Business Tax Updates:
Penalty Increase: The penalty for failure to file federal partnership or S corporation returns is increased to $195 per partner or shareholder for each month for up to maximum of 12 months for tax years beginning after December 31, 2009.
New State Use Tax Requirements for Businesses: Use tax is imposed on the purchaser and due when an out of state or online retailer does not collect the tax for an item delivered to California.
A business with $100,000 or more gross receipts that does not currently hold a seller’s permit must register with the State Board of Equalization and report and pay by April 15, any use tax due from purchases made in the preceding year. Taxpayers who register must file Form BOE-401-A or EZ Sales & Use Tax Return each year even if they owe zero tax.
California’s New Job Credit: California’s New Jobs Credit provides a credit of up to $3,000 for each net increase in qualified full-time employees hired by a small business during the taxable year. A small business is defined as one that had 20 or fewer employees on the last day of the previous taxable year. There is $400 million cap on this credit. If you are eligible for this credit, you need to ensure that your tax returns are filed early. You need to file during the first three months of 2010 to be sure to get the New Job Credit
Individual Tax Updates:
Roth Conversion beginning 2010: Beginning in 2010, the income limits on Roth conversion disappear. The income recognition on conversion can be spread over the next two years.
Homebuyer Credit is extended & liberalized: It has been extended to April 30, 2010 and long time home-owners can now qualify for up to $6,500 credit also.
Reporting Foreign Accounts & Filing Form TD F 90-22.1 Report of Foreign Bank and Financials Accounts (FBAR): The box on line 7a of Schedule B must be checked “yes” and FBAR must be filed if either of following applies:
· At any time during the year, the taxpayer had an interest in or signature authority over a financial account in a foreign country. This includes a bank account (checking or savings), securities or other financial account or
· Taxpayer owns more than 50% of the stock in a corporation that owns one or more foreign bank accounts.
There are many potential criminal and civil penalties associated with the late filing of Form TD F 90-22-1 and for making material or willful misstatements on it.
Failure to file the FABR can be punitive and can be greater of $100,000 or 50% of the amount of the transaction or 50% of the balance in the account at the time of violation.
You do not have to check “yes” if the combined value of the accounts was less than $10,000 at any time during the year. The location of the account and not the nationality of the financial institution with which account is held, determines whether the account is in a foreign country.
State Tax Increase: California State increased the individual income tax rate by 0.25% for the year 2009 and the maximum rate for individual is now 9.55%. For 2010 tax estimates, California has adjusted the required estimates for 2010 and those are 1st Qtr 30%, 2nd Qtr 40%, 3rd Qtr 0% and 4th Qtr 30%. Similar estimates requirements are for C corporations.
Information Return Reporting: The Franchise Tax Board may disallow a deduction to a taxpayer for amounts paid as remuneration for personal services if that taxpayer fails to report the payments on W-2 or 1099. The taxpayer is also subject to penalties for failure to file information returns. These violations may result in expensive audit adjustments.
Parveen Maheshwari is a Certified Public Accountant. His office is located in Burlingame, CA and can be reached @ 650-340-1400 or parveen@cpamax.com