Last week, a judge ruled that former National Football League wide receiver, Keyshawn Johnson, owes at least $905,000 in state income tax, penalties, and interest. Johnson tried overturning a 2017 California administrative ruling that he was a resident of California in 1996, when he graduated from the University of Southern California and was drafted by the New York Jets. In January, Johnson took his dispute to the Los Angeles County Superior Court.

Tax domicile has become a more pressing issue as states seek to generate additional revenue. The standard definition of domicile is “the place which an individual intends to be his or her permanent home and to which such individual intends to return whenever absent.” When domicile is not clear, over 28 states have created tests in order to determine if an individual is a resident, typically a days-in-and-out equation, with 183-day-presence being the most common. Most states often see domicile and residence as the same thing.

But California focuses on facts and circumstances. While an individual’s intent is considered when determining domicile, the FTB also looks at the individual’s acts and declarations.

Knowing these definitions is important in Johnson’s case. Judge Mark V. Mooney decided to back the Franchise Tax Board in last Wednesday’s ruling. This decision was based on many reasons. One of them was Johnson owning a house in the suburbs of Los Angeles, and filing a New York nonresident return in his 1996 federal return. At the time, Johnson was only able to claim a mortgage deductible by being a primary resident. This means that Johnson’s claim is inconsistent with the original filing. Mooney said that proving that Johnson rented a place in New York for four months is not enough evidence to be considered a New York residence. On the same note, Johnson previously claimed that he was a Nevada resident since he rented a room for $300 a month while also renting an apartment for his girlfriend and baby back in California. Where your spouse and children are located is one of many key factors the CA FTB considers when determining residency in California.

While fighting this battle, Johnson was also trying to abate the interest and penalties accrued. He owes about $905,000 in tax, penalties, and interest; $219,000 of which is the initial Income Tax. This was denied since Judge Mooney did not have the authority to overrule these fees. Judge Mooney also stated that he would not have felt inclined to wave these fees since Johnson could have been paying them while continuing with his dispute.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Several of former President Trump’s corporate tax cuts may be coming to an end if President Biden proves that he can roll back the 2017 proposal on domestic income-tax reductions as well as radically overhaul levies on profits that are earned abroad. His $2.25 trillion plan, based on infrastructure, relies on high corporate levies to pay for it. This proposal will change the tax benefits that were the core of the 2017 Tax Cuts and Jobs Act, which passed solely with Republican votes. Biden plans to increase the corporate income tax rate from 21% to 28% as well as have businesses pay more on global earnings. The administration proposes to eliminate fossil-fuel tax breaks and repeal incentives to move assets and jobs offshore.

Biden’s plan will update the matrix of carrot-and-stick incentives that were put in place in 2018. These incentives determine how many U.S. companies currently pay taxes on their foreign profits. Biden proposes a 21% global minimum tax on foreign profits to help keep income and assets local. This would be an estimated increase of 13% from what corporations currently owe on offshore earnings.

While Trump’s tax law was supposed to allow American companies to compete with other foreign companies in countries where taxes were lower and international tax regimes were permissive, it has only disappointed those who put it in place. Instead, companies only repatriated a fraction of foreign profits which were envisioned by the reform. Uncertainty about the longevity of this law had led companies to adopt a wait-and-see approach.

Many Republicans have defended Trump’s tax law, saying that by raising the federal corporate tax not only will the US rate be the highest among G-7 countries, but this would also increase the cost of investing in the country, harming the economy.

The National Economic Council Director Brian Deese predicts that Biden’s plan will stop the “race to the bottom” on corporate taxes. He also argues that Biden’s plan will be beneficial to private sector companies.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Thanks to a hotly debated pandemic tax break, the Internal Revenue Service is approving corporations to receive $14 billion in tax refunds. So far the IRS has received over 41,000 applications from businesses who are taking advantage of the provision in the March 2020 pandemic relief bill; which allowed companies to apply business losses to years in which they were not profitable. The Government Accountability Office (GAO) estimates that 1,200 companies that took advantage of the provision received a refund of more than $1 million.

