California Schedule EO (565/568) – Pass Through Entity Ownership

Published on: September 16, 2011 | 562 Comments

Beginning with the 2011 taxable year, partnerships and limited liability companies (LLC) will use the proposed California Schedule EO, Pass-Through Entity Ownership, for reporting pass-through entity ownership interests in entities that file federal Form 1065 or that are disregarded. According to the proposed Schedule EO the taxpayer asked to identify by name, Secretary of State number, and Federal Employee Identification Number for all partnerships (including LLCs taxable as partnerships), in which the taxpayer holds a partial interest and for disregarded entities in which the taxpayer has full ownership. In addition, the taxpayer is asked to indicate which entities received California source income, and to provide the profit and loss sharing percentages used to compute the amount of income received by the owner.

Employee or Independent contractor ?

Published on: September 12, 2011 | 597 Comments

On a recent court decision the tax court ruled that deputy that provide off duty services to other entities was independent contractor and not employee.

The entity that hired the deputy reported the earnings of the deputy on Form 1099 – Misc. The taxpayer reported the income from the job on his tax return but did not pay self-employment tax.

The taxpayer argued that he was an employee and was not subject to self-employment tax.

The IRS disagreed and the case ended up at Tax court.

The court looked at three aspects of the service:

  1. Service was performed and benefited directly third party entity and not the police department.
  2. The police department had no ability to hire or fire the deputy and the hire decision was made purely by the entity.

3. The source and method of payment to the deputy for this off duty work was purely up to the hiring entity.

4. The amount paid to the deputy was not reported on w-2

Based on these facts the court held that the deputy was independent contractor with respect to the off duty position and therefore the deputy is subject to self-employment tax on income earned from these job.

California Capital Gain Tax Rate

Published on: | 303 Comments

There is a concern that capital gains rates may increase in 2010 and go back to 10% and 15%. At the present, the 0% and the 15% capital gains are set to expire on December 31, 2010 and if congress does not extend the current capital gains rates, they will increase to 10% and 15% respectively. In order to avoid increase in capital gains tax you may consider disposing some of your appreciated investments now rather than waiting until next year.

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California Proposition 25

Published on: | 578 Comments

10/05/2010 In order for California to pass a budget, there needs to be an affirmative vote of two-thirds of the legislators in both the General Assembly and Senate. The effect of this is three fold. First, it has provided the minority party, currently Republicans, clout in disproportion to their representation in the legislature. Second, it has facilitated Republicans blocking new taxes. Third, even in good times, passing a budget is a difficult proposition and the state has undergone periods of emergency with no budget to authorize certain spending. Backed by teachers and other groups, California Proposition 25 is a measure to reduce the vote needed to pass a state budget from two-thirds to a simple majority. As the legislature is currently configured, the Democrats have a majority in both chambers. Supporters are saying that it will not lead to new taxes; especially, an escalation of real estate taxes and corporate taxes. Opponents say taxes will go up with more fraud, waste and abuse in government. What do you think?

Payroll Tax Forgiveness

Published on: September 11, 2011 | 655 Comments

 The P.L. 111-147, the Hiring Incentives to Restore Employment Act (HIRE) of 2010 allow payroll tax forgiveness to qualified employers who hire unemployed workers after February 3, 2010, and before January 1, 2011. The employer may qualify for a 6.2% payroll tax reduction. That means the employer receive exemption from paying their share of social security taxes or railroad retirement tax (Tier I) on wages paid to these workers after March 18, 2010 and before January 1, 2011. The employers would still need to withhold the employee’s 6.2% share of social security taxes, and employee’s share of Medicare taxes, as well as income taxes. The reduced tax withholding will have no effect on the employee’s future social security benefits.

The current cut allows employee to pay 4.2% instead of 6.2% on the first $106,800 of wages into social security.  President Obama wants to continue the break that is set to expire at the end of the year, and reducing the employee contribution from 4.2% to 3.1%. In addition, the president want to cut the payroll tax, that businesses are paying, in half from 6.2% to 3.1% – for the first 5 million in wages.