MOVING OUT OF CALIFORNIA

I am sure you have heard about Mickelson saying publicly about moving from California to a state with no income tax, check out this article on The Wall Street Journal that discusses why California residents are doing just that…moving out

SUCCESS OF AD FOR MY $1000 BUCKS

Q: Larry what formula to use for advertising. Example: if I run a print ad for $1000 what return on my dollar should I look for to measure success of ad? 

A: Here are my thoughts on justification for $1,000 of advertising.  As an explanation, if you see 26 clients and they each pay you $80.00 you will have rung up $2,041.  But wait a minute.  From that $2,041 you have to pay the producers, back bar, payroll taxes on the producers and credit card fees.  In your case that amounts to about 51% of the sale. 

So if you do $1,000 in advertising and because of it you get 26 client visits you will have made just enough to pay for the ad.

Let me know if you have any other questions.

 

 

 

 

CENSUS 2012- DO I HAVE TO DO IT?

We have been receiving calls and emails from our clients on whether they are required to participate in the Census Bureau business survey that was just sent out.

Our response: your business is required to participate in Census Bureau business surveys by law (Title 13, United States Code).

13 U.S.C. § 221: US Code - Section 221: Refusal or neglect to answer questions; false answers

(a)Whoever, being over eighteen years of age, refuses or willfully neglects, when requested by the Secretary, or by any other authorized officer or employee of the Department of Commerce or bureau or agency thereof acting under the instructions of the Secretary or authorized officer, to answer, to the best of his knowledge, any of the questions on any schedule submitted to him in connection with any census or survey provided for by subchapters I, II, IV, and V of chapter 5 of this title, applying to himself or to the family to which he belongs or is related, or to the farm or farms of which he or his family is the occupant, shall be fined not more than $100.

(b)Whoever, when answering questions described in subsection (a) of this section, and under the conditions or circumstances described in such subsection, willfully gives any answer that is false, shall be fined not more than $500.

(c)Notwithstanding any other provision of this title, no person shall be compelled to disclose information relative to his religious beliefs or to membership in a religious body.

FREE MEAL TAXABLE?

Q:  I received an invitation for a free meal at an investment seminar?  Is this taxable, if I go?

A:  No, the event is governed by the tax rules for meal and entertainment expenses.  Therefore, as the recipient of the meal, you don't owe any income tax on this benefit.  But it's not completely "free"; undoubtedly, you'll have to listen to a sales pitch from a financial planner, plus you may have to endure follow-up contacts.

Tip:  If you pay to attend an investment seminar or convention, you can't deduct the cost, either.

1099 RELIEF ON MISCLASSIFIED WORKERS

The IRS is temporarily easing the 1099 rules. From now until June 30, 2013, firms that haven’t filed all the 1099s on misclassified workers for the past three years can sign up. The businesses will owe a slightly higher penalty and will have to pay a modest fine for failing to timely file 1099 forms on the workers.  Announcement2012-46 has all the rules, plus a worksheet to compute the penalties. 

ARE WE MAKING TOO MANY ATTORNEYS?

There are too many law students.  The Bureau of Labor Statistics estimates that the economy will create 21,880 new jobs for lawyers annually until 2020.  But law schools produce more than 44,000 graduates each year.  The Wall Street Journal

FROM THE DESK OF ERNIE GOSS

I have heard Professor Goss speak many times.  He is a conservative economist and his commentary always seems to hit home.  I thought you might find his December commentary interesting. 

Is U.S. Adopting Europe's Anti-Competitive Economic Policies? Import French Wine, Not Economic Policy

Last week, Francoise Hollande, Socialist President of France, recommended homework be eliminated in French schools. He argued that assigning homework provides an unfair advantage to students with stable home environments. This same type of anti-competitive thinking has produced a social safety net in France and most of Europe that has undermined economic incentives and encouraged workers to remain unemployed or underemployed.   

For example, the World Bank estimates the annual cost of the social safety net as a percent of GDP in France is more than twice the size of that in the U.S. (graph). Not surprisingly over the past decade, France's unemployment rate averaged 2.6 percentage points higher than the U.S. rate, and the Gaullist nation's annual GDP growth was about one-third that of the U.S.    

Unfortunately, the Obama administration's proposed tax increases currently under deliberation by Congress on higher income, higher productivity and more highly educated workers pushes the U.S. in France's direction.  

The top five percent of wage earners, or those earning over $154,000, already pay an average income tax rate 11 times that of the bottom 50 percent of U.S. workers. Not only do Obama's tax rate hikes on the most productive Americans shrink incentives, they reduce the yearly budget deficit by less than 10 percent. Instead of diminishing the income of higher wage workers via elevated taxes, U.S. economic policy should be directed at raising the income of lower income workers. The U.S. should import French wines and movies, not French economic policy.

