TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

Everything is taxable in California. The California Franchise Tax Board (FTB) takes a very agressive position on when a LLC needs to be registered in California. Their view is if a member of the LLC makes one decision for the LLC, writes or signs one check for the LLC, makes one phone call regarding the LLC and anything else you can think of while that members is in California then that LLC has to be registered in California and file LLC tax returns with California. That is a totally ridiculous position. Next, they will try to tax business owners as they fly over the state! This is all part of the "Nexus" fight where States tax out of state businesses.

New Jersey Ends Death Penalty! The State of New Jersey Assembly and Senate approved the abolition of the Death Penalty on December 13, 2007. The Governor promises to sign it into law. It's about time! Ron Cappuccio

Here is a video of Ron Paul Summarizing some of his positions: Click Here... Remember to Contribute to Dr. Paul's Campaign onm December 16, 2007 Click Here...

Why I Support Ron Paul for President Taxes First, Ron Paul is the only limited government, lower taxes candidate. He has never voted to increase taxes and desires to cut government spending and taxes needed to support the spending. You cannot increase government (whether it is "infrastructure" as used by the Big Spenders, or transfer payments and subsidies,) and expect to lower taxes. Free Trade Ron Paul supports real free trade not more governmental organizations such as NAFTA, GATT, CAFTA, etc. Free trade is simple... we won't tax imports and other countries do not tax our exports. War and Foriegn Policy The war in Iraq was sold to us with false information. The area is more dangerous now than when we entered it. We destroyed a regime hated by our direct enemies, the jihadists, and created thousands of new recruits for them. We have no business making "regime changes" and trying to knock down or prop up other governments. We are not and can never be the police

Mortgage Delinquency Rates Rise The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.59 percent of all loans outstanding in the third quarter of 2007 on a seasonally adjusted (SA) basis, up 47 basis points from the second quarter of 2007, and up 92 basis points from one year ago, according to MBA's National Delinquency Survey. For Full Article...

Family Businesses Unprepared for Succession A new survey showed Family Business need to prepare for continuation by the next generation. Among the survey's other key findings: 25 percent of the businesses think the next generation is not competent to move into leadership roles. 92.6 percent say the family business is their primary source of income. 60 percent of majority shareholders in family businesses are age 55or older. Without planning, many of these businesses will fail or greatly diminish in value leaving the owners far less than they deserve. The full article is at the Orlando Business Journal If you have a question, call me at (856) 665-2121 Ron Cappuccio

The IRS has started a big push to collect money. Bank Levies and Wage Executions are up. There is also an attack against late filers. One client who is late filing a 941 for the third quarter (due Oct 31) has already received an IRS assessment based upon inflated figures. If that happens to your business, you have only 30 day from the DATE OF THE ASSESSMENT to file the actual return. If the IRS knocks on you door, get the card of the person, but give no information other than referring them to Ronald J. Cappuccio at (856) 665-2121. DO NOT LET THEM INTO YOUR HOME OR BUSINESS! For more information on Confronting the IRS, click here...

The "Section 125 cafeteria plan" has become a popular way to offer fringe benefits in the workplace on a pre-tax basis. Essentially, an employee is able to pick and choose the benefits desired. The employer only has to pay for those benefits that the employee actually chooses. Both parties save on taxes so it's usually a win-win situation. The IRS recently issued new guidance for companies with these plans, which clarifies many issues. Click Here for the full story.

