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Showing posts from 2016

Take stock of your inventory accounting method’s impact on your tax bill

Take stock of your inventory accounting method’s impact on your tax bill If your business involves the production, purchase or sale of merchandise, your inventory accounting method can significantly affect your tax liability. In some cases, using the last-in, first-out (LIFO) inventory accounting method, rather than first-in, first-out (FIFO), can reduce taxable income, giving cash flow a boost. Tax savings, however, aren’t the only factor to consider.

FIFO vs. LIFO
FIFO assumes that merchandise is sold in the order it was acquired or produced. Thus, the cost of goods sold is based on older — and often lower — prices. The LIFO method operates under the opposite assumption: It allocates the most recent costs to the cost of sales.
If your inventory costs generally rise over time, LIFO offers a definite tax advantage. By allocating the most recent — and, therefore, higher — costs first, it maximizes your cost of goods sold, which minimizes your taxable income. But LIFO involves more soph…
Help prevent the year-end vacation-time scramble with a PTO contribution arrangement Many businesses find themselves short-staffed from Thanksgiving through December 31 as employees take time off to spend with family and friends. But if you limit how many vacation days employees can roll over to the new year, you might find your workplace a ghost town as workers scramble to use, rather than lose, their time off. A paid time off (PTO) contribution arrangement may be the solution.
How it works
A PTO contribution program allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting excess PTO amounts to employer contributions.
A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? La…

Is cash for keys cancellation of debt income?

When a house is foreclosed, or there is a deed in lieu of foreclosure, some mortgage companies make a deal with the owner or tenant. Usually the deal works like this: the owner agrees to leave the property on a certain date and broom swept condition without taking any of the appliances, copper pipes, etc. If the  home was left in the promise condition, the homeowner or tenant will receive a certain stipend from the mortgage company. Sounds good, right?

Nevertheless, the mortgage company than typically issues a 1099 for the cancellation of indebtedness income for the amount of the foreclosure and an additional 1099-MISC for the alleged miscellaneous income and cash for keys. The IRS has taken the position that the cash for keys income as ordinary income and should be taxed. In the case of Bobo vs. Commissioner, the US Tax Court determined that the foreclosure and the additional cash for keys payment were really one transaction. Since in that case, the taxpayer had an actual loss on the…

NJ Ends Urban Enterprise Zones

The New Jersey Division of Taxation announced the end of urban enterprise zones for sales tax:

BridgetonCamdenNewarkPlainfieldTrenton
The former 3% rate for these urban enterprise zones for sales tax will be changed to the full rate of 6.875% starting January 1, 2017. It is possible that the New Jersey legislature a change this position, but it was part of the negotiated deal by the legislature when it radically increased the New Jersey gasoline tax.

New Jersey Phasing Out NJ Estate Tax

New Jersey has long had the highest state estate tax in the country. Any estate over $675,000 would owe tax to the state of New Jersey. This could be very substantial and was a significant reason for many taxpayers, especially retirees, to move from New Jersey to more tax-advantaged states such as Florida. Tax lawyers, and estate planners, have been arguing for many years that this is really costing New Jersey a lot in revenue and negatively affects the state.

Finally, after years of arguing, the New Jersey legislature passed a bill, signed by Governor Christie, that would reduce the New Jersey estate tax. Beginning January 1, 2017, only estates in excess of $2 million would be subject to the New Jersey estate tax. Starting January 1, 2018, if it is not repealed, the New Jersey estate tax would be eliminated.

There was a lot of political wrangling in order to get this passed. There is a slight reduction in New Jersey sales tax rate, but not the fact that many items are tax New Jersey …

Sugar Tax Helps Beverage Companies!

The Internet is filled with reports from a recent article in the Journal of American Public Health showing that a sugar tax cuts consumption of sugar sweetened soda. This plays right into the hands of Bradford manufacturers! You are probably thinking I am crazy, but once again government does the wrong thing.

Sweetened sodas and diet sodas are sold for the same price. Nevertheless, diet sodas are much cheaper to manufacture than sodas with high fructose corn syrup and sodas with cane sugar. Therefore the tax on sweetened soft drinks increases the number of people drinking a diet soda, which is more profitable to the beverage industry, then naturally sugar sweetened soda and drinks.

So, governments by misusing taxes to force people to change behavior, have in fact increase the profit of beverage manufacturers and increase diet drinks rather than healthier all-natural sugar sweetened drinks. Obviously, the intake of the sugar sweetened drinks should be limited, but every study that is e…

Is your LLC and S Corporation going to be Taxed at 25%?

