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News added, Los Angeles, November 18th, 2009: Deductible Expenses
While some legal fees pertaining to divorce settlements are deductible, the Tax Court recently ruled that legal costs to claim ownership of property are not deductible. Neither are the costs involved in ordering the sale of property.
Some loan charges in addition to points, can be deducted over the life of the loan, when refinancing a business or rental property. These fees include escrow, notary, document preparation and others. For primary residences, only the points paid on a refinance are deductible through amortization.
News added, Los Angeles, November 1st, 2009: Foreign Bank Accounts
Amnesty for US citizens with foreign bank accounts will probably not continue past the October 15th deadline. Failure to report your accounts abroad on Form TD F 90-22.1 can result in civil and/or criminal charges. Account holders must file the form separately from their individual tax returns. The deadline for filing the 2009 form is June 30, 2010.
News added, Los Angeles, August 3rd, 2009: Damage Reimbursement
Reimbursements for mental anguish and medical expenses to treat emotion trauma have been determined to be tax free. Amounts paid for emotional distress resulting from nonphysical trauma, such as harassment and discrimination, are still subject to income tax.
News added, Los Angeles, August 1st, 2009: Estate Tax
Power of attorney over assets must specify permission to grant gifts otherwise, gifts paid by the acting attorney will be added back to the estate in figuring estate taxes.
News added, Los Angeles, July 24th, 2009: Audits
The IRS will continue its random audit program in 2010 and thereafter, however the goal is to eventually make audits less random and more targeted toward probable noncompliance returns.
Examiners will also be auditing more clergy returns in which some of the taxpayers income is in the form of tax free parsonage. While not subject to federal or state tax, the parsonage income is still subject to self-employment tax. Clergy must be careful not to take more parsonage then they are entitled to, which is the sum of their housing costs. Exemption claims for social security and medicare taxes will also subject to review.
News added, Los Angeles, July 22nd, 2009: Business
LLC owners and Limited Liability partners can potentially benefit from loss incurred by their company. Previously they were considered passive losses resulting in significantly less tax benefit. Now owners and partners can more easily prove material participation in the business and take the loss as nonpassive.
Living expenses spent while living away from home for a temporary job assignment have now been deemed tax deductible. Expenses include meals, lodging and travel.
Shareholder-employees of an S-Corporation must treat their medical insurance premium, paid by the corporation as wages. These wages are not subject to social security or medicare taxes but must be reported in on their W-2. The shareholder-employee may be able to deduct the premium paid as self-employment medical insurance.
The tax stimulus legislation allows eligible small businesses to carry back net operating losses for up to five years. The statute was previously 2 years in most cases. An eligible small business is, in general, a business whose average gross receipts are less than $15 million a year.
News added, Los Angeles, July 19th, 2009: First Time Home Buyers
Rules for claiming the Home Buyer’s Credit have been made a little easier for 2009. If you purchase a first time home before December 1, 2009, you will be able to claim the Home Buyer’s Credit even if you received government subsidized financing.
A first time buyer can still qualify for the credit even if his parents co-sign the loan.
News added, Los Angeles, July 7th, 2009: Making Work Pay Tax Credit
As part of the American Recovery and Reinvestment Act, working taxpayers may qualify for this new credit. The maximum credit is $400 for singles with income of up to $75,000. For married filing jointly, the maximum credit is $800 with income of up to $150,000. Wage withholding requirements have been reduced resulting in higher net paychecks to provide immediate tax relief. Self-employed taxpayers can similarly reduce their estimated payments by the same amount provided they qualify. The credit will be computed and claimed using a new form, Schedule M, which will be part of the 2009 tax return due in 2010.
News added, Los Angeles, July 3rd, 2009: Non-U.S. Citizens Get A Break
Non-U.S. citizens doing business in the U.S. will not have to file form 90.22-1 for 2009. This form is filed for the purpose of disclosing foreign bank accounts totaling more than $10,000. Though the IRS did initially require filing the form for this year, the reconsideration was due to confusion about who would be subject to the rule. The form will have to be filed in 2010.
News added, Los Angeles, July 1st, 2009: Life Insurance
Whole Life insurance policies can be sold to an outside party for a profit. The profit is generally taxed as capital gains, but under certain circumstances, a portion of the profit may be treated as ordinary income.
News added, Los Angeles, June 15th, 2009: IRS Crackdown on Tax Preparers
Designed to improve accuracy, decrease fraud as well as to protect taxpayers, the IRS is cracking down on unqualified tax preparers. With the exception of CPA’s and EA’s, preparers do not have any accreditation standards they must meet. When the IRS detects a fraudulent return, it is the taxpayer that is charged with additional taxes and interest.
