December, 2006

This is our last monthly newsletter you’ll receive in 2006, so we want to remind you of a few things:

Get Ready for 1099s

Prepare to issue 1099s for contractors and W-2’s for employees next month (our most recent issue of the paid monthly newsletter is all about 1099s). For contractors, you’ll need to send people W-9’s to ask them to tell you what their tax ID# is, and if they’re a corporation or not. You can download the W-9 from the IRS site at: You generally don’t have to issue 1099s to corporations (except to lawyers—I guess they have a bad lobby!) The 1099s should be postmarked to the recipients by January 31st 2007 for tax year 2006 payments. You’ll send a copy to the Social Security Administration postmarked by February 28th, 2007. Hopefully you have a payroll service to issue the W-2’s.

Presentation by Andy in January ’07

Andy is giving a “Tax Update by the Tax Buddha” for the Emeryville Chamber of Commerce the morning of January 11th, 2007, a Thursday, from 8-9:15 am, with Q & A after that. For more info, go to: and register. Andy will be talking about changes to the law as well as reviewing some important information you’ll need to know for both 2006 and 2007 tax years. Plus there will be coffee!

“Buy a Truck,” or Don’t?

There is a temptation to ‘buy a truck’ at year end to increase your Section 179 deduction for 2006. If you need a new truck, or some other capital equipment anyway (like a computer, or more goats), go ahead. If you’re just trying to lower your taxes for 2006, remember you have to pay for that truck eventually. If it doesn’t make business sense, don’t let the tax “tail” wag the business decision “dog.” If you’re planning on trying to get a business loan in 2007, maybe you want to consider paying a little more tax in 2006 to show more income. This is a “planning opportunity” rather than a time to panic.

Estimated Tax Payments, pay State in December?

Often people pay their 4th estimated STATE tax payment in December because you can often deduct state taxes on your federal return. Payments of state tax are ‘removed’ for AMT purposes, so if you’re in the upper brackets, you may not get the benefit. You might as well wait until January 15th for the fourth FEDERAL estimated payment. No benefit to sending this in early.

The best tax planning is based on knowing what will happen to your income and your business next year. If you’re going to have some dramatic increase or decrease to your income next year, be sure to contact us to see if we can help minimize the total tax over the two years.

There’s still time to incorporate or form an LLC with a start date of 1/1/07 if you want to have the entire year as an entity, but it does take some time, so be sure to contact us if you’re so inclined. There will be a small “expediting fee” from California—we anticipate about $50 or so on top of the ‘normal’ fees.

Holiday parties/Gifts/Bonuses

If your company has a holiday party for substantially all the employees and/or clients, it is 100% deductible, provided it is infrequent and doesn’t involve flying everyone and their spouses to France for lunch. The normal holiday party falls within the “de minimus” benefit rules, that is, the party is of such little monetary value as to be insubstantial. Generally you should try to keep it under $100 per employee to be de minimus. No reporting of wages to the employee is needed in this case, fully deductible for you.

“Gifts” have a limit of $25 value, plus you can spend “incidental” costs beyond the $25 for things like engraving the client’s or employee’s name or postage to get the gift to them. If you give theatre tickets to a client, for example, it starts to look like “entertainment” expense and the deductibility is reduced to 50%! But if the tickets are $25 or less, it can be entirely deducted as a gift. Gift amounts over the $25 limit are non-deductible, just like parking tickets.

Bonuses to employees, which includes a “gift card” (if it is more than $25), is Wage. That means it is subject to payroll tax and needs to appear on their W-2. There is a special “bonus withholding rate” your payroll provider should know about, as long as you identify payments as “bonus.”

While you’re thinking about gifts, a fully deductible gift you can get your business is an annual subscription to our newsletter on CD, delivered to your mailbox throughout the year. If you wish to join our paid subscribers and receive our “Monthly Master Newsletter” including a relevant article once per month and other goodies, please sign up by downloading a subscription form at