Tax Lawyer Blog | A Blog written by the Tax Attorneys for Individuals and Businesses

Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

October 2016 Tax Newsletter

Tax Calendar

October 17
Deadline for filing your 2015 individual tax return if you requested an automatic six-month extension from the April deadline.

October 17

If you converted a regular IRA to a Roth IRA in 2015 and now want to switch back to a regular IRA, this is the deadline to do so without penalty.

October 17

This is the last day to fund your Keogh or SEP or other retirement plans if you requested an extension of time to file your income tax return.

Plan Ahead for Year-End Business Tax Savings

As the end of the year approaches, turn your attention to ways you can reduce your 2016 tax liability. Here are some suggestions:

  1. Business equipment. Take advantage of end-of-year sales for business equipment. In 2016, the maximum Section 179 deduction of $500,000 and 50% bonus depreciation are generally available for qualified property placed in service anytime during the year. Be aware that special limits apply to vehicles.
  2. Business trips. When you travel to wrap up year-end business deals, you can write off your expenses – including airfare, lodging, and 50% of the cost of meals – if the primary motive of the trip is business-related. Costs attributable to personal side trips are nondeductible. If you travel by car, deduct actual business-related auto costs or a flat rate of 54 cents per mile (plus tolls and parking fees).
  3. Entertainment and meals. Generally, you can deduct 50% of the cost of entertainment and meals that precede or follow a “substantial business discussion.” For example, you might treat a client to dinner and drinks after completing a contract earlier in the day. In this case, you can include 50% of the expenses for the business purpose of entertainment.
  4. Company outings. Generally, deductions for business entertainment and meals are limited to 50% of the cost. However, if you throw a company-wide holiday party before year-end, you might be able to deduct 100% of the cost when you meet certain requirements, such as inviting your entire staff.
  5. Hire your child. If you hire your child, reasonable wages paid for actual services rendered are deductible, the same as wages paid to other employees. The wages will be taxable to your child at your child's tax rate, which may be lower than your rate or that of your business. Also, if your child is under the age of 18 years, then he or she is exempt from paying social security taxes.
  6. Job credits. When your business hires workers from certain “targeted groups,” such as veterans and food stamp recipients, you may be able to claim the Work Opportunity Tax Credit. The maximum credit is generally $2,400 per qualified worker.
  7. Give to Charity. Generally, charitable contributions typically 'flow through' a business and are claimed as deductions on the individual tax returns of the shareholders of the company. This is true whether you are running a sole proprietorship, partnership, limited liability company, or S corporation.
  8. Fully Utilize Pensions. Did you know there are tax incentives for certain retirement plans? If you own a business of any size, you may benefit greatly in multiple ways by setting up a retirement plan. Many plans require creation before the end of 2016, but many also allow funding up to the time of filing the tax return. This includes the tax filing extension, which is ¾ of the way into the year of 2017 and even cash basis taxpayers, which otherwise would have to make the payment by 12/31/16. Moskowitz LLP will do all of the calculations to show you the amounts you can put away in each plan and explain the options of each plan.
    Individual tax deductions range from small amounts up to hundreds of thousands of dollars per year. Unlike other investments where earnings are taxed every year, the earnings in a retirement account are not taxed while they remain in the retirement account.
    Many different types of investments are allowable through a retirement account. Retirement accounts also enjoy asset protection via the federal government; namely, if you file bankruptcy, you may assets, a pension is considered an “exempt” asset and you are entitled to keep a 100% of it while discharging your dischargeable debts. This advantage may give you the opportunity to settle the judgment for a tiny fraction of its award and avoid the bankruptcy altogether.
    Example: If you are in the top federal and state tax bracket, approximately half of your income is taxed. If you made a $100,000 pension contribution in 2017, you would save $50,000 in 2016 taxes. Half of your pension contribution would be paid for with 2016 tax savings and you would have ¾ of a year in 2017 to fund the other half. Why pay those taxes when you can put the money away for your retirement and have it grow with tax free earnings!
    Please see our post regarding Retirement Plans for Small Business Owners and Solo Practitioners for more information and consider implementing a plan before the end of the year.

New Procedure for 60-Day Rollover Errors

Did you inadvertently miss the 60-day time limit for making an IRA or retirement plan rollover? You may be able to avoid taxes and potential penalties by notifying your account trustee with a "self-certification."

When you take a distribution from your IRA or qualified plan with the intention of depositing it, or “rolling it over,” into another IRA or qualified plan, the 60-day rule says you're required to complete the rollover within 60 days of receiving the distribution. In the past, when you missed the deadline, you generally had to request relief from the IRS. That meant paying a fee and going through a process to obtain a written statement waiving the rule.

