Archive for the ‘California’ Category

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Bozo Tax Tip #6: Nevada Corporations

Thursday, April 5th, 2012

A repeat for the fifth year follows, but it’s one again getting a lot of play due to business conditions in California. While I’m focusing on California and Nevada, the principle applies to any pair of states.

Nevada is doing everything it can to draw businesses from California. Frankly, California is doing a lot to draw businesses away from the Bronze Golden State. But just like last year you need to beware if you’re going to incorporate in Nevada.

If the corporation operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation is a California corporation, a Delaware corporation, or a Nevada corporation.

Now, if you’re planning on moving to Nevada incorporating in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada corporation is, well, bozo.

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What’s $146.3 Million Among Friends?

Thursday, March 15th, 2012

I can answer that question! $146.3 million is the additional amount of tax collections that California projected but did not receive in February. What’s worse is that the shortfall in the fiscal year-to-date is $1.3 billion.

I’ve been preparing plenty of California tax returns, and those are generally coming in at lower amounts of taxes for 2011 in comparison to 2010. Now, I’m just one tax professional so what I see may not match the overall trend; however, I do speak with my former colleagues in Orange County and none of them are seeing a trend of clients owing more money.

The Orange County Register noted, “Whatever the case, this is the umpteenth time the controller has reported revenues have come in below projections this year, suggesting that that Legislature and governor will have yet another sizable budget deficit to address come June.” The Register is correct: The shortfall will be in the billions, likely between $10 and $16.

The problem is the same one I’ve been writing about for the last seven years: You can’t spend more money than you take in. There needs to be massive cuts in the bureaucracy in California, cuts to pensions of state employees, and cuts in regulations and taxes that drive businesses (and revenues to the state) from California. Instead, Democrats in Sacramento are proposing tax increases.

Even if the tax increase passes on the November ballot, come June 2013 the California legislature will again be talking about budget deficits. Until the fundamental problem is addressed, a Band-Aid placed on the wound won’t help.

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I Was #254

Wednesday, March 14th, 2012

Investors Business Daily has an article today on the Sick Man of America: California:

In 2011, more businesses (254) quit California than the year before (202), which was a high-water mark over 2009 (51). Last year, roughly five businesses left in any given week, one more than left in each week of 2010 when the average was 3.9.

Well, as one of those 254 businesses that fled the Bronze Golden State, I can say that Nevada has been a wonderful change. California may have a far better meteorological climate but from a business standpoint Nevada is far, far better.

What does California need to do to improve its business climate? Cut regulations, cut taxes, cut the pervasiveness of government. What are Governor Jerry Brown and the Democrats in Sacramento proposing? More taxes, more regulations, more of the same.

I’ll take the over on 254 for 2012.

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Mailbag Update

Tuesday, March 13th, 2012

We get mail:

I got married last June and my wife says we need to file as single because we weren’t married for the whole year. Can you set her straight?

Your marital status on December 31st is your marital status for the year (with a few exceptions). If you are married on the last day of the year, you are married for the entire year. You and your wife need to file a Married Filing Jointly return or a Married Filing Separate return.

The exceptions include spouses who do not live together for the entire year and where a spouse dies during the year.

I won a €20,000 jackpot at a casino while traveling in Europe last year. My accountant told me I have to claim that income. That can’t be right, right?

It’s correct. The US taxes you on your worldwide income, even money won in a casino in Europe. You need to convert the Euros to Dollars and include the gambling income as part of line 21, Other Income. The good news is that you get to deduct your gambling losses (up to the amount of your winnings) as an itemized deduction on Schedule A.

I spent a month working in New York last year for my business. My W-2 has New York withholding along with withholding for my home state, California. It appears that both states taxed the same income and that can’t be right! Or can it?

Well, you were working in New York, so you have New York source income, and New York definitely has the right to tax you for that time (and any other New York source income you might have). You’re a resident of California, so you owe California tax on all of your income.

That said, you do get to take a tax credit for the double-taxed income. In this manner you effectively end up paying the higher of the two states’ income tax rates.

I’m looking for a tax professional in the Philadelphia area familiar with the Adult Entertainment Industry.

That can be read in so many different ways….

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Posted in California, Gambling, IRS, New York | Comments Closed

California Doesn’t Conform on Self-Employment Tax Deduction Change

Sunday, March 4th, 2012

Yet another California non-conformity issue has reared its head. Those of us who are self-employed must pay self-employment tax on their self-employment earnings. The self-employed get to deduct 50% of that on line 27 of Form 1040.

In 2011 the self-employment tax changed from 15.3% to 13.3% on the first $106,800. However, the deduction is still based on 15.3% rather than 13.3%. So let’s say I paid $1,000 in self-employment tax; my deduction is $575, not $500. A little extra benefit…except on your California return.

For California purposes, the deduction is $500, not $575–it remains at 50% of the amount paid in self-employment tax. I noticed this with one of my California clients and called the FTB to verify this. The California legislature did not pass conforming legislation. Those of you who are self-employed Californians will see an adjustment on Schedule CA of your Form 540.

This was noted in today’s San Francisco Chronicle. The Chronicle also noted that TurboTax hadn’t updated its software until last Friday. Apparently, the Franchise Tax Board forgot this adjustment until after the tax forms were initially generated.

