Want to know what the “Promise of the Cloud” is? Listen to the end of Ed’s interview below and you’ll find out! Pretty exciting!
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The guvment is trying to stimulate us again, and they continue to un-stimulate us (in my opinion). The House recently passed the American Jobs and Closing Tax Loopholes Act of 2010, and it is chocked full of tax extenders, relief for the unemployed and puts a hold on cutting Medicare payments to doctors. The Senate will be voting on it soon.
But the section that makes me go “OMG” is the part that is attempting to undermine all the tax planning we as CPAs perform for our clients. Some background: if you begin making a lot of money in your small business and you file as a sole proprietor, then you start having to pay a lot of taxes because you are running your business so well (in particular, the self-employment tax piece is the big deal-e-o). But we as CPAs can guide you through the proper way to convert your entity to an S Corporation, begin taking a reasonable wage through payroll and then take out distributions that do NOT have self-employed tax charged to them. This has saved our clients many many thousands of dollars throughout our firm’s history.
But this most recent bill passed by the House will charge self-employment tax to the distributions S corporation owners pull out above payroll! This is amazing! It’s for Professional Service Corporations, and it only applies to S Corps with 3 or fewer owners. So if you run a service-based company inside of an S Corporation, your tax planning abilities are about to go away. That really stinks.
Contact your Senator before they vote on this and tell them this is a killer to the small businesses in America.
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The IRS is changing it’s focus on enforcement. Instead of focusing on taxpayers, the IRS is going to add a focus on tax preparers.Oh goody. That means Blumer & Associates CPAs (and all other tax preparers) is under the gun!
Our firm and tax preparers across our country are going to be under the microscope moving forward because we prepare over 60% of Americans tax returns. The IRS will be doing things like visiting offices (surprise visits) and actually pretending to be clients (mystery shoppers). And they’ve even gone further – these IRS mystery shoppers have paid to have their tax returns done and they report that 60% of them had errors (I wonder where they had them prepared?).
Here are some things we can expect with these additional regulations:
1. Penalties for incompetence and unethical behavior will increase,
2. All tax preparers will have to be registered by the 2011 tax filing season (that is the hope of the IRS),
3. Over time, competency tests will be required before you can prepare tax returns for the public,
4. Attorneys, CPAs and Enrolled Agents will be exempt from these tests,
5. Taxpayers will be able to check the credentials of preparers on the IRS website,
Our firm has made some changes internally this tax season to make sure our work is more solid, more well prepared and reviewed more than it ever has been before. We want to be rock solid internally to make sure our work for you is done in an excellent way.
If you have any questions about these new regulations, please feel free to give us a call, and we’ll let you know what’s up the IRS’s sleeve. Thanks.
Obama is going to use “sin taxes” (as stated by Kay of Don’t Mess With Taxes) to pay for health care reform. The Senators call these lines of revenue “lifestyle” taxes instead, namely alcohol and soda.
I love Mountain Dew, so I guess I’ll help institute national health care reform. Good for me (… or not).
The most recent American Recovery and Reinvestment Act of 2009 provides some choices for the American taxpayer to choose certain education credits as compared to education deductions.
You can not take both, but you can take the best one for your tax situation. The Hope Scholarship Credit is available for the first two years of educational expenses, while the Lifetime Learning Credit is available for all years of school. The former allows for up to $1,800 per student, while the latter provides up to $2,000 per student.
The comparison of which one to take is found in the (1) amount of your income for 2008, (2) what type of student you are claiming the credit for, and (3) when you take the credit or deduction:
(1) The above-mentioned credits phase out at relatively low income levels. They phase out at $58K per year for Single taxpayers, and at $116k for Married taxpayers. But the $4,000 deduction (different from the Hope and Lifetime credits) totally phases out at $80K for Single taxpayers, and at $160k for Married taxpayers. So if you phase out for the credit, don’t forget about the deduction,
(2) The Hope credit is available to students in their first two years of post-secondary school, while the Lifetime credit is available for any year the student is in school. Make sure you apply the correct credit to the correct student in the correct year. For example, to take both credits in the same year (maybe where the kid and the parent are both going to school), use one credit for the student in their first two years of undergraduate work (the Hope), and use the other credit for the student going back to school to enhance their career (the Lifetime).