News added, Los Angeles, May 13th, 2009: Good News For First time Home Buyers:
The first time home buyer’s credit increases to $8000 and no longer needs to be repaid for homes purchased in 2009. However if the home is sold within three years of purchase, the credit must be paid back.
News added, Los Angeles, May 10th, 2009: Education Tax Breaks:
The Hope credit will be expanded for the 2009 and 2010 tax years.
Previously the credit had a $2,000 nonrefundable maximum for the first two years of undergraduate, full-time study. The new credit, renamed the American Opportunity Credit, increases to $2,500 and is for four years of college. It is partially refundable, AGI limits are higher and qualifying costs also cover books instead of just tuition.
News added, Los Angeles, May 1st, 2009: Small Business Relief:
2008 losses can be carried back for 5 years instead of 2. Businesses qualify if they averaged $15 million dollars or less in gross receipts over the past 3 years.
Small business owners can pay less estimated taxes in 2009 without penalty. Taxpayers with a 2008 AGI of less than $500K, with more than half of their gross income from their business qualify for the relief. Instead of the usual 100 – 110% of prior year’s liability, business owners estimates can be based on 90% of 2008 liability.
News added, Los Angeles, April 15th, 2009: IRS Crackdowns:
Expect random employment tax return audits in 2010. The Service is honing in on misclassification of workers and other employment tax errors.
News added, Los Angeles, April 1st, 2009: Tax Day:
Tax day coming up April 15th, 2009!
News added, Los Angeles, March 3rd, 2009: Real Estate:
First time home buyers can qualify for tax credit of up to $7,500. The purchase must occur between April 8, 2008 and July 1, 2009.
If you have not owned a home during the past three years you get the same treatment as a first time buyer. Income restrictions are up
to 170K for married couples and 95K for singles.
News added, Los Angeles, February 27th, 2009: Retirement:
If your IRA investments have been suffering from the market slump, it may be wise to consider a Roth conversion.
Income tax on the conversion will be lower because of the decline in value. When the market rebounds, the qualified distributions will be
tax free. For 2009, only taxpayers with an AGI of 100K or less can take advantage of this opportunity.
News added, Los Angeles, November 25th, 2008: Residential Energy Credit:
The Residential Energy Credit will return for 2009. Save your energy efficiency home improvements until January to take advantage of the 10% tax credit.
Biomass fuel stoves will be added to the list of qualifying energy efficiency improvements.
News added, Los Angeles, November 21st, 2008: Social Security Wage Limit:
The Social Security wage limit will rise to $106,800 for 2009.
The IRS estimates that more than half of schedule E filers are underreporting their net income from rental properties. The Service hopes to
improve compliance by sending reminders about correctly filing schedule E. About 30,000 renters will receive the reminders next year.
News added, Los Angeles, November 3rd, 2008: Basis Reporting:
Brokers will be required to report the basis for securities sold by their clients.
This will facilitate correct tax reporting for individuals.
To give financial institutions time to comply, the reporting requirement will only affect securities bought after 2010.
Keep yourself covered in the event of an audit of misclassified workers.
1. The contract between the outside contractor and employer should clearly state disqualification for employee benefits. Pay should be per project as opposed to hourly rates. Do not include restrictions on how they run their business.
2. Be sure to have the independent contractor’s EIN, business name and address. Also hold on to their business card or letterhead stationary. This will help support their status as independent.
3. Don’t treat them as you would employees. Do not give them an employee handbook or a company email address. Do not invite them to events held for company employees.
4. Do not pay independent contractors through your payroll account. Treat them as an ordinary accounts payable payee, and issue payment after they bill you for services.
News added, Los Angeles, October 9th, 2008: Real Estate Taxes:
For 2008, taxpayers can claim credit for paying real estate taxes, even if they do not itemize their deductions. Married filers can add up to $1,000 to their standard deduction. For singles the maximum is $500.
News added, Los Angeles, October 1st, 2008: First Time Home Purchase Tax Credit:
Taxpayers with a first time home purchase after April 8, 2008 and before July 1, 2009 are eligible to receive a tax credit of up to $7,500. Married filers with an adjusted gross income of more than $170,000, and singles with an AGI of over $95,000 are not eligible for this credit.
News added, Los Angeles, September 25th, 2008: IRS Crackdown:
The IRS continues to crackdown on employers who misclassify employees as outside contractors. Besides partnering with state payroll agencies and use of computer matching programs, the IRS will accept leads from workers. If a worker feels he/she has been misclassified, they may file form 8919 along with their tax return. There appears to be a big incentive for the filing of form 8919. It will save the filer from having to pay self-employment tax.
News added, Los Angeles, July 23rd, 2008: Shortened Extension Period:
Shortened Extension Period for Calendar Year Partnerships and Trusts
Entities that are required to issue Schedule K-1 forms to partners or beneficiaries and are required to file by April 15, will have a reduced extension to file period.
