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February 6, 2016New Federal and California Developments on Cancellation of Indebtedness from Short Sales
January 15, 2014On September 19, 2013, the IRS issued a Chief Council Letter where it stated that the short sale of a California principal residence converts the mortgage to a nonrecourse loan and is treated as a sale, not Cancellation of Indebtedness. Under California law, when agreeing to a short sale, the bank may not go after the borrower for any shortfall on the debt. The letter stated that, under the anti-deficiency provision of Code of Civ. Proc. §580e, the debt would be a nonrecourse obligation, and for federal income tax purposes the homeowner will not have COD income. Instead, the full amount of the nonrecourse indebtedness is treated as the sales price.
The California Franchise Tax Board has just updated their website to include information about mortgage debt relief for taxpayers who sold their principal residences through a short sale in 2013. The FTB guidance confirms that California will follow this treatment. The FTB clearly states that the IRS guidance is limited to California short sales only, and that the IRS guidance did not specifically address other types of real estate transactions, such as non-judicial foreclosures and mortgage loan modifications.
The information posted by the FTB can be found here.
Nienow & Tierney, LLP is Hiring!
January 10, 2014STAFF OR SENIOR ACCOUNTANT NEEDED
Nienow & Tierney, LLP is seeking to hire a highly motivated staff or senior accountant to perform tax, financial and consulting engagements. This is a unique opportunity for an individual who shares our vision and is seeking to build a career in a positive, high quality local CPA firm.
POSITION DESCRIPTION
The staff or senior accountant will work closely with partners, managers and clients, performing corporation, partnership and individual income tax returns, planning and consulting, and compilation or review financial statement engagements. The accountant will be required to work independently and complete multiple projects simultaneously within budget.
STAFF/SENIOR ACCOUNTANT QUALIFICATIONS:
- BA/BS degree in Accounting
- CPA license or candidate a plus
- Solid interpersonal/communication skills
- Ability to handle multiple priorities and meet project deadlines
- Strong computer skills
- Proficient in Microsoft Word and Excel
- Knowledge of Lacerte and trial balance programs preferred
- 2-5 years of tax experience preferred
ABOUT NIENOW & TIERNEY, LLP
Nienow & Tierney, LLP is a local firm providing tax, financial accounting and management advisory services to closely held businesses and individuals in a variety of industries, including real estate, construction, manufacturing and professional service firms. We strive to provide the highest level of technical assistance by combining our experience, education and resources, with the highest levels of integrity and personal service. Further information about Nienow & Tierney, LLP is available at our website, http://www.ntcpas.com.
We offer an enjoyable, professional, positive work environment with a competitive salary and benefits package including a 401(k) plan with employer contributions, medical insurance, and continuing education.
Please email cover letter and resume to jobs@ntcpas.com.
The Basics of SMLLCs
January 6, 2014By Joanna Nguyen
Single member limited liability companies (SMLLCs), like all LLCs, are designed to protect against personal liability. An SMLLC is treated as a “disregarded entity” for federal income tax purposes, unless it formally elects to be treated as a corporation. Thus, its earnings and losses will be reported on an individual member’s personal return on Schedule C as if it were a sole proprietorship. In other words, an SMLLC will be considered a sole proprietorship for federal tax purposes, but will not lose other benefits associated with being a corporate entity. Therefore, the SMLLC does not need to file any tax forms for federal purposes.
In most states, an SMLLC is treated as a “disregarded entity” for tax purposes. For California income tax purposes, payment of the annual tax and LLC fee is required and therefore, a California SMLLC should file Form 568 with Page 1, Page 2, and the LLC Income Worksheet. The LLC fee is applicable if total California annual income (gross receipts and not net income) is $250,000 or greater. The fee ranges from $900 to $11,790.
Although an SMLLC protects against personal liability, it will not protect against a claim based on negligence, professional malpractice, or other personal wrongdoing that the owner commits related to the business. Therefore, if a sole proprietor is able to acquire liability insurance, other types of business formations can be considered.
For more information about SMLLCs, please contact our office at (714) 836-8300.
U.S. Manufacturing and Construction Sectors Extend Gains
January 6, 2014The Institute for Supply Management’s index of national factory activity, a key gauge of U.S. manufacturing, hit its highest point in November since April 2011, with a reading at 57.3, up from 56.4 in October. Meanwhile, the Commerce Department reported a 0.8% rise in construction spending in October, hitting the highest annual rate since May 2009. Both figures reinforced recent data pointing to continued U.S. recovery.
Grouping Passive Activities
January 6, 2014By Darren Morrow
If you own rental properties or have other similar passive activities that generate a loss each year and you want to be able to utilize that loss, then grouping activities may be a good option for you.
Grouping activities is the process of treating one or more passive trade or business activities, or rental activities, as a single activity, including rental real estate. This can only be done if those activities form an appropriate economic unit for measuring gain or loss under the passive activity rules. The simple definition of an economic unit is activities that are similar in nature, industry, and control. See IRS publication 925 for specific criteria regarding what constitutes and economic unit.