(3) If you know you have a payment coming up in January, you may consider making that payment early in December to take the credit or deduction in the year you pay the tuition, and then take another deduction or credit the next year for the same school year (when you make next semester’s payment). Stick it to the government, is my motto. Spreading tax deductions and credits across multiple years is a tax savings that few take advantage of… it takes some planning but can be very profitable.
Any other ideas on how to apply these tricks for the most benefit to the hard working American taxpayers? Leave it in the comments.
Thanks, Jason M. Blumer
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.
I thought it necessary to detail for our clients and readers the highly anticipated stimulus bill flying through the House and Senate just a few days after our new President’s inauguration. This is the new New Deal. We are about to chunk down a bill for our grandchildren to pay that will keep our country talking for many years to come (adding an estimated $347 Billion in interest costs alone to the national debt over 10 years). The bipartisan “love” promised by our new President is being watched closely under the initial negotiations of this bill.
The stimulus bill has passed the Democratically-controlled House (cited as the American Recovery and Reinvestment Act of 2009), and has just passed the Democratically-controlled Senate 61 to 36. Over $838 Billion is included in this Senate version of the bill, with supposed tax cuts for individuals who work, and the unemployed needing health coverage to the largest overhaul of our out-dated energy grid to stabilizing state and local governments operating in the red. Only a third is for tax cuts while a whopping two-thirds, or $550 Billion, is for new spending.
Now it’s time for the House and Senate to come together and negotiate the details before ‘Bama receives the final bill to sign (hopefully, by mid to late February).
Here are some things the individual may expect. Tax benefits for the businesses will be the focus of next week’s Tuesday Tax Time post.
FOR THE INDIVIDUAL…
- Protection From The AMT (Alternative Minimum Tax). The Senate version of the stimulus package increased the minimum exemption (which keeps individuals from paying the AMT) to $70,950 for those filing joint tax returns, and $46,700 for those filing single. Before this measure, you could expect to be hit by the AMT (an alternate “tax code” for the rich, so to speak) if you were married and only made $45,000.
- Home Buyer Tax Breaks. This one is really cool. The first time home buyers credit is getting pumped with some serious cash… payable to you (potentially). If you buy a home within 12 months after the signing of the bill (and hold and occupy the home for 2 years), you could receive up to 10% of the purchase price on the home you purchase (with a $15k cap on that amount) in a refund at tax time next year. And you don’t have to pay it back, as the current home buyers credit stipulates, and it’s not just for first time home buyers anymore! If the President signs the bill as written currently, you can expect a lot of people to be buying and selling homes, as this will become a very profitable endeavor for the year 2009. Hello real estate market – hang on to your britches.
- Payments to Individuals. There is a new “Making Work Pay” Credit included in both the House and Senate versions of this stimulus bill, where if you work, you’ll get up to $500 of earnings at tax time (up to $1,000 if a married couple both work). This credit is actually 6.2% of your earned income, so it will apply to those receiving W-2s and the self-employed. Another payment to individuals is the additional child tax credit, which is being beefed up in this proposed legislation (this is the credit you normally get if you don’t have immediate tax liability to warrant the regular child tax credit). And the limits on receiving the Earned Income Credit are being raised to get those with lower incomes (and kids, bless their hearts!) more cash in their pocket come tax time.