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Previously, these entities did not have to file until October 15 when on extension. With the new change, the filing deadline is September 15. The IRS made the change to help individuals who need the K-1’s to file their 1040’s in an accurate and timely matter. The individual extension deadline remains October 15.
News added, Los Angeles, July 17th, 2008: Business Mileage Rate:
Generally the IRS sets new mileage rates once a year. Due high gas prices, the IRS has increased the gas mileage rate mid year.
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For the second half of 2008, the business mileage rate will be 58.5 cents per mile, an increase of 8 cents. Medical and moving expense miles will increase to 27 cents per mile. Charitable miles remain 14 cents a mile.
News added, Los Angeles, July 14th, 2008: Gym Fee Reimbursement:
If you reimburse a traveling employee for fees related to gym use, the payments are taxable and subject to payroll taxes.
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Gym use during business travel is considered a personal expense since the facility is not located on the business premises.
News added, Los Angeles, July 10th, 2008: S Corporation Elections:
The general rule for business entities who want to elect to become S companies or corporations is that they must file form 2553 within the first 2 ½ months into the fiscal year they want to elect.
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More recently, the IRS has been accepting late filing if there is reasonable cause. Reasonable cause includes reliance on a tax preparer who was negligent.
News added, Los Angeles, July 1st, 2008: Getting the Most Out of Your Contributions:
If you are planning to make a charitable contribution, you may want to consider donating appreciated stock instead of cash.
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If the stock is a long-term investment (more than 12 months) and it substantially increased in value, you have a significantly greater tax advantage if you donate the stock over a cash donation. You do not pay capital gains tax because you have not actually sold the stock, and the amount you deduct from your taxes is the current market value. The more the stock appreciated, the greater the tax advantage of making a contribution in this why. That explains why Warren Buffet opted for this method!
News added, Los Angeles, June 28th, 2008: Audit Alert:
The IRS will be more likely to perform a payroll tax audit if an employer issues a W-2 and a 1099 to a worker in the same year.
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This is part of the IRS’s continued crack down on misclassification of employees as outside contractors to avoid paying payroll taxes.
Employers offering SEP-IRA’s will be audited more frequently this year as the IRS suspects compliance with federal regulations are not up to par. Make sure as an employer that you are contributing uniformly to all participating employees and that you update the plan as the pension laws change.
The IRS will start enforcing minimum payouts on retirement plans. This affects those over 70 ½ years of age with traditional IRAs, SEP IRAs and Simple IRAs. If minimum distributions are not taken, the IRS will send notification and mandate catch up distributions as necessary. They can also charge a steep 50% penalty. Roth IRAs do not have minimum distributions
News added, Los Angeles, June 15th, 2008: Your Business SUV:
Business owners will want to limit their personal use of company trucks and heavy SUVs.
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The tax court recently ruled that the IRS can recapture tax breaks on business truck purchases if business use falls below 50%. The recapture period is for the first five years after purchase.
News added, Los Angeles, June 11th, 2008: Funding Your Child’s IRA:
If your child or grandchild is working this summer, he/she can contribute up to $5,000 or their total wages, whichever is less, to an IRA.
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If you want to fund the IRA for them, the gift is covered by the annual gift tax exclusion of $12,000, so neither the gift giver or gift receiver is taxed. Roth IRA’s are the IRA of choice for a young person since they can withdraw the contribution amounts when needed. Only gains on the Roth IRA contribution are taxed if withdrawn before 59 ½.
News added, Los Angeles, June 3rd, 2008: Health Savings Accounts:
A Health Savings Account is a medical savings account for taxpayers covered by a high deductible health plan. The account has tax advantages similar to IRAs.
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Deductible contributions to HSA accounts will increase for 2009. For 2008, the limit is $2,900 for an individual and $5,800 for a family. The 2009 limits will be $3,000 and $5,950 respectively. Those over age 55 can contribute an additional $1,000 tax free.
News added, Los Angeles, June 2nd, 2008: New Taxpayer Service from the IRS:
By the end of 2008, taxpayers will be able to access their tax information from the IRS via a secure web portal.
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Tax filers can review their account and up to three years of filed returns.
News added, Los Angeles, June 1st, 2008: Retirement Accounts:
If you have an IRS levy on your pension plan, the IRS can not seize the funds until you withdraw them from the account.
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You can choose to delay your distributions however, bear in mind you may be subject to additional interest and penalties.
News added, Los Angeles, May 23rd, 2008: Businesses:
Business owners who sell their companies to sole competitors may no longer be able claim that a portion of the proceeds of the sale is for goodwill
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The IRS determined that since in reality the sales contract is a covenant not to compete, the seller’s proceeds are taxed at the regular income rate.
