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California Tax Changes from the Passage of Proposition 30

As of November 7, 2012, the voters of California pass Proposition 30 (Governor’s ballot initiative) to fund education, the deficit, etc. The following are the results that you should consider when doing your year-end tax planning because the some of the tax changes are retroactive to January 1, 2012:

Individual tax rates for high earners

10.3% (1% increase) on income of:	$250,001–$300,000 for single/MFS; $340,001–$408,000 for HOH; and $500,001–$600,000 for MFJ.
11.3% (2% increase) on income of:	$300,001–$500,000 for single/MFS; $408,001–$680,000 for HOH; and $600,001–$1,000,000 for MFJ.
12.3% (3% increase) on income of:	More than $500,000 for single/MFS; More than $680,000 for HOH; and More than $1,000,000 for MFJ.

Income in Excess of $1 million

In addition to these increased rates, income in excess of $1 million is also subject to the 1% mental health surcharge.

State Sales Tax Increase

This increase is not retroactive. The sales tax rate increases from 7.25 to 7.50% statewide. This does not include the local addon sales tax that differs by county.

If the alternative minimum tax increases due to the fiscal cliff, you may want to pay all of your state taxes in this year. Taxes are not deductible when computing alternative minimum taxes.

In any event, always check with a tax professional when considering any of these tips since your tax situation may be unique.

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Informed Giving: Even in Tough Times, Non-Profit Organizations Need You

For over three decades I have experienced charitable giving on several levels: 1) Like most people, I support those organizations that are dear to me, 2) I have sat or sit on non-profit boards, usually as Treasurer, but occasionally President., 3) As a CPA, I have obviously counselled people on their contributions, the most of exciting of those was a donation of a Picasso.

But, in order to donate correctly, you should follow the rules set out by the tax code and the IRS:
1. Tax-exempt status. Contributions must be made to
qualified charitable organizations to be deductible. Ask the charity about its
tax-exempt status, or look for it on IRS.gov in the Exempt Organizations Select
Check, an online search tool that allows users to select an exempt organization
and check certain information about its federal tax status as well as
information about tax forms an organization may file that are available for public
review. This search tool can also be used to find which charities have had
their exempt status automatically revoked. Don’t hand out cash to street vendors unless you are sure they represent a legitimate company.

2. Itemizing. Charitable contributions are deductible
only if you itemize deductions using Form 1040, Schedule A. A real bummer for those who are not wealthy enough to own a home, or have other deductions that qualify them.

3. Fair market value. Cash contributions and the fair
market value of most property you donate to a qualified organization are
usually deductible. Special rules apply to several types of donated property,
including cars, boats, clothing and household items. If you receive something
in return for your donation, such as merchandise, goods, services, admission to
a charity banquet or sporting event only the amount exceeding the fair market
value of the benefit received can be deducted.

4. Records to keep. You should keep good records of
any donation you make, regardless of the amount. All cash contributions must be
documented to be deductible – even donations of small amounts. A cancelled
check, bank or credit card statement, payroll deduction record or a written
statement from the charity that includes the charity’s name, contribution date
and amount usually fulfill this record-keeping requirement. When donating things like clothes, take pictures, itemize, and always get a receipt.

5. Large donations. All contributions valued at $250
and above require additional documentation to be deductible. For these, you
should receive a written statement from the charity acknowledging your
donation. The statement should specify the amount of cash donated and/or
provide a description and fair market value of the property donated. It should
also say whether the charity provided any goods or services in exchange for
your donation. If you donate non-cash items valued at $500 or more, you must
also complete a Form 8283, Noncash Charitable Contributions, and attach the
form to your return. If you claim a contribution of noncash property worth more
than $5,000, you typically must obtain a property appraisal and attach it to
your return along with Form 8283. Obviously, I had to obtain a written appraisal of the Picasso, and fill out the form.

Don’t wait until December 31 to figure this out. Collect your donation receipts in a big envelope throughout the year. Then, match them to your checks and credit cards.

6. Timing. If you pledge to donate to a qualified
charity, keep in mind that for most taxpayers contributions are only deductible
in the tax year they are actually made. For example, if you pledged $500 in
September but paid the charity just $200 by Dec. 31 of that same year, only
$200 of the pledged amount may qualify as tax-deductible for that tax year.
End-of-year donations by check or credit card usually qualify as tax-deductible
for that tax year, even though you may not pay the credit card bill or have
your bank account debited until after Dec. 31.

