Tax Updates

We wanted to bring to your attention some matters that continue to be top concerns for many taxpayers. Both the IRS and state tax agencies are facing increased security risk with identity theft which affect thousands of taxpayers. Healthcare is another important issue for many taxpayers. Before we address those two issues, we want to briefly alert you to recent proposed regulations by the Treasury Department.

Early in August, the Treasury Department set forth Proposed Regulations that seek to eliminate valuation discounts for interests in closely-held entities. The value of non-controlling interests in family-owned businesses have been eligible for a discount due to their lack of marketability and lack of control when they were transferred either by gift or sale. The elimination of these discounts will significantly affect wealth transfer planning for families, especially those who have a significant portion of their estate in closely-held entities. The proposed regulations are expected to become final in late 2016 or early 2017 but may happen even sooner. If you are considering transfers of ownership in family controlled entities, it may be prudent to take action before these regulations become final. Please consider contacting your estate planning attorney or us to discuss this matter further.

As healthcare costs rise, the availability of health spending accounts are becoming increasingly important as they play a key role in the managing of such costs. The four types of health spending accounts are: health savings account (HSA), health reimbursement arrangement (HRA), flexible spending account (FSA), and medical savings account (MSA).

An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual. Contributions, other than employer contributions, are deductible on the eligible individual’s return whether or not the individual itemizes deductions. Employer contributions are not included in income for Federal income tax purposes. Distributions from an HSA that are used to pay qualified medical expenses are not taxed. The account stays with you if you change employers or leave the work force unlike an employer sponsored flexible spending account.

An HRA must receive contributions from the employer only. Employees may not contribute. Contributions are not includible in income. Reimbursements from an HRA that are used to pay qualified medical expenses are not taxed. Unused amounts can be carried forward for reimbursements in later years. A health FSA may receive contributions from an eligible individual. Employers may also contribute. Contributions are not includible in income.

Reimbursements from an FSA that are used to pay qualified medical expenses are not taxed. Unused amounts at the end of the plan year generally cannot be carried over to the following year or follow you if you leave the employer sponsoring the plan.

An Archer MSA may receive contributions from an eligible individual and his or her employer, but not both in the same year. Contributions by the individual are deductible whether or not the individual itemizes deductions. Employer contributions are not included in income. Distributions from an Archer MSA that are used to pay qualified medical expenses are not taxed. The account stays with you if you change employers or leave the work force.

A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is enrolled in Medicare. Contributions can only be made by Medicare. The contributions are not included in your income. Distributions from a Medicare Advantage MSA that are used to pay qualified medical expenses are not taxed.

IRS does not call or email taxpayers demanding payment or requesting personal information. If you are contacted in this manner, please do not respond or provide any personal information. Scammers may even send you an official-looking document in the mail or email. Before sending any personal information, confirm that it is an official IRS/government agency address or phone number. The IRS offers a broad list of examples of possible forms of identity theft and the actions that you should take to report it to them. Unfortunately the examples are numerous and rather than outline them here, we are providing a direct link to the IRS website where you can identify a probable phishing incident and how you can report it to the IRS. See . We also encourage you to call us to discuss your concern or question before responding to the inquiry or providing any personal information.

Many taxpayers are already required by state taxing authorities, particularly the Franchise Tax Board to make payments via its WebPay feature. We strongly encourage all clients to use electronic payment methods whenever possible. One good way to make payments to the IRS is through EFTPS (electronic federal tax payment system).

We are encouraging clients to use this method for making tax payments for several reasons. Where payments are remitted electronically we are able to designate how the payment is applied, by year and tax form. Further, when the payment is originated we receive a confirmation showing the date, amount paid, tax form and period. This is helpful because if a problem arises tracing the payment to your account, the confirmation will provide immediate proof and you will be spared the challenge of tracking down the payment through bank records including avoiding the annoyance and time delay for requesting a photocopy of the front and back of the canceled check.

