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Los Angeles Certified Health Business Development Consultant

Last Updated:
Tuesday February 07, 2017




The year 2009 will be one to tell your grandchildren about! Not since the Great Depression has the economy dampened growth and prosperity as it has this year. The year has seen massive unemployment, a surge in Chinese financial muscle, and the bankruptcy of venerable U.S. institutions, among other ‘firsts’.

Another way of looking at the financial mire is to see a long overdue ‘correction’ and awakening to a changing world. The way we handle our finances and manage our businesses is entering a forever-new phase.

The lesson as I see it is to plan for the worst and always look for new opportunities. Be nimble to shift direction with the blowing winds. Above all, as always, stick to basics.

Note that all tax laws included in these Highlights are subject to last minute changes by Congress. The financial currents in this country are constantly changing . . .

Breaking news . . . December 3, 2009 the House passed legislation permanently extending the top federal estate tax rate of 45 percent with a $3.5 million exclusion ($7 million for married couples). The Senate’s December schedule is dominated by debate on health care reform, which leaves little time for action on the estate tax bill. Watch the news for end of the year information.


First-time homebuyer credit extended and enhanced. First-time homebuyers who purchase their homes after November 6, 2009 and before May 1, 2010 are entitled to a maximum credit of $8,000. Certain non-first-time homebuyers who are long-time residents are entitled to a maximum tax credit of $6,500. Assorted rules and limitations apply. For more information go to: www.irs.gov/newsroom/article/0,,id=187935,00.html

Net operating loss carrybacks are extended and enhanced. A small business can now elect to carry back a Net Operating Loss five, four, or three years. This allows businesses to recover cash paid to the IRS in mitigation of a weakened business climate. It is effective for net operating losses generated in tax years beginning or ending in 2008. For years beginning in 2009, the loss that is carried back five years can only offset a maximum of 50% of the taxpayer’s taxable income for that fifth preceding year.

New tax legislation affecting individuals.
. . . Required Minimum Distributions are suspended for 2009 for all qualified defined
contribution plans and IRA accounts. (You may still take a distribution if you want)
. . . Unemployment compensation excluded up to $2,400 per person (2009 only)
. . . $ 2 million exclusion on discharge of debt on principal residence
. . . One year extension of enhanced Section 179 ‘expensing’
. . . One year extension of special 50% bonus depreciation. Buy and place your original
use assets in service on or before December 31, 2009 for this benefit
. . . Congress also temporarily reduced the recovery period from 39 years to 15 years for
qualified leasehold improvements, restaurant property and retail improvement
property placed in service by December 31, 2009.
. . . Deduction for sales tax on new car purchase – with some limitations and phase-outs
. . . Hope Credit enhanced and temporarily renamed American Opportunity Tax Credit

Strategies for reducing taxable income.

• Prepay deductible tax payment such as state income taxes and property taxes;
• Step up your charitable contributions – noncash items will work well . . .
• Shelter wages by maximizing 401(k) elective contributions or making a deductible IRA contribution
• Defer receipt of income where you can control payment sources
• Prepaying deductible expenses to the extent allowable
• Performing deferred maintenance and repairs on rental properties generating taxable income
• Maximizing IRC Section 179 expensing and bonus depreciation for new business assets
• Reduce distributions from retirement plans under RMD guidelines


Accelerate capital gains.
The final step in taking advantage of the maximum 15% capital gains rates in the years 2008 to 2010 before they revert to 20% in 2011 is to ensure that collection of proceeds are recognized as long-term capital gains. Consider:

• Accelerate collection on installment sales;
• Reposition investment portfolio allocation; and
• Defer capital losses to offset higher-taxed capital gains.

With federal tax revenues declining, the low 15% rate may not be extended beyond 2010. If investment considerations justify selling your stock, it may be smart to cash in your gains at these favorable rates in 2009.

If you hold stocks with both gains and losses, you can sell the appreciated stock in 2009, to include the income at low capital gains rates, and then sell the depreciated stock in the following year, when the losses could offset income taxed at a high rate. Other strategies may apply depending upon the extent of your gains and losses.

The Standard Deduction also includes
. . . sales tax paid on the purchase of a new car
. . . property taxes paid by non-itemizers
. . . net disaster losses

Deduct medical expenses of a qualifying relative even though you cannot claim that person as a relative. If you follow the rules these payments to the provider of services can help you get over the 7-1/2% AGI hurdle.

Charitable donation substantiation. The rules are generally the same as for 2008. The basic concepts to remember are to have a bank record of the payment and a written contemporaneous acknowledgement from the donee. For non-cash contributions you can prove the items to be in ‘good used condition or better’ (as required by the IRS) with a detailed statement complete with pictures. If you want the deduction then take photos and prepare a detailed statement.

