California Income Tax Update

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An estimated tax underpayment penalty will not be imposed against taxpayers who underpay their estimated California personal income taxes to the extent that the underpayment was created or increased as a result of the personal income tax rate increases just approved by the voters with the passage of Proposition 30. California law contains a safe-harbor provision for underpayments resulting from any provision of law that is chaptered during and operative for the taxable year of the underpayment. Taxpayers will not be required to make any catch-up payments.

Taxpayers should also be aware that the additional mental health tax imposed on taxpayers with taxable incomes above $1 million is not affected by Proposition 30, and taxpayers will still be liable for the additional 1% tax on taxable income above $1 million.

Finally, taxpayers should be aware that the tax imposed on nonresident individuals participating in composite returns filed by corporations and pass-through entities is imposed at the highest marginal tax rate, which is now 12.3% for the 2012—2018 tax years.

Sellers of California real property should note the impact of the increased tax rates on the alternative withholding rate, under which sellers may choose to compute the amount of withholding based on the reportable gain from the sale rather than on a percentage of the total sales price.

Individuals and non-California partnerships making the election must compute the withholding on the reportable gain using the highest marginal personal income tax rate, which has increased to 12.3%. Withholding on amounts paid by a partnership to its foreign partners, which is at the maximum personal income tax rate, is likewise affected.

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Welcome to #StartupLab at Origins Group APC: Your one-stop shop for all things entrepreneurship!

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Have you ever thought about what you would ask the founders of the world’s most successful startups — like RentTheRunway, 99Designs and iContact?

If you could really pick their founders’ brains, what would you MOST want to know?

We have some exciting news to share with you — you don’t have to wonder anymore. You can ask some of the top startup founders in the world right now anything you want, live, every month — and get their hard-won advice in eBooks and articles delivered right to your inbox, too.

That’s because Origins Group has partnered with theYoungEntrepreneurCouncil (a nonprofit organization comprised of over 500 successful young entrepreneurs) to give you access to #StartupLab, a virtual mentorship program that features real-world, real-time advice from some of the coolest entrepreneurs in the world.

As a member of Origins Group, you can get DIRECT access to tactical advice and mentorship  from YEC’s awesome entrepreneurs — for free — through interactive video chats with top business founders, weekly email lessons and YEC’s complete library of how-to articles, videos and eBooks.

The best part is that #StartupLab is fun, interactive and totally virtual — which means you can download eBooks and explore content written by entrepreneurs whenever you want, wherever you are. Just log onto our Facebook Page https://www.facebook.com/AzranFinancial and check it out. You can start reading articles and viewing past live chats right away. Oh, and don’t forget to RSVP for the next live chat, too.

We’re excited to be a part of #StartupLab and offer you this amazing resource on your entrepreneurial journey. If you have any questions or feedback about the program, let us know. We can’t wait to hear what you think!

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Riverside Barristers Financial Literacy Event

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Year-End Tax Planning for Business and the Fiscal Cliff

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As a taxpayer, you are facing what is perhaps an unprecedented set of circumstances – the expiration of the tax rates enacted in 2001, the expiration of more than 150 tax provisions and a tax increase of more than $500 billion overall – that could result in a much higher tax liability when you file your next return.

As we edge nearer to the “fiscal cliff,” as it’s being called, several changes are looming, including (but not limited to) a possible increase on long-term capital gains, restrictions on  itemized deductions, reinstatement of the full payroll tax, and an increase in both the estate tax rate and the number of estates that will be subject to the estate tax. In addition, a new 3.8% surtax on some investment income will become effective Jan. 1, 2013.

Many of these changes will have an impact on small businesses and call for tax planning and possible actions now to soften the potential burden [particularly if you operate as a pass-through entity as many tax increases will affect individuals]. For example, if you are planning to sell appreciated business assets, doing so before the end of 2012 may help avoid the higher capital gains tax. Please come in at your earliest convenience so we can discuss your tax situation and develop a strategy that makes sense for you.

Deductible Business Expenses – How Will You be Affected?

Under Section 179 of the tax code, small businesses can deduct the total cost of some qualifying property in the year it is placed in service, within certain limits, rather than depreciating it over time. The limit on the cost of property (including real property) that can be expensed is now $139,000. The total value of the equipment purchased cannot be higher than $560,000.

As of Jan. 1, 2013, the expensing limit is set to drop and real property, some of which is allowed now, will no longer be included. As a result, businesses may want to consider making equipment or property purchases before year-end to take advantage of the higher expense amount. What may be critical to taking advantage of section 179 election is whether the equipment can be put into service before Jan. 1, 2013.

Also, with the expiration of current 50% first-year bonus depreciation allowance, businesses will have to revert to the modified accelerated cost recovery system to calculate depreciation, meaning that more costs will have to be deducted over time rather than immediately.

Pass-Through Entities

As a pass-through entity, there are several other issues to consider since you pay your business taxes as an individual, including:

  • The return of the phase-out for itemized deductions for a taxpayer who has adjusted gross income over roughly $175,000 as well as a phase-out of personal exemptions for taxpayers with income over a certain level. Each one would limit the amount of allowable deductions and raise the taxpayer’s net taxable income.
  • The lowest individual income tax rate will rise from 10% to 15% and all other individual rates will also edge up.
  • Due to an expiring Bush-era tax cut, a broader marriage penalty will mean higher tax bills for married couples. Instead of the current 200%, the standard deduction for married couples filing jointly will fall to 167% of the standard deduction for single taxpayers.
  • The alternative minimum tax (AMT) will apply to 2012 income for many more Americans if not indexed for inflation. At the end of 2011, the AMT exemption was $74,450 for married taxpayers and $48,450 for singles. It is set to fall to $45,000 for joint filers and $33,750 for single filers. Taxpayers are also set to lose the ability to offset their AMT bite with personal tax credits.
  • The credit for Research and Experimentation Expenses, worth up to 20% of qualified costs, expired at the end of 2011 and has not been extended.

We also want to remind you that business owners and self-employed individuals need to:

  • Obtain tax identification numbers for all the individuals to whom they send Forms 1099-Misc
  • Closely review their estimated tax calculations in light of any tax changes that occur

Origins Group can help you review those calculations to understand the effect these possible increases could have on your tax situation. Please contact us today at (310) 691-5040 or (818) 691-1234, or e-mail us at info@85r.4a9.myftpupload.com to schedule an appointment to develop strategies to minimize the impact of this uncertain tax climate on your business.

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