June, 2016

Estimated Payments due June 15th

If you owe estimated payments, the next one is due June 15th. Individuals and Entities both have the same deadline this quarter.

Do you owe them?

If you’re making money that doesn’t have withholding (something other than a W-2, for example), you probably will owe estimated payments for 2016.

How much do I owe?

It depends! For individuals, there is a de minimus exclusion of $1,000 for federal tax—if you owe less than $1,000 when we calculate your 2016 return, there is no late penalty—providing you’ve paid in what you owe sufficiently to cover your tax within this tolerance limit.

If you owe more than $1,000 federal tax on your 2016 return, then we look to the current year 2016, and the prior year 2015. If you’ve paid in 90% of the tax on your 2016 return in a timely manner (i.e. you made your payments evenly through the year), you’re OK. But we generally don’t know what you’re going to owe until the return is done, so…

We look to the prior year, 2015. If you’ve paid in 100% of the total tax you owed in 2015, you’re OK…unless your AGI was over $150,000 (less if you’re married filing separate). Then, you must pay in 110% of the 2015 amount due to avoid a penalty. So if you have a paycheck, but also get a K-1, you’ll need to make a payment on the K-1 part of your income, for example.

What if I owe and I don’t pay?

There’s a penalty, of course! For the IRS, the penalty is 3% annually, plus interest for an underpaid amount, calculated to the day they get the payment.

But I haven’t finished my 2015 return yet, how do I know what to pay?

Yep, that’s a problem. Accounting for any known changes in income, we usually opt to pay in for 2016 at least what you owed for 2014. Ask me if you need payment vouchers—we need to be sure the IRS credits the proper year for your payments. And let us finish the 2015 return!

Entities also owe something—there’s a minimum payment for California LLCs, California S Corporations, and California C Corporations. (Partnerships that are not LLCs don’t owe generally.) If you only owe the minimum FTB $800, the June 15th payment is $320.

Time for a Portfolio Review?

Time for a question beyond the scope of tax. Let’s look at an underlying issue that leads to tax.

If you have a brokerage account and you’re paying a management fee, you may want to review what you’re getting for your money.

At year’s end, when I see the 1099-B Form—Proceeds from Broker and Barter Exchanges—I see what stocks and other securities were sold, and the fee the broker charged for buying and selling those securities.

For example, I have a client who paid $9k to their broker in 2015. The broker sold over $400k worth of stocks during 2015—so they did do work, but I only see what was sold in 2015, and I reported the loss on those stock sales of $1,000.

Now perhaps their broker is doing a fabulous job of “managing taxes” by moving in and out of securities, and the account has more value at the end of the year than the beginning—more even after the broker fees of $9k. Perhaps. I don’t see the monthly statements, just the year end.

I recommend you review your brokerage statements and compare the value of the account at least year-to-year (I review mine quarterly). You’ll have to adjust the values by amounts you either contributed or withdrew from the accounts to get an accurate picture of portfolio performance.

Now, reduce the performance by an inflation amount—I hear the Fed is targeting 2% inflation and the last 12 months of inflation was 1.13% per the Bureau of Labor Statistics; they have a selected basket of commodities they track.

Some of the things I’ve looked at year over year include:

(These are things I can easily find that are consistent—unlike dining out, for example, which I might do less of as prices escalate. If the price of bananas went up, would I switch to apples?)

There is an argument that I’m paying to insure someone who is a year older now, and that might cost more, but if I want my investment portfolio to pay my health insurance, I think it may be relevant.

So, if you believe your broker is not delivering on the promise based on their fees, you might inquire what their plan is to earn your fees in the future.

I’m required to say I’m not a licensed broker and I am not in the business of selling securities of any sort, and this is not a solicitation for me to offer you investment advice.

Classes: Basic Payroll and Schedule C

Here’s a link to the seminars page on my website: www.taxbuddha.com/seminars.html

Basic Payroll
In conjunction with the IRS and EDD, I’m going to be doing some Basic Payroll seminars coming up in the near future.

Basic Payroll Seminar runs 9 am ­ 3 pm with an hour for lunch

The next seminar will be:

San Francisco at the SBA office 455 Market Street, 6th floor (I take BART to Embarcadero or Montgomery Street)
Wednesday, June 15, 9:00 am – 3:00 pm
Tuesday, July 12, 9:00 am – 3:00 pm

Register by going to http://www.edd.ca.gov/Payroll_Tax_Seminars/ and find your favorite location.

These seminars have proven to be very popular for business owners and bookkeepers, plus they’re free.

How to Prepare your Own Schedule C
Get ready for next year and filing your own Schedule C for last year. Review what the IRS wants to know from you and how to report it for your business. This is a class for business owners who need a basic understanding of their 1040 Schedule C tax forms. We’ll also talk about what to do with the numbers once you have them. We can’t guarantee you won’t get audited, but this class will make it less likely.

I will be at the US SBA office in San Francisco at 455 Market Street, 6th Floor.
Wednesday, August 17, 6:00 pm – 8:30 pm

You can register for this class at http://www.sbatrainings.eventbrite.com

The Eightfold Path to Pay Less Tax and Avoid an Audit

Eight basic things business owners want to know printed in a booklet in “executive summary” form. This is ten years of working with the IRS Tax Code distilled down so it doesn’t take YOU ten years.

Just another way we’re trying to simplify your life. And the purchase is tax deductible!

You can order from Amazon.com. Here’s the link to Amazon: http://www.amazon.com/Eightfold-Path-Less-Avoid-Audit/dp/0615233422/ref=sr_1_22?ie=UTF8&s=books&qid=1226611038&sr=1-22 

The booklet also contains sections on how returns are selected for audit, when to seek professional help, and how long to keep your tax records.

Little Box of Inc: Incorporations Made Easy published on Kindle

The book with tips about how the S Corporation works is now published to Amazon’s Kindle, updated with additional information about S Corporations, and can be found by searching for Andrew S Rogers as author, and click on “Kindle.” Here’s the blurb:

Considering incorporating as an S Corporation? This booklet will help you understand how the S Corporation works, what you need to do to become incorporated and what you need to do once you have a corporation to stay out of trouble. The structure and the requirements are reviewed, as well as helpful tips to use your corporation to reduce your tax liability and retain your status as an S Corporation. I’ve worked with S Corporations for many years, and as a tax preparer, I can choose the kind of entity I have for my business: I choose the S Corporation myself, and I’ve convinced many of my fellow tax preparers to incorporate as well. I’ve divided the information into clear, easy-to-understand topics, and cross-referenced sections when it might be helpful.

After you’ve read this material, you can view on-line videos via YouTube.com for free to access more advanced information about S Corporations. You may also be interested in my “Choice of Entity” class – see below.


Phone and Fax Numbers

Our northern California occasional in Alameda:
1516 Oak Street, Suite 109
Alameda CA 94501
Phone numbers are:
Phone (510) 332-0401
Fax (925) 478-2726

“You too can be enlightened about tax” — Tax Buddha