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California Proposition 19

December 22, 2020UncategorizedCA, CA Prop 19, California, children, exclusions, law, proposition, taxes[email protected]

Scope – What is the purpose/ subject of this memo The purpose of this memo is to discuss California Proposition 19, which is also referred to as The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act. This measure was approved by California voters in November 2020. This memo will provide an explanation of the new Proposition and compare it to the existing law. Additionally, the memo contains a list of topics to consider as a result of the passage of this new law. Analysis – Existing Law (ARTICLE XIII A of the California Constitution) The existing law is under Proposition 13 which was passed in 1978. Under this law, the following was true: Property tax is limited to 1% of a home’s taxable value, based on when the home was purchased, and thereafter, the appraised value of the property when purchased, newly constructed, or a change in ownership occurs, subject to an annual inflation adjustment not to exceed 2%. For taxpayers 55 years or older or any severely and permanently disabled person residing in the property eligible for the homeowner’s exemption, they can transfer the base year value of that property to a replacement dwelling of equal or lesser value located in the same county, or another county that has adopted an ordinance allowing base years value transfers from other counties, as provided. Eligible taxpayers were able to utilize this one time. The purchase or transfer of the principal residence, and the first $1,000,000 of other real property, of a transferor in the case of a transfer between parents and their children, or between grandparents and their grandchildren if all the parents of those grandchildren are deceased, is not a “purchase” or “change in ownership” for purposes of determining the “full cash value” of the property for taxation. Additionally, there is a restriction on how much that taxable value can go up each year, even if a home’s market value increases much more. Analysis – New Tax Law (Assembly Constitutional Amendment No. 11) Proposition 19 changes the existing law in the following ways: Homeowners who are 55 or older or who have lost a home in a natural disaster can now transfer their tax assessment from their previous home to a new more expensive home. This can be done up to three times, instead of the previous one-time allowance. The measure eliminates the exclusion for reassessment when a house transfers to a child or a grandchild. The child or grandchild must actually use the residence as their primary residence to avoid reassessment. Previously, there was no requirement for the inheritor to utilize the house as their primary residence. Topics to Consider Who does this help and how? CA proposition 19 benefits homeowners who are 55 years old or older. When they move to a new and more expensive residence, they can blend the taxable value of their old house with the purchase price of a new, more expensive home, reducing […]

Is a new COVID-19 bill coming? The house and the senate have been apparently working on another bill.

December 18, 2020Uncategorizedact, bill, CARES, covid, fund, government, payroll, relief, stimulus, tax[email protected]

Here are the highlights from our perspective. On December 15, 2020, two bipartisan COVID-19 relief bills, the Bipartisan COVID-19 Emergency Relief Act of 2020 and the Bipartisan State and Local Support and Small Business Protection Act of 2020, were introduced that contain payroll-related provisions. Background. Earlier in 2020, the federal government enacted legislation with COVID-19 relief provisions aimed at helping employers and workers. This included the Families First Coronavirus Relief Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security (CARES) Act. Certain provisions in each bill provided aid for employers and workers such as the Paycheck Protection Program (PPP) and Pandemic Unemployment Assistance (PUA). Negotiations for further COVID-19 relief legislation between the White House, Senate and Congress have stalled several times. A new hope? However, the two bipartisan bills introduced in the Senate on December 15 may make it to the finish line before the end of the year based on the statements made by Senators who introduced the bills. According to Senator Joe Manchin (D-WV), who introduced “The Bipartisan COVID-19 Emergency Relief Act of 2020,” with other Senators: “We’re not going home for Christmas until this gets done.” Senator Mitt Romney (R-UT) who, with other Senators, introduced “The Bipartisan State and Local Support and Small Business Protection Act of 2020,” noted: “This compromise represents the best path forward for Congress and the Administration to provide much-needed relief for the American people before the end of the year.” Senator Rob Portman (R-OH) added: “The Senate should not adjourn until we have passed a new COVID-19 package to provide the relief Americans need.” The Bipartisan COVID-19 Emergency Relief Act of 2020. A summary of The Bipartisan COVID-19 Emergency Relief Act of 2020 says it contains the following payroll-related provisions: PPP and small business support. This bill would provide $300 million to the Small Business Administration (SBA) to allow the hardest hit small businesses to receive a second forgivable PPP loan. Eligibility for these loans would be limited to businesses with 300 or fewer employees that have sustained a 30% revenue loss in any quarter in 2020. Forgivable expenses would be expanded to include supplier costs and investments in facility modifications and personal protective equipment needed to operate safely. Also, business expenses paid for with the proceeds of PPP loans are specifically tax deductible, “consistent with Congressional intent in the CARES Act,” according to the summary. In addition, the loan forgiveness process would be simplified for borrowers with PPP loans of $150,000 or less. Unemployment assistance. The bill would also provide for a 16 week extension of all pandemic unemployment insurance programs, including PUA and pandemic emergency unemployment compensation (PEUC). The 16 weeks would run from the end of December 2020. It would also ensure beneficiaries of Railroad Retirement Board received the same benefits as other workers. In addition, federal supplemental unemployment insurance benefits would be expanded by $300 per week for 16 weeks, from the end of December into April 2021. […]

