Currently reading

I'm currently reading:

Book Yourself Solid, by Michael Port
The Little  BIG Things, 163 ways to pursue excellence, by Tom Peters
Frederica, by Georgette Heyer
Lulu Meets God and Doubts Him, by Danielle Ganek

An eclectic mix, as usual.

Summer-time

I'm in summer mode.  I just spent the weekend with a friend who does not use air conditioning and we live in the South!  She is up in the mountains though and gets a good breeze most of the time, though it is hot mid-afternoon.  Reminded me of my childhood when I would spend most days outside playing and then hitting the community pool in late afternoon.  The heat made me slow down and laze around sipping iced tea.  I could get used to that life.

Tax Tip--Take Your Money in 2010 (and pay tax on it!)

I know this is counter-intuitive:  take your taxable income in 2010, as much as you can, because taxes are rising. With the Bush tax cuts expiring this year, taxes go up.  By taking your money this year, you can pay tax at the lower rates.

Beginning in 2011 tax rates will go up and certain deductions and credits will go down for individuals. In 2013, married couples with income over $250,000 (singles, over $200,000) will pay an additional 0.9% on all income.

Then, if you are a "disqualified" professional with an S corporation( i.e., small business with three or fewer employees), under HR 4213 as currently written you will pay social security tax of 12.4% (up to the maximum) and Medicare tax of 2.9% on all income flowing from that corporation beginning in  2011  --you already pay income tax on that income.

What income can you accelerate to 2010? Consider:
1. exercising vested stock options with any gain in them,
2. not deferring any income to a future year whether through a formal plan with your employer or an informal arrangement by not billing until late in the year to put off collecting business income until early next year; collect everything you can this year,
3. cashing in on any gains sitting in your stock portfolio (that extra 0.9% tax discussed above? it applies to capital gains),

Also consider that certain tax deductions are expected to expire after 2010, and it's a good year to recognize income if you can also take those deductions. The deductions I'm talking about include:
1. Expensing capital acquisitions up to $250,000 (phase-out if acquisitions are above that)
2. Bonus depreciation of 50%
3. Itemized deductions limitations will go back to pre 2001 amounts
4. Child credit reverts to $500 from $1000 per child

This is definitely one area to go over carefully with your tax adviser and financial adviser, but it may benefit you to do the planning now.



Disclaimer: Tax Tips are informational only and are not meant as tax advice. Please consult with your personal tax adviser to see how these apply to your tax situation.

Tea as a ritual in my house

We have "tea" most afternoons or evenings in my house. We eat dinner late so the first thing upon everyone coming home is "Has someone put the kettle on?".  Usually it is just a pot of tea, sometimes a snack--sweet or savory.  It's a time of transition from the work and errands of the day to home-time and making dinner.  As my daughter painted on her paint-your-own-pottery teacup "A cup of tea solves everything."

Tax Help Today Saturday June 5

IRS offices across the country are open today to help individual taxpayers dealing with "notices and payments, return preparation and a variety of other tax issues". Offices will be open from 9:00 a.m. until 2:00 p.m. local time.  Click here for   locations

Florida Tax Amnesty

Florida will have a tax amnesty program running from July 1 to September 30.  It will cover corporate income tax, sales/use taxes, intangibles tax, and others.  Waiver, as is common, of penalties and 50% of the interest due.

State tax amnesty programs

Keep up on whether your state or city (or even county) has a tax amnesty program.  These usually waive all or part of the interest and all of the penalties on late filing and payment of taxes.  With so many state and local jurisdictions scrambling for cash, this is one way to have it flow into the coffers.

If you decide to file under one of these programs, the tax itself isn't waived, but you won't pay penalties and interest is lowered or eliminated.  You will now be a solid citizen and on the tax rolls, so be prepared to make filing taxes an annual habit.  Some jurisdictions, such as Philadelphia, discussed below, apply these late payment waivers to such taxes as real estate tax.

Current and forthcoming programs:

Pennsylvania, through June 18, 2010
Philadelphia, through June 25, 2010
Nevada, starts July 1, 2010 and goes through September 30, 2010

Shareholders with S corporation income will pay social security and medicare tax

I don't like this.  Not because it's a scheme that only a select few are using but because it will tax only certain S corporation shareholders.

The proposed law in the new tax bill passed by the House of Representatives and sent to the Senate to approve has S corporation income flowing through to shareholders, not as salary, to be subject to social security and Medicare tax.  Aha! the catch is that it applies to only some S corporation shareholders: those whose business is personal services with 3 or fewer employees--including shareholders--and those personal service corporations with more than 3 employees--including shareholders-- whose principal asset is not the reputation of more than 3 employees.  Whew! and the language in the law is even more convoluted.

Why the distinction?  If they are to be taxed, tax all of them!  How will "personal services" be defined?  Only those professions like law, accounting (me!), engineering etc? Those where the individual's efforts form 50% or more of income from the business? Why discriminate against the person who works alone versus the one who happens to have 3 employees? What is the "principal asset"?  Who picked the arbitrary number of 3? [Full disclosure, I am not organized as an S corporation].

Currently, S corporation shareholders are subject to social security and Medicare tax on any salary they take from the company, just like any wage earner.  Any income over and above flows through to the individual shareholder and is taxed as ordinary income, but not subject to these "payroll" taxes.  However, if the same business were organized and taxed as a sole proprietorship or a partnership, all of the income flowing from that business would be subject to the "payroll" taxes.  The IRS can, and does, examine S shareholders to make sure they are taking a "reasonable" salary--subject to payroll taxes.  Why enact a complicated law that will be litigated forever?

Putting  personal service S corporations on parity with sole proprietorships and partnerships is not inherently bad, but this one is bad law.