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In Hollywood, accounting can seem like a pretty glamorous profession, or not.
Jack Nicholson plays a philandering CPA tax attorney coming to terms with his troubled relationships with women in "Carnal Knowledge." The 1971 movie co-stars Art Garfunkel as Nicholson's best friend in one of his few dramatic roles, along with Ann-Margret (right) and Candice Bergen as the women in their lives.
The new payment card reporting rule is prompting revisions to the tax forms. For 2011, credit and debit card companies will begin to issue 1099-K forms on payments to merchants, and third-party networks such as PayPal will give 1099-Ks to payees with over 200 sales transactions and over $20,000 in annual sales volume.
These amounts will be reported on a separate line on Schedule C and Forms 1065, 1120 and 1120S. This way, the Service will be able to match the amounts shown on the 1099-K with what’s reported on a return, making discrepancies easier to spot. The IRS is hoping that this should reduce underreporting of gross receipts by sellers of goods and services.
(Tax Foundation) -- TaxFoundation.org reports, "One of the least reported facts about the 11th hour debt limit deal between the White House and Congressional leaders is that it assumes that on January 1, 2013, virtually every working American will begin paying much higher taxes than they are today." According to the Tax Foundation, "baked into the deal is a $3.5 trillion tax increase, yet plan supporters say it does not raise taxes" since the "current law” (baseline) assumes that all of the Bush-era tax laws expire as scheduled at the stroke of midnight on December 31, 2012.
This means that all income tax rates will go up across the board, the child credit will fall from $1,000 to $500 and the marriage penalty will return. The analysis notes that meanwhile, federal spending is expected to total nearly $46 trillion over the next ten years.
If Congress should decide to not let the Bush/Obama tax laws expire, then there is an additional $3.5 trillion overdraft in the works.
This is just like if you were working on your family budget and because of past debts, you were close to bankruptcy. In order to make the budget balance, you budget that in six months you and your spouse were going to both get a second job and earn an additional $25,000. But six months later, you decide that you can’t handle working another part-time job and so, you default.
Q. I am at the point where I am speaking with attorneys to try to figure out who would be best to represent us in the sale of our business. So far, I have spoken with two and each have given me very different information. One says we should try to sell the business's stock and that would mean a lower tax implication for the sale and would save time and money on attorney's fees over an asset sale. The other said we should do an asset sale and it wouldn't make a difference in the tax implications or the time needed to write up contracts.
I would love your advice on which would be most favorable for us. ~Paula
A: Here’s the deal. There are two ways to sell your corporation.
• You could sell your stock.
o In that case, the owner just steps into your shoes.
o The new owner is just buying the paper that represents ownership in the assets and liabilities.
o If there are liabilities that the corporation owes such as accounts payable, notes etc., the new owners will be assuming.
• The corporation can sell assets to the new owners.
o After the sale, the corporation is normally liquidated.
A stock sale is best for you because this would be a capital gain and the maximum tax rate is 15% federal plus state. On an asset sale, the gain is at ordinary income rates which vary from, I would imagine 15% to 35%, plus state tax.
Most of the time the buyer wants to do an asset purchase because:
• They get to depreciate the equipment. This will save them some future tax dollars. They do not get new depreciation on a stock sale.
• If they finance the purchase, it is easier to deduct the interest.
• If they buy stock, they are buying whatever dirty laundry you might have in the closet. For example, if the IRS should audit the corporation and impose additional tax then, since they are the owners the corporation would have to pay the tax, so they are on the hook.
I hope that this helps.
I sent my youngest child, Ryan off to his first day of high school and my oldest son, James is celebrating his 16th wedding anniversary. I bet not many people can say that. With school starting, I have had several calls regarding tax strategies. I recently posted a blog about college credits and deductions. If you have a child in post- secondary or you or your spouse are headed back to school, you should check out that blog. Here is some other information about education:
1. School uniforms are not deductible, no matter how ugly they are. The IRS does not allow deductions for school uniforms, even if required, for public or private schools.
