DiSabatino CPA Blog

DiSabatino CPA Blog

A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...
Mike's weekly post usually concentrated on tax saving strategies.

Tax Credits versus Tax Deductions

Tax Credits versus Tax Deductions -Which is worth more to you?

Every industry and profession has common terms that are used so often those of us in the business often forget that most people do not have the depth of understanding that a person working within the tax code might have. One of these areas is understanding the differences between the tax terms "deductions" and "credits". Is one better than the other?

Top line. Dollar for dollar, a credit is worth more to you than a deduction. Why? A credit is a direct reduction in tax, while a deduction reduces the amount of income that gets taxed. Here is a simple chart showing the difference.

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New CA Sales and Use Tax Rate - October 1, 2011

New Sales and Use Tax Rate
Effective October 1, 2011
There is only one tax rate change effective October 1, 2011

Voters in the city of Mt. Shasta, located in Siskiyou County, California have approved a one-quarter percent (.25%) district tax, the Mt. Shasta Library Transactions and Use Tax, that is effective October 1, 2011.  The new rate applies only to transactions that occur within the city’s incorporated limits.

The table below summarizes the new sales and use tax rate.

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Tax Deadline April 18!!

Don’t forget, Monday, 4/18/11 is the final day to file your taxes for the 2010 tax year.

Procrastinators have an extra three days to work on their taxes this year because the usual April 15 file date is Emancipation Day, a holiday observed in Washington, D.C.,  to mark the anniversary of the signing of the Compensated Emancipation Act, which president Abraham Lincoln signed on April 16, 1862. The act freed several thousand slaves in the District of Columbia.

There are a lot of different options available to help taxpayers file and pay taxes on time, including the option of filing for an extension.

Those filing on Monday should make sure they have everything prepared and ready, to prevent any delays that might cost them in fees and penalties.
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CA Sales Tax Increase - April 1, 2011

New Sales and Use Tax Rates
Effective April 1, 2011

Voters in 13 cities in California have approved new district taxes (transactions and use taxes) that became effective April 1, 2011.  The new rates apply only within each city’s incorporated limits. The tax rates outside the incorporated city limits will remain the same.

In addition, the City of Scotts Valley Transactions and Use Tax (SVGF) will end on March 31, 2011, resulting in a tax rate decrease within the city limits of Scotts Valley.

In Sonoma County, the countywide Sonoma County Open Space Authority (SCOS) 0.25 percent district tax will end on March 31, 2011. Beginning April 1, 2011, the Sonoma County Agricultural Preservation & Open Space District (SAPD) 0.25 percent district tax will take effect. Therefore, the tax rates throughout Sonoma County (exception: City of Santa Rosa) will remain the same.

The table below summarizes the new sales and use tax rates.

District Tax Area

County

Acronym

Code

Old Rate

New Rate

City of San Leandro

Alameda

SLGF

238

9.75%

10.00%

City of Union City

Alameda

UCGF

240

9.75%

10.25%

City of Concord

Contra Costa

CNCD

242

9.25%

9.75%

City of El Cerrito

Contra Costa

ELCT

244

9.75%

10.25%

City of Placerville

El Dorado

PLST

246

8.50%

8.75%

City of Eureka

Humboldt

ERST

248

8.50%

9.00%

City of Santa Monica

Los Angeles

STMA

250

9.75%

10.25%

City of South El Monte

Los Angeles

SEMT

252

9.75%

10.25%

City of Novato

Marin

NOVT

254

9.00%

9.50%

City of Marina

Monterey

MRNA

255

8.25%

9.25%

City of Tracy

San Joaquin

TRCY

257

8.75%

9.25%

City of Scotts Valley

Santa Cruz

SVGF

216

9.25%

9.00%

County of Sonoma

Sonoma

SAPD

259

9.00%

9.00%*

City of Santa Rosa

Sonoma

SRGF

264

9.25%

9.50%

City of Wheatland

Yuba

WTLD

265

8.25%

8.75%

*The rate is higher in the following cities which have additional district taxes and their codes have changed: Sebastopol (260), Cotati (261), Rohnert Park (262), and Santa Rosa (264).

For More Information
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e-Filing Delays!