For more information, see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property.

Source: IRS

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Solving Tax Issues: Another Avenue

Probably every year new clients appear who have tax issues from various tax agencies. We usually acquire a power of attorney and step into the shoes of the taxpayer. There is a non-conventional way that taxpayers may get relief. The Taxpayer advocate service or (TAS). Here is what the IRS says about using that service:

1. The Taxpayer Advocate Service is your voice at the IRS.

2. TAS assistance is free and tailored to meet your needs.

3. You may be eligible for TAS help if you’ve tried to resolve your tax
problem through normal IRS channels and have gotten nowhere, or if you are
facing (or your business is facing) an immediate action from the IRS that will
adversely affect you.

4. The worst thing you can do is nothing at all!

5. TAS helps individual and business taxpayers whose tax problems are
causing financial difficulty, which could include the cost of hiring
professional representation, such as a tax attorney.

6. If you qualify for TAS help, you’ll be assigned one advocate who
will do everything possible to get your problem resolved.

7. There is at least one local Taxpayer Advocate office in every state,
the District of Columbia, and Puerto Rico. You can obtain the number of your
local Taxpayer Advocate from your local phone book, in Pub. 1546, Taxpayer
Advocate Service – Your Voice at the IRS and on the IRS website at
IRS.gov/advocate. You can also call TAS toll-free at 1-877-777-4778.

8. As a taxpayer, you have rights that the IRS must abide by when
working with you. Our tax toolkit website at www.TaxpayerAdvocate.irs.gov
can help you understand these rights.

9. TAS also handles tax problems that may have a broad impact on more
than just one taxpayer. You can report these “systemic” issues to TAS
through the Systemic Advocacy Management System at IRS.gov/advocate.

10. You can get updates on hot tax topics
by visiting the TAS YouTube channel at www.youtube.com/TASNTA
and the TAS Facebook page at www.facebook.com/YourVoiceAtIRS,
or by following TAS tweets at www.twitter.com/YourVoiceatIRS

Tax problems always create some level of anxiety. It’s good to know that you have another arrow in your quill.

Source: IRS

You May Be Able to Deduct the Cost of Working for a New Violent Psychopath

When I was a teen, I landed a job installing car stereos. It was the coolest job on earth because I was trained, paid well, and eventually had the best possible stereo system in my car at a wholesale cost. Never mind the fact that I was working for a “violent psychopath.”

If you are looking for a job, here are some tips:

1. To qualify for a deduction, your expenses must be spent on a job
search in your current occupation. You may not deduct expenses you incur while
looking for a job in a new occupation. So, if you are an engineer looking for a job as a nurse, forget the deduction. But, if you are an ER nurse looking for a job as a surgical nurse, you may have a deduction.

2. You can deduct employment and outplacement agency fees you pay while
looking for a job in your present occupation. If your employer pays you back in
a later year for employment agency fees, you must include the amount you
received in your gross income, up to the amount of your tax benefit in the
earlier year.

3. You can deduct amounts you spend for preparing and mailing copies of
your resume to prospective employers as long as you are looking for a new job
in your present occupation. This expense isn’t as costly as in previous generations since so many use E-mail to send resumes.

4. If you travel to look for a new job in your present occupation, you
may be able to deduct travel expenses to and from the area to which you
travelled. You can only deduct the travel expenses if the trip is primarily to
look for a new job. The amount of time you spend on personal activity unrelated
to your job search compared to the amount of time you spend looking for work is
important in determining whether the trip is primarily personal or is primarily
to look for a new job.

5. You cannot deduct your job search expenses if there was a
substantial break between the end of your last job and the time you begin
looking for a new one. This is a tough call. Consult your tax advisor.

6. You cannot deduct job search expenses if you are looking for a job
for the first time. If you are just starting out, ignore this article.

7. The amount of job search expenses that you can claim is limited. To
determine your deduction, use Schedule A, Itemized Deductions. Job search
expenses are claimed as a miscellaneous itemized deduction and the total of all
miscellaneous deductions must be more than two percent of your adjusted gross income.

8. When you do land a new job, don’t forget about the possible deduction for costs in relocating and moving.

As, always, each tax situation can be different. So, consult your tax advisor before making any decisions.

For more information about job search expenses,
see IRS Publication 529, Miscellaneous Deductions.