Here’s a pretty cool table showing you how much cash you might expect (from The Tax Foundation post):
|
Table 1: Tax Savings in 2009 Under House and Senate Stimulus Packages
|
|||||
|
Current Income Tax
|
House Bill (H.R.598) |
Senate Bill (S.350) |
|||
|
Tax |
Savings |
Tax |
Savings |
||
|
Couple with two children earning: (a) |
|||||
|
$40,000 |
($1,721) |
($4,115) |
$2,394 |
($3,865) |
$2,144 |
|
$60,000 |
$2,900 |
$900 |
$2,000 |
($233) |
$3,133 |
|
$80,000 |
$5,604 |
$3,604 |
$2,000 |
$2,318 |
$3,287 |
|
$100,000 |
$10,180 |
$8,180 |
$2,000 |
$4,778 |
$5,403 |
|
$200,000 |
$35,750 |
$35,750 |
$0 |
$30,191 |
$5,559 |
|
Single parent with two children earning: (a) |
|||||
|
$20,000 |
($5,274) |
($6,774) |
$1,500 |
($6,524) |
$1,250 |
|
$40,000 |
$0 |
($1,200) |
$1,200 |
($1,200) |
$1,200 |
|
$60,000 |
$4,753 |
$2,453 |
$2,300 |
$1,753 |
$3,000 |
|
$80,000 |
$9,103 |
$7,379 |
$1,724 |
$6,303 |
$2,800 |
|
$100,000 |
$14,105 |
$14,105 |
$0 |
$13,953 |
$153 |
|
$200,000 |
$41,113 |
$41,113 |
$0 |
$37,746 |
$3,367 |
| (a) The couple is assumed to be a two-earner couple with equal earnings and income from no other source. One child is assumed to be under age 17 and the other child of college age with college expense of $4,000. Itemized deductions are assumed to be 18 percent of earnings. It is assumed that the taxpayer does not purchase a home in 2009. The same assumptions apply for the single parent.Note: Calculations in italics indicate that the taxpayer is subject to the alternative minimum tax (AMT), | |||||
Tune in next week for the update on how this stimulus will help businesses. Woot, woot!
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.
Last minute tax updates for this year – get ‘em while they’re hot:
1. The bailout law enacted the above-the-line deduction for higher education costs. Take up to $4,000 in deductions this year because of this new law – a direct reduction to your taxable income. THRIVEAL TAX IDEA: pay January 2009 tuition early in 2008 to get the deduction. But make sure you compare the education credit to this deduction to see which one would benefit you the most. Credits and deductions are different.
2. Deduct property tax payments even if you don’t itemize. Normally, only if you itemize can you deduct your vehicle and home’s property tax payments. If you use the standard deduction, you don’t get to take advantage of these large deductions. But for 2008 and 2009 only, individuals can take the standard deduction AND deduct state and local property taxes on their tax returns. THRIVEAL TAX IDEA: let your grandmother know about this law, because low-income elderly are usually the ones subject to the limitation of having to take the standard deduction without the benefit of deducting their property taxes.
3. You get to take bonus depreciation in 2008 only. Bonus depreciation is equal to 50% of property placed in service in the calendar year 2008. This is above your normal depreciation and in addition to section 179 right off! Pretty sweet. As long as you got the equipment in 2008 or “place it in service” in 2008, then you can write off 50% of it before applying other depreciation. THRIVEAL TAX IDEA: this write off is for the calendaryear 2008, so if your business year end is September 30th (as an example), then you can take this 50% write off twice. Take it in one fiscal year (after January 1 but before September 30th) and then take it again the next fiscal year (after September 30th but before December 31st). Stick it to Uncy Sam.
4. You can write off your building improvements over 15 years instead of 39 years. The bailout law extended this provision through 2009, but you can take it in 2008 as well. Its intended for leasehold improvements and qualified restaurant property. THRIVEAL TAX IDEA: cautions – (1) make sure these upfits are made according to a lease agreement to get the accelerated write off, (2) the building needs to be in use for three years before applying this, and (3) the lease can NOT be between related parties to take advantage of this provision (i.e. between you and yourself).
Thanks, Jason M. Blumer, CPA
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.
Last week during Tuesday Tax Time, thriveal posted a primer on the problems behind the current economic crisis. This week we’ll look at the main provisions behind the Emergency Economic Stabilization Act of 2008, the latest government answer to our economic woes. Bless them.
Here goes:
1. This bill creates the Troubled Assets Relief Program (TARP), where the Secretary of the Treasury will have the ability to use Federal funds to purchase up to $700 Billion of private company financial instruments. Currently, the financial instruments of focus would be the junk commercial and residential mortgage assets (i.e. Troubled Assets) held by many of the nation’s largest banks. This part of the Act is initially set to expire on December 31, 2009, but could be extended for two years if needed. Secretary Paulson has mentioned stepping down as the Secretary after the elections, so the next President will have a lot of control over this area and it’s continued use. Essentially, a new market for these assets will be created. The Secretary could buy and sell these assets on some type of market and incur gains and losses as a result. Should the government incur losses due to these purchases (duh), TARP allows the government to recoup these losses from the companies petitioning the government to buy their junk assets.