This tax break, which was included in the bipartisan CARES Act, has recently come under fire from Democrats; calling for it to be repealed due to it largely aiding corporations and wealthy investors. Republicans argue that this was done so that companies can easily liquidate during the pandemic.

This is one of many updates to be rolled out of the economic relief bill that was passed more than a year ago. In its regular report to Congress, the GAO says that programs, such as the Paycheck Protection Program and Economic Injury Disaster Loan, are still suffering from fraud. The GAO also says that these programs need additional protection to help prevent improper disbursal of funds. They also say that states should provide more data to help with recouping billions in fraudulent unemployment compensations that were paid.

Although the IRS has just started issuing refunds to companies claiming the pandemic relief, there are still many more applications. Some were filed on paper, getting caught up in a mail backlog, or are tied to revised tax returns that have not been processed yet. The congressional Joint Committee on Taxation predicts that the corporate tax break will cost the government about $25.5 billion total. The committee also predicts that the tax break for non-corporate entities will total about $169.6 billion over the decade. Although the GAO’s data does not go over other business types, the GAO said it will be monitoring the refund claims for those taxpayers as well.

In 2020, Congress expanded the provisions of the Tax Code which allowed companies to carry losses back as far as 5 years. This allowed previously profitable businesses to mitigate losses as the economy faltered. Normally, the Tax Code allows business owners to tabulate net operating losses for the years they were non-profitable and use those to offset tax bills in the future when they do make money.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

To help pay for the long-term economic program that is designed as a follow-up to the recent pandemic-relief bill, President Biden is planning the first major tax hike since 1993. This next initiative, which is expected to be bigger than the $1.9 trillion Covid-19 stimulus act, won’t rely just on government debt as a funding source. Key advisers are now making preparations for a package of measures that could include an increase in both the corporate tax rate and the individual rate for high earners since it’s clear that tax hikes will be a component of funding.

Tinkering with rates is fraught with political risk since each tax break and credit has its own lobbying constituency to back it. This helps to explain why the tax hikes in Bill Clinton’s 1993 overhaul stood out from the modest modifications done since. For the Biden administration, the changes are an opportunity not just to fund key initiatives, but also to address what Democrats argue are inequities in the tax system itself. The plan will test both Biden’s capacity to woo Republicans, and Democrats’ ability to remain unified.

Biden’s outlook has always been that Americans believe tax policy needs to be fair. He has viewed all of his policy options through that lens, which is why the focus is on addressing the unequal treatment between work and wealth. To even out the wealth, The White House expects to propose a suite of tax increases. Portions of President Donald Trump’s 2017 tax law will likely be repealed under taxes that were included in any broader infrastructure and jobs packages that benefit corporations and wealthy individuals.

The following are proposals currently planned or under consideration, in no particular order:

  • Raising the corporate tax rate to 28% from 21%
  • Paring back tax preferences for so-called pass-through businesses; like limited-liability companies (LLCs) or partnerships
  • Raising the income tax rate on individuals who are earning more than $400,000
  • Expanding the estate tax’s reach
  • A higher capital gains tax rate for individuals earning at least $1million annually

According to an independent analysis done by the Tax Policy Center, about $2.1 trillion would be raised by Biden’s campaign tax plan. Although the overall program has not been released yet, analysts are penciling roughly $2 to $4 trillion raised.

While debates over whether infrastructure will ultimately pay for itself, there have been efforts to make the expanded child tax credit in the pandemic-aid bill permanent. This could be proven difficult to sell if pitched as entirely debt financed. Experts say that investing in infrastructure may provide durable economic gains that support higher pay and promote the diffusion of gains across demographic lines and political persuasions. Democrats would need at least 10 Republicans to back the bill to move it under regular Senate rules.

Although the 1993 bill marks the last comprehensive set of increased taxes, Biden’s bill is much bigger. While Bush’s 1993 bill passed on a two-vote margin in the House, it required the vice president to break a tie in the Senate. This means that Biden’s bill might be in a similar position. Some argue that due to some proposals, Republicans may support the bill.
These proposals include:

  • A shift from a gasoline tax to a vehicle-miles-traveled fee to help fund highway projects
  • More money for the Internal Revenue Service

If passed, tax measures would likely take effect in 2022, although this may change depending on the unemployment rate in the next year or so.

