Archive for the ‘Tax Legislation’ Category

Governor Signs Cutler Bills

October 7, 2013

Via Spidell Publishing

On October 4, 2013, Governor Brown signed both AB 1412 and SB 209. Because the Governor signed AB 1412 last, it will become operative.

This means that for taxable years 2008 through 2012, taxpayers may exclude 50% of the gain on the sale of small business stock.

The bill not only reinstates the exclusion on the gain of small business stock deemed unconstitutional in Cutler, but it also generally allows taxpayers who claimed the small business exclusion on the federal return to also claim an exclusion on the California return for all open years. This is because AB 1412 removes the 80% payroll and property in California requirements.

Among other things, the bill allows taxpayers 180 days from the date of enactment to file a claim for refund for the 2008 year.

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No California Principle Residence COD Exclusion for 2013

September 18, 2013

Via Spidell Publishing

The California Legislature did not extend the COD exclusion for canceled qualified principal residence debt when SB 416 was defeated.  This means that a homeowner who loses a home to foreclosure in 2013 may not use the principal residence exclusion to exclude COD income on his or her California return.

An individual who has COD income in this situation should:

  • See if the insolvency exclusion will exclude income; or
  • Plan for a California tax liability in 2013.

Federal law extended the exclusion through 2013.

Enterprise Zone Bill Waiting for Governor’s Signature 7/11/13 UPDATE: BILL SIGNED

June 28, 2013

The Senate and State Assembly have passed AB 93, which makes major changes to the Enterprise Zone program.  The bill is now awaiting the Governor’s signature.  The Governor has been a supporter of the changes to the Enterprise Zone program, so his signature is essentially guaranteed.  UPDATE: ON JULY 11, 2013, AS EXPECTED, GOVERNOR BROWN SIGNED SB 90 AND AB 93.

The bill eliminates the current Enterprise Zone Hiring Credit for employees hired on or after January 1, 2014. Employees hired and vouchered prior to January 1, 2014 will continue generating credit for their first 60 months of employment. The bill gives taxpayers a 10-year carryforward period to use these credits.

The bill also provides a new sales and use tax exemption for manufacturing equipment beginning in 2014. This benefit will apply for tax years through July 1, 2019 (2021 for taxpayers in certain areas).

A new credit will be available for taxable years beginning on or after January 1, 2014, and ending before January 1, 2021. The new credit applies to fewer employees than the current credit, and certain industries are specifically excluded.

Nienow & Tierney, LLP will continue to keep you updated on the status of AB 93 and other tax laws affecting you and your business.  If you have any questions, please contact our office at (714) 836-8300.

2013 Health Care Reform Compliance Checklist

February 11, 2013

We are pleased to share with you the excellent compliance checklist forwarded to us by our friend and client Blane Peters of Wood Gutmann & Bogart Insurance Brokers.

This checklist is for employers for 2013, to ensure compliance with the requirements of the Affordable Care Act.  You can download the checklist at this link here.

Nienow & Tierney, LLP has had a 20 year relationship with Blane Peters, and would highly recommend him if your business has liability and business insurance needs.  You can learn more about Blane here.

CPA Day at the Capital

January 27, 2013

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On January 23rd, CPA’s from all around the State of California converged on our state capital in Sacramento as a part of the annual CPA Day at the Capital.

Meetings were scheduled with each state Senator and Assemblymen/women.  It was an opportunity for the CPA profession to voice a united opinion on the topics which affect our profession and also the taxpayers for whom we prepare tax returns and financial statements.

This year, Stephen Tierney took part in this opportunity to share with our state legislature the issues which we feel are important to clients such as yourself.

We specifically called upon the legislature to forego any effort to impose sales tax on service organizations.  As a profession, we feel that this tax would provide an unfair advantage to service based business owners located outside of the state.  This additional tax would also cause increased costs to our clients for tax preparation services.

As we met with the state representatives, we also promoted a financial literacy program which is sponsored by the California Society of CPA’s.  This program is designed to educate individuals on basic financial issues such as maintaining a budget and how to save for future expenses.  These programs are provided free of charge by CPA’s around the State of California.

Stephen loved the opportunity to meet with our state representatives and participate in helping promote issues for our clients and our profession.  He looks forward to participating in this event in future years.