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Deadline Tax Filing Tips from the IRS

Back in the 1980’s I lived in the San Fernando Valley near the main post office. At about 9 pm on April 15th, I would walk my dog to the post office to watch the late tax filers. A line of cars always stretched around the corner and up the 405 Sherman Way freeway offramp up into the slow lane. But the best part were the anti-tax people protesting the existence of the income tax. They would be picketing in front of the post office telling drivers not to throw their returns into the large canvass bins manned by postal employees. What a circus, I loved it.

If you are one of those last minute people, here are some tips from the IRS:

1. File electronically Most taxpayers file electronically.
If you haven’t tried it, now is the time! The IRS has processed more than 1
billion individual tax returns safely and securely since the nationwide debut
of electronic filing in 1990. In fact, 112 million people — 77 percent of all
individual taxpayers — used IRS e-file last year.

2. Check the identification numbers Carefully check
identification numbers — usually Social Security numbers — for each person
listed. This includes you, your spouse, dependents and persons listed in
relation to claims for the Child and Dependent Care Credit or Earned Income Tax
Credit. Missing, incorrect or illegible Social Security numbers can delay or
reduce a tax refund.

3. Double-check your figures If you are filing a paper
return, double-check that you have correctly figured the refund or balance due.

4. Check the tax tables If you e-file, the software will do
this for you. If you are using Free File Fillable Forms or a paper return,
double-check that you used the right figure from the tax table for your filing
status.

5. Sign your form You must sign and date your return. Both
spouses must sign a joint return, even if only one had income. Anyone paid to
prepare a return must also sign it and enter their Preparer Tax Identification
Number.

6. Send your return to the right address If you are mailing
a return, find the correct mailing address at www.irs.gov.
Click the Individuals tab and the “Where to File” link under IRS Resources on
the left side.

7. Pay electronically Electronic payment options are
convenient, safe and secure methods for paying taxes. You can authorize an
electronic funds withdrawal, or use a credit or a debit card. For more
information on electronic payment options, visit www.irs.gov.

8. Follow instructions when mailing a payment People
sending a payment should make the check payable to the “United States Treasury”
and should enclose it with, but not attach it to, the tax return or the Form
1040-V, Payment Voucher, if used. The check should include the Social Security
number of the person listed first on the return, daytime phone number, the tax
year and the type of form filed.

9. File or request an extension to file on time By the
April 17 due date, you should either file a return or request an extension of
time to file. Remember, the extension of time to file is not an extension of
time to pay.

10. Visit IRS.gov Forms, publications and helpful
information on a variety of tax subjects are available at www.irs.gov.

If you hire a CPA to help you file, you don’t have to worry about these things. But, just like dancing, everything in taxes depends on timing. So, make sure you stay in step, or it can cost you penalties or delays. Discuss this with a tax professional before making any decisions.

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Serving as a Volunteer? You Don’t Have To Wait for Heaven to Collect Your Reward

Every weekend, my wife and I drive to Malibu and saddle up our horses. If you are passing by, you may do a double-take. Looking closer, you would realize that we are dressed in park ranger uniforms equipped with a first aid kit, GPS, and police radio. Our mission: to patrol the National and State Parks assisting hikers, equestrians, and mountain bikers. In other words, we are the eyes and ears of the licensed rangers and are allowed to write off the costs of doing these patrols as an unreimbursed volunteer charitable deduction. Our tax proof is not only the receipts and expenditures, but a report by the National Park Service that logs every minute of our volunteering. So, if the federal government (IRS) wants to pester us about the deduction, they can argue with the federal government (NPS).

Are you volunteering for schools? Houses of worship? Boy Scouts? Your good deeds will not go unrewarded. Here are some tips:

You can deduct 14 cents a mile for the endless driving you do for an organization
Did you donate baked cookies? Save the receipt, you can deduct the cost of the cookies.
What about the washing of your scout uniform? Deduct it.
Manditory conventions for the organization (my grandfather went to them for the Masons).

To deduct any of these, you must have proof that you paid for them and a letter from the organization authenticating them as performed for the organization.

Charitable and governmental organizations are in a financial crunch, and need your services to help meet the needs of the public. In our case, the volunteers of the Santa Monica Mountains federal and state parks, saved the parks over $1.3 million in 2009. However, when serving the organization, don’t forget to claim your just reward by deducting it on your tax return.

Discuss you personal situation with a tax professional before making any decisions.

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