In a study done last year, the nonpartisan Congressional Budget Office disclosed that the total amount of federal debt held by the public equaled 74% of the gross domestic product. While it represents one of the highest levels in history, the CBO projects that, if the current laws remain unchanged, the publicly-held federal debt would exceed 100% of GDP by 2039. The CBO says “Beyond the next 25 years, the pressures caused by rising budget deficits and debt would become even greater unless laws governing taxes and spending were changed.”

While the CBO projects the federal debt held by the public will decline slightly over the next few years, the picture gets darker after that. The CBO reports the rising debt levels and growing budget deficits result from increased spending for Social Security and health care entitlements. They say, “Barring changes to current law, that additional spending would contribute to larger budget deficits toward the end of the 10-year period that runs from 2015 to 2024, causing federal debt, which is already quite large relative to the size of the economy, to swell even more.”

To curb this path of unsustainability, the CBO suggests significant changes to tax and spending policies, such as “reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under current law, or adopting some combination of those approaches”.

Senator Rob Portman, R-Ohio said “when it comes to the real fiscal problems we face, when it comes to the mandatory spending that is driving our country towards bankruptcy and threatening to undermine programs like Social Security, Medicare, and Medicaid – on which millions of Americans rely – we have done nothing. Today’s report is another reminder that we cannot continue to kick the can down the road. We need reform, and we need it now.”

House Representative Steny H. Hoyer, D-Md. tells us that the CBO study “ought to be a stark reminder that Congress must work together to promote fiscal sustainability over the long term. If we fail to do so” he says “the result will be fewer opportunities for American families.”

Many people think that tax season is over until next year, but in reality taxes and accounting need to be year long processes and continually addressed throughout.

Having your accounting processes and procedures in place during the summer months and into next year helps reduce the stress and expense of trying to accomplish everything at year end…or even later!
And for those individuals that received an extension, it is even more important to stay on top of the process to avoid another rush in September or October.

Several significant changes occurred during the past tax season that will affect the way business owners will account for repairs, maintenance, materials, and reimbursement for health coverage. In order to stay in compliance (and avoid possible fines) with new regulations, now is as important a time as ever (and possibly the most accessible time) to get in contact with your accountant to discuss these new regulations and how they will affect your business in the coming years.

The next few months should be utilized as an opportunity to get ahead, not to rest and push responsibilities off until later. Whether you are looking to make a new equipment purchase, invest in income producing property, or to determine if you have enough funds for a well-deserved vacation, having your accounting correct and up to date will provide you will the tools for informed decision making and the reduced chance of surprises coming down the pipeline.

Blossoms everywhere

Tax deadline will soon be here

Two more weeks then sleep

Tax deadline is near

Pink and white blossoms abound

It’s cold; spring is here

If you’ve started your own business since 1993, and funded it with your own money as a C Corporation there could be some valuable tax savings if you’re planning on selling the company. This comes in the form of the section 1202 exclusion.

The Section 1202 exclusion allows a person to exclude up to 100% of the gain on the sale of qualified small business stock (QSBS) that has been held more than five years.
The amount available to be excluded varies depending on when the business was started and funded. If the corporation was started between Aug 10, 1993 and Feb 17, 2009, 50% is excludable; if between Feb. 17, 2009 and Sept 27, 2010, 75%; and if you were lucky enough to start the corporation between Sept 27, 2010 and before Jan 1, 2014 100% of the gain is excluded.

So what are the catches? The taxable portion of the gain is taxed at 28% (excluding the possible Medicare investment tax of 2.8%) as opposed to the regular long term capital gain rate of 20%. The maximum amount of gain that can be excluded is the greater of $10 million of 10 times the taxpayer’s basis in the stock. Further, QSBS is defined as a C Corporation that the taxpayer funded directly with no more than $50 million of gross assets, 80% of its assets must be in an active trade or business, the corporation cannot own real property or stock/securities exceeding 10% of its total assets, and stock/securities cannot exceed 10% of its total assets in excess of its liabilities.

As you have read the 1202 exclusion can save a lot of money, but there are many complexities not outlined above including possible alternative minimum taxes. All the more reason to contact a CPA!

Having recently visited Germany and being a CPA, I naturally was interested in their taxes. I have heard throughout my life how taxes in Europe are extremely higher than in the United States and I thought I’d do a simple comparison.

According to a KPMG report on income tax and social security rates on $100,000 USD of income, in Germany the percentage paid by individuals was 28.3% plus 9.8% in pension insurance for a total of 38.1% (this does not include the mandatory 15.5% for health insurance that we in the United States pay separately). In the Unites States the percentage paid was 18.2% plus 7.65% for social security for a total of 25.85% (if you live in California,  add another 7% for 32.85% total). So, for somebody earning $100,000 the taxes in the United States are lower regardless of where you live.