Congress refuses to actually simplify the Internal Revenue Code. Since the 1986 tax Reform Act, Congress has passed more than 30,000 amendments to the Internal Revenue Code. Instead of simplification, Congress is now proposing a disguise tax increase for businesses.

Under our present federal corporate structure, if an individual owns a limited liability company or a sole proprietorship, the entity is not tax separately. Rather the income is added to the individual's own tax. That is also true for partnerships and limited partnerships. Congress wants to change this to add a 25% tax at the business level. This will mean that small businesses will now be facing the same double tax problem that large businesses have. In addition there will have to be a whole series of new forms and a complete rewrite of a portion of the Internal Revenue Code for this new scheme.

Instead of moving in the right direction, Congress is moving in the wrong direction!

Please see this interesting article dis…

Changes to the 1040

WHAT'S NEW ON THE 2016 DRAFT FORM 1040 AND RELATED FORMS AND SCHEDULES IRS has released on its website a number of draft tax forms and instructions for the 2016 tax year, including Form 1040 and its related schedules. This Practice Alert, which appears in two parts, highlights key changes made on the 2016 return. The first Part examined the draft Form 1040 itself. This Part II covers related draft forms and schedules.
FORM 1040—SCHEDULE A, ITEMIZED DEDUCTIONS Line 1. Medical and dental expenses. The 2016 standard mileage rate for medically-related use of an auto is 19¢ per mile. Line 21. Unreimbursed employee expenses. The 2016 standard mileage rate for business travel is 54¢ per mile. Line 29. Limit on itemized deductions. Itemized deductions for taxpayers with adjusted gross incomes in excess of the "applicable amount" ($311,300 for joint filers or a surviving spouse, $285,350 for a head of household, $259,400 for a single individual who isn't a surviving spouse, and …

Nanny Tax Threshold $2000 for 2017

You remember all the famous cases about politicians not reporting domestic employees for Social Security taxes? The unofficial term is the "nanny tax." The rule, as announced by the Social Security Administration, is quite simple. If you pay any individual domestic employee, such as a house cleaner gardener or babysitter less than $2000 per year, it does not have to be reported to the Social Security Administration and you do not have to collect and remit Social Security taxes. This is on a per employee basis. So, for example if you had one babysitter that you paid $1800 to during the course of the year and another one that you paid $1000, even though the combined total is $2800, more than $2000, you still do not have to report that. On the other hand if it were just one employee hired for $2800 you would have to report the entire $2800 and withhold Social Security and pay the employer's matching portion.

See the Social Security administration official announcement:

http…

Disaster victims in Florida qualify for tax relief

This is an article just announced on the Thompson Reuters Website:

Disaster victims in Florida qualify for tax relief IRS has announced on its website that victims of Hurricane Hermine in counties of Florida that are designated as federal disaster areas...

DISASTER VICTIMS IN FLORIDA QUALIFY FOR TAX RELIEF IRS has announced on its website that victims of Hurricane Hermine in counties of Florida that are designated as federal disaster areas qualifying for individual assistance have more time to make tax payments and file returns. Certain other time-sensitive acts also are postponed. This article summarizes the relief that's available and includes up-to-date disaster area designations and extended filing and deposit dates for all areas affected by storms, floods and other disasters in 2016. Who gets relief. Only taxpayers considered to be affected taxpayers are eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts. Affected taxpayers ar…

Trump's Tax Returns

The controversy swirling around Donald Trump's tax returns is getting more and more ridiculous. First, Donald Trump is continually being audited by the IRS and many state tax agencies. There is absolutely no way his tax attorneys would ever let him release his tax returns in the middle of an audit. That is foolish and would be legal malpractice.

Hillary likes to focus on Donald Trump not releasing his tax return to avoid the fact that she and Bill Clinton have earned hundreds of millions of dollars in speaking fees since Bill's retirement from the Presidency. The Clintons have also taken big advantage of our federal tax laws such as bear $700,000 tax deductible loss in 2015.

The facts are very simple: the Internal Revenue Code and state tax laws are far too complex. Clinton is talking about increasing taxes and making things more complex. Trump is talking about decreasing taxes. But no one is addressing tax simplification except for Libertarian party candidate Gary Johnson. It…

Candidate Clinton wants to increase Estate/Death Taxes

Not surprisingly, Hillary Clinton is proposing to increase federal estate taxes from 40% to 45%. Right now, the rate starts at 40% for people who die with an estate, including all assets such as insurance, in excess of $5.45 million. Clinton has repeatedly stated she wants to reduce this exemption to a lower figure so more people have to pay tax and she now is revealing that she wants to also increase the estate tax rate.