Tax Cuts and Jobs Act – State and Local Taxes Update

December 16, 2020Uncategorizedbusiness, corporation, cut, finance, IRS, memo, Money, partnership, s corp, salt, tax, tax cut, tax cut job act, tax deduction, taxpayer, TCJA[email protected]

Summary The Tax Cuts and Jobs Acts (TCJA) limited the individual tax deduction of state and local taxes (SALT) to $10,000 for married filing joint and $5,000 for married fling separate, or single. We feel this limitation was done to offset tax reductions done to spur the US economy. This limitation hurt and increased income taxes for taxpayers that are residents in states with high taxes. Taxpayers and states have been looking for a method of getting around this tax deduction limitation. Various ideas have failed, but the IRS recently issued IRS Notice 2020-75 which provides some hope. In the notice the IRS is explaining that if a state makes a flow through entity (an S Corporation or Partnership) liable for the income tax, rather than the shareholders or partners, and the entity pays it, then that state tax is not limited. Many states have been looking for a way to help their residence, and the IRS has explained a way, but why hasn’t more states implemented this change if they really want to help their residence? Currently only seven (7) states have made this change. Scope The purpose of this memo is to discuss Notice 2020-75 issued by Internal Revenue Service (IRS) on November 9, 2020, which allows state and local income taxes imposed on and paid by partnerships or S Corporations in computing its non-separately stated taxable income or loss for the taxable year of payment and are not subject to SALT limitation. Background Tax Cuts and Job Acts (TCJA) limits the individual deduction of SALT to $10,000 (or $5,000 for married filing separately) for tax years 2018-2025. Due to this limitation, the notice cited that certain jurisdictions have enacted or contemplating to enact tax laws that impose either a mandatory or elective entity-level income tax on partnerships and S Corporations that do business in the jurisdiction or have income derived from or connected with sources within the jurisdiction. The notice pointed out that “certain jurisdictions provide a corresponding offsetting, owner-level tax benefit, such as full or partial credit, deduction, or exclusion” for taxes deducted at the Pass-Through Entity (PTE) level and that Treasury and IRS are “aware of the uncertainty as to whether entity level-payments made under these laws to jurisdictions described in §164(b)(2) other than U.S. territories must be taken into account in applying the SALT deduction limitation at the owner level”. The notice also announced the IRS’s intention to issue a proposed regulation to provide clarity to individual owners of partnerships and S Corporations in calculating their SALT deduction limitations and clarify the Specified Income Tax Payments which are deductible by partnerships and S Corporations in computing their non-separately stated income or loss. Discussion/Analysis Reporting of Deduction in the Partnership or S Corporation Tax Return Based on the notice, SALT does not need to be separately stated. Thus, it would be expected that the deduction will be reported under “Taxes and Licenses” on Form 1065 or 1120S and will flow-through to partners/shareholders […]

How Technology Can Steer You Through the Fast Lane of the Post-Covid World

December 8, 2020Uncategorizedcoronavirus, covid, covid-19, Entrepreneurs, Technologyadmin