We also believe that this form of payment is more secure than mailing checks to the taxing agencies. Incidents of mail fraud continue to rise and many of us have had an experience where a check is lost in the mail or misplaced. While we all need to maintain close control over checks in our possession, we have less control over checks delivered by mail. All a good hacker needs is a bank route number and account number to be able to compromise a bank account. I speak from personal experience as my operating account was hacked earlier this summer. Fortunately I identified the problem early enough in the morning that the bank was able to block the fraudulent transfer.
When I spoke to the bank representative about this they were able to identify that the attempted theft was not the result of compromising a user name or password, rather it was easily done because they had my bank routing and account numbers.

We are happy to discuss the merits of using electronic payments for your tax obligations. Here is the link to the EFTPS website enrollment page for remitting Federal taxes:

Effective for tax years starting after December 31, 2015 (e.g., 2016 income tax return due in 2017), there are changes to the filing due dates for Federal tax and information returns. This will be affective in the spring 2017 filing season.

January 31 – W-2 and certain 1099MISC to IRS/SSA and to taxpayer
February 28 – All other 1099 (March 31 if filed electronically)
March 15 – Original due date Partnership, S-corporation
April 15 – Original due date for C-corporation (12/31 YE), Trust, Individual, Foreign Account Reporting
Extended due date for C-corporation (6/30 YE)
September 15 – Extended due date for Partnership, S-corporation, C-corporation (12/31 YE)
Original due date for C-corporation (6/30 YE)
September 30 – Extended due date for Trust
October 15 – Extended due date for Individual, Foreign Accounting Reporting

Tax returns for C-corporations with fiscal year-end other than December 31 or June 30 will be due on the 15th of the 4th month after year-end. A six-month extension is allowed from that date.

Given the earlier due date for filing partnership, limited liability company and S-corporation tax returns you can expect to be contacted by our team much earlier this year to start working on the preparation of these entity tax returns. In one of our next letters we will provide recommendations about how to prepare for these earlier filing deadlines for these entity tax returns and ultimately your individual tax returns.

Should you wish discuss any of the matters addressed in this letter, please contact us.


Scott B. Price


Tax Season Update

Dear Client:

As we prepare for the upcoming tax season, we would like to share some thoughts about your tax packages, highlight some issues that most commonly require follow-up, and to inform you of changes we are making in our continued effort to increase efficiency and to reduce our carbon footprint.

As we have communicated to you late last year, we will provide you with soft copies of your income tax returns and any other documents wherever possible, unless you specifically request paper copies. All such soft documents will be password protected with the last four digits of the primary taxpayer’s social security number.

E-file signature authorization forms will be sent electronically to allow you to digitally sign the authorization forms. This option would allow you to sign the forms from your computer or smart phone by typing your name, using the mouse to sign, or uploading a preset signature. You will be asked a few authentication questions to ensure security and integrity of your confidential information.

You should have started to or will soon receive tax information from your employers, brokers, customers, and banks. Many of you will also need K-1s from partnerships, limited liability companies, S corporations and trusts. While your tax package may not be complete, we encourage you to send us your tax information after you have completed the compilation of your personal income and deductions and not wait to send us the information until you have received the K-1s. This will provide us ample time to review the information you submit and follow up with any questions that we can resolve sooner and better enable us to complete your returns and allow you to have more time to review them and discuss questions with us prior to the filing deadline.

We ask that you provide us all of the pages of the 1099s from your brokers and financial advisors as the detail often times includes information we need to properly report the income. Along with the 1099s, please provide the realized gain and loss reports. Please ask your financial advisor to send this information to us in an Excel file format which helps save considerable time reflecting these transactions on your tax returns. If you have paid margin interest during the year, please indicate how the debt proceeds were used, so that we can determine the proper treatment for the interest expense.

While many of the K-1s may not be available until later in the summer, if there are any partnerships and/or S-corporation from which you exited in 2014 (or plan to in 2015), please let us know at the time you send your initial tax return documents to us as there may be tax consequences of such divestures. Please also advise us about any new investments in these entities or if you will be receiving a K-1 from a new trust for the 2014 tax year. When you send your K-1s, please include all pages.

If you have foreign bank accounts or other foreign assets, please let us know as there is quite a bit of information we would have to obtain from you to properly disclose it on the return.

Information on investments made in a foreign corporation or partnership via a flow-through entity (such as a partnership) is typically provided by that flow-through entity. We will rely on the information provided on the Schedule K-1. However, if you made any direct investments in a foreign corporation or partnership, please let us know as there may be information required to be disclosed on the return.