IRS ANNOUNCES SIMPLIFIED OPTION FOR CLAIMING HOME OFFICE DEDUCTION STARTING THIS YEAR; ELIGIBLE HOME-BASED BUSINESSES MAY DEDUCT UP TO $1,500; SAVES TAXPAYERS 1.6 MILLION HOURS A YEAR

The IRS announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction). 

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller.  "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."

The new option provides eligible taxpayers an easier path to claiming the home office deduction.  Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A.  These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014.

WHY YOUR 2013 PAYCHECKS ARE 2% LESS

The questions are already rolling in:  "Why did my pay drop?"  The simple answer is the expiration of the payroll tax holiday as part of the fiscal cliff deal.  The payroll tax holiday was enacted in 2011, which reduced the employee share of the Social Security payroll tax from 6.2% to 4.2%.  The holiday was not renewed when it expired at the end of 2012.  The payroll tax holiday proved popular, but it cut federal revenues by some $10 billion per month.

SEE YOU IN LONG BEACH

I will be speaking in Long Beach at the International Salon and Spa Expo put by the Professional Beauty Association on Sunday January 27 and Monday January 28 again this year. I am excited to have the oportunity to speak for PBA again and in Long Beach.

My program is "Ask a CPA": Haven't you ever just wanted to ask your accountant or CPA a question but didn't want the bill that came with it. Or worse yet they didn't know the answer because they don't understand your business? Now is your chance to ask those questions without a bill and know that the expert you will be asking will know the answer.

If you are attending ISSE make sure you come see my class!

IRA CHARITABLE ROLLOVER

If you are over age 70 1/2, you can save on last year's taxes by giving directly from your IRA this January.

In the 2012 Taxpayer Relief Act, there is a provision that is retroactive.

How? With an Individual Retirement Account "IRA" Charitable Rollover, also called a "qualified charitable distribution."

What is an IRA Charitable Rollover? An IRA Charitable Rollover is a direct transfer of up to $100,000 from your traditional IRA to a qualified charity.

Who is eligible to make an IRA Charitable Rollover? Traditional IRA owners who are at least 70 1/2 years old.

How does an IRA Charitable Rollover benefit me? Because the donation is made directly to charity, you benefit by not having to count the donated amount as income for tax purposes - this can be particularly helpful in excluding all or part of your required minimum distribution.

What if I already took my required distribution this year? If you received a distribution between December 1, 2013 and December 31, 2012, you may donate all or part of that distribution by writing a check to your desired charity by February 1, 2013 and that donation will count as an IRA Charitable Rollover for 2012.

How long do I have to act? You are allowed to make an IRA Charitable Rollover before February 1, 2013 and have it apply to your 2012 taxes. You are also eligible to make an IRA Charitable Rollover for your 2013 taxes any time throughout 2013.

How do I make an IRA Charitable Rollover? Instruct your IRA trustee to make the contribution directly to your designated charity before February 1, 2013.

Contact us if you need further information.

IRS WILL BEGIN 2013 FILING SEASON AND PROCESSING OF INDIVIDUAL RETURNS ON JANUARY 30

If you are expecting a refund you will have to wait a little longer this year.  The IRS has announced that it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30, 2013. The announcement follows on the heels of the enactment of the American Taxpayer Relief Act of 2012 (the 2012 Taxpayer Relief Act) on Jan. 2, 2013, which, apart from permanently extending the Bush-era tax cuts for most taxpayers and increasing the income tax rates for some high-income individuals for 2013 and later years, retroactively restored many deductions and credits and patched the alternative minimum tax for 2012. IRS will begin accepting tax returns only after updating forms and completing programming and testing of its processing systems to reflect these retroactive changes. IR 2013-2

It appears we are going to file returns later than normal.  The following is a list of forms that the IRS will not accept until late February or March.  Depreciation is on this list, so this will impact a lot of our clients.
 
Note that depreciation schedule is on the list.

• Form 3800 General Business Credit

• Form 4136 Credit for Federal Tax Paid on Fuels

• Form 4562 Depreciation and Amortization (Including Information on Listed Property)

• Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern

Mariana Islands

• Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations

• Form 5695 Residential Energy Credits

• Form 5735 American Samoa Economic Development Credit

• Form 5884 Work Opportunity Credit

• Form 6478 Credit for Alcohol Used as Fuel

• Form 6765 Credit for Increasing Research Activities

• Form 8396 Mortgage Interest Credit

• Form 8582 Passive Activity Loss Limitations

• Form 8820 Orphan Drug Credit

• Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit

• Form 8839 Qualified Adoption Expenses

• Form 8844 Empowerment Zone and Renewal Community Employment Credit

• Form 8845 Indian Employment Credit

• Form 8859 District of Columbia First-Time Homebuyer Credit

• Form 8864 Biodiesel and Renewable Diesel Fuels Credit

• Form 8874 New Markets Credits

• Form 8900 Qualified Railroad Track Maintenance Credit

• Form 8903 Domestic Production Activities Deduction

• Form 8908 Energy Efficient Home Credit

• Form 8909 Energy Efficient Appliance Credit

• Form 8910 Alternative Motor Vehicle Credit

• Form 8911 Alternative Fuel Vehicle Refueling Property Credit

• Form 8912 Credit to Holders of Tax Credit Bonds

• Form 8923 Mine Rescue Team Training Credit

• Form 8932 Credit for Employer Differential Wage Payments

• Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

UNREPORTED INCOME

Over the years I have had clients say to me "My records are a mess on purpose."  "If the IRS ever audits me it will be up to them to figure it out."  Unfortunately that is not how it works.  If you don't have good records the IRS has the power to "reconstruct" your income. 

Taxpayers are required to maintain books and records sufficient to establish the amount of their gross income, and if they fail to do so, the IRS is entitled to reconstruct their income through the use of any reasonable method.

In one recent case, the taxpayer was a licensed massage therapist who failed to file federal income tax returns for several years, dealt primarily in cash, and refused to cooperate in the examination. The IRS reconstructed her income for one year (1997) based on a credit application she submitted to JP Morgan-Chase Bank. Because taxpayer "did not produce any evidence beyond self-serving testimony that [the IRS's] income determinations were incorrect," the Tax Court sustained the IRS's income determination for 2007. Carol Trescott , TC Memo 2012-321 (Tax Ct.).

PAYROLL TAX INCREASES MAY SPOIL THE PARTY

I warned you about this.

Despite the federal tax relief for taxpayers passed at the last minute, or actually after the last minute, payroll tax increases may spoil the party.  As we have been warning you, the payroll tax reduction of 2% on employees that has been in place for 2011 and 2012 was allowed to expire on December 31^st.   

Lawmakers did not renew the two-percentage-point cut in the employees’ share of the Social Security tax.  They did not like the idea that government funding was required to make up the decrease in tax revenue for the Social Security trust fund. As a result, they decided to let this break lapse.  Thus, employees will see smaller paychecks as the rate returns to normal.   

So the result of all of this… Since the cliff bill was passed the federal tax withholding stayed the same as in 2012 instead of going up, but since the 2% withholding of Social Security went up people will see 2% less in their 2013 paychecks.

SALON QUESTION IN READERS DIGEST

One of my favorite reads each month is the Readers Digest.  In this month edition, their was a question posted by a "Worried Client" and I wondered what your advice would be. Please respond back and let me know.

Here is the question:
My hairdresser of 20 years had an accident and hasn't been able to work. So I've been seeing another stylist in the same salon. She's doing a better job and is less expensive. When my former stylist comes back, how do I tell her I want to stay with my new stylist?

KOPSA OTTE ON THE FISCAL CLIFF

By now you’ve heard that Congress has passed legislation avoiding the tax increases of the “fiscal cliff.” In actuality it is more like a bungee jump off the cliff, because they dealt with the tax increase aspects of the cliff but not the deficit problem.  So, like a bungee jumper, they have hit the first bottom and now are back at the top ready to propel back down for the second half of the cliff. Few of us who watched the process would consider it Washington’s finest hour, but we finally have answers to the questions that have made proactive tax planning so difficult.

Here are the highlights:

• The Bush tax cuts are restored for income up to $400,000 ($450,000 for joint filers). Rates for income above those ceilings rise to 39.6% for ordinary income and 20% for qualified corporate dividends and long-term capital gains. (There actually are six different capital gains rates, but more on that at a later time.)
• The Alternative Minimum Tax is finally indexed for inflation retroactive to January 1, 2012, meaning Washington won’t need to “patch” it every year.
• The estate tax “unified credit” amount that you can bequeath tax-free remains at $5 million, indexed for inflation. The actual rate rises from 35% to 40%.
• The 2% payroll tax holiday has expired, most likely for good.
• The higher expensing of equipment has been increased to $500,000 for both 2012 and 2013.  In addition, the 50% write off of new qualified business purchases in place for 2012 has been extended through 2013.

The legislation also extends several popular tax breaks like deductions for student loan interest, and tax-free charitable gifts made directly from Individual Retirement Accounts and several others that have been reported on by the news organizations.

We realize you’ve already heard this news. But we want you to know we’ll be studying the new law in the coming weeks and months to look for every opportunity to help you save. And of course, if you have any questions, don’t hesitate to call or email us.