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You'll probably be reviewing your investment portfolio
at year-end for tax and rebalancing purposes. As part
of your review, check to be certain you are holding
your specific investments in the right type of account.
Your goal is to hold investments that produce ordinary
taxable income in tax-deferred accounts and to hold
those that produce tax-free or tax-favored income in
your regular taxable accounts.
Consider this situation. If you hold tax-free municipal
bonds in a tax-deferred retirement account, you are
"sheltering" interest income from taxes that never
would be taxed in the first place. Withdrawals from the
retirement account will be taxed as ordinary income at
rates up to 35%, and that includes interest from the
municipal bonds. The result is that normally tax-
exempt
earnings eventually become subject to income tax..
Another example: Long-term capital gains are taxed at
lower rates than interest income. So investments
generating interest might be better held in retirement
accounts, while investments generating capital gains
might be better held in taxable accounts. Remember,
withdrawals from retirement accounts (other than Roth
IRAs) are taxed at ordinary income rates even if the
income comes from long-term capital gains.
Tax-deferred retirement plans should outperform an investment account that is exposed to annual taxation. But if you're not careful where you hold specific types of investments, you could end up with less rather than more income.. |
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The Franchise Tax Board has recently been
scrutinizing car and truck expenses on Schedule C
(Profit or Loss from Business or Profession). What
they have found is that there is an 80% discrepancy in
reporting.
If you are able to deduct your auto or truck for business, you should maintain a mileage log book. The log book should record the date, the beginning odometer reading, the ending odometer reading and who you went to visit. A diary that is kept contemporaneously is the best evidence. You may deduct your auto and truck expenses using one of 2 methods. You may use the mileage rate which takes your business mileage times the annual mileage rate (50.5 cents for 2008), or you may take the business percentage of your actual expenses. Since the Franchise Tax Board has had such great success finding discrepancies in this area, I urge you to make sure that your auto and truck records are in tip top shape. The Franchise Tax Board is also beginning an audit
project regarding alimony. In recent returns that were
examined, they discovered a 40% adjustment rate in
alimony income or alimony deductions. This means
that only 60% of the alimony reported was correctly
reported. Since the alimony that is paid is a deduction
to the payer, chances are that the payor spouse will
include
it on their return. If you are the recipient, alimony is
includable in your taxable income.
Child support payments are not treated like alimony. Child support payments are not deductible by the payor or income to the recipient. The State Board of Equalization wants to remind
taxpayers that the in-state voluntary disclosure
program to report sales or use tax will end on
December 31, 2007. Use tax is basically sales tax on
purchases that you were not taxed on. Generally,
these are sales that are made out of the state of
California. If you made any purchases out of
California (or online) and did not pay sales tax, you are
obligated to pay California sales tax on those
purchases. For more information, visit the State
Board of Equalization website at http://www.boe.ca.gov.
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The Tax Tip this week deals with Employer
Identification Numbers. You may think that this is
something that may not affect you, but you may have a
household employee that you will need one for.
The Business Tip of the Month asks "Should you choose a friend to be your business partner"? It's a risky proposition and you may want to review this article if it's something you are considering. The Financial Tip of the Month deals with
those financial projects that we all know we have to
take care of, but never get around to. There is a nice
little reminder list of things that need to be
done.
The Fraud Alert this month has to do with the "Mystery Shopper" scam that is going around. Don't be caught in this one! |
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Photos © Bigstockphotos.com, istockphoto.com
Sincerely,
Linda Heineman
Linda L. Heineman, CPA, CITP
email:
linda@llhcpa.com
phone:
626-577-0979
web:
http://llhcpa.com
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