If you are self-employed and have not contributed to a SEP IRA in prior years, we suggest you consider establishing a SEP IRA and making a contribution toward your retirement. If you have a SEP IRA and have made contributions in the past, please let us know if you would like to continue to make a contribution for 2014.

Your mortgage interest is deductible up to $1million of acquisition debt and line of equity interest is deductible up to $100,000 of debt. If the 1098 does not include the beginning and ending balances of the loans, please note these figures on the 1098 or in your organizer. If you have used any of the proceeds from the refinancing of your home or from the line of equity for expenses other than home improvement/remodeling, the deductible amount may need to be adjusted. If you made such use of the funds, please indicate the dollar amount and describe the usage, so we can properly report the expense. If you used some of the funds for investments, for example, that portion of the interest attributable to investments may be deductible investment interest. Please certain to include the closing statement for your refinance to us also.

Please provide us with copies of your property tax bills with date of payment indicated on the form. This is especially helpful if you have multiple properties.

If you have made charitable contributions of property, such as stock, please provide the cost basis and the date of acquisition.

There is a section in the organizer to indicate the estimated tax payments made for the 2014 tax year. If you have made estimated tax payments, we ask that you indicate the amount and date of each payment. We are able to confirm estimated tax payments to California, but we don’t have the same digital access with the Internal Revenue Service or other states. Therefore, even though you would have received instructions from us to make such payments, it serves as a good checks and balances to have the confirmation from you that you have made these payments.

As we prepare your returns or extension application by April 15th, we are also reviewing any estimated tax payment requirements for the first quarter in 2015. Please provide us with information that would help us with the first quarter calculations, such as a recent paystub, expected bonus, projected business income for 2015, any planned sale of property or significant investments, or any other significant transaction that you are aware of.

Should you have any questions, please let us know.

Scott B. Price


Happy New Year !

Dear Clients:

A few weeks ago, we sent to you the tax organizer to help you in gathering the necessary information to prepare your 2014 income tax returns. After we sent out the organizers, Congress enacted legislation that extended certain deductions and tax credits that had expired for the tax year ended December 31, 2013. We wanted to provide you a brief update on these tax extenders included in the most recent tax law that were passed as the provisions in these new laws may apply to you as you compile your information. We also wanted to inform you of changes taking effect in 2015.

These provisions which were set to expire at the end of 2013 have been extended through 2014.
• Eligible elementary and secondary school teachers may claim an above-the-line deduction for up to $250 per year of expenses paid or incurred for books, certain supplies, computer and other equipment, and supplementary materials used in the classroom.
• Discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately) is excluded from gross income.
• Mortgage insurance premiums paid or accrued by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer’s qualified residence are treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer’s adjusted gross income (AGI). The amount allowable as a deduction is phased out ratably by 10% for each $1,000 by which the taxpayer’s adjusted gross income exceeds $100,000 ($500 and $50,000, respectively, in the case of a married individual filing a separate return). Thus, the deduction isn’t allowed if the taxpayer’s AGI exceeds $110,000 ($55,000 in the case of married individual filing a separate return).
• Taxpayers who itemize deductions may elect to deduct state and local general sales and use taxes instead of state and local income taxes.
• A taxpayer’s aggregate qualified conservation contributions (i.e., contributions of appreciated real property for conservation purposes) are allowed up to the excess of 50% of the taxpayer’s contribution base over the amount of all other allowable charitable contributions (100% for qualified farmers and ranchers), with a 15-year carryover of such contributions in excess of the applicable limitation.
• Eligible individuals can deduct higher education expenses—i.e., “qualified tuition and related expenses” of the taxpayer, his spouse, or dependents—as an adjustment to gross income to arrive at adjusted gross income. The maximum deduction is $4,000 for an individual whose AGI for the tax year doesn’t exceed $65,000 ($130,000 in the case of a joint return), or $2,000 for individuals who don’t meet the above AGI limit, but whose adjusted gross income doesn’t exceed $80,000 ($160,000 in the case of a joint return). No deduction is allowed for an individual whose adjusted gross income exceeds the relevant adjusted gross income limitations, for a married individual who does not file a joint return, or for an individual for whom a personal exemption deduction may be claimed by another taxpayer for the tax year.

