Other Current Topics       L&H Mid-Year Newsletter

Current Tax News

Note: articles preceded by *New* have been posted within the last two weeks

*New* California First-time buyer credit
As of June 15, 2010, the Franchise Tax Board (FTB) estimated receiving more than 15,000 First-Time Buyer Credit applications, claiming more than $78 million; because many of these applications are duplicates or invalid, the FTB plans to accept at least 28,000 applications to ensure all $100 million is credited. The FTB will announce the cut-off date on its website, giving at least 24-hours notice for applicants to fax their documentation. The credit will be allocated on a first-come, first-served basis, using the date and time stamp on the fax; however, submission before the cutoff does not guarantee a credit, and the FTB will stop allocating credits once the $100 million is exhausted. The First-Time Buyer Credit, equal to the lesser of 5% of the purchase price or $10,000, is available to taxpayers who did not own a principal residence for the preceding three years; the home must be purchased (close escrow) on or after May 1, 2010, and the buyer must reside in the home for at least two years immediately following the purchase date. California homebuyers may also qualify for the New Home Credit if they purchase (close escrow) a new home after May 1, 2010, and before August 1, 2010, as long as they enter into an enforceable contract executed before January 1, 2011; the seller must certify that the home has never been previously occupied.

The IRS's "Dirty Dozen"
Each year the IRS releases their "Dirty Dozen" list of tax scams that have been prevalent over the prior 12 months.  This year's list highlights the importance of using a well-established, reputable tax preparation firm.  The 2010 list is almost exclusively made up of items that unscrupulous firms market to taxpayers as legitimate tax planning ideas.  However, two things should be a tip off to unsavory activity.  First, the adage, “if it seems too good to be true, it probably is” is very appropriate in the tax world, and second, never file a tax return that you know is incorrect (e.g., don’t let your preparer inflate deductions or omit income that you know exists).  Click here for the IRS’s 2010 Dirty Dozen.

Struggling California homeowners warned against phony foreclosure 'audits'
State officials warned struggling homeowners Monday about a new variation on loan-modification scams: "forensic loan audits."  "It's the latest phony foreclosure-relief 'service' by an industry that continues to be long on promises and short on results," said attorney general spokesman Evan Westrup. "It's another way to get homeowners in distress to pay for services that ultimately aren't helping or providing the relief they need."  Click here for more information.

Solar Energy Systems: Incentives Are Better Than Ever
Residential and business energy credits have been around for years, but with limits so low that there was virtually tax incentive for installing solar energy systems.  Beginning in 2009 the federal caps on these credits has been removed through 2016, thus, for the first time, the major capital investments typically associated with the installation of solar energy systems can be partially recouped through tax credits in a meaningful way.  Click here for more information.

IRS Releases 2010 version of rebuttal to "Frivolous Tax Arguments"
While most of us are resigned to the fact that the only 2 things in life that are certain are death and taxes, some people dispute the second.   Common arguments questioning the legitimacy of the U.S. income tax system use a variety of inaccurate assertions ranging from the Constitutionaliy of the income tax to a myriad of improperly quoted or misconstrued sections from the Internal Revenue Code.  Failure to file and/or pay your income tax liability can result in significant penalties, including imprisonment.  The IRS periodically releases information debunking a host of common tax protestor arguments.  Click the following link for the 2010 IRS publication  "The Truth About Frivolous Tax Arguments".

'Rapid Refund' loans prompt warning from state attorney general
Loans can cost consumers hundreds in fees and interest and make only a few days' difference in when the taxpayer would see the funds. With tax time around the corner, the California attorney general's office is warning of the dangers of taking out high-cost tax-refund anticipation loans, sometimes presented as "rapid refunds," that can cost consumers hundreds of dollars in fees and come with high interest rates. Click here for additional information.

Haiti earthquake relief donations before March 2010 may be deducted on 2009 returns
Under a new law enacted on Jan. 22, 2010, taxpayers may claim a charitable contribution deduction in tax year 2009 for cash donations made after Jan. 11, 2010 and before Mar. 1, 2010, for the relief of victims of the Jan. 12, 2010 earthquake in Haiti. See IR 2010-12 for additional information.

 Offshore Outsourcing Revisited - Bringing Jobs Back to the U.S.

While India and other Asian nations remain prime destinations for many U.S. companies seeking to reduce costs, it may be surprising to know that the U.S. is the worlds most popular outsourcing destination receiving 22% of outsourced jobs. China is number 2 at 16% and India is third with 13%. Years of experience outsourcing to remote destinations has given rise to a new set of math for computing the benefits and true costs of outsourcing and a whole new language has developed with terms such as Farm-sourcing, Right-shoring, Back-shoring and many more. Click here to read the full article on CFO.com.

Tax Credits for Higher Education Expenses
Tax incentives have been bumped up to as much as $2,500 per student and are now available to families earning up to $180,000. But the tax break is good only through 2010.  Click here for complete article.

Cyber Criminals Targeting Small Businesses
Cyber criminals are increasingly targeting small and medium-sized businesses that don't have the resources to keep updating their computer security. . .  Click here for complete article.

Study: Startups risk failing with credit card debt
New businesses are more likely to fail in the first three years if they finance startup costs with credit cards, according to a study by Robert H. Scott III, assistant professor of economics and finance at Monmouth University. According to the study, a business's chances of closing increase 2.2% for every $1,000 it has in revolving credit card debt. "While it is not the only determinant of a business's stability, it appears to be an important factor in a firm's likelihood to survive," the study said. Click here for complete article.