2. From all of the recent turmoil in the economy, it has become apparent that the chief executives and management team of some of the largest Wall Street investment firms have continued to receive unusually large bonuses and pay while their company was going down the toilet. This Act would restrict the executive pay (that is, the top 5 executives) of those companies that petition the federal government to purchase their troubled assets. The restrictions are lifted again when the federal government no longer holds troubled assets of a particular company.
3. Though set to expire December 31, 2009, the FDIC deposit insurance limits have been raised from $100,000 to $250,000 on all depository accounts.
4. This Act requires the President of the United States to submit to Congress (within 5 years) a plan to recoup any losses to the taxpayer due to the institution of TARP.
5. The AMT has been indexed again for inflation, thereby helping millions of middle-income taxpayers avoid this “tax on the rich.”
That sums up most of the relevant provisions. There are a lot of ambiguities in this act, and many experts don’t actually know how a lot of this Act will be implemented. Our economy didn’t necessarily react with great joy (the Dow is still going up and down) when the Act was passed. I think the market still needs to “correct” itself from prior poor decisions by big companies, so we are yet to see if all is well.
Let’s hang in there and do good business for the next year or year and a half, and see who’s standing after the smoke clears.
Thanks, Jason M. Blumer
Capitol Hill Loves Taxes!!
Did you know that our tax system uses what’s called a Progressive Tax? Your individual income is taxed using graduated rates, as opposed to taxing all of your income at one level. It’s progressive in that it tries to tax rich people (who have more income) at a higher rate; and poor people (those with less income) at lower tax rates.
For example, the rates for 2008 for those filing Married Filing Jointly are as follows:
10% on the income between $0 and $16,050
15% on the income between $16,050 and $65,100; plus $1,605.00
25% on the income between $65,100 and $131,450; plus $8,962.50
28% on the income between $131,450 and $200,300; plus $25,550.00
33% on the income between $200,300 and $357,700; plus $44,828.00
35% on the income over $357,700; plus $96,770.00
So, as seen above, only the first $16k of your income will be taxed at the 10% rate. And every other married couple in America will also have the first $16k of their income taxed at 10%. Then your income will be taxed as you move up from there. It’s actually more complicated than this, but this is a good start.
Now you know – go conquer the world.
Thanks, Jason M. Blumer
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.
Last week was a great week of our THRIVEal classes!
These classes are part of our THRIVEal Business Success Series. We offer free classes to our clients every May and November on various topics from Marketing and Branding to the proper tax structures to operate their businesses in.
Here’s a recap…
Monday- Running Your Business on QuickBooks: An Introduction – We touched on the “need-to-know” stuff. We don’t hit every participant with the whole program. That tends to overwhelm. We focused on letting our clients know what they had to do in order to be successful with the program.
Tuesday- Tax Class 101 – We laid out the various tax structures an entrepreneur can operate within, and explained what they were for. We got a little “techy” and had to use some tax-related language, but overall the group learned a lot. We went through a very eye-opening example of switching a client from a sole proprietor structure to an S Corp. We were marveled at the tax dough that can be saved by doing this.
Wednesday- Strategies for Success in Your Business – Clearly the best class of the week! It’s a topic I love and one that our participants responded to. We passed on a heavy theoretical dose of management theory to our clients, why they do business, and how we consult with our clients toward growth. We focused on technical people going into business to do business work, and how entrepreneurs have faulty mentalities when starting new businesses. With examples from a great book, The E Myth: Why Most Small Businesses Don’t Work and What to Do About It, we helped our clients transition their thinking from one of faulty thinking to one of successful thinking.
Thursday- Efficient Use of Business Technology – We brought in a guest lecturer for this one. He went through all of the various areas of technology that may help a startup or entrepreneur so that they might leave with one or two ideas of how to improve the efficiency of their office/business.
Friday – Future-Oriented Strategies: How to Budget for Your Business – We spoke of the value of looking ahead in every aspect of life (we all use future-oriented strategies in many aspects of planning for life). Budgeting for your business should be no different. We went through some of our high-end software that does regression analysis (statistics are so much fun!) on historical data and projects that data out into the future. Fun stuff!
Overall the classes were a great success, and I believe they were of great benefit to our clients. Thanks to all who participated. E-mail me at thriveal@gmail.com for a pdf of any of the outlines. Looking forward to November…
Peace out.
Thanks, Jason M. Blumer
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