In the Wake of the Sub-Prime Meltdown: A Brave New World Commercial real estate owners-and homeowners-are justifiably concerned about the condition of the mortgage industry. The myriad of news stories about the sub-prime mortgage debacle and the ensuing financial crisis beg the following questions: How did we get here? What's Mortgage and Rate Primer The mortgage and lending industries contain principal elements that often move in tandem with each other. Below is a glossary explaining some of the terms: Discount Rate - The interest rate charged by the Federal Reserve for short-term loans to member banks. The Fed can raise or lower this rate. Federal Funds Rate - The interest rate banks charge each other for the use of Federal Funds (funds deposited by commercial banks at Federal Reserve Banks). It changes daily and is a sensitive indicator of general interest rate trends. The Fed can also raise or lower this rate. Prime Lending Rate - The lending rate banks charg

Husband and Wife Partnership Election to be Treated as Sole Proprietors Under the Act, a husband and wife that report their joint business activities on their joint tax return may elect to be treated as sole proprietors and not as a partnership. Although some commentators believe this provision will be used infrequently, this will have a tremendous impact on Husband/Wife owned Limited Liability Companies. Because there were two owners, the LLC would have to file a 1065 US Partnership Tax Return. This makes no sense for a couple filing a joint return. So long as both the husband and wife materially participate in the business and the business, a Schedule C may be filed. This will save unnecessary accounting expense. If only one spouse materially participates in the business even though both spouses own the business, they will not qualify for this election. Also, the LLC must be a trade or business, not merely an investment to qualify.

Housing "Bust" Gets Worse The housing boom is long gone. In NJ, the housing boom ended in the Summer of 2005, and since 2006 the housing market has been crashing. New home builders are trying to unload excess inventory by cutting prices and offering incentives. The National Association of Home Builders reported builder confidence sank by two points to 22 which is the lowest reading since January 1991. The US Commerce Department reports new home construction rapidly declined 6.1% in July to a seasonally adjusted annual rate of 1.38 million which is down 20.9% over the past year. On top of the housing decline, the tightening credit standards is making it harder for homeowners with adjustable rates to refinance and avoid skyrocketing payments. This does not look good for the construction industry and the economy in general.

A New York Court permanently stopped Robert L. Schulz and his two groups, We the People Foundation for Constitutional Education Inc . and We the People Congress, from selling materials by mail, over the Internet or in person that falsely claim citizens do not have an obligation to pay federal income taxes. The phoney materials mislead people into believing they can opt-out of filing W-4 withholding forms. The scheme is to prevent withholding. The Court determined "Defendants' materials are intended to cause employees to believe that they need not pay an income tax and employers to believe that they need not withhold taxes from employees' wages or pay matching amounts." Part of Schulz' program is "Operation Stop Withholding." Watch out for anyone that claims you simply do not have to file or pay taxes.

Cong. Levin Bill (HR 2834) Proposing New §710, Treating Partnership Allocations To Investment Management Services As Ordinary Income. This bill is designed to attack REITs and large public partnerships which have some tax advantages. HR 2834 is that it would tax as ordinary income the income interests of "sweat equity" partners for a much broader class of partnerships than simply hedge funds and private equity. Examples are: A real estate property management company - not a REIT, just a parents and children apartment management company -- structured to give working kids a bigger percentage of the income than they'd earn on their capital contributions alone. A private holding company that owned operating companies as subsidiaries -- as the holding company owns those as "securities." The bill would convert income interests at the holding company level into ordinary income, while allowing income interests in each operating subsidiary (that's not based on

Today's new reported mortgage rates for 30-year fixed loans hit 6.75%. This is the highest level in almost a year. Further, “sub-prime” defaults and foreclosures both are at record highs. More than 15% of“sub-prime” adjustable loans are delinquent and 3.75% are in foreclosure. This bad news for real estate certainly is a leading indicator of an economic decline.

Rising longer-term interest rates yielding 5.25%10-year Treasury marked the highest level in ten months. In early March, the 10-year yield was 4.5%. Because many consumer and corporate loans are tied to the 10-year Treasury, effective loan interest rates are rising. Home builders are concerned by large home inventories, rising interest rates, and tighter lending standards. This may be the final push for the weakened housing market and the general economy that has relied housing for growth in the past five years.

.6% growth in the first quarter signals a possible recession. The housing market in New Jersey and many states is in decline. Housing and construction businesses are hurting. Mortgage brokers are closing and real estate brokers are contracting. Moving companies are in decline. Mortgage foreclosures are up. I am concerned about a possible recession.