Now, given the rapid changes in an uncertain economy affected by the virus, knowing how to utilize and navigate technology in the post-COVID world will be even more crucial for entrepreneurs, college graduates, other job seekers, and upwardly mobile professionals, says Tim Mercer, ForbesBooks author of Bootstrapped Millionaire: Defying the Odds of Business. “Corporate America is undergoing a major transformation,” says Mercer, who also is founder of IBOX Global (IBOXG), which provides technology services to government agencies and Fortune 500 corporations. “Technology is at the center of this seachange. The virus will have a tremendous long-term impact on the workplace, and the influence of technology will loom larger as a result of the lessons we’ve learned during this unprecedented time. “Company structures are appearing more tailored to the entrepreneurial mind. The evolving trend is working from home, smaller workplaces, and niche-focused businesses. The work is moving faster, and whether a business owner or freelancer, you must be agile and nimble to compete. All these changes can be good, but only if you are ready.” The Key To Success In The Post-COVID World Mercer says the key to success in the post-COVID world is understanding these business-related benefits of technology: The internet is the great equalizer for knowledge and opportunity “The internet is the driving force behind the access to today’s opportunities,” Mercer says. “With the global economy, and technology connecting so many of us to it simultaneously, success has more to do with your ability to identify the right opportunities and your desire to go after them.” While the internet enables someone to gain knowledge quickly, Mercer says it’s also important to be vigilant in discerning the quality of online sources. Leveraging technology correctly helps businesses run efficiently You don’t need to earn a degree in information technology or become a computer whiz to leverage the benefits of technology, Mercer says. “What’s most important is that you know how to use technology to achieve your business goals,” he says. “For example, through the power of tools like QuickBooks, I was able to manage the financial aspect of several of my businesses without having to hire a full-time finance team. Leverage the strength of technology to carry more of your workload while increasing your profitability.” Tech certifications can be more powerful than four-year degrees Many college graduates aren’t working in fields related to their majors, and today’s employers are increasingly shifting toward skills-based hiring for technology jobs. “With the demand in tech, that means certification programs are on the uptick, often providing a quicker and more cost-effective way of getting hired than does a four-year college degree,” Mercer says. “A person’s overall earning powers in tech can more than double. Our general educational system often doesn’t meet the demands of today’s business environment. Typical college grads and most students lack the skills required for today’s tech positions.” Freelancing and independent consulting are on the rise Gigging – taking on multiple freelance jobs – is growing in popularity, largely due to the growth in digital platforms and social media. […]

5 WAYS TO GIVE BACK ON A BUDGET: GIVING SEASON FOR BUSINESSES

December 1, 2020Uncategorizedbusiness, charity, referrals, small business, Volunteeradmin

1. Collaborate with a Charity There are several different ways giving businesses can collaborate with charities. Perhaps the most public way is to donate a portion of sales to a charitable organization. Also, you can prompt buyers to round up to the nearest dollar or make a larger donation at checkout. This puts your partnership with the organization square in front of your customers. This spreads awareness around not only a cause important to the business but sharing the mission of the specific organization. 2. Reward Referrals with Donations Incorporating donations into a referral program is a great way to encourage engagement among current customers. This is in addition to giving back and boosting sales. For example, small business owners can set up a referral program to support local schools. Customers can pick a local school to receive a donation or new school supplies with every successful referral. 3. Take a Day off to Volunteer Together There is evidence to support that volunteering lowers stress and helps us live longer. However, finding time to volunteer is difficult no matter how motivated we are. 4. Food and Clothing Drive An alternative to taking time away from work, that also engages employees, is organizing a food and clothing drive. A good way to bring in more goods is to set up a friendly competition, breaking staff up into multiple teams. A prize for the winning team is letting them pick a charitable organization that the business will make a donation to. 5. Pro-Bono Work Finally, business owners and their employees can give back to communities by offering their services to local organizations. For example, a small event planning firm can organize a silent auction, or a boutique ad agency can create an advertisement for a local charity. There are a multitude of ways to apply business skills to make an impact.

Security Warning for COVID Related Scams

November 6, 2020Uncategorizedalert, covid, fake, IRS, phishing, scam, text, warning[email protected]

The Security Summit, a coalition of the IRS, state tax agencies, and the private sector tax industry, is warning taxpayers about a new text scam that tricks people into disclosing bank account information under the guise of receiving the $1,200 Economic Impact Payment (EIP). The text message states: “You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment” This is followed by a link to a fake phishing web address. The IRS reminds taxpayers that it will never send texts asking for bank account information. Those targeted by the scam should take a screen shot of the text message and email it to [email protected] with the (1) date, time, and time zone that they received the message; (2) the number that appeared on their caller ID; and (3) the number that received the text message. News Release IR 2020-249. If you receive any notice like this, please contact us to discuss if we can be of assistance.

Fantasy Sports Entry Fee Constitutes a Wagering Transaction

October 23, 2020Uncategorized[email protected]

In a recent Chief Counsel Advice (CCA), the IRS concluded that the entry fee to participate in a Daily Fantasy Sports (DFS) contest constitutes an amount paid for a wagering transaction under IRC Sec. 165(d). The IRS noted that DFS transactions meet the definition of wager , as interpreted by the Tax Court and state courts, because (1) there is an uncertain event (such as the live performance of individual players), (2) winnings if the event resolves in the participant’s favor, and (3) consideration is lost if the event does not resolve in the participant’s favor. According to the IRS, DFS transactions are similar to poker and other wagers in which a player’s skill is a component of the game, but does not dictate the outcome. CCA 202042015. Copyright © 2020 Thomson Reuters/PPC. All rights reserved.

