Edward Lieber, CPA

The Affordable Care Act passed in March 2010 includes a sizeable tax hike for many taxpayers!

If the Supreme Court does not strike down this law, you may be faced with paying a “Medicare Tax” of 3.8% on your net investment income starting in 2013. This tax will apply to taxpayers with “modified adjusted gross income” in excess of $250,000 for joint filers and $200,000 for single filers.

Some of the items included in net investment income include:

•           Interest Income
•           Dividend Income
•           Annuity Income
•           Royalty Income
•           Rental Income
•           Net Gain on the sale of non-business assets

 This tax would be in addition to the regular and alternative minimum tax paid on taxable income.

 Let’s keep an eye on this law. If it is not struck down, there may be options available to you to reduce or eliminate the impact of this tax. For more information call ELLS CPAs at 714.569.1000.

Sherry Radmore, CPA

Federal estate tax exemption levels have been on a roller coaster ride over the past several years and it looks as if the ride will stop at the end of 2012. In 2010, there was no estate tax so if you had an estate of $50 million dollars and youpassed away, there was no estate tax. For 2011, the estate tax exemption was $5,000,000. In 2012 the estate tax exemption per individual is $5,120,000 with a top tax rate of 35% for any amount above that. Currently, the estate tax exemption level is set to revert back to $1,000,000 with a top rate of 55% on January 1, 2013. In addition to the exemption, a married couple gets an unlimited marital deduction for any assets bequeathed to the spouse. Charitable bequests are also allowed an unlimited deduction.

 If you are fortunate enough to have an estate with potential estate tax liability, 2012 might be a once in a lifetime opportunity to gift up to $5.12 million without paying any gift tax. Making gifts to your children, grandchildren or other significant individuals in your life is one way of getting the assets, but more important, the appreciation on these assets out of your estate. If the estate and gift tax exemption does return to $1,000,000 in 2013 this gifting window will be closed.

 A much smaller scale option is an annual gifting program. Currently, an individual can gift $13,000 to as many individuals as they chose per year without having to file a gift tax return or use up their lifetime exemption. Over many years this can dramatically reduce an estate.

 No one knows if the 2013 exemption will increase before it becomes effective but this is a great time to discuss your estate plan. For more information call Sherry Radmore at 714.569.1000.

For more information email careers@ellscpas.com

1. There is no set deadline for individuals to apply. However, the IRS can change the terms of the program any time, such as increasing the penalties or ending the program entirely at any point.
2. Individuals must pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years before the disclosure. Under the 2011 program, the penalty was 25%.
3. Participants must file all original and amended tax returns. Payment for back-taxes and interest for up to eight years, as well as accuracy related and/or delinquency penalties must be included with the returns.

For more information about the Offshore Voluntary Disclosure Program call ELLS CPAs at 714.569.1000

By Nancy Chung, CPA

Maria Arriola, CPA

Peco Foods, Inc. had a Cost Segregation Study done, and during an IRS audit, it was found that a Purchase Price Allocation was included in the Buy-Sell agreement. This particular Purchase Price Allocation was in great detail. A Cost Segregation Study cannot restate asset classifications which conflict with the Purchase Price Allocation.

Typically, the Purchase Price Allocation becomes a legal document tailor made to effect certain tax consequences for the seller.  The IRS will not allow the purchaser to make different allocations which will benefit their position.

If you are considering a real estate purchase, review the documents carefully. Don’t agree to special provisions which may benefit the seller but can limit your tax options.

Call ELLS CPAs & Business Advisors at 714.569.1000, we can help you structure your real estate transactions so that your tax consequences are not limited.  In addition, if a Cost Segregation Study can be beneficial to new or existing real estate holdings, we can evaluate the benefits you may receive.

By Maria T. Arriola, CPA

Gregory N. Lewis, CPA

Given the current state of the economy fraud and embezzlement is on the rise.   Most medical practices rely on a single individual, typically a practice administrator or office manager, and do not have adequate financial controls or safeguards in place to protect the practice’s assets. Accordingly, these medical practices are susceptible to fraud, embezzlement and theft. 

