Monday, December 21, 2009
Sunday, November 22, 2009
Year end Tax Planning is Complicated by the Unknown
Year End Tax Planning
Tax planning at the the end of 2009 is a little more complicated than in recent years due to pending legislation that we have to consider. Regardless, as this year comes to a close it is still a good idea to review your tax situation before the end of the year to determine if there are any moves that you can make to lower your 2009 tax bill before it is too late.
Congress is considering many items now. All of the following items are on the table and have to be factored into your plan: Health Care Reform, Additional Stimulus Bills, Extension of Tax Breaks.
Congress is working feverously to figure out a way to fund health care reform. A surtax on higher-income taxpayers is one proposal, another proposal is to charge a tax on high-dollar health care plans. Further, changes are being proposed to Flexible Spending Arrangements and Health Saving Accounts. Flexible Spending Arrangements are likely to be capped at $2500, and the additional tax for HSA withdrawals before age 65 that are not used for qualified medical expenses could double. Other changes are proposed to these plans, so we will have to watch them closely.
Congress will most likely extend unemployment benefits before year end. They have already extended the new home buyer credit. Many other extensions are in the works.
These items have to be factored into your tax plan. You also need to consider the effects of the Alternative Minimum Tax in your plan. Not to mention possible tax ramifications of debt restructuring, or debt relief.
The sooner you address these issues the better chance you will have to lower your tax bill.
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.
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.
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.
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.
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.
Tuesday, September 29, 2009
Required Minimum Distributions on Retirement Accounts
Required Minimum Distributions ("RMD"): IRS Grants Relief with Notice 2009-82
There is good news if you withdrew required minimum distributions in 2009 without knowing that the 2009 RMD was waived by the Worker, Retiree, and Employer Recovery Act of 2008. The IRS has extended the deadline to November 30, 2009 for you to put the money back so that you do not have to pay tax on the unnecessary withdrawal. The authority for this is Notice 2009-82.
Under this Notice, individuals generally have until November 30, 2009, or 60 days after the date the distribution was received, whichever is later, to roll over the distribution.
There is good news if you withdrew required minimum distributions in 2009 without knowing that the 2009 RMD was waived by the Worker, Retiree, and Employer Recovery Act of 2008. The IRS has extended the deadline to November 30, 2009 for you to put the money back so that you do not have to pay tax on the unnecessary withdrawal. The authority for this is Notice 2009-82.
Under this Notice, individuals generally have until November 30, 2009, or 60 days after the date the distribution was received, whichever is later, to roll over the distribution.
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