Due to the late enacted tax legislation, e-filing has been delayed for some time, for most taxpayers, especially those itemizing their deductions.  This delay was to end on Monday, February 14, 2011.

Late on Friday evening, February 11, 2011, we learned from the IRS that the Service is limiting the number of returns it accepts daily from all e-file transmitters during February 14-18. They are implementing the flow control in order to manage their systems capacity and ensure successful filings of all returns, including those that were affected by the “Schedule A delays.” As a result, we has a maximum number of returns we can remit to the IRS each day. Therefore, returns submitted early in the week may not receive acknowledgements from the IRS until later in the week.

We are working closely with the IRS to process all tax returns as quickly as their systems will allow.

As a result of the IRS staged transmissions over the course of the week of Feb. 14-18, some clients may experience delays in return processing and in the time it takes to receive their refunds. However, we expect that all processing should be back into the standard processing flow by Friday, Feb. 18.

We will keep you informed as we learn more from the IRS.

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Rental Property Owners - New Laws

The Small Business Jobs Act of 2010 (2010 Jobs Act) requires information reporting for rental property expense payments of $600 or more that are made after December 31, 2010. This reporting requirement is one of several revenue raising provisions that are included to offset the $12 billion cost of tax relief provided by the legislation.

Generally, if a person (payor) makes payments to another person (payee) in connection with the payor’s trade or business totaling $600 or more during a calendar year, the payor is required to send the appropriate information return to the IRS and the payee. Under the 2010 Jobs Act, any individual taxpayer who receives real estate rental income is considered to be engaged in a “trade or business” for purposes of the information reporting requirements. This is true even for individuals engaged in a “passive investment activity” under general tax rules and principles.

The reporting obligation applies if the total of all payments made by the payor in any tax year is $600 or more, even though the amount for any class of payment by itself is less than $600. Payments that must be reported include:
•    salaries, wages, commissions, fees, incentive awards and other forms of compensation; and
•    interest, rents, royalties, annuities, pensions, and other gains, profits and income.
Form W-2, Wage and Tax Statement, is the information return used to report payments to employees, whereas Form 1099-MISC, Miscellaneous Income, is generally used to report other types of payments.

An exemption from the filing requirement is extended to members of the uniformed services or employees of the intelligence community who rent out their principal residence on a temporary basis. In addition, the IRS is authorized to issue regulations that exempt individuals whose rental income falls below a minimum threshold or who meet certain hardship standards. Failure to comply with these requirements may result in the imposition of penalties, including penalties for failure to file the information return and failure to furnish payee statements.

The new information reporting rules may increase the paperwork and filing burden, as well as the related costs, for your rental property. Because the rules apply to payments made after December 31, 2010, we would like to discuss recordkeeping and other compliance issues as soon as possible. Please call our office at your earliest convenience to arrange an appointment.
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2011 Standard Mileage Rates Released

The Internal Revenue Service issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
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2010 Stalemate Ends Over Tax Cuts

Obama And GOP Compromise On Two-Year Extension Of Most Tax Cuts

President Obama announced on December 6 an agreement with the GOP to extend the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for two years. The White House-brokered plan would also provide for a one-year payroll tax cut, 100 percent bonus depreciation for 2011, extenders relief, and a top federal estate tax rate of 35 percent with a $5 million exclusion. The president’s package is expected to pass Congress before year-end, although certain modifications may be made to garner additional support by key Democrats.

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No more 8109-B Federal Tax Deposit Coupons in 2011

Other than with a few exceptions, beginning January 1, 2011; all federal tax deposits must be made through EFTPS (the Electronic Federal Tax Payer System).

For those of you who are still making payroll (941/940) and other tax (1120) deposits at the bank using a  paper coupon, be aware that no 8109-B paper coupons will be accepted for 2011.

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Monitoring Your Credit and Identity

In today's heightened security-concerned world, it is important to monitor your credit reports occasionally so you will be aware of any unauthorized use of your credit file, before it runs rampant.

To help you monitor your credit usage, credit report monitoring is the basics.  Keep in mind everyone is entitled to one free credit report annually and unlimited free reports if you feel you have been a victim of identity theft, have been denied credit, are unemployed, receive welfare, or other criteria.
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Attention Non-Profit organizations.

Attention Non-Profit organizations.