Many people forget that prior to President Reagan's estate tax reform in the 1980s, anyone within an   of $60,000 or more had to file a federal estate tax return and was subject to federal estate tax. This affected most people. As a result of the estate tax reform, very few people need to file federal estate tax returns. In states where the cost of housing is very high, lowering the exemption rate to $1 million would require many people to file estate tax returns with the IRS.

Once again, instead of hearing about tax simplification and tax reduction, candidate Cl…
Applicable Federal Rates for September 2016 


Rev Rul 2016-20 The Applicable Federal Rates for September 2016 are reproduced below.
Table 1 Applicable Federal Rates (AFR) for September 2016 Period for Compounding Annual Semiannual Quarterly Monthly Short-Term AFR .61% .61% .61% .61% 110% AFR .67% .67% .67% .67% 120% AFR .73% .73% .73% .73% 130% AFR .79% .79% .79% .79% Mid-Term AFR 1.22% 1.22% 1.22% 1.22% 110% AFR 1.34% 1.34% 1.34% 1.34% 120% AFR 1.47% 1.46% 1.46% 1.46% 130% AFR 1.60% 1.59% 1.59% 1.58% 150% AFR 1.…

Let's end the draft started by Pre. Lincoln in the Civil War!

The Draft is Slavery. End it. Congress has been debating the merits of adding women into Selective Service to be drafted with men during times of national emergency. Sen. Rand Paul has suggested that it would be better to end the draft. The Libertarian Party agrees. "The draft is simply slavery by another name. Drafting people to go abroad and kill or be killed is barbaric and a discredit to our military and country," says Nicholas Sarwark, chair of the Libertarian National Committee. If a national emergency is so severe to merit mobilizing extra troops, Americans from all backgrounds, ages, and genders will pitch in to do what is needed. The Libertarian Party urges elected leaders to end the draft and also to pursue foreign policy which is less dependent on military might. The United States has many tools of foreign policy at our disposal that do not require force. Military force should always be a last resort and only in defense. The Libertarian Party is the only political party i…

Sugar tax on soft drinks helps beverage companies!

This past Thursday, Philadelphia city Council, under the prodding of its mayor James Kenney, imposed a 1.5 sent tax per ounce of "sugary" soft drinks. The idea is to prevent obesity. Of course, this will prove to be totally useless for several reasons.

First, even though the beverage industry is fighting these taxes, the truth is no one could be happier than the beverage industry. It is much more expensive to make a soft drink with sugar or high fructose corn syrup than with NutraSweet or any other varieties of artificial sweeteners. Even though study after study has shown that people who drink "diet" drinks do not lose any weight and fact may have a tendency to gain weight, the beverage industry pushes diet soda to make more profit.

Now, Philadelphia, like some other big cities, has decided to play right into the hands of the beverage industry. More people will choose to save the tax (on a 20 ounce soda it is $.30) and start to drink diet sodas. The beverage indus…

European and State Governments Squeezing Businesses for tax Dollars!

European governments are attacking American businesses trying to get as much tax money as possible. The latest leader in this witchhunt is France. They are not only going after companies for large civil taxes but they are at going after the businesses and the employees of the business for criminal penalties and possibly jail. Leading the list are Google, McDonald's and Bookings.com. All these companies have some relationship to France by having services sold through subsidiaries, but the French do not care about legal structures of business. They just want their tax!

This sounds a lot like many State governments. New Jersey is always trying to find "nexus" to pull in out-of-state businesses as being subject to New Jersey taxes. Also any business located in New Jersey is subject to grueling sales and use tax audits and lengthy appeals and court hearings. It is a real problem particularly when the company tries to handle it themselves or have an accountant represent them i…
Prince Estate  loses "Prncely" sum!

Prince may have known music, but he forgot to plan for his family.  Like 70% of America,  he died without an Estate  Plan or Will. As a result, the IRS and States will get about 50% of his estate. All of his hard work goes to the Government rather than his family  and the charity of his choice.  So sad!

I  wonder how many readers don't have a current Will and Estate Plan?

European governments attack business!

Thursday, European governments got together to attack people trying to own and control their businesses anonymously. The governments of France, Britain, Germany, Italy and Spain got together to create laws and try to enforce treaties to force banks and governments to reveal owners of businesses in other countries. For many years the high tax countries such as the US and Europe have been trying to find ways to attack developing countries from encouraging people to start businesses. Obviously if the business can be run in a lower tax jurisdiction it is prudent for the business owners to do that. Now, with the release of the "Panama papers" which were thousands of stolen documents from a Panamanian law firm listing the names and ownership of Panamanian registered companies, European governments are using this as an excuse to limit freedom of their citizens.

This follows the actions by the Obama administration in the US requiring extensive financial reporting under threat of jai…