Most people who are unfamiliar with Value Added Tax (“VAT”) assume it is similar to the U.S.’s sales tax but it is very different.  Unlike other developed countries of the world the U.S. does not impose VAT so many U.S. businesses are unfamiliar with how VAT works.  This article is meant to educate U.S. entrepreneurs on the general workings of VAT in the European Union (“EU”) and strategies to minimize exposure.  All 27 countries in the EU adhere to similar VAT rules base on The Recast Sixth Directive. Each member is allowed some room to customize their VAT laws but these differences for the most part are immaterial differences. The main feature of VAT that distinguishes it from U.S. sales tax is how the sourcing of sales and who is responsible for collecting it can change based on the status of the buyer and seller.  Unlike the U.S. system where the seller always collects and remits the sales tax the VAT system can force either buyers or sellers to collect VAT depending on what is sold and if they are register for VAT.

After the real estate crash many taxpayers’ mortgages exceeded the value of their properties so they did a short sale or went through a foreclosure.  Many of these taxpayers received 1099-C s from their banks showing large amounts of debt cancellation. Generally, cancellation of debt is taxable income but due to the magnitude of the crisis congress passed a temporary exclusion of up to 2 million dollars for taxpayers that lost their primary residence.  This temporary exclusion expires at the end of 2012(Now 2013) so taxpayers who lose their homes in future years could be stuck with a substantial tax liability. Taxpayers should contact a knowledgeable tax professional who can clearly explain the tax consequences of short sales and foreclosures before surrendering their property.

Two years ago I met with a client and she was disappointed when I informed her she could no longer make Roth IRA contributions because her income was too high.  After listening to her not so flattering comment about our tax system I decided to mention how she could get around the income limit fully expecting her to say “that is too complicated forget it” but  to my surprise she wanted to do it. She did ask me, “What is the point of the income limit if you can get around it?” I told her to write her representative in Congress for the answer.