Talley’s experienced team of tax professionals provides comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

UPDATE: Federal and California April 15th tax deadline for individuals extended to May 17th

Earlier this month, President Biden signed the American Rescue Plan Act into law, which triggered the release of $1,400 economic impact payments along with tax breaks to stimulate the economy. Included in this $1.9 trillion legislation is a one-year expansion of child tax credit, up to $3,600 per child, extension of the employee retention credit, and the addition of more money to the Paycheck Protection Program. It promises to boost the economy substantially as it slowly recovers from the pandemic, which has left millions unemployed.

Employee retention credit. With the Employee Retention Credit that was introduced in the 2020 CARES Act, the goal was to keep workers on the payroll by providing tax credits to employers when the pandemic first started. This act was extended in December 2020 in the $900 billion Consolidated Appropriations Act. The main goal of Biden’s legislation is to extend the employee retention credit as well as the changes made due to the Consolidation Appropriations Act. The changes allow employers to claim a credit against 70% of qualified wages paid. Eligible wages went from $10,000 per year to $10,000 per quarter, and the recent legislation extends it until the end of the year. This means that businesses can get $28,000 per employee instead of the 2020 maximum of $7,000 per employee. This will allow businesses to put non-paycheck expenses towards PPP loan forgiveness since the required attributable wages went from 75% to 60%, giving businesses more potential employee retention tax credits.

Talley LLP is now submitting ERC claims on behalf of our clients. For more information, please Contact Us

Child Tax Credit. Huge benefits to taxpayers with small children, especially big families, are expected to be a result of the expansion of the child tax credit. Although it was used to reduce child poverty for a year, Democrats want to extend it further. The expansion of the child tax credit raised the amount for qualifying children from the 2020 $2,000 to $3,600 for children five and under, and $3,000 for children between six and seventeen. Many families will start to see payments this July. Families are also eligible for daycare expenses up to $4,000 after filing 2021 taxes.

Talley’s experienced team of tax professionals provides comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Under the Consolidated Appropriations Act (CAA), 2021, the Employee Retention Credit (ERC) received an update and is now available through June 30, 2021 to eligible employers who retained employees during the COVID-19 pandemic. Its main target is to help ventures and businesses offset the financial turmoil caused by the pandemic. Along with this update, a change to the Paycheck Protection Program (PPP) was also rolled out, allowing businesses that took a loan under it, to now be eligible for the ERC as well.

The CAA includes the following retroactive changes to the ERC. These changes apply to the period from March 13 through Dec. 31, 2020.

  • If you received a PPP loan, you may still qualify for the ERC for any wages not paid with proceeds from the forgiven portion of your PPP loan.
  • The Consolidated Appropriations Act clarifies how qualifying tax-exempt organizations determine “gross receipts.”
  • Group healthcare expenses are considered “qualified wages.” This is true even if no other wages are paid to that employee.

This update means that for employers who qualify, including borrowers who took a loan under the initial PPP, the credit can be claimed against 50% of qualified wages paid, up to $10,000 per employee annually, for wages paid between March 13 and Dec. 31, 2020.

For those who qualify in 2021, including PPP recipients, the new law expands the credit and allows them to claim a credit against 70% of qualified wages paid. In addition, the amount of wages that qualifies for the credit is now $10,000 per employee per quarter for the first two quarters of 2021. So, an employer could claim $7,000 per quarter per employee or $14,000 for 2021.

Who qualifies for the ERC?

Most employers can qualify for the credit, largely determined by two main factors, and at least one of these factors must apply in the calendar quarter the employer intends to use the credit:

  • A trade or business that was fully or partially suspended or had to reduce business hours due to a government order. The credit applies only for the portion of the quarter the business is suspended, not the entire quarter.
  • An employer that has seen considerable decline in gross receipts. With the updated law, beginning in 2021, businesses must be affected by forced closures or quarantines and have seen more than 20% drop in gross receipts in the quarter compared to the same quarter in 2019.