Grouping is important for a number of reasons. If two activities are grouped into one larger activity, you need only show that you materially participate in the activity as a whole. But if the two activities are separate, you must show that you materially participate in each one of the activities individually. This is especially beneficial if you own multiple rental properties and are trying to qualify for the material participation test or active participation test. Qualifying for these tests may allow you to potentially recognize all of the losses in the year incurred (materially participating real estate professional) or up to $25k of losses in the year incurred (active participation test). Grouping can also be important in determining whether you qualify for the 10% ownership requirement for actively participating in a rental real estate activity .
One of the downsides to look out for when grouping your activities is if you plan on disposing of one of your activities that accumulated suspended passive losses before it was grouped with other activities. If you group two activities into one larger activity and you dispose of only one of the two activities, then you are considered to have disposed of only part of your entire interest in the activity. In this case, you are not allowed le to recognize the previously suspended passive losses of the disposed of activity since it is now considered part of the one larger activity. But if the two activities are separate and you dispose of one of them, then you are considered to have disposed of your entire interest in that activity and are able to recognize the suspended passive losses associated with the disposed of activity.
To group an activity all you need to do is file a written statement with your original income tax return for the first tax year in which two or more activities are originally grouped into a single activity. The statement must provide the names, addresses, and employer identification numbers (EIN), if applicable, for the activities being grouped as a single activity. In addition, the statement must contain a declaration that the grouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules.
Certain activities are restricted from being be grouped. They are listed below:
– Motion picture films
– Farming
– Leasing 1245 property
– Oil and Gas resources
– Geothermal deposits.
For more information about grouping passive activities and material participation please contact us at http://www.ntcpas.com or contact our offices at (714) 836-8300.
Standard Mileage Rates go Down in 2014
December 9, 2013Optional standard mileage rates for use of a vehicle will go down by one-half cent per mile for 2014, the IRS announced on Friday (Notice 2013-80). Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.
For business use of a car, van, pickup truck, or panel truck, the 2014 rate will be 56 cents per mile. Driving for medical or moving purposes may be deducted at 23.5 cents per mile. Both rates are one-half cent lower than for 2013.
The rate for service to a charitable organization is unchanged, set by statute (Sec. 170(i)) at 14 cents a mile.
The portion of the business standard mileage rate that is treated as depreciation will be 22 cents per mile for 2014, down one cent from the 23 cent rate in effect in 2012 and 2013.
For purposes of computing the allowance under a fixed and variable rate (FAVR) plan, the maximum standard automobile cost for 2014 is $28,200 for automobiles (not including trucks and vans) or $30,400 for trucks and vans, increases of $100 and $500, respectively, from 2013. Under a FAVR plan, a standard amount is deemed substantiated for an employer’s reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer.
Association for Accounting Administration
November 20, 2013Last week, the SoCal Chapter of the Association for Accounting Administration held an educational event for firm administrators, partners and COOs on “Building a Foundation for Success”. The speaker, Rita Keller, is a nationally known CPA firm management consultant, speaker and author. Our office manager, Katy Allen, and partners Paul Nienow and Stephen Tierney attended the event and gleaned from Rita’s knowledge and experience to continue building our firm so that we can provide our clients with the highest level of professional service.
Katy Allen is also on the board of the SoCal Chapter of the Association for Accounting Administration (AAA) and meets regularly with other accounting firm administrators in Southern California to share ideas about how to run accounting firms most effectively. Feel free to learn more about AAA here: http://www.cpaadmin.org/socal/.
2% S-Corp Shareholder Health Insurance
November 18, 2013Are you properly reporting the purchase of health insurance for any shareholders which own over 2% of the stock of an S corporation? Watch this video from Stephen Tierney as he explains the tax implications of purchasing health insurance for this shareholder. If you have any further questions, please call or email us at eos@ntcpas.com
Deadline Approaching for 100% Qualified Small Business Stock Gain Exclusion
November 7, 2013Taxpayers have a short window in which to act if they want to take advantage of the Sec. 1202 provision that allows exclusion of 100% of the gain realized on the sale or exchange of qualified small business stock (QSBS). Unless the law is amended, for QSBS acquired after Dec. 31, 2013, the Sec. 1202 exclusion percentage will fall to 50%, and an alternative minimum tax (AMT) preference will further erode the exclusion’s advantages.
Currently, Sec. 1202 allows exclusion of 100% of the gain realized on the sale or exchange of QSBS for stock that is acquired after Sept. 27, 2010, and before Jan. 1, 2014, and held for more than five years. The exclusion applies to non-corporate taxpayers within certain tax-year limits.
In addition, the Sec. 57(a)(7) AMT preference for a portion of the gain excluded under Sec. 1202 does not apply to QSBS purchased within this period (Sec. 1202(a)(4)). Because the deadline for acquiring stock that will qualify for the more favorable treatment is rapidly approaching, investors should plan to complete any purchases of stock that could qualify as QSBS before the end of the year.
If you have any questions regarding this article or any other matter, please contact our office at (714) 836-8300.
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