Tax Traps For Businesses’ Failure To File A Return

Do you have an existing business or were issued a 1099 but you decided to ignore it and not report or file any tax returns?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

The Franchise Tax Board (FTB) sent letters to over 41,000 California businesses that have not filed their 2015 CA income tax return. Business non-filers have 30 days to file a tax return or show why they are not required to file.

If you disregard the letter you will be assessed penalties, fees and interest based on income and other information reported to the FTB. The FTB receives information from the IRS, EDD, BOE, financial institutions, cities, and other businesses and matches the information against its own tax record to identify potential non-filer corporations, LLCS & sole proprietors.

The FTB may also estimate your income if you hold a license. They will base it on the average income of someone with that license. For example, if you have a real estate license, the FTB will assess tax based on what they believe a real estate sales person earns. That’s messed up, right?

For first-time non-filers, the FTB will send you a “request to file” letter. If you don’t respond within 30 days, the FTB will sent a notice of proposed assessment with tax, a late filing penalty and interest but no demand penalty or filing enforcement fee.

For repeat non-filers, the FTB will send you a “demand to file” letter. If you don’t respond within 30 days, the FTB will sent a notice of proposed assessment with tax, a late filing penalty, demand penalty and a filing enforcement fee.

Now let me tell you this, all these penalties and interest, they quickly add up. So what do you need to do? If you received one of these notices, you can request more time to respond to get more information by calling 866-204-7902 or go to FTB’S website at www.ftb.gov.

Normally, most of these penalties are available for reasonable cause exemption so you can waive the penalties. However, reasonable cause exemption is almost impossible to get in California since California does not conform to the IRS first-time penalty abatement program.

Also, the FTB also said that just because you do not understand that you have a California filing requirement is not a ground for reasonable cause exemption.

So here’s my tax tip to you, if ever you receive an FTB letter, please do not ignore the letter. It would not magically disappear or go away. Trust me on this! So make sure you address it ASAP in order to minimize any potential interest and penalties.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

If I Buy A Second Home in Nevada, Can I Claim Nevada As My Resident State

Here’s a tax question I got from one of my clients: “I’m paying almost 10% CA income tax. If I buy a second home in Nevada, can I claim Nevada as my resident state?”

Great question!

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

You know what she’s trying to do right? She wants to avoid paying the CA tax and take advantage of Nevada’s “0” state tax! I don’t blame her! So, what’s the answer to her question? Well, I will answer it with my two favorite words: “it depends”. Here are few things you need to consider if you want to be a resident of a tax-free state:

Document it – you need to show that you spend more than half a year in the state that you consider your permanent home. You need to keep a diary or a log showing the number of days you spend in each state.

Prove it – in order to prove your new state residency, you need to do the following: change your driver’s license & car registration, register to vote, apply for a library card, find a new doctor in the new area, file a Declaration of Domicile (intent to live), open a local bank account, shop locally, get a hunting or fishing license, cut ties with the old resident state.

There you have it. So try to document and prove it if you want to become a resident of a tax-free state.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Tax Strategies When Renting Out Your Home During Summertime

Are you planning to rent out your home this summer? You see, summertime is the time of the year when people usually want to rent out their property. But before you jump and do it, there are some tax issues that you need to be aware of.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Here are some tax issues you need to be aware of when you rent out your primary or vacation home:

1. If you use your vacation home solely for personal use, then it’s treated like a second home and the mortgage interest, real estate taxes, points & private mortgage insurance (PMI) will be tax deductible.

2. Now if you decide to rent it out, it becomes a little bit tricky. Here are 3 tax scenarios that can play out once you start renting it out:

a. Tax-Free Income Property
The first one is called tax-free income property. If you rented the vacation home for 14 days or less during the year, you don’t have to report the income. You get tax-free income! You can generally deduct mortgage interest, real estate taxes, points & private mortgage insurance but you can’t deduct any other rental expenses.

b. Rental property
The second one is called rental property. If you use the vacation home personally for LESS than the greater of 14 days or 10% of the time the home is rented, all rental expenses are deductible.

Example: You stayed in your vacation home 18 days last year. It was rented at fair market value for 190 days. In this example, your personal use was less than the 10% limit (19 days). Therefore, your rental deductions are tax deductible.
c. “Expenses claimed limited to income” property
The third one is called “Expenses claimed limited to income” property. If you use the property personally for MORE than the greater of 14 days or 10% of the number of days it’s rented, the rules change. Your rental deductions are limited to the amount of your rental income. However, the personal-use portion of taxes and mortgage are still tax deductible on your return.

Example: You stayed in your vacation home 20 days last year. It was rented at fair market value for 190 days. In this example, your personal use exceeded the 10% limit (19 days). Therefore, your rental deductions are limited to the rental income you received.
TAX STRATEGY – If you rent your home to your business for 14 days or less, your business can deduct the payment as business expense. However, the rental income you received will be tax-free! Best of both worlds!

