, which you realized on time. Whenever you started researching and got close to doing something to earn money online you found it to be a scam or a fraud and of them there are many online and if you get on with the wrong people it would be nothing but tears for you.

Understanding the tax rules for international money transfers

In order to keep yourself away from money laundering, you will need to have a complete understanding about the tax rules associated with international money transfers. It needs to be noted that international money transfer tax rules are complicated and contain various pitfalls where the uninitiated could fall into, thereby causing unnecessary hardship. This needs to be kept in mind because, even though the wiring of money is convenient and secure, the applicable tax rules are complex. This is because huge amounts of cash and a lot of sensitive information are involved daily in this process.

The primary aim of regulatory authorities is to monitor and prevent any type of money laundering, illegal transfer of money or any tax avoidance schemes. Rules in place to curb the transfer of laundered money to untraceable offshore accounts could vary from basic, everyday rules to more stringent and complex money transfer rules. For example, a rule that many US citizens and permanent residents would encounter is that if they have a foreign bank account, then they are obliged to file a FBAR form with the IRS in every year in which any of their accounts has more than $10,000. This is an example of a basic way that the IRS attempts to keep a track of significant amounts of money kept in offshore accounts by US citizens and residents. 

The rules enforced on banks and money transfer companies are becoming increasingly stringent due to terrorist funding and money laundering by drug cartels where famous, established banks were found to be transferring funds to such illegal organizations. This has led to the imposition of laws like the Patriot Act which allows the USA to track money, which could be suspected as being part of money laundering activities. In this broader context, users need to be mindful of the fact that such money transfer rules, and tax rules could cause delays or cancellations of their transfers.

With regard to the applicable tax rules, the main concern with sending money abroad is whether a gift tax applies. The basic applicable principal is that when the sender is sending more than a particular predefined amount to the same individual within the same tax year, then that sender would have to file a tax return on that transferred amount with their tax body. From 2013, onwards, in the US for example, US citizens who transfer money abroad can transfer up to an upper limit of $14,000 as gifts without incurring any gift taxes.

However, once the transferor exceeds that set ceiling, he could be subject to be levied a gift tax for the amount over $14,000. The UK also has similar arrangements and the upper limit on what they call the inheritance tax is GBP 3000 for 2012 and 2013. On the contrary, Canada does not have any tax on senders for monetary gifts sent.

Furthermore, the tax obligations for transferors could very much depend on who is receiving this money transfer from them. For example, in the UK and the US, if the recipient of such a transfer is a child, then no gift tax or inheritance tax would apply as the money is taken as meant to be used for the welfare of the minor. However, in a situation where the child is not a dependent of the sender, then the applicable taxes come into play.

Moreover, if the money transferred out is for the use of the family of the sender, then in normal circumstances, a gift or inheritance tax would apply in the US and the UK. However, a provision exists which allows the sender to divide the total amount transferred out, by the number of people that he is supporting, whereby possibly avoiding this tax. Such a possibility only comes into the equation, only if the splitting of that transaction is justified through the presentation of personal identification when making the transfer.

Final words

Always be aware of what is money laundering and understand situations associated with it. Then you can try to keep your hands away from them. Otherwise, you will have to deal with numerous frustrating situations and penalties.

What States have an Inheritance tax?

Inheritance tax
Inheritance tax

A large share of the nation’s wealth is inherited to a few people as a result of which, millions of families in America have to deal with financial issues/less wealth. Consequently, they have fewer possibilities and opportunities to excel in their lives.

The wealth concentration reinforces difficulties for people of color to make wealth as most of the inherited wealth holders are white people. However, imposing a tax on inherited wealth can be a viable solution to build a prosperous community.

However, most state laws regarding inheritance tax are upside down and not properly defined. The lack of law and order gives a pass to the wealthy people to pay a small share of their income as tax. On the other side, middle-class families pay a large share of their income as a tax even though they cannot afford to.

State tax laws, however, have an exception. They only apply to the wealthiest individuals in the state. States should impose these laws and enact them as soon as possible by considering inherited wealth as income.

Before, discussing the states that enact inheritance tax, let’s see what it is:

What is the inheritance tax?

Inheritance tax refers to a tax on the property, including assets and liabilities that are transferred from the deceased ancestors to their heirs. A state applies inheritance tax to the property if its value exceeds a certain threshold.

Both, the inheritance tax and threshold vary from state to state. On average, almost 3% of the properties owned by wealthy individuals have inheritance tax on them.

What states have an inheritance tax?

A total of 17 states and the district of Columbia levy an inheritance tax to the wealthy people owning high-valued estates. The inheritance taxes generate about $4.5 billion annually. If all states enact the inheritance tax law, the tax collected would be more than $11 billion.