Tax Strategies to Repay Debt and/or Build Up Cash

September 10, 2020Advice, Articles, UncategorizedCARES act, covid-19, NOL, PPP, ppp loan, SBA EIDL, taxes[email protected]

Many businesses have struggled financially during the COVID-19 pandemic. Some businesses have benefited from the PPP and SBA EIDL programs. We expect most businesses to receive loan forgiveness for their PPP loan, but if you received an EIDL loan, you might be concerned on how you are going to pay it back. Generally, if a business had to receive a loan during 2020, it means they incurred more expenses than revenue, and thus needed a loan. This should mean the company or business will have a loss for the 2020 tax year. If you expect your business to have a loss, then there may be an opportunity to take that business loss and turn it into cash. The CARES Act changed the tax laws related to net operating loss (NOLs) options, in which the CARES Act allows NOLs to be carried back up to five (5) years if the loss was incurred in tax years 2018, 2019 and/or 2020. If you incurred a NOL then you might be able to carry it back up to 5 years and receive a cash refund based on taxes paid in those years. If you incurred a loss, and generated a NOL, speak with your tax advisor before the end of the year to determine if you can benefit from the NOL carry back. Contact Vertical Advisors, LLP if we can be of assistance.

What does the executive action deferring payroll taxes mean for employers and employees?

August 25, 2020Advice, Articles, Uncategorized[email protected]

On August 8, 2020, President Trump signed an executive memorandum that defers an employee’s portion of Social Security and Medicare taxes from September 1 through December 31, 2020. At this point, the taxes are just deferred, meaning they’ll still have to be paid at a later date. However, the action directs U.S. Treasury Secretary Steven Mnuchin to “explore avenues, including legislation, to eliminate the obligation to pay the taxes.” The exact impact on employers and employees isn’t yet known. There are many open questions, including President Trump’s legal ability to implement the deferral. Some experts believe there may be legal challenges to this executive action. Deferral details The payroll tax deferral will be available for “any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000.” The deferral will be calculated on a pretax basis or the equivalent amount with respect to other pay periods. Plus, the amounts will be deferred without any penalties, interest, additional amount or addition to the tax. Stay tuned for additional guidance No doubt there is much to flesh out about this payroll tax deferral. Secretary Mnuchin has been instructed to provide additional guidance and employers can’t act on the deferral until that happens. It’s also possible Congress could take action. We’ll be monitoring developments and their implications, so turn to us for the latest information. © 2020

Potential California Tax Increases

August 6, 2020UncategorizedCalifornia, FTB, increase, tax[email protected]

Democrats are at it again in California. I personally feel that the majority of bills created by California Democrats DO NOT support what the residents of California wants. So, let’s talk about a new one, AB 1253, which can be viewed at http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1253 The California Democrats have proposed a significant tax hike on taxable income of $1 million and higher. Legislators say the tax hike would raise more than $6 billion a year to help K-12 schools and government services hurt by the coronavirus pandemic. I don’t know about your, but I have heard many times in the past that additional taxes and fees were going to the schools, for example the Lottery proceeds were supposed to go to the school, but what they didn’t’ communicate was they were taking away existing funding, and replacing it with Lottery. In California we pay one of the highest state income taxes, sales tax, and gas tax. I personally feel as a CPA and business owner, we the people need to tell our representatives, NO MORE TAXES and they need to become fiscally responsible. Anyway, here are the tax rates that AB 1253 is proposing: A 1% tax on income above $1 million, but not over $2 million A 3% tax on income over $2 million, but not over $5 million A 3.5% tax on income over $5 million The bill would apply retroactively to tax years beginning on or after January 1, 2020, and would be permanent. Under existing law, the highest tax rate for individuals is 12.3%, but when your income is over $1,000,000 there is an additional 1% for income over $1 million often called a “mental health tax”. With all the mental health tax collected, California shouldn’t have a mental health problem. However, look at our homeless challenges. Again, from a business perspective, the State seems to just be out of control in spending and just wants to tax the residents more and more and have no accountability. If AB 1253 were enacted, the 13.3% rate would rise to 14.3% for incomes above $1 million and the state’s highest rate would be raised to 16.8% for incomes above $5 million. The proposal would result in a top tax rate of nearly 54% for federal and state taxes for the highest earners. If Biden is elected, he has already stated he would roll back the Trump tax cuts, so the combined tax rate would increase even more. California already has the highest state tax rate at 13.3%, Hawaii is the second highest at 11%. Most other states have a state tax of about 6%, and Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have an income tax. The continued tax increases are going to continue to move wealthy individuals out of the state. However, a change of residency needs to be done right, so if you are considering to change your residency, please contact us. Most of the clients […]