Ref: IRS Notice 2013-54

Relief under Notice 2013-54 ended JUNE 30, 2015. That relief allowed small employers (i.e., those with few than fifty full time equivalent employees) to reimburse employees directly for health care that they obtained privately. If the employer continues such reimbursement plans, they could be subject to a $100 per day penalty ($36,500 per year) per employee.

Small employers, those not required to cover employers through ACA, are left with a few options:

1. Discontinue health care for employees completely… perhaps with an increase to employee wage rate so that they can more afford to buy coverage through the “marketplace.”

2. Buy small employer ACA group coverage through the ACA marketplace.

Call your DMD CPA professional for more information on this subject.

Ref: IRS Notice 2015-17

Good news! The IRS is suspending the penalty under the Affordable Care Act (aka Obamacare) that had been slated for 2015 when an S corporation pays health insurance premiums on behalf of its more-than 2% shareholder(s).

Until further notice, the IRS won’t charge a penalty as long as the corporation follows Notice 2008-1 and includes the premium as a fringe benefit on the shareholder/employee’s Form W-2.  (Note that the shareholder-employee takes an above-the-line deduction on his/her individual return for the premium amount).

Please contact us if you need to know how to implement IRS Notice 2008-1 for your own company.

A new California law requires all business and trust returns to be e-filed over the government secure web sites.  We will, therefore, e-file all such returns for businesses based in California.  The state sees this as a method to reduce salaries (and shifting that time to CPA firms preparing the returns).

Source: HR 5771

On the evening of December 16th, the US Senate passed HR 5771 by a large majority. This restores Section 179 depreciation and bonus depreciation to 2013 levels ONLY FOR 2014. The bill had earlier passed the House by a huge majority.  The White House has not voiced any objection to the bill and the President is expected to sign it shortly.

Buying equipment prior to December 31: If you’re running out to buy more equipment for 2014, remember that it must be in-place and operable by midnight on 12/31/14.

Reference: Ocean Avenue LLC v. County of Los Angeles and R&TC Section 46(a).

In the above case, three individuals/entities bought all of the membership shares of Ocean Avenue LLC without any of them having a controlling interest.  Because there was no change in controlling interest, there was no new assessment of the underlying property owned by Ocean Avenue LLC (a hotel in Santa Monica). The case hinged on close relationships between the three buyers.  Although the case cannot be cited or relied upon in court (decertified), it does highlight the rules under CA Revenue & Tax Code Section 64(a) where a change in control of the underlying ownership entity does not exist.

This is a possible planning tool, but must be undertaken only after careful consultation with a real estate tax attorney familiar with the complexities of R&TC Section 46.

Reference: IRS Notice 2014-7 and IRC Section 131. 

The IRS has recently changed their interpretation of the law in regards to taxpayers receiving payments as in-home care providers for their parents and adult children  through California’s In Home Supportive Services (IHSS) program (administered by the County). In most circumstances, taxpayers can now exclude such income from their taxes.  Furthermore, the IRS will allow the taxpayers to file amendments (to receive refunds) for all “open years.” (Typically three tax years back).

Please contact us immediately if you think you qualify. The amended returns must be timely filed.

Ref: Senate Bill No. 871

Generally, new construction on an existing structure will trigger a property tax RE-ASSESSMENT under the rules of Proposition 13. 

This bill exempts construction for installation of solar energy systems. Quoting from the Legislative Counsel’s Digest, “Pursuant to an authorization in the California Constitution, existing law excludes, through the 2015-16 fiscal year, from classification as “newly constructed” the construction or addition of an active solar energy system, as defined.  This exclusion will be repealed on January 1, 2017.”

Read the full bill at http://leginfo.legislature.ca.gov.

Reference: California Form 593 instructions.

If you sell any asset in California on an installment contract, the BUYER has to withhold monthly on the principal payments he/she makes to you.  The buyer then sends the tax withheld to the Franchise Tax Board (FTB) EVEN IF YOU’E MOVED out-of-state. You, the seller, then file your annual tax return with CA to reconcile the amounts withheld with your actual tax liability (and often receive a refund of some of the backup withholding).

BUYER (not seller) is responsible for withholding CA tax from each payment.  The buyer must withhold the CA tax and file the Form 593 on monthly basis.

SELLER can elect to tax the entire CA gain in the year of sale.  If this election is made, the seller must make written request to the FTB.  Once the FTB approves the request, they will issue a letter releasing the buyer from withholding requirements.

Tax-free employee reimbursements under an accountable plan.

Ref: IRS Revenue Rulings 2012-25 and 2012-37.

Reimbursements to employees under an accountable plan are not included in employee wages and are fully deductible by the employer. Common examples are reimbursements for mileage using the IRS standard mileage rates and reimbursement for employee cell phone use.

3 tests: In order to qualify, a plan must meet three tests: Business connection, substantiation and returning excess. These are discussed in Regulation 1.62-2.

IRS discusses the Business Connection Test in the above Revenue Rulings. In summary, the business connection test is met if the plan is not “wage rechacterization,” the expenses are incurred by the employee, and the expenses are in connection with the performance of his/her services.

Used correctly, this rule can greatly benefit both the employer and employee. An example would be reimbursement of employee business mileage at the 2014 rate of 56 cents per mile (when the employee is driving a hybrid car). The employer receives the deduction of 56 cpm and the employee receives the reimbursement tax-free.

Call us for additional discussion.