The American Recovery and Reinvestment Act of 2009 was signed into law on February 17, 2009, and contains the following provisions:
Saturday, February 28, 2009
NEW 2009 TAX PROVISIONS
Wednesday, February 25, 2009
If you have too much or too little withheld from your pay check, you can increase or decrease the number of exemptions so that your withholding will be more in line with your tax situation. If you have some large itemized deductions and you are single, you can claim more than just one exemption. Likewise if married filing jointly or head of household
To calculate extra exemptions, go to:
http://www.payroll-taxes.com/calculators.htm
Select item # 1 (Payroll Calculator) which takes you to the next screen
Select the your state of residence
Enter filing status
Enter your annual salary. (I entered 124800)
Enter pay frequencey (I entered 'weekly')
Enter Federal allowances (first I used 5, then recalculated using 6)
Using 5, I got $442 per week for withholding
Using 6, I got $ 422 per week for withholding
You might first try it using the same figures I used first to make sure you are doing it the same way.
Then, if your pay period is NOT weekly, change that part of the calculation and change the salary to the amount of your own salary..
If you have too little withheld, you can drop some of your exemptions, or you can just submit a new W-4 form to your employer and specify that you want a specified extra amount withheld.
Monday, February 23, 2009
Choice of entity
When you start a new business, you will need to decide what type of business entity you will select. If you are a sole proprietor, you can file as such or you could form a single-member Limited Liability Company. Another choice would be to form a corporation and whether to operate as a C-Corporation or an S-Corporation.
Here is a link comparing the various type entities I obtained from a local law firm.
http://docs.google.com/fileview?id=F.0b861824-da33-4d38-897b-8b849b6e96e4&hl=en
One exception I would take is the statement that LLC members do not pay self-employment tax. Amounts paid as "guaranteed payments" are generally considered to be subject to self-employment tax and such payments should be the equivalent of a 'reasonable salary.' The LLC member's share of profits in excess of his 'guaranteed payment' would not be subject to self-employment tax.
It is highly likely that a greater amount of such income may later be subjected to self-employment tax.
Here is a link comparing the various type entities I obtained from a local law firm.
http://docs.google.com/fileview?id=F.0b861824-da33-4d38-897b-8b849b6e96e4&hl=en
One exception I would take is the statement that LLC members do not pay self-employment tax. Amounts paid as "guaranteed payments" are generally considered to be subject to self-employment tax and such payments should be the equivalent of a 'reasonable salary.' The LLC member's share of profits in excess of his 'guaranteed payment' would not be subject to self-employment tax.
It is highly likely that a greater amount of such income may later be subjected to self-employment tax.
Sunday, February 22, 2009
Accumulated Adjustment Account
In most of the examples I have seen illustrating the Accumulated Adjustment Account (AAA) for an S-Corporation show it as being identical in amount with the Retained Earnings Account. This would be possible if the books and the tax returns used exactly the same method of depreciation and the shareholder does not make withdrawals in excess of his stock basis. If different depreciation methods are used, the AAA is not reduced for tax deductions in excess of book deductions.
Many S-Corporations do not use the same method for recording depreciation on the books as they use for income tax. When you depreciate an an asset, the tax method can produce larger deductions in the earlier years, then later produce smaller deductions than the Generally Accepted Accounting Procedures that are used for bookkeeping purposes. However, any method that ultimately fully depreciates the asset results in the same total deductions by the time an asset is fully depreciated.
Some assets may be written off completely or up to a maximum allowable amount under Section 179 in the year purchased. In such cases, it would be best to write the same amount off on the books to avoid confusion. However if they are written off on the tax return and not fully deducted on the books, then a timing difference would again exist just as if different methods of depreciation were used.
In any case, the AAA and Retained Earnings will vary due to timing differences. Over time, unless new assets are continually added, the two would come back into agreement (provided that the owner(s) do not withdraw more than their stock basis.
If shareholders DO withdraw more than their stock basis, they cannot reduce the AAA below zero. Withdrawals in excess of the owner's stock basis are taxable as capital gains.
Many S-Corporations do not use the same method for recording depreciation on the books as they use for income tax. When you depreciate an an asset, the tax method can produce larger deductions in the earlier years, then later produce smaller deductions than the Generally Accepted Accounting Procedures that are used for bookkeeping purposes. However, any method that ultimately fully depreciates the asset results in the same total deductions by the time an asset is fully depreciated.
Some assets may be written off completely or up to a maximum allowable amount under Section 179 in the year purchased. In such cases, it would be best to write the same amount off on the books to avoid confusion. However if they are written off on the tax return and not fully deducted on the books, then a timing difference would again exist just as if different methods of depreciation were used.
In any case, the AAA and Retained Earnings will vary due to timing differences. Over time, unless new assets are continually added, the two would come back into agreement (provided that the owner(s) do not withdraw more than their stock basis.
If shareholders DO withdraw more than their stock basis, they cannot reduce the AAA below zero. Withdrawals in excess of the owner's stock basis are taxable as capital gains.
Friday, February 6, 2009
Loss on Inherited house
Question:
Three siblings inherited 1/3 interest in their parents home. One sibling lived in the home for two years after the inheritance, the others did not. The house had a substantial decrease in value since the date of death and has been sold at a loss.
Is the loss deductible to the siblings that did not utilize the home as a residence?
My opinion:
The two who did not live in the house could probably take a capital loss, but the one who lived there could not. However, before I would take this kind of loss on a tax return I would do more research. I have not encountered this situation, but another accountant raised the question and most of the people responding made the same interpretation I did.
I have always taken a loss on inherited property when it is sold for less than the tax assessor's appraisal. Often, if they had an independent appraisal from a licensed appraiser, they might claim a bigger loss.
I recently got my tax appraisal lowered, but later had an independent appraisal which came up with a much higher figure than the tax appraisal board did.
http://www.1040.com/taxxcpa/
Three siblings inherited 1/3 interest in their parents home. One sibling lived in the home for two years after the inheritance, the others did not. The house had a substantial decrease in value since the date of death and has been sold at a loss.
Is the loss deductible to the siblings that did not utilize the home as a residence?
My opinion:
The two who did not live in the house could probably take a capital loss, but the one who lived there could not. However, before I would take this kind of loss on a tax return I would do more research. I have not encountered this situation, but another accountant raised the question and most of the people responding made the same interpretation I did.
I have always taken a loss on inherited property when it is sold for less than the tax assessor's appraisal. Often, if they had an independent appraisal from a licensed appraiser, they might claim a bigger loss.
I recently got my tax appraisal lowered, but later had an independent appraisal which came up with a much higher figure than the tax appraisal board did.
http://www.1040.com/taxxcpa/
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