Rebella Accountancy | 507 E. First Street, Suite A | Tustin, CA 92780 | Phone: 714-619-0667 | Fax: 714-544-0236

       

 

 

Monica Rebella, CPA/IAR - President

Rebella Accountancy

 

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Feature Articles

- Year-end tax planning moves forward with or without Congress
- Steps to qualify for bonus depreciation before year-end 2012
- Retirement plan loans as a source of ready cash—the pros and cons
- How do I? Compute deductible investment expenses
- FAQ: Are donations of used vehicles still fully deductible?
- November 2012 tax compliance calendar

 

 

 

Prop 30 Approved - Hiring Vets - Year End Tax Planning - Bonus Depreciation - Retirement Plans - People Do Crazy Things



The voter approval of Prop 30 on Tuesday results in an increase in California income taxes starting with this 2012 tax year.

 

These new California tax rates will be effective to the end of 2018, and are as follows:

The tax rate on individuals with income $250,000 to $300,000, and joint filers with income $500,000 to $600,000, will increase 1% from 9.3% to 10.3%.

The tax rate on individuals with income $300,000 to $500,000, and joint filers with income $600,000 to $1,000,000 will increase 2% from 9.3% to 11.3%; and

The rate on individuals with income more than $500,000 and joint filers with income more than $1,000,000 will increase 3% from 9.3% to 12.3%.

Additionally there is an additional 1% tax for incomes over $1,000,000 under the previously approved California Mental Health Services Tax. The result is a maximum California income tax rate of 13.3% for single filers with income of more than $500,000 or joint filers with income of more than $1,000,000.

These above income brackets will be adjusted for inflation in future years under Prop 30.

These new California tax rates will effect people selling their businesses, real estate, houses and those with large incomes.

At this time it still remains unclear what changes Congress and the President will agree to on the federal income taxes, and estate and gift taxes. As you can observe in the News a lot of predictions are being thrown around of what changes to the federal tax system will be made and when those changes will occur.

 


 


Employers Hiring Veterans by Year’s End May Get Expanded Tax Credit

Employers planning to claim an expanded tax credit for hiring certain veterans should act soon, according to the IRS.

Many businesses may qualify to receive thousands of dollars through the Work Opportunity Tax Credit, but only if the veteran begins work before the new year.

Here are six key facts about the WOTC as expanded by VOW to Hire Heroes Act of 2011.

1. Hiring Deadline: Employers may be able to claim the expanded WOTC for qualified veterans who begin work on or after Nov. 22, 2011 but before Jan. 1, 2013.

2. Maximum Credit: The maximum tax credit is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.

3. Credit Factors: The amount of credit will depend on a number of factors. Such factors include the length of the veteran’s unemployment before being hired, the number of hours the veteran works and the amount of the wages the veteran receives during the first-year of employment.

4. Disabled Veterans: Employers hiring veterans with service-related disabilities may be eligible for the maximum tax credit.

5. State Certification: Employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency. The form must be filed within 28 days after the qualified veteran starts work. For additional information about your SWA visit the U.S. Department of Labor’s WOTC website.

6. E-file: Some states accept Form 8850 electronically.

Visit the IRS.gov website and enter ‘WOTC’ in the search field for forms and more details about the expanded tax credit for hiring veterans.


 

Year-End Tax Planning Moves Forward With or Without Congress

 

The fate of many of the tax incentives taxpayers have grown accustomed to over recent years will likely remain up in the air until Congress and the Administration finally face off weeks before year-end 2012.

 

While the results of Election Day will have bearing on the outcome, no crystal ball can predict how the ultimate short-term compromise will unfold.

 

As a result, some year-end tax planning must be deferred and executed ”at the eleventh hour” only after Congress passes and the President signs what will likely result in a stopgap, temporary compromise for 2013.

 

Tax rates for higher-bracket individuals and a long list of “extenders” provisions such as the child tax credit, the enhanced education credits and the optional deduction for state and local sales tax, hang in the balance. Real tax reform for 2014 and beyond, in any event, won’t be hammered out until 2013 is well underway.

For Traditional Planning for Individuals (click here)
For Traditional Planning for Businesses (click here)


 


 

Steps to Qualify for Bonus Depreciation Before Year-End 2012

The tax code provides for 50 percent first-year bonus depreciation for 2012. If property qualifies for bonus depreciation, the taxpayer can deduct 50 percent of the cost of the property in 2012.

 

This can help a business bear the cost of investing in needed equipment, as well as facilitate cash flow and provide operating funds for the business. It is not too late to qualify for 50-percent bonus depreciation for 2012.

In 2011, bonus depreciation was 100 percent. There have been proposals to reinstate 100 percent bonus depreciation for 2012, but they have not been acted on. For 2012, 50 percent bonus depreciation is available.

 

It expires at the end of 2012 and is not available for 2013. (Note that certain longer production-period property and transportation property still qualifies for 100 percent bonus depreciation if it is acquired and placed in service during 2012.)

Qualified property must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a recovery period of 20 years or less. Qualified property also includes computer software, water utility property, and qualified leasehold improvement property. The property generally has to be depreciable under MACRS; thus, intangible assets amortized over 15 years do not qualify for bonus depreciation.