Mortgage Forclosure Scams
Reports of mortgage scams are rolling in to the Department of Real Estate in numbers never seen before, said Thomas Pool, a department spokesman. The California Attorney General's office has created a website that provides information in avoiding forclosure scams and links to free counseling approved by the U.S. Department of Housing and Urban Development and the California Department of Real Estate's website, which has similar resources and lists trustworthy companies.  Click here to go to the web site.

Home Ownership Is Not the Road to Riches
The primary value of a owning a house is that it provides a home for you and your family to live in. Clearly a home is a major investment for most people that own one, but investment value should not be the primary reason for ownership. Click here to read the full text of an article on this topic.

California Stops Accepting New Home Credit Applications
As of July 3, 2009, the Franchise Tax Board (FTB) is no longer accepting new home credit applications. The FTB has received over $100 million in new home credit applications and more than 12,000 applications. This tax credit was available for qualified buyers who on or after March 1, 2009, and before March 1, 2010, purchase a qualified principal residence that has never been occupied. The buyer must reside in the new home for a minimum of two years immediately following the purchase date. Click here to view full article on FTB web site.  Note: the federal new home tax credit of $8,000 for qualified purchases is still in effect.

Summertime Tax Tips Available on IRS.gov and Via E-Mail
The Internal Revenue Service is publishing Summertime Tax Tips to provide useful and concise advice on topics that affect taxpayers.  The IRS is publishing three tax tips per week this summer. Topics range from how parents can get credit for sending their kids to day camp to protecting yourself from identity theft.  Click here to go to the IRS's Summertime Tax Tips page. Of course, L&H is not responsible for the accuracy of the content posted by the IRS but we are always available to discuss any of the topics you may find there.

Social Security Office Projects Social Security Wage Base Through 2018
The Social Security Administration's (SSA) Office is projecting that the Social Security wage base will remain at $106,800 in 2010. This is the first time in recent history that the wage base has not increased from the prior year, however, SSA is projecting the base could reach as high as $155,400 by 2018. Click this link to view full article.

2009 Hybrid Vehicle Credits
The IRS posted 2009 & 2010 model year hybrid vehicle credits on their web site.  These credits are valuable in reducing income tax liability, however, be aware, they do not reduce AMT.  Click this link  to view the list on the IRS web site.

Business Use of the Automobile - Keep Good Records
Keeping good records to substantial the business use of your automobile is extemely important in order to sustain those deductions on audit.  A recent Tax Court case disallowed deductions even where it was agreed by the IRS and the Court that there was significant use of the car for business purposes.  Click this link to view the article.

Mandatory Californa E-Pay For Individuals
Beginning January 1, 2009, individuals are required to remit payments electronically once they meet either of the following conditions:

• Make an estimated tax or extension payment greater than $20,000 for a taxable year beginning on or after January 1, 2009; or
• File an original return with a tax liability greater than $80,000 for a taxable year beginning on or after January 1, 2009. Full article

Charitable Contribution Planning
There are multiple strategies for maximizing your charitable giving and at the same time managing both cashflow and income taxes.   Click this link to view several ideas.

Business Buy/Sell Agreements
It is important that businesses with more than one owner have a written buy/sell agreement specifying what happens when an owner withdraws from the business. A buy/sell agreement is a contract between the owners (or the owners and the business entity itself) that establishes rules and restrictions applicable to changes in ownership.  Full article

Supreme Court Upholds Exemption for In-State Muni Bond Interest
The U.S. Supreme Court has upheld the traditional state tax treatment of municipal bond interest, under which a state exempts from its corporate and personal income taxes the interest on bonds issued by the state and its own localities, but taxes the interest on bonds issued by other states and their localities. The issue arose after the Kentucky Supreme Court case ruled that the different treatment of in-state and out-of-state muni bond interest was unconstitutional.  Levering & Hvasta filed a number of refund claims with the State of California in anticipation of the U.S. Supreme Court ruling on the issue. Those refund claims are now moot and will not result in refunds.

Tax Rebate Info Posted on IRS Website
Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million individuals. The stimulus payments will go out through the late spring and summer.  

New E-Mail and Phone Scams Use IRS Name
http://www.webcpa.com/article.cfm?articleid=26645 

IRS Is Likely to Get More Resources to Combat Cheating on Tax Returns
http://online.wsj.com/article/SB120225460358145477.html 

 Who is likeliest to get audited -- and tips for avoiding scrutiny
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/01/09/BU2AUBCA5.DTL
 

IRS Sets Rules for Charitable Contributions
http://www.webcpa.com/article.cfm?articleid=26385

Disaster Recovery Resources

In addition to the information from the IRS and Franchise Tax Board, the California Society of Certified Public Accountants has a very informative area on their web site regarding disaster preparedness and recovery at:

CalCPA Disaster Recovery Resources

Other Topics

Tips For New Business Owners
We are often asked by new business owners what is important when it comes to managing the finances of their business, recordkeeping requirements, things they need to know about taxes.  This article,  Quick Tips for New Business Owners, addresses some of the more common questions we're asked:

 Online Auction Sellers
If you are an online auction seller, you may have tax responsibilities. You may be subject to liabilities for income tax, self-employment tax, employment tax, or excise tax. Your sales may result in capital gains, nondeductible personal losses, or you may have ordinary business income.  While few people were ever affected by the auction rules, on-line sales sites such as eBay™ has changed that.  See the IRS site for information about Online Auction Sellers.

Levering & Hvasta, CPAs LLP offers the above information for general guidance purposes only.  Information provided on this web site should not be relied upon without consulting a competent tax or other relevant financial professional.  Please do not hesitate to contact us if you have any questions or would like to meet with us to dicuss your tax or financial planning matters.

©2009 Levering & Hvasta, CPAs LLP