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.

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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