Now, the IRS says that in some cases you can “self-certify” by submitting a written letter to your financial institution or trustee explaining why you missed the 60-day deadline. Your error must be one of eleven allowable reasons. Contact Moskowitz LLP for more information regarding this new procedure.

Tax Relief for Louisiana Storm Victims

Victims of the August storms and floods in Louisiana have until January 17, 2017, to file individual and business federal tax returns with due dates on or after August 11, 2016. Taxpayers can also choose to claim casualty losses on current or prior-year federal income tax returns in order to obtain an earlier refund. Contact Moskowitz LLP for assistance filing your return.

Charitable Private Foundations

Giving to charity can be part of your tax planning. If you have the means, you can even create your own Private Charitable Foundation to carry out your charitable wishes. The California Attorney General's Guide for Charities advises that California common law defines "chartiable purpose" very broadly to include relief of poverty, advancement of education or religion, promotion of health, governmental or municipal purposes, and other purposes that are beneficial to the community. Federal and California tax laws define charitable purposes more specfically for exemption from income tax. Federal and state laws have been enacted to encourage the making of charitable gifts and to facilitate the operation of charitable organizations. As a result, certain benefits and privileges are conferred on charities that are not available to for-profit businesses.

However, for those involved with charitable private foundations because there are certain tax advantages involved, it is very important to properly maintain the organization with respect to donations, self-interests, mandatory distrubitions, tax and state filings, and otherwise complying with the requirements of the law because the charity and its founders are under much greater scrutiny from the taxing authorities. This is generally not a problem and seen as rountine within the industry.

However, for those who are not properly advised or fail to follow best practices with regards to tax and procedural guidelines for operating a charitable foundation, there are severe punishments that may be imposed. Recently, in San Jose, a CPA was charged (and has since pled) to tax evasion charges resulting from his personal use of his charitable private foundation. In addition, it turns out that this CPA had advised other California residents on Charitable Private Foundations and even established and maintained them. These individuals, his clients,have a high likelyhood to be subject to further investigation by the State Franchise Tax Board and Internal Revenue Service given their relationship to this CPA. See here for more resources and information.

California Employment Tax Prosecution - Hotel renovations company under fire for exploiting its workers

Employment tax violations are often accompanied by a host of other charges. Nathan and Sarah Moore of NRM Renovations, Inc. (NRM) got a taste of this when 11 felony charges were filed against them, including payroll tax fraud, workers’ compensation fraud, grand theft of labor, and other related labor code and insurance law violations charges.

The Trigger

Nathan and Sarah Moore’s construction company was initially investigated in June 2015 by the U.S. Department of Labor and the state Department of Industrial Relations following numerous complaints for NRM’s failure to pay its workers adequate wages for doing hotel renovations. The complaints were forwarded to the District Attorney’s office, which initiated a thorough investigation of suspected labor violations with the California Department of Industrial Relations, California Department of Insurance, and Employment and Development Department.

Multiple Charges

In addition to owing more than $30,000 in back wages to employees, the Moores were found to have also underpaid workers’ compensation insurance premiums (to the tune of around $250,000) and owed payroll taxes on one million dollars’ worth of wages. Charges were brought against them for:

  • Grand Theft of Labor, under Penal Code §487 (for taking, without compensation, the labor or property of another valued at more than $950)
  • Workers’ Compensation Fraud, under Insurance Code §11760(a) and Insurance Code §11880(a) (for making fraudulent statements material to the determination of workers’ compensation insurance premiums)
  • Unemployment Insurance (UI) Code Violations, under §2108 (for willful failure to pay unemployment and disability insurance contributions), §2177.5 (for willful failure to file a return) and §2118.5 (for willful failure to account for and pay over taxes)

The Moores were also charged with an Aggravated White Collar Crime Enhancement under Penal Code §186.11(a)(3) (for engaging in a pattern of felony conduct which results in the loss by another person or entity of more than $100,000).

The Authorities Have No Tolerance for Wage Theft

NRM apparently had a good reputation before the employee complaints were made. It was recognized by more than one organization for its excellent construction management and its clientele included the Hilton, Marriott and Wyndam hotel groups. The company had no history of citations or disciplinary actions since it received its contracting license in 2012. However, once the wage complaints were made and the multi-agency investigation commenced, the charges were swift and harsh.

Financial Crimes Defense

The attorneys at Moskowitz, LLP provide top quality criminal and civil representation before the Department of Justice, State of California, and regulatory agencies. In addition to providing aggressive defense services, our extensive experience enables us to advise our clients on how to prevent white collar financial crimes from developing in the first place. Call us today for a consultation.