America's lowest-paid workers will get a $2.10 raise, if the keep their jobs, by Congress mandating an increase in the federal minimum wage. Despite the well-known harmful loss in employment by teens and the lowest skilled workers,President Bush was expected to sign the bill quickly, and workers who now make $5.15 an hour will see their paychecks go up by 70 cents per hour before the end of the summer. Another 70 cents will be added next year, and by summer 2009, all minimum-wage jobs will pay no less than $7.25 an hour.

The US Supreme Court has ruled the US Tax Court is the proper court for appeals of IRS denials of interest abatements. The Court held the Court of Federal Claims did not have concurrent jurisdiction. The complete decision is Hink v. US.

Effective May 31, 2007, Intuit will no longer provide support for the 2004 versions of QuickBooks Pro, Premier and Enterprise Solutions. If you are running either of these applications, this means that your access to technical support and other business services will completely stop on May 31. Business services through QuickBooks 2004 that will be discontinued include:- Bill Pay- Credit Card Download- Employee Organizer- Merchant Service- Online Banking- Online Billing- Standard Payroll (formerly Do-It-Yourself Payroll)- Enhanced Payroll- Assisted Payroll- Support Plans and Services

The Internal Revenue Service announced on April 26, 2007, tax relief for New Jersey and New York taxpayers in the Presidential Disaster Area that was struck by severe storms and flooding April 14-18, 2007. The disaster area consists of the following counties: Bergen, Burlington, Essex, Passaic, Somerset and Union in New Jersey and Orange, Rockland and Westchester in New York. Deadlines for affected taxpayers to file returns, pay taxes and perform other time-sensitive acts falling on or after April 14, 2007 and on or before June 25, 2007 have been postponed to June 25, 2007. In addition, the IRS will waive the failure to deposit penalty for employment and excise deposits due on or after April 14, 2007 and on or before April 30, 2007, as long as the deposits were made by April 30, 2007.

The Christian Science Monitor reports that "[s]lightly over half of all Americans – 52.6 percent – now receive significant income from government programs, according to an analysis by Gary Shilling, an economist in Springfield, N.J. That's up from 49.4 percent in 2000 and far above the 28.3 percent of Americans in 1950. If the trend continues, the percentage could rise within ten years to pass 55 percent, where it stood in 1980 on the eve of President's Reagan's move to scale back the size of government. That two-decade shrink-the-government trend now appears over, if for no other reason than demographics. The aging baby-boomer generation is poised to receive big payments from Social Security and government healthcare programs." Click Here for the full article.

WASHINGTON, D.C. - The United States has filed civil injunction suits against five corporations that operate Jackson Hewitt tax preparation franchises, as well as 24 individuals who manage or work at the franchises, the Justice Department and the Internal Revenue Service (IRS) announced April 2, 2007. According to the four lawsuits—filed in federal courts in Chicago, Atlanta, Detroit and Raleigh, N.C.—the corporations operate under franchise agreements with Jackson Hewitt Tax Services Inc. of Parsippany, N.J., the nation’s second largest tax preparation firm. The suits allege that one of the individual defendants, Farrukh Sohail of Atlanta, Ga., wholly or partly owns each of the five corporations, which prepared and filed over 105,000 federal income tax returns last year. The five corporations allegedly operate more than 125 Jackson Hewitt retail tax preparation stores in the Chicago, Atlanta, Detroit and Raleigh-Durham, N.C. areas. According to the government complaint, Sohail and oth

The New York Times reported today that State tax revenues are declining as a result of the slowdown in real estate home sales. This lowers real estate transfer tax revenues as well as income taxes. The article stated: New home sales nationally fell in February to the lowest rate in seven years, and homeowners who tapped into plentiful home equity and spent extravagantly during the real estate boom have started to cut back. Those events not only threaten revenue streams for things like building materials and labor, but also affect spending on big-ticket items like cars and furniture, which many homeowners financed with home equity lines of credit. This will result in pushes for higher tax rates