The above result is what I figured since the United States has low marginal rates for low earners. For somebody well-off making over $1,000,000, I hypothesized that the United States would buck the stereotype and have higher rates. In Germany the top tax rate is 50.5% (which starts at $283,326 USD for a single person ). In the United States the top rate is 43.4% (starting at $406,750 USD for a single person) and would be as high as 56.7% if the income was earned in California. Further, in Germany dividends and sales of capital assets are taxed at 25% while in the United States there is a maximum of 23.8% (or up to 37.1% if you live in California).

So there you have it, if you are wealthy and live in California you are paying more income tax than people who live in the European Unions’ largest economy. Of course this is only one facet of the tax system. There are many others, like the value added tax of 19% in Germany, but Germany’s corporate tax rate is 15% while ours in 35%. If you live in California and are paying these high rates you can’t even take solace in the fact that you’re working less. In Germany the average work week is 35 hours with 24 paid vacation days and 10 paid holidays!

Since we moved back in September, my wife and I have dropped cable television and have gone the cord cutting route of using various streaming services. I’m happy to report that we’re very satisfied with the choice. It’s not a perfect alternative, but I do enjoy knowing I’m not shelling out $150 a month for a bundle of TV and internet services.

We still have our internet through Charter and I’ve been happy with them on that front. We then use Netflix, Amazon Prime, and Hulu as our main streaming services. While each of these services does have a cost, the ability to play shows when we want is amazing. The bonus of watching these shows commercial free is almost even more amazing. (Don’t’ get me started on Hulu Plus, however, which still makes us watch commercials even though we pay them a monthly fee!) We’ve also been watching live television the old fashioned way by hooking up an antenna. Even though you still have to play the game of moving the antenna around to find the best signal, this has been a perfectly acceptable way to watch shows and the news.

With all these options available, I see very few reasons for us to go back to paying for an all our nothing TV subscription. I think cable and satellite providers are starting to see this point of view as the newly launched Dish-owned service Sling TV has the slogan: “Take Back TV.” This service is $20 per month and provides streaming of live TV. You get the most popular channels like ESPN, Food Network, TBS and they just added AMC to the mix (hooray, we can finally be up to date on The Walking Dead). We haven’t jumped on board with this service yet, but I’m glad to see someone finally offering a more a la carte approach to TV viewing. Also, HBO finally announced their upcoming streaming service will be $15 per month. I’m enjoying all this choice in the “cable free” world.

So, if you’re still paying for cable or satellite TV in one of those fancy packages where you have to call every year or two to get the best price, consider cutting the cord and trying out the world of on demand streaming. I think you’ll like it.

It was announced on Friday, February 20, 2015 that approximately 800,000 people received incorrect 1095-A forms. The 1095-A forms are used to report the premiums and tax credits for taxpayers who signed up for discounted health insurance coverage through the HealthCare.Gov Marketplace. This error affects up to 20% of the statements sent by the federal insurance website. The error was due to a coding issue in a calculation that included the local premium data for 2015, instead of the information for 2014.

The government is notifying those who received an incorrect statement. If your form is incorrect, you should get a call and an email from the Marketplace. There will also be a message in your Marketplace account on HealthCare.gov. When your corrected form is ready, you will be notified. The corrected forms are supposed to be issued in early March. If you received an incorrect 1095-A, you should wait to file your tax return until you receive the corrected form. If you already filed your taxes with the incorrect information you will need to amend you return.

Along with the announcement of the error, came an extension period to sign up for health insurance through the Marketplace. The original enrollment period began November 15th and ended February 15th. The extension will allow enrollment starting March 15th to buy coverage if they attest that they learned of the penalty of not having insurance when they filed their 2014 tax return. The additional enrollment period will go until the end of April. These individuals will still have to pay a penalty for being uninsured in 2014, and a partial penalty for the time they were uninsured in 2015, but they would avoid the penalty of being uncovered for all of 2015.

Have you ever wondered when and how the IRS got its start? I did and so I did a little research.

The IRS traces its origins back to the Civil War. In 1862, President Lincoln signed the Revenue Act of 1862 into effect. This law was intended to help pay for war expenses by establishing a Commissioner of Internal Revenue and the country’s first income tax. It imposed a 3% tax on income between $600 and $10,000 and a 5% tax on income over $10,000. In 1872, after much public disapproval and resistance, Congress allowed the law to expire and so the income tax was temporarily eliminated. According to the IRS website, from 1868 until 1913, 90% of all revenue came from liquor, beer, wine, and tobacco taxes.