• Taxpayers who are age 701/2 or older can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000 per year. These distributions aren’t subject to the charitable contribution percentage limits since they are neither included in gross income nor claimed as a deduction on the taxpayer’s return.
• For qualified energy property placed in service before 2015, a taxpayer may claim a credit up to a $500 lifetime limit (with no more than $200 from windows and skylights) over the aggregate of the credits allowed to the taxpayer for all earlier tax years ending after Dec. 31, 2005. The credit equals the sum of: (1) 10% of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during the tax year, and (2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during the tax year. The credit for residential energy property expenditures can’t exceed: (i) $50 for an advanced main circulating fan; (ii) $150 for any qualified natural gas, propane, or hot water boiler; and (iii) $300 for any item of energy-efficient building property.

Of particular interest for the 2014 tax year is the integration of the Affordable Care Act (ACA) into the income tax return. Any penalties for not complying with the individual mandate or any credits for premiums paid must be reported on the income tax return. To that regard, we have included questions in the organizer to help us complete the necessary lines and forms of the federal income tax return. We may be contacting you with follow-up questions.

Here is the brief overview of the individual mandate. Beginning in 2014, unless your are covered by an exemption, you are required to maintain basic health insurance coverage (known as minimum essential coverage) for yourself and any of your dependents, or pay a shared responsibility payment (a penalty). The requirement to maintain coverage or pay a penalty is generally called the “individual mandate.”

The penalty is the lesser of: (i) the greater of a flat dollar amount or a percentage of your household income, or (ii) the national average premium for the lowest-level plan providing minimum essential coverage. You must make the shared responsibility payment when you file your federal income tax return. Married individuals who file a joint return for a tax year are jointly liable for any shared responsibility payment.

You can satisfy the minimum essential coverage standard (and not be subject to a penalty) if you and your dependent are enrolled in a qualified health plan offered by an Exchange, a qualified employer-sponsored plan (including a government plan), a government plan, such as Medicare, Medicaid or CHIP (Children’s Health Insurance Program), or any other health coverage plan recognized as affording minimum essential coverage. Minimum essential coverage does not include, workers compensation insurance, disability insurance, dental or vision benefits, long-term care benefits, and Medigap or MedSupp insurance.

If you are an exempt individual, such as a non-U.S. citizen, incarcerated individual, member of certain religious sects or health care sharing ministries or a member of an Indian tribe you will not be subject to the individual mandate. In addition, low income taxpayers, taxpayers for whom basic coverage is unaffordable and taxpayers who qualify under a hardship exemption are not required to maintain minimum essential coverage. Moreover, under the short coverage gap exception, any individual who doesn’t maintain minimum essential coverage for less than three consecutive months will not be subject to the penalty for failure to maintain coverage.

Certain credits and provisions for businesses that were set to expire at the end of December 31, 2013 have been extended one year.
• Research credit
• Work opportunity tax credit
• Indian employment credit
• New markets tax credit
• New energy efficient home credit
• Differential wage payment credit
• Reduction in S-corp recognition period for built-in gains tax
• Exclusion of 100% of gain on certain small business stock
• Lower shareholder basis adjustments for charitable contributions by s corporations
• Empowerment zone tax breaks
• Bonus first-year depreciation
• Extended choice to forego bonus depreciation and claim credits instead
• First-year depreciation cap for 2014 autos and trucks
• Boosted by $8,000 expensing amounts for 2014
• 15-year write-off for qualified leasehold and retail improvements and restaurant property
• Expensing election for costs of film and TV production
• Energy efficient commercial buildings deduction

Following are limitations and exclusions that apply to the 2015 tax year.

401K $18,000
401K catch-up $6,000
IRA & Roth IRA $5,500; $1,000 (catch-up contribution if 50 and older)
Health savings account (HSA) $3,350 (self); $6,650 (family); $1,000 (catch-up if 55 and older)
Annual gift tax exclusion $14,000
Lifetime gift exclusion $5,430,000

Please note that 2014 contributions to regular and Roth IRA and HSA must be made by April 15, 2015.

Should you have any questions, please contact us.


Scott B. Price