Newly Proposed IRS Regulations Intend to Clarify Definition of Limited Partner for Purposes of Material Participation

January 9, 2013

A question that often comes up in the course of our work is whether a taxpayer is materially participating in a trade or business.  Material participation is an important concept because the tax treatment of income or losses from a trade or business will be classified as passive or non-passive accordingly.  If a taxpayer does not materially participate in a trade or business, the activity is treated as passive.  Additionally, by statutory definition, all rental activities, even those in which the taxpayer materially participates, are generally treated as passive activities.  Material participation is defined as involvement in the operations of the activity that is regular, continuous and substantial, per IRC §416(h)(1).  There are seven tests that determine whether someone should be treated as materially participating.  In order to be considered materially participating, a taxpayer would need to meet one of these seven tests.

Limited partners are generally treated as not materially participating in partnership activities and therefore flow-through income and losses are treated as passive. Currently, a partnership interest is considered to be a limited partnership interest if the partnership agreement indicates it is limited or if the liability of the partner is limited for obligations of the partnership according to the  state laws in the state in which the partnership is formed.

The seven material participation tests are:

  1. Individual participates in the activity for more than 500 hours during the year
  2. Individual’s participation in the activity for the year constitutes substantially all of the participation of all individuals involved in the activity for the year
  3. Individual participates in the activity for more than 100 hours during the year, and such participation is not less than anyone else’s participation, including non-owners
  4. Activity is a significant participation activity (more than 100 hours), and the individual’s aggregate participation in all significant activities exceeds 500 hours
  5. Individual materially participates in the activity for any 5 out of the previous 10 taxable years preceding the taxable year
  6. Activity is a personal service activity (health, law, engineering, accounting, etc.) and individual materially participated in the activity for any 3 taxable years preceding the taxable year
  7. Based on all of the facts and circumstances, the individual participates in the activity on a regular, continuous and substantial basis during the year

The IRS has issued proposed regulations to modify the definition of a “limited partner” as it relates to a taxpayer being treated as materially participating.  If the holder of the interest in a partnership does not have management rights during the entire tax year, the proposed regulations detail that an interest in the entity would be treated as a limited partnership interest.  One exception to the rule is if an individual has both a limited and a general partner interest.  In this case, they would be treated as a general partner. Under the proposed regulations, it will become easier for individuals to meet the material participation tests. Fewer partnership interests will be treated as limited interests for passive loss purposes and as a result, taxpayers will be able to report the income or losses as non-passive.

IRS Delays Effective Date of New Repair Regulations

January 4, 2013

As it had promised in a Nov. 20 notice, the Internal Revenue Service has amended the temporary regulations governing tangible property expenses to delay their effective date. The regulations will now apply to tax years beginning on or after Jan. 1, 2014, instead of Jan. 1, 2012, although taxpayers can elect to apply them to years beginning after Jan. 1, 2012.

IRS Releases Outdated Withholding Tables

January 4, 2013

It has come to our attention that the withholding tables released by the IRS in IR-2012-105 and Notice 1036, on December 31, 2012, are based on the now obsolete tax rates, revised in the recent tax legislation.  We understand the IRS will review the tables and update them.  The notice does contain correct information on the return to the 6.2% rate for FICA.

The EDD has updated its withholding tables to include the tax increases contained in Proposition 30. You can find the EDD tables at: http://www.edd.ca.gov/Payroll_Taxes/Rates_and_Withholding.htm#CAWithholdingSchedules.

Charitable Deduction Substantiation Requirements

January 3, 2013

Recently, the United States Tax Court denied charitable contributions in full in two different cases.  The donations were denied for failure to obtain proper substantiation in a timely manner.  The IRS has provided a list of the substantiation and documentation required for various contributions.  These rules apply to individuals making qualified contributions to IRC §501(c)(3) organizations.  Additional rules apply when gifting a partial or restricted interest, gifts via trusts, and gifts with remainder interest.

We have included a schedule prepared by Spidell Publishing, Inc. for your easy reference:

Amount

Documentation

Substantiation

Cash donations of less than $250

Bank record

Includes canceled check; bank, credit union or credit card statement showing name; and transaction posting date (credit card)

Written communication from charity

Name of charity, date and amount of contribution

Payroll deduction

Pledge card and pay stub, W-2 wage statement, or other document furnished by employer, including total amount withheld for charity

Cash donations of $250 or more

Written acknowledgment from the charity for each donation

Name of charity, date, amount paid, description, and estimate of value of goods or services provided by the charity

Noncash contributions of less than $250

Receipt from donee or reliable records

Property donations greater than $250 and not more than $500

Contemporaneous written acknowledgment

Name of charity, date, amount paid, and description (but not value) of goods or services provided by the charity

Property donations greater than $500 and not more than $5,000

Written acknowledgment

All of the above, plus: (1) how you got the property; (2) date you got the property; and (3) cost or other basis.