Estimated tax payment requirements eased for small business owners. For 2009, an individual who is a small business owner (a business which had an average of less than 500 employees in the prior year) can avoid the underpayment penalty if that individual makes estimated tax payments equal to the lesser of 90% of the tax shown on the return or 90% of the tax shown on the return for the preceding year. This compares to the 2008 requirement of 100% of the prior-year tax or 110% if AGI for the prior year exceeded $150,000.
. . . You qualify if

• Your AGI on the prior-year return is less than $500,000, and
• You certify that more than 50% of the gross income shown on the prior-year return was from your small business.

Enhanced education tax credit. The newly named American Opportunity Tax Credit (formerly the Hope Credit). Covers the first four years of college; maximum credit of $2,500; includes tuition, fees, and materials; up to 40% refundable; AGI phase-out in 2009 and 2010 of $80 to $90,000 ($160,000 to $180,000 on a joint return).

Non-business energy credits for the cost of energy efficient improvements to a principal residence. For 2009 and 2010 the credit rate is increased from 10% to 30%, the dollar limitation on residential energy property expenditures are eliminated, the lifetime limitation of $500 for the credit has been eliminated, and the credit is now limited to $1,500 in the aggregate for 2009 and 2010.

Due to the numerous types of property and improvements that may qualify,
the following resources are provided:

  • www.energystar.gov/index,cfm?c=productions.prČ_tax_credits#s1 
    (federal energy)
  • www.dsireusa.org.summarytables  (California energy)
  • http://solar.coolerplanet.com/Content/solar-calculator.aspx  (solar)

Gift tax exclusion. For 2009 and 2010 the annual exclusion is $13,000 a person.

Additional planning pointers:

• Contribute appreciated assets such as stock, rather than cash, to a charitable organization and get a deduction of the full Fair Market Value and be relieved of tax on the capital gain.
• Make sure you have maximized your 401(k) plan for 2009. The maximum deferral is $16,500. If you are at least age 50, you may make a catch-up contribution of $5,500.
• 401(k) and profit-sharing plans must be set up before the end of the year. SEPs may be set up on or before the due date of the return (including extensions). IRAs may be set up on or before the original due date of the return (NOT including extensions).
• Consider putting the spouse on the payroll and contributing for him or her also.
• Maximum IRA contribution for 2009 is $5,000 plus a $1,000 catch up contribution if age 50 or over. Consider making a spousal IRA contribution as well.

Roth IRA Conversions. You may convert all or a portion of a traditional IRA to a Roth IRA and make future distributions tax-free, but there is a cost: The amount of the conversion is taxable income in the year of the conversion. If the conversion takes place in 2010 you can recognize half the income in 2011 and half in 2012. Or you can elect to include all the income in 2010.

There are two reasons why the conversions are at the forefront of tax planning strategies this year:

1. Beginning in 2010 there are no longer any income limitations to prevent you from making the conversion
2. It is good planning to make conversions when income is down, which may be the case in 2009, and you can report the income from the conversion in a low tax bracket.


Domestic Production Activities Deduction. As mentioned in my last several Tax Highlights, this deduction is a ‘give-away’ to business taxpayers. The deduction is a fixed percentage of income from qualified production activities or adjusted gross income, whichever is less. For 2005 and 2006 the deduction was 3%; for 2007 through 2009 the percentage was 6%, and for 2010 and after is 9%. Complex calculations must be followed.

Qualified production activities include manufacturing based in the U.S.; selling, leasing, or licensing items that have been manufactured, produced, grown or extracted in the U.S.; selling, leasing, or licensing motion pictures that have been produced in the U.S.; construction services in the U.S. including building and renovation of residential and commercial properties including infrastructure; engineering and architectural services relating to a U.S.-based construction project; software development in the U.S., including the development of video games.

A comprehensive explanation is provided in my 2006 Tax Highlights on my web site.

Partnerships and LLCs. Beginning in 2009, partnership extensions are for five months, not six.

Troubled real estate – foreclosures. There seems to be no end to foreclosures in sight. For a better understanding of foreclosures see my Tax Highlights for 2008 as posted on my web site.

Mandatory e-file. HR 3548 requires nearly all paid preparers to file their individual clients’ returns electronically. Although we don’t know when e-filing will be the law of the land – it certainly will be one day.

Changes in the wind . . . Currently the top two rates are 33% and 35% but they are temporary and will expire after December 31, 2010. The Obama administration has proposed reinstating the 36% and 39.6% rates for higher-income taxpayers . . .


The California Legislature has already borrowed from 2010 and 2011, so we could easily see large tax increases in 2010. So here goes . . .

Increase in personal income tax rates. The personal income tax rate has increased by 0.25 percent across the board for taxable years 2009 and 2010. Although the withholding tables were changed twice during the year, it is highly possible that many individuals will find themselves under-withheld in 2009.

Estimated tax payment schedule is again front-loaded. On or after January 1, 2010 the four estimated payments, for individuals and businesses, are 30%, 40%, zero, and 30%

Tax credit for purchase of a qualified residence.
Any taxpayer who purchased a qualified principal residence on or after March 1, 2009, and before March 1, 2010, is allowed a credit equal to the lesser of 5% of the purchase price or $10,000. Unfortunately, there was a $100 million limit on the amount of the credit, and by early July, 2009 the FTB had ceased issuing certificates to qualified applicants. So . . . no cigar.