There you have it. Make sure you review and listen to this video blog to make sure you understand the tax issues before renting your property out. If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How To Take Advantage Of The Roth IRA Backdoor Contribution

Are you making more than the income limit to allow you to fund your Roth IRA? And after applying various strategies to lower your income, you are still above the income limit. So what do you do?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

When all things fail, you can take advantage of the Roth IRA backdoor contribution. Here’s how it works:

1. You can make a NON-deductible traditional IRA contribution
2. Then convert it to a Roth IRA
3. If you don’t have any other money in an existing traditional IRA, you will only pay the taxes on the earnings when you convert

So this is like a tax loophole for the rich if you are making too money and you still want to fund your Roth IRA. However, here’s a tax trap you need to be aware of though – if you have money in an existing traditional IRA, your tax liability will be based on the ratio of nondeductible contributions to the total balance in all of your traditional IRAs. So watch out! If you have a sizeable 401-K account that was transferred to a traditional IRA, you probably have to think twice if you want to convert. However, if paying tax is a non-issue, and you’re looking at the long-term plan or goal – the big picture!, I would recommend that you convert the whole traditional IRA account into a Roth. Why? Because after holding it for 5 years and when you turn 59 ½, the contributions and earnings will all be tax-free!

So review your account and make sure to take advantage of the Roth IRA backdoor contribution.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

5 Ways To Qualify for Roth IRA Contributions

Would like to maximize your Roth IRA contributions? However, you read or heard that there are income limits. So what do you do?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

If you want to put in $5,500 ($6,500 if you’re over 50) in your Roth IRA for 2017, your income must be less than $118,000 if you’re single or $186,000 if you’re married. Here are 5 ways to reduce your income:

1. Contribute to your employer’s retirement plan
You can put in up to $18,000 or $24,000 if you’re over 50.

2. Take advantage of your company’s flexible spending account (FSA)
If your employer is offering a health care and/or dependent-care flexing spending account, please contribute the maximum amount. For health care FSA, you can put in $2,600 and for dependent care you can put in $5,000.

3. Contribute to a health savings account
If you have a high-deductible health insurance policy, you can contribute up to $3,400 for self-only coverage or $6,750 for family coverage, plus a $1,000 catch-up contribution if you’re 55 or older.

4. Reduce business income. Review your expenses to make sure you did not overlook any additional deductions. Also, you can fund a business retirement plans to further reduce your business income.

5. Sell stocks for a loss. You can report up to $3,000 of capital loss to offset your income.

So those are five ways to make sure that you reduce your income so you can qualify for a Roth IRA contributions.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Do You Take A Lump Sum or Annuity Payments For Your Powerball Winnings?

Imagine for a moment that you won the Powerball! Congratulations! When you are about to claim your winnings, CA lottery asked: Do you want a lump sum or an installment payment over 30 years? What do you do?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

With a lump-sum payment, you will need to pay the entire tax right away. With an annuity or installment payment, you will be taxed as you receive your payments every year. Here are some factors to consider in choosing your options:

Lump-sum

1. If you are good with money management and have smart money habits.
2. If you want to have control of the entire winnings and wants flexibility.
3. If you think tax rate is going up.
4. If you can invest the money outside and earn a modest 3-4% return, then you will be way ahead investing a lump-sum payment compared to an annuity.

Annuity or installment payments

1. If you are a big-time spender and you are trying to protect yourself from YOU. Because the annuity is like a yearly guaranteed payments for the next 30 years.
2. If you think tax rate is going down.
3. You are not getting taxed on your investment income, because Powerball is investing your money.
4. If you die prematurely, the future unpaid payments become part of your estate. You can pay the estate tax by buying a life insurance policy to cover the tax bill or Powerball can convert the annuity into a cash lump sum.

So what’s the LowerMyTaxNow strategy? Looking at the factors, I would consider a hybrid approach. I will take the lump sum payment invest it in stocks, bonds, real estate, and in my own annuity or guaranteed payments. That way, I have the best of both worlds!

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Should I Include My Kid’s Name On My Home

I got this tax question from a client recently: “Should I include my kid’s’s name on my home?”

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

You see, you might think it’s a good idea to include your kid’s name on the title of your home in case something happens to you. However, that might be a bad idea. Here are five reasons why:

No gain exemption
You are allowed to exclude up to $250,000 of gain on the sale of your home ($500,000 if you are married). However, the exclusion is only available if you owned and used it for at least two out of the last five years. So if your kid does not live in your home for that time period, the portion of his/her gain will be fully taxable.

Home equity risk
If your kid got title to your home as a full or partial owner, a creditor may file a lien on the property for any of your kid’s debts. Worse, your home could be lost if your kid is involve in an accident or a lawsuit.

No control
If you transfer the full title to your kid, your kid will now have 100% control re: your home. If your kid decides to sell the property or take out a loan against your home, you cannot do anything about it.

Medicaid issues
Under some scenarios, if you gift your home to your kid, it could be considered a gift for Medicaid purposes. That means, if you kid subsequently sells your home, you might not qualify for Medicaid benefits in the event of a major long-term health problems.