2. The cost of private school is not deductible. This includes both traditional private and parochial schools, though exceptions apply in some circumstances such as for special needs children and when it serves as child care.
3. The cost of private kindergarten – and some upper grades for students up to the age of 13 – may be deductible. Okay, I know I just said that the cost of private school is not deductible. And that’s generally true for tuition costs. However, if you can separate the educational costs of your program from any child care component, you may be able to deduct the child care piece. Clearly, this is easier for younger children since many programs are already separated out for you (half day kindergarten, for example, is often supplemented by a child care program in the afternoons).
4. Expenses for before-or after-school care of a child in kindergarten or a higher grade may be deductible as long as the costs qualify. Generally, qualifying costs for child care are limited to the care for your own children under the age of 13, qualifying as your dependents, for care while you work or while you are looking for work. Some cost limitations and other restrictions may apply.
5. You must subtract the cost of goods received when you contribute to band and sports fundraisers. Yes, I’m talking about the popcorn, Christmas wrapping and scented candles. Inevitably you feel obligated into buying stuff. In my case, I don’t feel comfortable asking friends and neighbors to buy stuff, so I just buy more. I now have enough Christmas wrapping to last me for the rest of my life and if food becomes scarce, the Kopsa family will be living on popcorn (if the microwave still works). There is no, or little to no tax deduction since the IRS requires you to subtract the value of anything you receive in return for a charitable donation.
Better solution: Just write a check directly to the school. In this case, the school gets to keep the entire amount and you take the full donation…unless, of course, you need more scented candles.
6. You may not deduct moving expenses for heading to college. I get asked this question quite a bit, but the answer is still no, year after year. The IRS doesn’t consider going to school a job.
7. The earnings in 529 plans are not taxable for federal purposes. A 529 plan is an education savings plan which takes its name from section 529 of the Internal Revenue Code. Investments in these plans grow tax-free and withdrawals are never federally taxable so long as you use them for eligible college expenses, which includes most costs associated with college such as tuition and room and board. The plans vary from state to state and there are entire web sites and publications devoted to them.
If you have any school-related questions, send them to me. Remember that you can email them, ask me on twitter or post a question on Facebook.
In Hollywood, accounting can seem like a pretty glamorous profession, or not.
Edmund O'Brien plays accountant Frank Bigelow in the fast-paced 1950 film noir crime drama "D.O.A." The movie opens with Bigelow entering a police station to report his own homicide and then in flashback traces how he came to learn that he had been poisoned by a former client who needed him to notarize an incriminating document. The movie was later remade in 1988 with Dennis Quaid playing O'Brien's role, but in the remake Quaid is a college professor. O'Brien is shown here with Laurette Luez, who plays his client's mistress Marla Rakubian.
A week ago, I attended a memorial service for one of my dear clients. This person lived a full life and died of natural causes. This person had passed away earlier this year, but they just held the memorial service last week. As I drove home from the service, I thought of our previous conversations and her intellect and knowledge of the world after living and teaching in Egypt for some time with all her travels.
As I drove on, my thoughts normally turned to…what else,...taxes. It was twenty-four miles to the memorial service and another twenty-four back home. I wondered how many times people miss these short drives and deducting it for tax purposes. Let's look at the calculation:
Twenty-four miles times 55 1/2 cents, (which is the new allowable mileage rate) means, that I get a tax deduction of $26.64. When I take into consideration my federal, state and social security bracket, this $26 saves me right at $11 in income taxes. Eleven bucks in my pocket because I'm paying fewer taxes. I never stop there. I always try to think of how much money I would have to earn to have the tax saving in my pocket. Given that it takes me about $18 before tax dollars to have $11, this is a deal.
I say over and over again, "It's not the big items that cause the tax savings, it's the little items that add up."
The message: Don’t forget to deduct all of your miles,…even the short trips.
In Hollywood, accounting can seem like a pretty glamorous profession, or not.