Note: New ventures are allowed by the IRS to use gross receipts for the quarter in which they began business as a reference for any quarter in which they do not have 2019 figures since they were not yet in business.

What wages qualify for the calculation?

For 2020, if you averaged more than 100 full-time employees, only wages for those you retained who are not working can be claimed. If you employed 100 or fewer workers, you can claim wages for all employees whether or not they are working.

For 2021, the threshold is raised to 500 full-time employees, meaning if you employ more than 500 people, you can only claim the ERC for those who are not providing services. If you have 500 or fewer employees, you can claim the ERC for all of them, working or not.

How do the credits work?
The Employee Retention Credit is taken off the employer’s share of Social Security taxes. However, the credit is fully refundable. So, if the credit were to exceed the employer’s total amount owed of Social Security in any calendar quarter, the excess is refunded to the employer.

At the end of the quarter, the amounts of these credits will be reconciled on the employer’s Form 941.

Talley’s professionals have spent literally hundreds of hours reviewing the law, regulations, and FAQs issued on an almost daily basis regarding the ERC and PPP, and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or refund process.

 

Over the past month, there have been large rumblings in the stock market after a group of Reddit users manipulated the price of stocks such as GameStop, AMC, and Blackberry, achieving huge gains overnight. Google searches for “What is short selling?” and “Purchase GameStop stock” likewise exploded, as more and more wanted to jump into the fracas in hopes of a quick payday. While most investors may have already notched tens of thousands, with some saying they’ve scored millions, many of those who want to cash in on their gains this year may be caught off guard by the amount of money they owe the government.

Those cashing in on their GameStop stock held for less than a year do not qualify for long term capital gains treatment and any gains will be taxed as ordinary income. Even if these non-day traders end up booking losses in the stock market in 2021, there is a limit to how far their losses can offset ordinary income. Although rates vary depending on what tax bracket the taxpayer is in, rates start at 10% and can be as high as 37%. There is also an additional 3.8% “Net Investment Income Tax” that applies to high earners, single filers making more than $200,000, or couples filing jointly who make more than $250,000, for a final rate of 40.8%. Those who have claimed that they have had GameStop Stock since 2019 are eligible for more favorable long-term capital gain tax rates if they recognize gain upon selling. The highest rate would be at 20%, but high earners would still have to pay the additional 3.8% making the rate 23.8%.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

 

In late December, President Trump combined a long-awaited stimulus bill with an omnibus spending bill called The Consolidated Appropriations Act of 2021. The bill’s main focus is on individual stimulus payments as well as the expansion of the Paycheck Protection Program.

With respect to expenses that have be paid for with forgiven PPP Funds, the bill confirms that no amount is to be included in the gross income of eligible recipients by reason of forgiveness and that no deductions will be denied; tax attributes will not be reduced, and basis increase will not be denied for the reason of exclusion from gross income. This means that forgiven amounts from PPP loans will not have an effect on income or tax credits in regard to wages paid.

Besides the stimulus, The Consolidated Appropriations Act of 2021 includes extensions to expiring tax positions including, but not limited to the 179D Energy-Efficient Commercial Buildings Deduction. In its creation in 2005, the 179D deduction incentivized the construction of energy-efficient buildings. Section 179D allowed up to $1.80 per square foot of deduction for the construction of energy-efficient buildings. Originally this was seen as temporary but has been regularly extended every few years. With the bill, the 179D deduction has now been permanently extended; but Congress has required the properties to meet a stricter set of criteria to be able to claim the deduction. This means that business owners can rely on the deduction long term, but few properties will qualify.

The new law also includes an extension for one-year extensions to the 45L Energy-efficient Home Credit. While 45L was supposed to expire at the end of 2020, the bill extended the end date to the end of 2021, meaning the $2,000 per unit credit will still be applicable for building energy-efficient homes. This will assist home builders and apartment developers this year as they recover from COVID-19 and the economic crisis.