Here are some states that have imposed a tax to high-values inherited estates:

Inheritance tax rates in Maryland

As of September 2019, Maryland is the only state to impose inheritance tax as well as the estate tax. The difference between an estate and inheritance tax is that an estate state is levied on the entire property, regardless of who the owners/beneficiaries are.

On the other hand, the inheritance tax is collected from those who have received money from their deceased ancestors.

If the other beneficiary, other than the domestic partner owning joint residence receives money or the property, Maryland’s inheritance tax is applicable to him as well. The current inheritance tax rate of Maryland is 10%.

Inheritance Tax rates of Kentucky

In Kentucky, inheritance tax is classified into 3 categories: class A, B, and C. As of 1998, June 30th, a child, surviving spouse, grandchild, sister, brother, half-sister and half-brother come under class A beneficiary and are exempted from the inheritance tax.

However, the deceased’s nephew, niece, aunt, uncle, son-in-law, daughter-in-law, and great-grandchildren come under class B beneficiary and are not exempt from inheritance tax. For instance, if the class B beneficiary receives an amount of more than $1000, the amount will subject to the Kentucky inheritance tax ranging between 4% to 16%.

Inheritance tax rates of New Jersey

Despite abolishing estate laws, New Jersey will continue to collect inheritance tax who receives wealth from the deceased. Like Kentucky, New Jersey also categorizes the individuals into class beneficiaries.

Class A beneficiaries are exempted from the inheritance tax. Some of the beneficiaries are surviving spouse, daughter, son, civil union partner, domestic partner, grandparent, grandchild, adopted child and an acknowledge child.

As of 1963, New Jersey eliminated the class B beneficiary. It does not assign the wealth to the beneficiary unless he/she belongs to class A, C, D, or E.

Closing thoughts

Even though inheritance and estate tax laws are burdensome, all states should enact them as it helps to build shared prosperity and reinforces the wealthy people to pay a significant share of their incomes as taxes.

Are tax attorneys worth it?

Are tax attorneys worth it?
Are tax attorneys worth it?

Tax attorneys and accountants, both can help you in the hour of need but hiring a tax attorney has a more ominous meaning. It means that you are no longer wrangling with figures- you are hiring a person to fight the law.

Tax lawyers can handle matters that accountants cannot. All they do is wrangle with numbers. However, both have the ability to handle past problematic estate issues. They both work to help you plan your best course for the future.

Who are tax attorneys?

A tax attorney is a lawyer who specializes in the technical and complex field of tax law. They are hired to handle your legal and technical issues related to your tax situation. Generally, a tax attorney steps in after a problematic situation but it is better to seek advice in advance for best tax planning.

When do you need a tax attorney?

The expertise of tax attorneys is focused on the technical and legal complications of the tax situation. For instance, if you are facing a legal tax matter as well as an accounting problem, it is best to look for an attorney who is an enrolled agent or a certified public accountant. They tend to be expensive but they handle the matters best.

Here is why you need a tax lawyer:

You have a taxable estate

The IRS, Internal Revenue Service has its eyes on taxes but the story does not end on personal tax returns. They have eyes on capital gains tax as well. You are liable to file tax returns if you own an estate.

As of year, 2020, your estate is a taxable asset if the total value of the property at the time of your death equals or exceeds $23.16 million. Most people do not worry about tax planning as the property value usually does not exceed but your heirs are liable to pay 40% of the estate value if it exceeds the threshold value.

A tax attorney can help you devise estate tax planning strategies to help you stay below the threshold value and prevent a significant amount of estate value from going into the IRS’s hands.

You are starting a business

Are you looking forward to establishing a corporate? If not, what business are you planning to set up? Any business you are setting up will have tax ramifications for sure. A tax attorney can advise you about your company’s tax treatment and structure including non-tax issues that you might not have thought of, otherwise.

If you are launching a business with international relations, you would need help in legal matters, tax treatment, and other contracts. The presence of a tax attorney in this situation can be viable.

You have legal tax issues

If you are under investigation by Internal Revenue Service, considering fighting against IRS or want to seek advice on a legal tax case before going to US court, you will require an experienced tax lawyer. Although non-attorneys can represent a client, it is always good to go with someone who is well-versed with the tax laws.

What questions should you ask your tax lawyer?

Here are a few questions that you should ask the tax lawyer during the initial meeting:

  • How much does the tax attorney charge?
  • For how many years has he been representing clients with legal tax issues?
  • Is he admitted to the state bar?
  • What area of tax law does he specialize in?
  • If the tax lawyer cannot help you, can he refer you to another experienced tax attorney?

Tax is a complex business and it is always better to seek the help of a knowledgeable yet experienced tax attorney to help you resolve legal tax issues.