Must file Form 8283, Noncash Charitable Contributions

Donations of $5,000 or more excluding stock, certain works of art, and autos

Qualified appraisal

Attach appraisal to return and complete page 2 of Form 8283

Donations of art valued at $20,000 or more

Signed appraisal and photograph

Attach signed appraisal to return and provide photograph of sufficient quality and size to fully show object if requested by the IRS

Stock of publicly traded corporation

No appraisal required if as of date of the contribution market quotations are readily available on an established securities market

Attach Form 8283 to return

Nonpublicly traded stock

Contributions greater than $5,000 and less than or equal to $10,000

A partially completed appraisal summary; complete Form 8283, Part I

Contributions greater than $10,000

Attach qualified appraisal to return

Vehicle, boat and airplane with value of more than $500

Value is the lesser of the gross sales proceeds or the FMV of the vehicle if no “significant use or material improvement”

Taxpayer needs contemporaneous written acknowledgment  from donee organization; donee organization must use Form 1098-C to report value of vehicle donations, if vehicle is sold; this can be used to provide acknowledgment to the donor

If you have any questions or require further information, please contact our office at (714) 836-8300.

American Taxpayer Relief Act Resolves “Fiscal Cliff” Tax Uncertainties

January 2, 2013

After intense negotiations, the Senate passed the “American Taxpayer Relief Act” (the Act) by a vote of 89-8 in the early morning hours of January 1, 2013.  Later that day, the House of Representatives passed the same bill (H.R. 8), by a vote of 257 to 167.  President Obama has indicated that he will sign the bill making it law.

In previous communications, we have detailed out the potential consequences of a lack of action by the government, as well as some speculation as to a possible resolution, which can be found at our blog here, along with some additional background about the issue. 

After much speculation and uncertainty about 2013 tax laws, the Act provides clarity for 2013, as well as providing some permanent resolution to some tax provisions that have required annual legislation to extend. 

Highlights of the tax provisions of the Act include the following:

  • Tax Rates – A top rate of 39.6% (up from 35%) will be imposed on individuals making more than $400,000 per year, and $450,000 for taxpayers who are married filling joint.
  • Dividends and Capital Gains – The maximum capital gains tax rate applicable to long-term capital gains and qualified dividends will rise from 15% to 20% for individuals taxed at the 39.6% rates, as noted above.
  • 2% Social Security Reduction Gone – The temporary 2% reduction in the employee portion of social security tax has expired effective December 31, 2012.  This means that employee paychecks will be going down immediately.
  • AMT Permanently Patched – The Alternative Minimum Tax exemption amount has been permanently “patched” to $50,600 for single taxpayers and $78,750 for taxpayers who are filing joint.  Additionally, beginning in 2013 the exemption amount will be indexed for inflation.
  • Itemized Deduction and Personal Exemption Phase-Outs – The phase-out reductions for itemized deductions and personal exemptions are reinstated beginning in 2013.  Personal exemptions will be phased out by 2% for each $2,500 by which a joint taxpayer’s adjusted gross income exceeds $300,000.  Additionally, a joint taxpayer’s total itemized deductions will now be reduced by 3% of the amount by which the taxpayers’ adjusted gross income exceeds $300,000.
  • Transfer Tax – The exemption for estate and gift taxes was left alone at an inflation adjusted $5 million per taxpayer, but the top estate tax rate was raised from 35% to 40%. 
  • Other Individual Tax Provisions – The following deductions and exclusions are extended through 2013:
    • Discharge of qualified principal residence exclusion;
    • $250 above-the-line teacher deduction;
    • Mortgage insurance premiums treated as residence interest;
    • Deduction for state and local taxes;
    • Above-the-line deduction for tuition; and
    • IRA-to-charity exclusion (plus special provisions allowing transfers made in January 2013 to be treated as made in 2012).
  • Other Business Provisions
    • The Research Credit and the production tax credits, among others, will be extended through 2013;
    • 15-year depreciation and §179 expensing allowed on qualified real property through 2013;
    • Work Opportunity Credit extended through 2013;
    • Bonus depreciation extended through 2013; and
    • The §179 deduction limitation is $500,000 for 2012 and 2013.

Please do not hesitate to contact us if you have any questions about this, or any other matter.