Friday, October 23, 2009

Lower Self Employment Taxes for LLC Owners

We have developed a technique based on a proposed IRS regulation that allows for the bifurcation of the LLC interest, whereby each owner would own a managing member, and a member (investment) interest.  Rather, than just a managing member interest.  This requires that the company be a non-professional type business, and that the allocation of the member/managing member interests have substantial economic effect.

If this is the case and the managing members receive guaranteed payments that are reasonable compensation for services provided to the LLC, then the managing member interest would be subject to self employment tax and the member interest would not be subject to SE tax.  This is much the same way that an S-Corporation works.

But remember, that this is based on a proposed regulation, and is not without risk.  It would not be subject to judicial review, but the IRS could not charge penalties if you relied on it.  If you own an LLC as a managing member, and would like to structure it such that you could lower SE tax, please contact our office for an appointment at 714-708-2593.

Tuesday, October 13, 2009

Tax Deadline is October 15, 2009

It is now upon us.  If you extended your individual income tax return prior to April 15, 2009, the day has come to file.  October 15, 2009 is the last day to file, and there are no additional extensions available.  If you file past this date you will be late and incur a late filing penalty.

If you cannot possible make your filing by October 15, 2009, you need to file as soon as possible after that date as you can.  It is a crime to not file an income tax return.  President Obama has proposed raising the criminal penalty for non-filing to that of a felony.  That tells me that the government is taking non-filing very seriously.

Bottom line, file on time if at all possible.

Thursday, October 8, 2009

Home Mortgage Interest Deduction

How Much of My Mortgage Interest Can I Deduct?

So just how much interest can you deduct from your home loan?  This is a basic tax question that is often answered incorrectly.  You may not deduct interest on more than $1,000,000 of home acquisition debt for your main home and secondary residence. Home acquisition debt means any loan whose purpose is to acquire, to construct, or substantially to improve a qualified home. The limit is reduced to $500,000 if you are married filing separately.

Just because you receive a Form 1098 from your lender, it does not mean that you get to deduct 100% of the interest indicated.   If you refinance your home in an amount greater than the original acquisition loan, you cannot deduct the interest that is represented by the loan amount that exceeds your original acquisition loan.  Also, you can only deduct the interest if you are responsible for the debt, and actually pay the interest.  However, the U.S. Tax Court has allowed a joint obligor to deduct their payment of interest on behalf of another obligor, if the payment was made to avoid loss of the property, and the payment was made from the separate funds of the obligor claiming the deduction.  This can become important in this economic environment where so many mortgages are going into default.

Further, you can deduct interest on an additional $100,000 of loan amount for a home equity loan.   The home equity debt limit is reduced to $50,000 if you are married filing separately.  Your deduction for home equity interest may be reduced even below the $100,000 limit if your indebtedness exceeds the fair market value of your home.  

Friday, October 2, 2009

What Can You Predict for Our Tax Rates in the Future?

What can you predict for our tax rates in the future?  This is a question that I get asked quite a bit.  If you remember, President Obama said in his campaign that he would raise taxes for the rich, and this was defined as those that have taxable income in excess of $250,000.  These are the same folks that are already footing about 65% of the taxes already.  In fact, if you taxed these "rich" people at 100%, it would not solve the trillion dollar annual deficit we are now expected to carry for the forseeable future.  Next thing to consider is that the people making over $250,000 are generally the same people that are providing the jobs.  When they are over taxed, they hire less and make cutbacks.  You can see where I am going here. 

How does this affect future tax rates?  Well, if we cannot get enough taxes from the "rich", and Congress does not cut spending (they have not shown a propensity to do this), then Congress must raise taxes further.  This will mean lowering the bar from the $250,000 level.  My best guess is that Congress will have to raise taxes for those that make $75,000 and above to make any headway on the deficit, and fund current programs.  Thus, your tax planning for the future should consider this as a highly probable event.  Consult with your tax adviser to determine what this means to your individual situation.