Please visit this IRS "Micro-Site"  http://www.stayexempt.irs.gov/VirtualWorkshop.aspx

The IRS introduces this site as

...created especially for 501(c)(3) organizations! Whether you are new to the world of tax exempt organizations, an old hand at managing them, or a tax professional who works with them, you will find something of interest here.

Lots of great information including the "OE Mini Courses," which are Exempt Organizations powerpoint courses to help you maintain a better organization,

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2010 Planning: Tax Consequences for Self-Employed Individuals

Owning your own business can be very rewarding, both personally and financially. Being the sole decision-maker for this important undertaking can also be overwhelming. Business owners have many choices to make, and these choices involve tax consequences that are not always foreseen. We can help you minimize your overall tax burden by identifying and maximizing business deductions, providing guidance on substantiation of expenses, and exploring tax planning alternatives that are uniquely available to the self-employed.

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$250 "Donut Hole" Rebate For Seniors

Although many provisions of the recently enacted health care reform package will not be felt for a few years, there are some benefits that begin in 2010, including the $250 tax-free "donut hole" rebate for seniors. This $250 rebate is intended to help seniors bridge the Medicare coverage gap. While many federal rebate-check programs are ending -- such as the Recovery Rebate Credit and Making Work Pay Credit -- the $250 donut hole rebate has just begun to be dispersed and an estimated 4 million seniors will receive the one-time $250 rebate, with more than 300,000 individuals having already received the check.

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Foreign Bank Accounts, Gifts... What you Need to Report

Are you required to inform the IRS of your foreign bank accounts, business interests, gifts or inheritances?  Here, we will review the basic filing requirements that you should be aware of.   We encourage all clients to review this and discuss all foreign transactions with us to determine the proper reporting requirements.  Although tax implications may not be involved, the penalties can be severe for failure to comply with the filing requirements.

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Pennsylvania Voluntary Disclosure Program

DiSabatino, CPA helps individuals and business throughout the US.  For those clients that may have tax liabilities to the State of Pennsylvania, this may be of interest.

I have been advised that the Pennsylvania Voluntary Disclosure Program will be reinstituted effective August 1, 2010. The department will be updating its website with additional information in the near future.

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Quickbooks – IRS May Want Your Electronic Records

Tax Practitioners know that Section 6001 of the IRC requires taxpayers to keep their tax records and that Rev. Rul. 71–20, 1971–1 C.B. 392, establishes that all machine-sensible data media used for recording, consolidating, and summarizing accounting transactions is considered such a tax record for this purpose. Because many taxpayers are now keeping their records using Quickbooks, the IRS has purchased 1,100 Quickbooks licenses for distribution to revenue agents. The intent is that agents may more quickly audit a taxpayer by reviewing records maintained in Quickbooks.
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Minority Shareholder Rights

Often, a minority shareholder is completely excluded from the management of the company.  Lacking the votes to acquire a position as a corporate officer or director, a minority shareholder may even be excluded from the information necessary to detect abusive actions by the majority or to evaluate the performance of the company and the value of its stock.  Therefore, the right to obtain financial information and other data about the company’s business can be invaluable.

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New Health Care Laws and Your Taxes!

Now that Congress has passed landmark health care reform package, much work needs to be done in dealing with new requirements. While the end result of the legislative process is necessarily health care related, the tax law plays a major role in its implementation. From the tax credits and subsidies used to expand health coverage, to the many penalties, fees and surtaxes designed to pay for it, the Tax Code is front and center.

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How the New Health Care Law Affects Individuals

The Patient Protection and Affordable Care (PPAC) Act, as amended by the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act), was enacted to provide quality, affordable health care for all Americans. Although the primary thrust of the PPAC Act is health insurance reform, the tax law plays a key role in implementing that goal. Individuals both receive benefits and are subject to responsibilities under the PPAC Act. The following are highlights of the tax provisions of the PPAC Act that affect individuals. Several of these provisions take effect in 2010, but others are not effective until later years.

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New Business Checklist

We are often asked what steps are required in order to establish a new self-employed (sole proprietorship) business. Although this checklist is not all-inclusive, here is a document DiSabatino CPA often provides to clients which may be a helpful guide for you.  Please call our office to consult with us on deciding which entity might be correct for you, and the actual steps you will need to perform.
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