Tax Update – Gillingham CPA – Q1 2015

Welcome

Welcome to the New Year. A LOT has developed in the tax world this past year. The goal of this letter is to provide value to my clients who fit largely into a few categories: business owners, employees with equity, and investors. Topics concise, relevant, and designed inspire further action. Thanks for reading and feel free to share.

Highlights

  • Address health insurance coverage
  • Great time for a retirement plan
  • Consider paying tax online
  • IRA rollover restrictions that are not trustee-to-trustee transfers

Time Sensitive Reminders

  • Covered California health insurance enrollment ends FEBRUARY 15th
  • Start the year off saving by making sure you are maximizing your 401K or work related retirement plans
  • Set aside funds for potential IRA (Individual Retirement Accounts) that must be funded before 4/15/2015
  • Non-deductible IRA contributions may provide an option for high income earners
  • If way ahead of the game, consider early IRA contributions for 2015. Your spouse may also qualify even if he or she does not work
  • Consistently save for any estimated tax payments or 2014 tax due 4/15/2015
  • Charitable deductions must be supported by a written note from the organization. Bank records are not enough, which has been emphasized in several nasty court cases
  • LLC and CA Corporate fees for 2015 will be due upon the filing of the tax return
  • If your equity compensation package has changed, let’s talk about it. Especially for ISOs (Incentive Stock Options) timely action now can be very valuable
  • If considering a new business entity in 2015 let’s chat

Tax updates and changes

  • Consider purchasing healthcare from Covered California BEFORE FEBRUARY 15th if you are paying for your own insurance. Low income tax payers may receive certain credits for coverage only if receiving coverage from CoveredCA.com
  • If you live and work in a studio, part of the studio may be tax deductible, whereas before this was more of a grey area position
  • California does not have an automatic first time penalty waiver and has not granted relief in several instances of penalty and interest abatement requests
  • If you have a defunct LLC floating around and the fees are mounting up, there is new case law which may allow you to walk away from the fees
  • California requires sales tax to be paid for out of state purchases
  • IRS has restricted IRA rollovers to one time a year, unless they are a trustee-to-trustee transfer
  • High income earners (say, 250K or more) are paying effectively higher tax due to both investment tax and phase out of deductions (expect to owe more)

Best Practices

  • Save ALL your receipts. Credit card transactions are NOT sufficient to support deductions, as was upheld recently in tax court. My policy is simple: Save every personal and business receipt when you go out. Perform accounting using your bank records, but keep the physical records in case of audit.
  • Consider signing up for online estimated and tax return payments using the federal EFTPS system and California Web Pay. Sign up ahead of time, as the IRS will need to send out a confirmation code to you via mail.

Thanks

Thanks for reading this far, I appreciate it. Please reach out with any questions, anytime, as I see our relationship as year-round.

Other resources from John Gillingham:

Learn Accounting: http://accountingplay.com/

Get the App: Lessons, Audio, and Illustrated Accounting Flashcards for iOS on Android

Get the App: Learn Accounting Debits and Credits with the game on iOS

My Innovative Accounting Books: Amazon Kindle

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