Small business New Jobs Credit of up to $3,000 for each net increase in qualified full-time employees hired. The total amount of credit available to taxpayers is capped at $400 million – so hurry and file early – meaning file during the first three months of 2010.

Electronic tax payment requirements
Beginning in 2009, individuals who met certain thresholds were required to make all tax payments electronically. In March of 2009, the Franchise Tax Board announced they would not penalize taxpayers who failed to meet the requirement. The FTB has not yet made a decision about applying penalties for 2010.

All payments made by an individual on or after January 1, 2009, regardless of taxable year or amount must be remitted electronically to the FTB after the individual either has:

• Made a single estimated tax or extension payment greater than $20,000 for a taxable year beginning on or after January 1, 2009; or
• Filed an original return with a tax liability greater than $80,000 for a taxable year beginning on or after January 1, 2009.
Once an individual meets either of these tests, ALL future payments must be made electronically. However, the ‘trigger payment’ may be made by check.

Thus, although the FTB did not penalize taxpayers for failing to pay electronically in 2009, any individual that met either of the two requirements is required to made payments by Electronic Funds Transfer in 2010.

A 1% penalty for noncompliance will be assessed except if reasonable cause and not willful neglect is established. A reasonable cause waiver is nigh impossible to get.  Electronic payments can be made by:

Web Pay.
Go to www.ftb.ca.gov/online/webpay/index.asp  and follow the prompts. (No fee is charged)
Credit card
Either call 800 272-9829, or access www.officialpayments.com  (a convenience fee of 2.5% will be charged)

Caution: Using a bank’s online bill pay service is not an electronic payment

How to file an appeal to reduce property taxes. Property owners who believe their property is overvalued may seek a reappraisal from their local county assessor’s office. They may not need to file a formal appeal if they talk with their assessor’s staff first. You may file an appeal with your local Clerk of the Board. Note: you must pay assessed property taxes on time – even if you file an appeal.



Solutions For You and Your Business

You don’t have to be a financial genius to solve the financial crisis that surrounds all of America and is now affecting you! You just need solutions from someone who makes his living providing solutions to individuals and business.

Answers are often difficult to come by when the crisis affects you or your business. But rest assured there are answers to every crisis.

You may not visualize the solution, you may not want to hear it, or you may believe that nothing will help. But there is a way to deal with all problems.

I’ve been providing solutions to my clients for over 30 years. During that time I’ve untangled thousands of unique problems. Every one of them is unique, just like your present situation.

The basic principals I employ are based on best practices, proven methods, careful analysis of the facts, and the ability to ‘think outside the box’.

If you would like to discuss your situation, email us and say you are asking about Financial Bailout Solutions. There is no charge for our conversation. If you would like to tap into my experience to help your situation, we can arrange a personal interview and meeting at my office in Encino.



People often take out a life insurance policy, yet as their lives change, the need for the policy disappears. Not wanting to continue paying, they’ll either turn it back to the original insurance company for cash or just let it lapse. Good news: there’s now an option which can deliver a huge cash payment for this unwanted policy.

Over the last few years, a new market has developed which buys unwanted life insurance policies (called “Life Settlement” market.) They consider a life insurance policy an asset (like real estate) with a market value. They will appraise your policy and often deliver a cash payment much greater than just turning back the policy to the original life insurance company.

For example, a couple in their early 80’s had a $5.0 million life insurance policy they didn’t want anymore. They were about to give the policy back to the insurance company for the $100,000 cash value. Their attorney suggested they try to sell the policy for a higher value in the “Life Settlement Market.” A life insurance broker who specializes in this area was able to deliver a check to them for $800,000.

If you’re over age 70 and you have a life insurance policy which is no longer needed, check with me for a referral to a broker who specializes in this area.





The IRS is launching a new research compliance program of S corporations.  The study will examine 5,000 randomly selected S corporation returns from tax years 2003 to 2004.  The 5,000 represents 1.6 thousandths of 1% of all S corporations.

The last compliance study was in 1984, prior to tax law changes that spurred the growth of S corporations from 724,749 to 3,154,377 in 2002.

Purpose of the audits

Research programs are undertaken periodically to ensure that corporations and individuals pay their fair share of taxes.  Based on study results using statistical analysis, the IRS updates its methods of finding returns that might potentially have problems.

Salary abuse

The impetus for the S corporation study is a result of Social Security hearings early in 2005.  The highlight of the hearings was the loss of payroll revenue to the federal government.  “People are taking salaries that are too low, sometimes as little as zero, to beat the 15.3% FICA tax.  Or there are those who pay themselves $10,000, but take out $90,000 in distributions.”

Inappropriate deductions

The study expects to find a disproportionate amount of inappropriate deductions in small and midsized businesses.


Compensation to owner employees should be reasonable: what you would have to pay a third party to perform your services.  In addition, all expenses should be directly related to the business of the S corporation, and be well documented.  Contact your CPA to determine if you will pass the new IRS research program audit.







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