1. Individual & Business Tax Update

2. “The Hardest Thing in the World
to Understand is Income Taxes.”
- Albert Einstein

3. Today’s Topics
 American Tax Payer’s Relief Act of 2012
 California Proposition 30
 Hot IRS Audit Areas for Individuals &
Small Businesses
 Questions

4. American Taxpayer’s Relief Act of 2012
 Individuals
o 39.6% tax rate for top earners
o Top capital gains rate – 20%
o Payroll tax back up to 6.2%
o AMT Exemption made permanent
o Certain Individual Credits – Ext’d

5. American Taxpayer’s Relief Act of 2012
 AMT Exemption permanent –
indexed for inflation
o Single: $50,600
o MFJ: $78,750

6. American Taxpayer’s Relief Act of 2012
 Individual Credits – Ext’d thru 2017
o American Opportunity
o Enhanced Child Credit
o Enhanced EITC

8. American Taxpayer’s Relief Act of 2012
 Business
o 50% bonus & $500k §179
o Other provisions

9. American Taxpayer’s Relief Act of 2012
 Bonus & §179 (for 2012 & 2013)
o $500,000 §179
o Qualified real estate - §179 and 15
year depreciation
o Bonus at 50%

10. California Proposition 30
 Income Tax increases (retro. 2012)
 Up to 12.30%
 Sales tax Statewide rate to 7.50%
(Increase of .25%)

11. Hot IRS Audit Areas
 Schedule C
o Reasonable & justifiable
o Underreporting income
o Overreporting deductions
o Continuous losses year over year
o Consider the benefits of
incorporating

12. Hot IRS Audit Areas
 Home office deduction
o Beg. 2013 – optional safe harbor
method
• Pass one of the home office tests
• $5 per sq. ft. up to 300 ft. (max.
$1,500 deduction)
• $5 in lieu of other expenses

13. Hot IRS Audit Areas
 Pay S corporation Wages
o No one works for free
o IRS - Pay yourself a salary, pay payroll
taxes on that salary
o “Reasonable salary”

14. Hot IRS Audit Areas
 Employee vs. Contractor
o Do you instruct or supervise the
person while he or she is working?
o Can the worker quit or be
discharged (fired) at any time?
o Is the work being performed as a
part of your regular business?

15. Hot IRS Audit Areas
 Other Areas:
o Large charitable contributions
o Business meals, travel and ent.
o 100% business use of a vehicle
o Passive losses

16.  Questions / Comments