There are other requirements for taking 50-percent bonus depreciation in 2012. The original use of the property must begin with the taxpayer. The property must be new, must be acquired before January 1, 2013 (title must pass), and must be placed in service before January 1, 2013. Being placed in service requires that the property be installed and ready for use in the business. The property must be in a condition or state of readiness to be used on a regular, ongoing basis. The property must be available for a specifically assigned function in the trade or business.

The original use is the first use to which the property is put. That, if a taxpayer purchases used property from another business, the property will not qualify for bonus depreciation. However, if the taxpayer makes additional expenditures to recondition or rebuild acquired property, these expenses can satisfy the original use requirement. A person who acquires new property for personal use and then converts it to business use is still considered the original user of the property.

The acquisition date rules require that there not be a written binding contract in effort before January 1, 2008 to acquire the property. Property can qualify if the taxpayer entered into a written binding contract for its acquisition after December 31, 2007 and before January 1, 2013. Self-manufactured property can qualify if the taxpayer begins manufacturing, constructing or producing the property before January 1, 2013. Property is deemed acquired when reduced to physical possession or control. Regardless of the manner of acquisition, the property must be placed in service before January 1, 2013.

If the business does not have profits in the current year, it can use the bonus depreciation deduction to create a net operating loss, which can then be carried back (or forward) to a profitable year and generate a refund. However, bonus depreciation is not mandatory. Taxpayers may choose to elect out of bonus depreciation, so that they can spread depreciation deductions more evenly over future years.
 



Retirement Plan Loans as a Source of Ready Cash: The Pros and Cons

Although it is generally not considered prudent to withdraw funds from a retirement savings account until retirement, sometimes it may appear that life leaves no other option.

 

However, borrowing from certain qualified retirement savings account rather than taking an outright distribution might prove the best solution to getting you through a difficult period.

 

If borrowing from a 401(k) plan or other retirement savings plan becomes necessary, for example to pay emergency medical expenses or for a replacement vehicle essential to getting to work, you should be aware that there is a right way and a number of wrong ways to go about it.

When a plan loan is not a taxable distribution

In general, a loan from a qualified employer plan, such as a 401(a) or 401(k) account, must be treated as a taxable distribution unless you can meet certain requirements with respect to amount, repayment period, and repayment method.

First, however, the terms of the employer-plan must allow for plan loans. Due to administrative costs and other considerations, plan loans are made optional for employer plans. If permitted, however, loans must be made available to all employees.

A loan to a participant or beneficiary is generally not treated as a taxable distribution if:

- The loan is evidenced by a legally enforceable written agreement that specifies the amount and term of the loan and the repayment schedule;
- The amount of the loan does not exceed $50,000 or half of the participant's vested accrued benefit under the plan (whichever is less);
- The loan, by its terms, requires repayment within five years, except for certain home loans; and
- The loan is amortized in level installments over the term of the loan.

Plan loans may be made only from employer-based plans. Individual retirement accounts (IRAs) cannot be used as collateral for a loan, nor can a direct loan be made from the IRA to the account holder.
 

   

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People Do the Craziest Things

Don Larsen, former New York Yankee baseball pitcher, suddenly decides to sell the uniform he wore when he pitched a perfect game during the 1956 World Series.

Former NCAA basketball coach Bob Knight decides to sell all his basketball championship rings.

Also up for auction: Ozzie Smith, famed St. Louis Cardinal shortstop, Gold Glove awards Pete Rose’s signed agreement banning him from baseball in 1989 Former boxing champion Evander Holyfield’s championship belts

What is happening?

1) Collectibles tax rates could be going up substantially in 2013 because the 28% tax rate on gains from the sale of these collectibles could be as high as 33-39.6%.

2) Investment sales, like collectibles, could impact your Alternative Minimum Tax (AMT) exposure, effectively raising taxes on your other income in 2013.

3) In addition, there could be an additional 3.8% tax on their memorabilia sales in 2013 because of a new Medicare surtax beginning in 2013 on investment earnings over $200,000 single and, with a marriage penalty, $250,000 for married couples filing joint tax returns.

4) Even non-collectible investment tax rates are scheduled to rise. Long-term capital gains tax rates could go from 15% to 20% or higher.

Some tips:

Review your investment portfolio for possible tax efficient transactions. This could mean selling a valuable collectible or other long-term gain investments.

Consider making tax projections if the sale of investments might expose your income to the two Medicare surtax provisions (.9% of wages and 3.8% of investment income).

Conversely, if you are an avid collector look for deals in December as other collectors sell their memorabilia to take advantage of the lower tax rates in 2012!

To read this & my other articles online go to www.MyDentalCPA.com or www.RebellaCPA.com and click on the Newsletter section.

 


 

As always you can call me at 714-619-0667 if you have any questions about investing, retirement or any other tax & accounting related issues. 

 

Regards, Monica Rebella, CPA/IAR

President, Rebella Accountancy

 
Disclaimer:  The opinions contained herein are not intended to be investment advice or a solicitation to buy or sell any securities. With any investment you should carefully consider the investment objectives, potential risks, management fees, and charges and expenses before investing.  Past performance is not a guarantee of future results. The investment return and principle value of any investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

To see more Business Owner Clients talk about Monica, click here!

 

 

Monica Rebella, CPA/IAR | President - Rebella Accountancy | Certified Public Accountants
507 E. First Street, Suite A | Tustin, CA 92780 | Phone: 714-619-0667 | Fax: 714-544-0236
Email: mrebella@rebellacpa.com | www.RebellaCPA.com | www.MyDentalCPA.com