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Tax Tips Newsletter
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January 2010 - Vol 5, Issue 1
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Greetings!
LH head shot Orange

Happy New Year! I hope that 2010 will be a healthy and prosperous year for you.

If I prepare your individual income tax returns, the organizers have been mailed and you should be receiving them shortly.

For those businesses that are California employers, there is a New Jobs Credit that is available if you had new hires in 2009. To see if your business qualifies, check the following website. Franchise Tax Board New Jobs Credit

Note that the credit is capped at $400 million, so as soon as that limit is reached the credit is gone. It's a big incentive to file your business returns early.

I appreciate your business and referrals. It's always a pleasure to serve you.

Doctor
While many of us were wrapping Christmas gifts or planning holiday gatherings this past Christmas Eve, the Senate passed an $871 billion health care reform bill by a vote of 60 to 39. The "Patient Protection and Affordable Care Act of 2009" would expand health insurance coverage to 94% of Americans and pay for it with billions of dollars in new taxes and fees.

The House passed its version of health reform back in early November. Its bill, the "Affordable Health Care for America Act," also extends coverage and pays for it with a different collection of taxes and fees from those in the Senate bill.

Both bills are massive and contain provisions that would affect individuals, businesses, and the medical and insurance industries. A conference of members from the House and Senate will be held in January to work out the differences between the two bills and fashion one piece of legislation. When that bill comes out of conference, it must be passed by the House of Representatives and the Senate before it can be sent to the President to be signed into law.

Among the tax provisions in the Senate bill:

* A 40% excise tax on employer-provided health insurance plans with annual premiums over $8,500 for individuals and $23,000 for families. Somewhat higher limit for retirees and those in high-risk professions.

* A penalty excise tax on individuals who fail to maintain health insurance coverage, starting at $95 in 2014 and increasing to $750 by 2016.

Among the tax provisions in the House bill:

* A 5.4% surtax on single taxpayers with incomes over $500,000 and joint filers with incomes over $1 million.

* An additional tax levied on those who fail to obtain health insurance coverage of either 2.5% of their adjusted income or the average cost of insurance premiums available on the new health care exchange. Exemptions provided for lower-income individuals.

Both the Senate and the House bills provide individuals and businesses with tax credits to help with the costs of insurance. It's important to note that the provisions in the final bill may differ significantly from those in either of the current bills, so as you begin your tax planning for 2010, remember that health reform and the taxes connected with it are still a work in progress, not a final law.
Tax Coffer
Officially, the estate tax has been repealed, but only for 2010. That's due to a provision in a 2001 law that gradually reduced the estate tax rates and increased the exemption amount, setting the tax to expire completely in 2010. According to that law, the estate tax is scheduled to be reinstated in 2011 at its pre-2001 levels.

Congress expected to deal with the estate tax by the end of 2009, and the House did in fact pass a permanent extension of the tax at 2009 levels (with a 45% top rate and a $3.5 million exemption). The Senate, however, was focused on health care reform and ran out of time, leaving the estate tax issue for 2010.

Now, the expectation is that the Senate will deal with the estate tax in January, reinstating it retroactive to the first of the year. However, there is still no consensus on what the law should be and no certainty that a bill will pass quickly.

Stay tuned. Though Congress may not find it easy to reach an agreement on the estate tax, you can be sure they are not likely to have it disappear even for one year.
The Employment Development Department has stated that a managing member of an LLC that is performing services for the LLC is an employee for California income and payroll tax purposes. The EDD states that, in this case, the member should receive a W-2 reporting:

  • Wages subject to California Personal Income Tax (PIT wages);
  • State income tax withholding;
  • Wages subject to California State Disability Insurance (SDI);
  • State Disability Insurance (SDI) withholding

In addition, the LLC must include these wages in the computation of state unemployment tax.

The member receives no Federal W-2 and the income taxable to the worker is reported on the Federal K-1. The income is subject to self-employment tax based on IRS proposed regulations.

Per EDD requirements, guaranteed payments made by an LLC taxable as a partnership to nonmanaging members for services are reported on a W-2 as California state wages, but are not reported on a W-2 as Federal wages.

If you have any questions regarding these rules, please call or e-mail me.
Golden Egg
The Tax Tip this week deals with what to expect on your 2009 return.

The Business Tip of the Month deals with getting an SBA loan.

The Financial Tip of the Month gives some tips on organizing your finances.

The Fraud Alert has to do with rapid refund loans.

Photos © Bigstockphotos.com, istockphoto.com, Felix Orona

Sincerely,
Linda Heineman
Linda L. Heineman, CPA, CITP

phone: 626-577-0979
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