News added, Los Angeles, May 15th, 2008: Individuals:
Despite claims to beef up enforcement, in 2007 the IRS face-to-face audited only about 240,000 individuals. This amounts to about one in 561.
Smaller scale reviews by mail were performed on 1.1 million filers. These correspondence audits will probably predominate over the next few years.
News added, Los Angeles, May 7th, 2008: Keep Track of Your Roth IRA Contributions:
Roth IRA contributions can be withdrawn before age 59 ½ without tax or penalty if the account has been held for more than five years.
Investment companies issue form 5498 around this time of year. This form reports how much of the Roth IRA account came from contributions and
how much is from earnings. Earnings withdrawn before age 59 ½ are subject to tax and penalty. Pension funds converted to a Roth IRA also
count as contributions as well but cannot be withdrawn within five years to avoid penalty.
News added, Los Angeles, May 1st, 2008: Foreign Taxpayers:
For the first time, the IRS will be doing random audits of tax returns for foreigners with US Income.
This new effort is part of a larger project to improve its enforcement.
The US tax court recently ruled that income earned by a US citizen while working +in international waters is taxable income. International waters are not under the sovereignty of any country and therefore would not create a situation of double taxation.
News added, Los Angeles, March 1st, 2008: Businesses and Outside Contractors:
The IRS will be paying closer scrutiny to businesses that may be misclassifying workers as outside contractors to save on employment taxes. The IRS has developed an electronic matching system enabling them to identify workers with 1099 payments of more than $25,000 and no other sources of income. Businesses with 5 or more outside contractors meeting these two criteria can expect to be audited in 2008.
News added, Los Angeles, February 25th, 2008: Rebate Checks:
Rebate Checks - When?
As soon as early May for April 15th filers.
Who?
2007 tax return filers with earned income.
How Much?
Married filers will receive a maximum of $1200 plus $300 for each child.
Single filer's maximum is $600 plus $300 for each child. Rebates phase out starting at $75k AGI for singles and $150k for married filers. Rebates are reduced by $50 for each $1,000 of income over these amounts.
News added, Los Angeles, February 8th, 2008: 2008 Tax News Update:
Are you curious about your chances of being audited by the IRS?
These were the statistics for your chances of audit in 2007:
Individuals overall: 1 in 97 returns (1.03%)
Individuals grossing more than $1 million: 1 in 11 returns (9.25%)
Individuals grossing over $100K but less than $1 million: 1 in 56 returns (1.77%)
Individuals grossing less than $100K: 1 in 108 returns (.93%)
S-Corporations: 1 in 222 returns (.45%)
Partnerships: 1 in 238 returns (.42%)
Small C-Corporations: 1 in 108 returns (.92%)
All categories experienced an increase in percent audited, though the increase was slight. The most significant increase occurred for individuals with over $1 million in gross income.
For 2008, there is a decreased tax rate on long-term capital gains for taxpayers in the 10-15% tax bracket, from 5% to 0%. This will not benefit children as kiddie tax age has increased to 19.
News added, Los Angeles, January 22nd, 2008: 2008 Tax Regulation Update:
For homes sold after 2007, a surviving spouse now can claim the $500,000 gain exemption if sale is within two years of the spouse's death.
The sale of land adjacent to a primary home lot can be included in the $500,000 exclusion on the sale of the home. This applies if the lot was used as part of the home and if it was sold within two years of after or preceding sale of the home.
The IRS has now made it easier to claim an unrelated child as a dependent if the child lived and year and was supported by the tax payer. The change will especially help unmarried cohabitants. This is effective retroactively to 2005.
News added, Los Angeles, January 8th, 2008: Apply for Your EIN Online!
Many business entities need to apply for an EIN (Employer Identification Number) from the IRS. Much like an individual's Social Security number, the EIN uniquely identifies separate businesses ...
News added, Los Angeles, January 4th, 2008: Social Security Tax Wage Limit Increased for 2008
Social Security taxes on employee wages and self employment income is still 6.2% and 12.4% respectively. However, the IRS sets a limit on how much income is subject to this tax. In the 2007, the wage limit was $97,500, meaning income above this amount was not taxed for social security. For 2008 ...
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Proactive tax planning to take advantage of timely tax saving opportunities.
Comprehensive business services that integrate income tax compliance
and planning with investments and insurance choices.
Consulting services that review businesses to find hidden opportunities to
increase wealth accumulation and retention.
Foreign investor tax services.
Individualized accounting system setup for new businesses.
State of the art payroll tax services and sales tax preparation.
Preparation of business and individual tax returns and financial
statements.
Budgeting and projection preparation and monitoring, facilitating the
creation and tracking of events.
Assistance in selection and installation of computer hardware and
software, ongoing monitoring and updating of systems.
