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.

Thirteen Trillion and counting...

According to www.usdebtclock.org, the Outstanding Public Debt as of 17 Jun 2010 at 05:04:12 PM GMT is:
$13,085,794,427,785.78
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Tax Courts Rules to Seek Professional Tax Help

TurboTax Problems No Defense to Penalties

The U.S. Tax Court on April 19, 2010 held certain defendants liable for accuracy-related penalties despite the fact they were apparently using the so-called “Timothy Geithner signature edition” of TurboTax (Lam v. Commissioner, T.C., No. 13302-08, T.C. Memo. 2010-82, 4/19/10).
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2010 Estate Tax Law

By failing to pass any new estate tax legislation before January 1,2010, Congress  allowed the estate tax to expire pursuant to a "sunset" provision included in tax legislation enacted in 2001. As a result, in the absence of further changes by Congress, no estate tax would be applicable with respect to estates of decedents dying in 2010, regardless of the size of the estate.
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Deductible Business Clothing?

I am often asked...  "Can I deduct my clothing for my job?"

My answer seems flippant to some, but it sums up the IRS ruling fairly well... If you look like a "geek" while wearing your work cloths, you have a good chance in getting a deductionSmile

Rules for deducting clothing can be divided into three groups:
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2010 Mileage Rates

IRS Announces 2010 Standard Mileage Rates

Beginning on January 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 50 cents per mile for business miles driven
  • 16.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year's. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.

The business mileage rate was 55 cents in 2009. The medical and moving rate was 24 cents.

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Mortgage Deduction Compliance

IRS has two reason to increase compliance measures for mortgage interest claimed as an itemized deduction:

  1. Studies have shown that more mortgage interest is being reported by institions then some taxpayers declare as income - giving rise to the question, "How do these taxpayers pay the mortgage?"  It becomes suspect that some taxpayers may not be declaring all their income.
    Treasury Inspector General for Tax Administration - TIGTA - projected that 46,000 non-filers could collectively owe $625 million in additional taxes, penalties and interest for tax year 2005, while the bill could reach $801 million for about 91,000 taxpayers who underreported their income in that year.
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Understand Your Penalties

I'm often asked if filing an extension will eliminate penalties charged by the IRS... and how much are the penalties.

If you have a balance due on a late tax return, the IRS will calculate additional penalties and interest. There are three separate penalties:

* Failure to File Penalty - a "Valid" extension will relieve this during the extension period
* Failure to Pay Penalty
* Interest

Each is calculated differently. Here is a quick overview.

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CA Sales Tax Increase!

California Business Alert

As of April 1, 2009, the new sales tax rates are effective.  Please be sure that you have updated your proceedures to collect the appropropriate amounts.  As the retailer, you are responsible for the collection of the proper tax.

Click here to open a PDF of the New Rates!


Click here to jump to the CA State Board of Equalization for more information.

 

 

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New Privacy Rules

We want to reassure you that we hold all your tax and financial information in the strictest confidence.

Federal law requires us to obtain your consent before we use or disclose your tax return information for purposes other than preparing your return. We are well aware of the rules and restrictions involving the use and/or disclosure of your return information, and we take our obligations extremely seriously. I trust that this will bring you up to date on the rules that we must follow when handling your tax return information. 


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2008 Year-End Tax Planning for Business

 

Tax planning for year-end 2008 presents unique opportunities and challenges for small business taxpayers to reduce or defer federal income tax liability. While traditional planning techniques remain fundamentally important considerations this year, new opportunities and pitfalls born from recent legislation and changes in the tax laws in response to our current financial crisis provide planning variables unique to this year end. This letter discusses important year-end tax planning strategies -- from the tried and true techniques to new considerations for our economic situation -- that can operate to reduce the tax burden for your small business.

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2008 Year-End Tax Planning - Individuals

   

The end of 2008 is happening upon us faster than we think. With the year drawing to a close, now is an ideal time to review your tax situation and evaluate strategies that may help minimize your tax bill. Once December 31 passes, your 2008 tax bill is essentially set. Taking certain steps before then, however, can make a difference.

  

As is the case year after year, favorable changes to the tax laws made in 2008 are also accompanied by unfavorable modifications. This year end, of course, our unprecedented financial crisis looms large. This crisis generates tax loss situations that we may not have faced in recent years, as well as a more urgent need to maximize current income that involves taking steps to minimize tax payments whenever possible.

 

 

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Vehicle Milage Rates

Standard Mileage Rates

Beginning Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be 55 cents per mile for business miles driven; 24 cents per mile driven for medical or moving purposes; and 14 cents per mile driven in service of charitable organizations.

IRS said the new rates for business, medical, and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices.  The rate for charitable purposes is set by law and is unchanged from 2008, IRS said.

For vehicles not used for hire; for taxpayers that do not operate a fleet of vehicles using five or more vehicles at the same time (two or more prior to 2004); must be elected the first year the vehicle is placed in service; for leased as well as owned vehicles after 12/31/97...

 

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Wage Compensation for S Corporation Officers

IRS released a fact sheet regarding the hot topic of S Corporations - Distributions v. Payroll -

The following excepts the IRS information


 

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Buy v Lease

Here is a Lease vs Buy Fact Grid to help you determine which is best for you.
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Auto Lease v Buy

Reasons to Buy or Lease an Automobile

Buy:

•    Taxpayers who own autos can choose the standard mileage rate in the first year an auto is placed in service and switch to the actual expense method in a later year if it becomes more favorable. Taxpayers who lease may also choose the standard mileage rate in the first year, but must use it for the life of the lease.
•    A taxpayer intends to keep the vehicle more than four years, or until it is ready for the junkyard.
•    The vehicle will be driven more than 10,000 – 12,000 miles per year. Many lease contracts have a mileage limit with an additional charge for every excess mile.
•    The taxpayer has cash for the purchase or down payment.

 

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How Money Flows From the S-Corp to the Shareholders

 

When a shareholder takes a distribution from the S corporation, no taxes are payable since income is already taxed to the shareholders as a pass-through.  If the shareholder takes a salary, income tax consequences are essentially the same. The salary is taxable to the shareholder, but it reduces the income of the S corporation, so the net result is a wash.

  

If not for FICA (Federal Insurance Compensation Act), either of these scenarios would be essentially identical.  This is an especially important consideration because the FICA hit increases every year.  In 2008, the shareholder/employee pays 7.65% (employee’s share; the employer pays a like amount) on up to $102,000 of earnings (in 2007, FICA applied to $97,500 of earnings). Between the employee’s and employer’s share, the total is $15,606. The employer’s share is, of course, deductible, but even so, the net outlay may still be over $11,000.[1]

 
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Employee Versus Independent Contractor

If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees. 

Why It Matters

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Household Employees

With more clients havig the need to hire in-home help to assist with children and parents, I thought I would outline some of the rules on Household Employees — Nanny Tax - from the IRS's view.  As always, after reading this article, do not hesitate to call and disucss your particular situation.

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Vehicles - Methods of Business Treatment

Vehicles - Methods of Business Treatment

There are several acceptable methods for the deduction of vehicles.  Here is a quick look at a the most acceptable methods. 

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Kiddie Tax for 2007

Tax Rates for a Child's Investment Income

Part or all of a child's investment income may be taxed at the parent's rate rather than the child's rate. Because a parent's taxable income is usually higher than a child's income, the parent's top tax rate will often be higher as well. This special method of figuring the federal income tax, “kiddie tax” only applies to children who are under the age of 18. For 2007, it applies if the child's total investment income for the year was more than $1,700. Investment income includes interest, dividends, capital gains, and other unearned income.

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