In 1894, Congress attempted to reintroduce the income tax by enacting the Wilson Tariff Act and creating an income tax department within the Bureau of Internal Revenue. Congress’s success was short-lived as the Supreme Court ruled the new income tax law unconstitutional one year later in 1895. It reasoned that the income tax constituted a direct tax and, therefore, needed to be imposed in proportion to each state’s population, which it was not (i.e. apportioned). Following the Supreme Court’s decision, the income tax division of the Bureau of Internal Revenue ceased to exist.

In 1909, President Taft encouraged Congress to propose a constitutional amendment that would effectively override the Supreme Court’s decision. The amendment would permit the government to impose an income tax without apportionment. In 1913, the 16th Amendment was adopted, which reads, “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any consensus or enumeration.” Shortly thereafter, Congress enacted a 1% tax on net personal income over $3,000 with a surtax of 6% on income over $500,000. The first Form 1040 was created.

During World War I, the top income tax rate increased to 77% in 1918. After the war, it fell to 24% in 1929, but increased again during the Depression. During World War II, payroll withholding, quarterly tax payments, and the standard deductions were implemented. During the 1950s, the Bureau of Internal Revenue was restructured to employ professional employees and its name was changed to the Internal Revenue Service. In 1998, Congress passed the IRS Restructuring and Reform Act of 1998, which caused the most wide-ranging restructuring since the mid-century. The IRS was split into four divisions, each focused on different taxpayer needs.

In case you have not heard, Jon Stewart will be stepping down as the host of The Daily Show with Jon Stewart. Currently his contract is set to run out sometime in September, but he has said that he is unsure of when he will actually leave the show. Jon’s satirical reporting is what has gotten me, as well as many other younger people, to watch the news and know what is going on in the world. The show has been on since 1999, 15 years, all of which have occurred since I was old enough to care about the news. Now with him leaving, I am unsure of who could possibly replace him and keep the show as light and funny as it has been for the last 15 years. Let’s look at the possible candidates.

As of right now, there are no for sure leads as to who may replace Mr. Stewart, however there are favorites for the position. Currently three of the shows current or previous analysts are expected to take the place of Mr. Stewart; however,of the three candidates, Jessica Williams, John Oliver, and Jason Jones, I am not particularly drawn towards any of them. I like the work that they do on the show, but I do not feel that they have the personality that Mr. Stewart has shown over the years on the show. Some of the other candidates that have been mentioned are: Chris Rock, John Hodgman, Aasif Mandvi, Ricky Gervais, and Amy Poehler. These are all great candidates except for the fact that they seem to have much more going on in their lives that won’t allow them the time to undertake The Daily Show. As host, Jon Stewart was mostly involved in just the TV show taking a brief period of time off to produce a movie. Thus, if any of these people would like to take his position, it would likely only be if they are choosing this as their career.

The candidate that I am the most stoked on is Amy Schumer. She is by far my favorite choice for the position, as she is a young and aspiring comedian just as Jon Stewart was when he began. Mr. Stewart did not become the figure that he is until he landed the Daily Show, however Ms. Schumer already has a lot going for her. She currently hosts her own show on Comedy Central and will host the MTV Awards show later in 2015. If Comedy Central is looking for someone that can bring in the young crowd, just as Mr. Stewart has done, they need to go with a younger, upcoming comedian and thus I believe that Amy Schumer is the best choice for the job.

What is a Series LLC?

A Series LLC was first introduced to assist the mutual fund industry avoid filing multiple SEC filings for different classes of funds. The idea was to use one entity for all funds filing under one “umbrella”, but permit the funds individual activity to be conducted separately. Only a few states allow the creation of a Series LLC, one of which is Nevada.

What is the purpose of a Series LLC?

The purpose or utility of a Series LLC is to protect personal assets from a legal claim relating to real estate investments or business liabilities. Past practices involved forming a separate LLC for each business activity or investment property to protect the personal assets, as well as protect the entities from liabilities arising from each other. The formation of many entities increased the costs to the individual by paying annual state fees, and having to file a separate tax return for each LLC. The creation of a Series LLC allows a group of series, or cells, to each own distinct assets, incur liabilities, and have different managers and members, but all is filed under one umbrella LLC. The entities have liability protection from each other and protection for the individual, but reduce costs involved by filing one tax return and may qualify to pay only a single set of annual state fees. In certain circumstances it may also help the taxpayer qualify for additional safe harbor elections under the new Tangible Property Regulations. Make sure to consult a tax advisor before you decide to pursue the formation of a Series, LLC.

Due to its relatively new adoption (2005 in Nevada), the IRS will be constantly adapting the tax treatment of the Series LLC. States continue to pass legislation to follow suit, but at this time there are no court cases that support or deny the current tax treatment.