It is important to note that The Consolidated Appropriations Act of 2021 does not change the current laws regarding meal and entertainment deductibles. Currently, the CAA has temporarily increased the deduction percentage on business-related meals and entertainment to 100 percent until the end of 2022.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Sixteen years ago, The Oprah Winfrey Show made TV history with the iconic “You get a car!” giveaway episode. Oprah surprised her studio audience with 276 brand new Pontiac G6 sedans worth over $7 million. While the surprise went down as one of the show’s most memorable moments, the aftermath of the giveaway left recipients faced with a hefty tax bill.

The segment began with Oprah calling eleven random audience members on stage and announcing that they had each won a car. After their excitement had died down, she told the entire audience to retrieve gift boxes from under their seats and announced that one of the boxes also contained car keys. Upon opening the boxes, every audience member found a set of keys causing pandemonium throughout the studio.

The giveaway was sponsored by Pontiac, a General Motors brand, as a promotional marketing campaign. While General Motors covered the price tag of $28,500 and the sales tax of $1,800, the gift tax was left for the prize winners to handle. The cars were not classified as gifts and instead were considered promotional prizes, similar to the way game show giveaways and lottery wins are treated. The value of the cars was going to be taxed accordingly, at a total of about $6,000 to $7,000. This is in accordance with the tax code which states that “Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.”

Although receiving a car at a $6,000 price tag is a significant discount, audience members had been chosen by the Oprah staff based on their need for a car. Most individuals had to scramble to come up with the funds to be able to receive any benefit from the prize. The alternate options were selling the car and paying the taxes or turning the prize down altogether.

While unfortunate, the experience of Oprah’s audience members provides a valuable lesson about dealing with windfall events you may experience in your own life. Winning the lottery, receiving an unexpected inheritance, and cashing out a retirement plan are all financial events that can be a welcome occurrence, but can raise serious financial questions that you must deal with quickly.

Talley offers a broad spectrum of services to fulfill the needs of high net worth individuals, entrepreneurially driven companies, and their owners. Whether you are considering an M&A transaction or experiencing a financial windfall event, the professionals at Talley can help you to make the most of both your earnings and winnings.

Due to the economic fallout caused by COVID-19, the IRS is making changes to its tax collection program. This change will allow taxpayers with outstanding tax debts more room to relax as they are coping with financial burdens. Some changes that the IRS has implemented are making the set-up process for payment agreements easier; and allowing compromises as a part of a new Taxpayer Relief Initiative. In addition to easier payment agreements, the IRS has also implemented a new system called SafeSend Returns. This program allows the IRS to assemble, securely deliver, and collect e-signatures from taxpayers from anywhere.

Other forms of relief that the IRS is offering consist of:

  • Taxpayers that qualify for a short-term payment plan option have 180 days to resolve their tax liabilities rather than 120 days.
  • Flexibility for taxpayers who are temporarily unable to meet the payment terms of an accepted offer in compromise.
  • Automatically adding new tax balances to existing installment agreements, for individuals and out-of-business taxpayers, instead of defaulting the agreement.
  • Qualified individual taxpayers that owe less than $250,000 can set up installment agreements with the IRS without a financial statement or substantiation, as long as their monthly payment proposal is enough.
  • Individual taxpayers who only owe outstanding taxes for 2019 and owe less than $250,000 can qualify to set up an installment agreement without a tax lien noticed filled by the IRS.
  • Qualified taxpayers who have an existing direct debit installment agreement with the IRS can use the Online Payment Agreement system for a lower monthly payment amount and alter payment due dates

The IRS offers options for short- and long-term payment plans, which include installment agreements via the Online Payment Agreement system. This service is available to people who owe $50,000 or less in income tax, penalties and interest; or to businesses that owe $25,000 or less combined, who have filed all tax returns as well. In addition to these payment plans and installment agreements, taxpayers can also contact the IRS for a temporary delay of the collection process.

The IRS is also highlighting reasonable cause assistance for taxpayers who fail to file, pay and deposit penalties, as a way to provide relief from these penalties. For first-time relief of these tax penalties, the IRS offers taxpayers penalty abetment relief. Taxpayers may apply for forms of relief without talking to a representative through the IRS website

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome opportunity to discuss current options available for you. For more information, contact us today.


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