The AMT will continue to hit tens of thousands of unsuspecting taxpayers on their 2006 tax returns, which are due on April 17 this year. And, as one court case illustrates, you generally can't wriggle out of the AMT at tax return time. Click Here for more information

The clock is ticking down to the tax filing deadline. The good news: There may still be an opportunity to save on your tax bill. If you qualify, you can make a deductible contribution to a traditional IRA right up until the April 17, 2007 filing date and still benefit from the resulting tax savings on your 2006 return. Small business owners can set up and contribute to a Simplified Employee Pension ( SEP ) plan up until the due date for their returns, including extensions . You also have until April 17 to make a contribution to a Roth IRA. For Further Information, Click Here

If your C corporation is thinking about electing S corp status, make sure you plan ahead or you may wind up owing a substantial tax on unrealized profits for the 10 years following the conversion. The built-in gains (BIG) tax, which can be quite onerous, equals the highest corporate tax rate (currently 35 percent). If your firm is liable, the tax is paid at the corporate level and the gain is taxable again at the shareholder level. The net built-in gain subject to tax during a year is limited to your firm’s taxable income for the year. You carry forward any excess to the next year.

College tuition deduction. You might be able to deduct qualified higher education expenses of up to $2,000 or $4,000 (depending on your income) paid on behalf of yourself, your spouse, or a dependent. The write-off is taken as an adjustment to income, which means taxpayers can claim it even if they do not itemize deductions. It can be advantageous for those who earn too much to claim the HOPE or Lifetime Learning tax credits because the income limits are higher. Previously set to expire, the Tax Relief and Health Care Act of 2006 extends this deduction through December 31, 2007.

The US Supreme Court denied converting a Bankruptcy when a man hid an Asset Protection Trust in his Bankruptcy. Be careful when trying asset protection. Click Here for the full article about the Marrama case.

How much of a tax break or hike would you see under the proposal? Figure out the difference between the total cost of your healthcare plan and the federal cap on your health tax benefit ($7,500 for single coverage; $15,000 for family coverage). Then multiply that difference by the sum of your top tax rate plus 7.65 percent (which is the portion of payroll taxes you pay for Social Security and Medicare). This will give you a ballpark idea of your tax savings or tax increase. So if your plan costs $12,000, the difference between your expense and the $15,000 family deduction is $3,000. If you're in the 25 percent tax bracket, you'd multiply $3,000 by 32.65% (25% + 7.65%), which would give you tax savings of about $980. Conversely, if you pay $3,000 more than the deduction cap for insurance, you'd pay an extra $980 in income tax and payroll tax.

Democrats push for more IRS Audits! January 17, 2007 -House Democrats are holding hearings on whether federal tax collectors are too quick to close audits of large companies, potentially leaving billions of dollars in taxes uncollected. Reps. Richard Neal, D-Mass., and Rahm Emanuel, D-Ill., said they were concerned about a recent story in the New York Times in which IRS employees said they were under pressure from superiors to quickly close audits with agreements to collect only a fraction of the taxes that are potentially owed. IRS officials told the Times that the complaints by the IRS employees were misguided. Debbie Nolan, the I.R.S. official in charge of auditing large and medium-size businesses, denied that audits were being closed over the objections of agents who had evidence that significant additional taxes were owed, the newspaper reported.

IRS to Target Schedule C Filers In a recent telephone conference, IRS commissioner Mark Everson said that they will be conducting more audits on individuals running unincorporated businesses (i.e. self-employed individuals). While Schedule C filers have long been audit targets for the IRS, they are now stepping up their audit efforts because they believe that self-employed individuals represent a large portion of those individual taxpayers underreporting their income. If you are self-employed and file Schedule C, always keep detailed and organized records, don't deduct your personal (non-business) expenses on your Schedule C and make sure you report all of your income. You are already on the IRS radar; there's no need to make their job easier.