Democrats on the California Budget Conference Committee Approve New Taxes

On June 16, 2009, the California Budget Conference Committee approved a package of “revenue raisers” to stave off the state’s budget deficit.  Some of the provisions include:

• Increasing the personal income tax withholdings by 10% beginning January 1, 2010;
• Changing estimated tax payments again to accelerate revenue. Beginning in 2010, taxpayers would be required to pay:
•   1^st quarter 30%
•   2^nd quarter 40%
•   3^rd quarter 0%
•   4^th quarter 30%
• Imposing 3% independent contractor withholding, beginning January 1, 2010;
• Requiring 7% backup withholding on interest, dividends, and other income in conformity with the federal backup withholding rules;
• Increasing tobacco tax by $1.50 per pack beginning October 1, 2009;
• Imposing a new 9.9% oil severance tax beginning October 1, 2009;
• Repealing two corporation tax breaks passed in September 2008 before they take effect: NOL carrybacks and credit sharing among affiliated corporations;
• Extending sales tax requirement to certain out-of-state sellers, such as Amazon, that pay commissions to California firms;
• Allowing the state to suspend occupational and professional licenses for delinquent taxpayers;
• Suspending the Homeowners’ and Renters’ Assistance Program; and
• Enhancing collections by requiring banks and other financial institutions to match their account records with the FTB’s delinquency account records.

A quick review of these provisions shows that, with the exception of certain tobacco and oil taxes, these provisions do not increase revenue to the state, but only accelerate the collection of taxes from one fiscal year to another.  This would seem to only defer the looming problem.

The Legislature should take up the budget package early next week, and all these provisions are subject to change, and Governor Schwarzenegger said he would veto any revenue proposals beyond those he had already included in his budget plan.  The Governor is also opposed to withholding on independent contractors.

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You May Want to Make Your New Car Purchase Before April 1st or May 19th Due to New California Tax Hikes

In an effort to help close the $41 billion California budget deficit, the legislature raised the sales tax rate by 1 cent, or 13%, and the annual car license fee by 77%.  The sales tax increase goes into effect April 1st 2009, and the car license fee increase goes into effect May 19th, so you may want to keep this dates in mind if you are planning a major purchase, especially an auto purchase.

Under the old formula, a car buyer in Orange County paid $1,938 in taxes on a $25,000 car. The new formula means that buyer will pay $2,188, or $250 more.

On a new car valued at $25,000, the vehicle license fee will go from $163 (0.65 percent of the value) to $288 (1.15 percent of the value).

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IRS Provides Guidance on Small-Business Loss Carrybacks

Via the Journal of Accountancy

The IRS has released Revenue Procedure 2009-19, which provides guidance on net-operating-loss provisions for small businesses that were enacted in the economic-stimulus package. Under the new law, small businesses — those with less than $15 million in revenue — can elect to carry NOLs back five years instead of two. The IRS guidance describes how businesses can make the election.

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IRS Approves Theft-Loss Deduction for Madoff’s Victims

Via Marketwatch

The investors in Bernard Madoff’s monumental fraud can recover some of their losses as theft-loss deductions for 2008, including their original investments and "phantom" earnings that were reported to them but never really existed, the Internal Revenue Service says. If the deduction exceeds the taxpayer’s income for 2008, they may be able to carry the deduction back for either three or five years, depending upon their specific circumstances.

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FASB Calls for More Study on IFRS

Via the Journal of Accountancy

The Financial Accounting Standards Board (FASB) are calling on the SEC for additional study on the possible shift of US accounting standards to International Financial Reporting Standards (IFRS).  A comment letter from the organization said the SEC should allow limited early adoption of IFRS by US public companies only after there is a decision that all US public companies will ultimately be required to adopt IFRS.

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How to determine which divorced parent is entitled to child’s dependency exemption

Via the AICPA

The question of which parent is entitled to the dependency exemption for a child arises often in divorce cases. New regulations specify the rules that a custodial parent must follow to give the dependency exemption to the other parent and special rules for determining custody. The Tax Adviser

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Deloitte Discloses Going Concern for GM

CPA’s preparing financial statements are always confronted with the need to address an entity’s ability continue as a “going concern.”  We diligently complete a disclosure checklist which ensures that we are providing all of the disclosures necessary for the reader to have a complete understanding of the financial position of the company. 

During good times, this issue has been something that is easy to brush past, quickly looking at profitability and stockholder’s equity.  But, in a sign of the times, in their judgment, Deloitte & Touche this year has been required to include a disclosure of their concerns over GM’s ability to continue as a going concern.  It seems surreal to see the same disclosure we consider for our business clients being made on the financial statements of General Motors.

For the full story click here.

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New Test Post

This post is a test to see how the feedburner email subscription works.

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Housing Act gives and takes away tax benefits

The president is expected to sign the “Housing Assistance Tax Act of 2008″ (H.R. 3221) which the Senate passed on July 26, 2008.

A summary of the provisions as reported by Spidell Publishing are as follows:

• “A refundable credit of up to $7,500 on the purchase of a principal residence by a “first-time homebuyer.” A first-time homebuyer is a taxpayer who hasn’t owned a principal residence in at least three years. The credit is recaptured ratably as an addition to tax over 15 years.
  
• A new deduction for property taxes for individuals who do not itemize. The deduction is limited to $500 ($1,000 on joint returns).
  
• A reduced exclusion on the sale of a principal residence under IRC §121 for periods of nonqualified use.
  
• Low-income housing credits and rehabilitation credits may now offset AMT.
  
• Interest earned on certain mortgage bonds is no longer treated as a private activity preference for AMT purposes.
  
• A new election to accelerate AMT and research credits instead of taking bonus depreciation.
  
• A new requirement of information reporting of merchant credit card activity.
  
• REIT rules liberalized, particularly with regard to foreign activities.
  
• Increases required estimated tax payments of large corporations beginning in 2013.

Of course, California does not conform to any of these provisions making the preparation of California returns and California tax planning trickier.”

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