Those of you who have filed returns with “material” changes will likely get notices noting the adjustment and proposing an additional amount of tax to pay.

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BOE Updates Top 500 Sales & Use Tax Delinquents in California

Sunday, March 4th, 2012

A few years ago, the California Legislature passed a bill requiring the Board of Equalization (California’s sales tax agency) to publish a list of the top 500 deadbeats each quarter. That list has just been updated. On top of the list is California Target Enterprises Inc. with a debt of $18.4 million; at the bottom of the list is Mega Micro, Inc. with a debt of $404,390.

In scanning the list the one thing that struck me was the number of automobile dealerships on the list. I can’t believe it’s that hard to figure out and remit the sales tax on a new or used car. However, my mother told me about how “honest” used car salesmen are….That said, there are new car dealers on the list, too; a relatively new listing is Auto First Financial Corp. dba Silicon Valley Hummer with a debt of $2.85 million.

To date, the list has caused the BOE to receive $5.3 million in payments, so this is one of the few accomplishments of the California legislature.

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Pensions for All? California Legislator Introduces Mandatory Pension Bill

Sunday, February 26th, 2012

Every time I think the Bronze Golden State has reached a new low, I have to remember that I should never overestimate the intelligence of the California legislature. Kevin De Leon (D-Los Angeles) has introduced a bill that requires any business with five or more employees to have a defined benefit pension plan. Employees would contribute around 3% of their wages into the plan; employers would be allowed to make voluntary contributions. The plans, though, would be mandatory to California businesses.

The unintended consequences of passage of this bill are simple. First, would employer contributions remain voluntary for long? I doubt it. And that leads to the second consequence: Fewer employers in California. Why would any business expand in high-cost California where regulation after regulation is put upon it when they can expand in a lower cost environment (such as Nevada or Texas). This leads to the final consequence: Fewer employees in California.

I also have to wonder if the Democrats in Sacramento have ever taken a course in basic economics.

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Businesses Act Based on Taxes (Will Liberals Change their Policies?)

Sunday, February 19th, 2012

In what might be an “I told you so” moment, Haas Automation of Oxnard, California (northwest of Los Angeles) is growing and needs to expand. They began the planning for a $20 million new building and all seemed well.

And then Governor Brown and the Democrats who control Sacramento started debating tax increases. Not will there be an increase, but which increase should pass. Businesses don’t like that, and Haas put a stop to the new building.

Let’s see what California offers in comparison to, say, Nevada and Indiana (which just became a “Right to Work State”). California does have a well-trained workforce, and for machine tools it’s likely better than Nevada. Indiana might meet that quality of workforce (there is a lot of automotive industry work done in Indiana).

Now, let’s examine the disadvantages: California is a regulatory nightmare; Nevada and Indiana aren’t. Wages in California are higher than Nevada and Indiana. California is the opposite of a Right to Work State while Nevada and Indiana are Right to Work States. Nevada has no state income tax while Indiana is in the middle of the pack for income taxes; California has one of the highest income tax structures in the United States. This news story notes that other states are offering free land, interest-free loans and savings on property tax. California offers none of that.

Perhaps the California legislature might ask themselves what would happen if they keep driving successful businesses out of state…because their actions are doing just that. Or perhaps they think that businesses don’t act rationally? If that’s what they do believe, they are wrong: Businesses don’t want to move, but if they must they will. Businesses do act rationally, and if it is prohibitively expensive to expand in California they’ll expand elsewhere.

One other unrelated point: I’m glad to see that Haas Automation has recovered from the actions of its founder. For those who don’t remember, Gene Haas was my Tax Offender of the Year for 2007. They just produced their 125,000th CNC Machine; that’s a remarkable feat for the company.

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Remember Gilbert Hyatt? (An Update)

Sunday, February 19th, 2012

One of the blogs I read, How Appealing, posted a link to this story on California’s attempt to ban video games featuring “murder and mayhem” from being sold to children cost the Bronze Golden State $2 million.

That’s nothing.

There’s a case that’s still waiting to be heard at the Nevada Supreme Court that’s cost California taxpayers many millions, and has the potential to cost the state over half a billion (yes, $500,000,000). The Franchise Tax Board’s appeal of Gilbert Hyatt’s lawsuit is waiting a date to be set for oral argument. It’s been stuck in this status for over a year (the last change noted in the online tracking system for the case was on February 4, 2011). I don’t know what the average wait time is, but most likely later this year this case will be heard.

If the appeal is heard here in Las Vegas (the Nevada Supreme Court holds sessions in Carson City and Las Vegas), I plan on attending…some day (hopefully in 2012).

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California Tax Revenues $528 Million Under Budget in January

Saturday, February 11th, 2012

In what must be considered to be a complete non-shock to all but officials of the Brown Administration, California’s tax revenues came in $528 million under budget. According to Bloomberg, most of this is from a $525 billion shortfall in income taxes.

While California’s Department of Finance says it’s “too soon” to tell whether April income tax collections will make up for January, I can give them the answer now: They won’t be. When individuals lower their January estimated payments, it’s almost always because they know they made less during the previous year and don’t owe the money. I expect California collections in April to also be below forecast.

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