Gift tax return requirement
If your kid received more than $14,000 of equity in your home as a gift, you need to file a gift tax return. However, regarding the gift tax payable, you can use up your $5.5 million lifetime exemption in order not to pay any gift taxes.

So the question right now is: “What is the LowerMyTaxNow strategy?” If the purpose of the title transfer is for your kid to easily get the home at your death or so your kid can manage your affairs, then I would recommend setting up a living trust, along with powers of attorney, so your kid can manage your financial affairs.

If the reason is to help your kid buy his or her first home, a better way is to lend your kid the money with an IRS-approved interest rate (low and reasonable), and set up a program to give annual gifts in the form of principal forgiveness.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How To Deduct An Uncollectible Loan

Have you ever loaned money to a family member or a friend that did not pay you back? Do you want to know how you can deduct it for tax purposes?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are four things you need to do in order to deduct the uncollectible loan:

Put it in writing
Treat the loan as if you are lending it to a third-party. For IRS purposes, a valid loan agreement is important, otherwise, the IRS could argue that there was no loan at all — that the money you gave was really a gift.

Set an IRS-approved interest rate
If you loaned money to a family member and charge no interest, you might have some unfavorable tax issues. The best way is to set a rate that is based on the IRS-approved applicable federal rate (AFR). The IRS rates are published in the Internal Revenue Bulletins and can be found at the IRS website www.irs.gov.

Keep all correspondence
Make sure you keep all the emails and letters re: the collection follow-up so you can show that you are putting in the effort to get your money back. You would need this as a support when you file your return.

Issue a 1099-COD (Cancellation of Debt)
If you want a bullet-proof tax support, then issue a 1099-COD Cancellation of debt. That way you can deduct the money loaned as uncollectible debt and your borrower needs to report it as income. It will be considered a short-term capital loss for tax purposes.

So those are the 4 things you need to do: put it in writing, set an IRS-approved interest rate keep all correspondence and issue a 1099-COD (Cancellation of Debt) so you can deduct the uncollectible loan.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Top 3 Reasons Why Trump Won’t Release His Returns

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Have you ever wondered why President Trump does not want to release his tax returns. He claims that you, “don’t care at all” even though he is the first president in more than 40 years not to release his returns. So you might be thinking, what gives? That is a great question! And on this blog, I will discuss the top three reasons why he won’t release his returns. Ready?

1. Paid “zero” taxes

He reported a billion dollar loss in the 1990s that could have offset all his income for up to 18 years. Being a real estate investor, it gave him the opportunity to apply powerful tax breaks such as depreciation and like-kind exchanges so he can delay, minimize or zero out his taxes. He proudly declared that not paying taxes makes him smart.

2. Potential conflict of interest

With more than 500 businesses according to his financial disclosure form, it will be hard to zero in if there is a conflict of interest in regards to his own financial interest versus the nation’s’ interest without reviewing his tax returns and the supporting documentations. Trump’s tax returns might reveal how much he owes to foreign investors like Russia — and how much his connection undermines American national interests.

3. Proposed tax plan benefit

In reviewing his proposed tax plan, you would start to wonder, how much will he personally benefit? There are three parts of his tax plan that would be a financial windfall for Trump. Here goes:

a. Eliminate alternative minimum tax (AMT) – this prevents rich people from taking advantage of excessive tax breaks. Without the AMT, Trump would have paid just a 3% tax rate in 2005, instead he paid $31 million in AMT taxes.
b. Business tax rate will drop from 35% to 15%. This is called the “Trump Loophole” since he will save millions of dollars annually from his 500+ business entities.
c. Eliminate estate tax permanently – that means his family and heirs will be billion dollars richer if the estate tax is eliminated.

There you have it. Those are the top three reasons why I think President Trump would not release his tax returns.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How To Know It’s Really The IRS Knocking On Your Door

Have you ever experienced an IRS personnel knocking on your door? That would be one of the most stressful events that you will ever experience. But before you freak out, you need to learn these few things in order not to get scammed.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
For the most part, the IRS will usually contact you through mail delivered by the United States Postal Service.
However, there are special situations in which the IRS will come to a home or business. Such as:
1. Overdue tax bill
2. Get a late tax return
3. Late payroll tax payment
4. Tour a business due to an audit – they will usually call taxpayers to set-up appointments but not without notifying you first.
5. Criminal investigations – they will visit you unannounced while conducting an investigation.

If an IRS rep visits you, he or she will always provide two forms of official credentials:
1. Pocket commission
2. HSPD-12 card

HSPD-12 is a government-wide standard for secure and reliable forms of identification for Federal employees and contractors. You have the right to see these credentials.

When you experience these situations, please keep in mind that the IRS does NOT:

1. Demand immediate payment. They will first mail you a bill that is payable only to US Treasury.
2. Demand that you pay taxes without the opportunity to question or appeal the tax owed. You should also be advised of your rights as a taxpayer.
3. Threaten to bring in law-enforcements to have you arrested for not paying.
4. Revoke your driver’s license, business licenses, or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes.

There you have it. So next time, when IRS knocks on your door, you would be able to avoid getting scammed.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.