Internal controls have always played a strong role in preventing fraud.  Now more than ever it’s important to establish procedures in your practice that will mitigate your risk of loss. 

ELLS CPAs has been engaged on numerous occasions to investigate the circumstances and damages resulting from employee fraud or embezzlement.  These cases have cost the medical practices anywhere from several thousand to over a million dollars.   Many of these frauds were perpetrated by the physician’s most trusted employee.

Don’t wait until you are a victim to take action.  We have developed a two page “Risk Assessment Checklist” that will enable us to determine many of the weaknesses you have in your practice. Once these risks are assessed by one of our Certified Fraud Examiners,  we can recommend and help you incorporate procedures and/or safeguards into your practice to lessen your risk of fraud and embezzlement.  

Call ELLS CPAs today at 714.569.1000 for a Risk Assessment Checklist.

By Gregory N. Lewis

In honor of National Wear Red Day, the ladies of ELLS CPAs sported red!

Carol Painter

The waiting is over!  Anaheim received its Enterprise Zone final designation, with effective start date of February 1, 2012!  Yes, enterprise zones are still around in California.  What you heard on the news was the elimination of economic development agencies.  Enterprise zones have NOT been eliminated!  Orange County has two enterprise zones – Anaheim and Santa Ana. 

 If you think your business is located in an enterprise zone, give us a call at 714.569.1000,  to learn about all of the tax incentives that may be available to you.

By Carol Painter

Edward Lieber, CPA

If you own a business in certain areas of Santa Ana or Anaheim, California, you should be taking advantage of the California State Enterprise Zone (EZ) Credits. These credits can reduce or eliminate your state income tax liability. ELLS CPAs has seen manufacturing businesses owners save over $1 million in state income taxes over the years by using these credits. EZ Credits work best if the business is a sole proprietor or in a pass thru entity like an S Corporation, Partnership or LLC.

Two credits are available under the EZ program; hiring credits and sales tax credits. The hiring credit, can earn you an excess of $37,000 per eligible employee spread over a 5 year period, this can add up to substantial  savings. In order to claim the credit, you must apply for and receive a voucher from the local EZ Agency. Hiring a professional to assist you in the vouchering process is your best bet to insure you maximize your benefits under this program.

The second credit is the sales tax credit. This credit is the “no brainer”. If you are located in the zone and purchase qualifying equipment on which you pay California sales or use tax, you can reduce the depreciable basis on the equipment and claim the state credit, it is that easy! Examples of qualifying equipment include machinery and parts used in the manufacturing process and certain office equipment including computers, telephones, fax machines and copy machines.

Make your business more profitable by using valuable Enterprise Zone credits today! Call ELLS CPAs for more information about Enterprise Zone Credits and other tax saving strategies at 714.569.1000.

By Edward Lieber, CPA

The new hot button for the IRS is shareholder loans in S-Corps because there is usually a lack of documentation or interest being paid on these loans. It can be tough because if it is reclassified by the IRS as a shareholder distributions or salary it can dramatically increase the shareholder’s income tax.

Success based fees Safe Harbor Deduction Election

• Normally under the Regulations, you can’t deduct fees and costs that facilitate a business acquisition or reorganization or fees contingent upon the successful closing of the transaction.
• Rev. Proc. 2011-29 provides a safe harbor election for allocating success-based fees paid in business acquisitions or reorganizations.
• Under the new safe-harbor election, 70% of the fees are deductible and 30% are capitalized.

Foreign Bank anf Financial Accounts (FBARs)

• A taxpayer must file Form TDF 90-22.1 if:
  • The person has a financial interest or signature authority over an account in a foreign country AND
  • Aggregate Value of all foreign financial accounts exceeds $10,000 at any one time during the calendar year
  • Must be received by June 30^th. Not mailed.

By Suzanne Lieber