If you have been claiming a home office deduction as a sole proprietor and are considering incorporating you business, be aware that you could lose the benefits of your home office deductions. The IRS rules limit the home office deduction for shareholders of a corporation even if you rent the office to your corporation.
As an employee of the corporation, if the office is maintained for the convenience of the employer and is a requirement of employment because the corporation provides no office, then generally the home office deductions are claimed on Schedule A as a Miscellaneous Itemized Deduction subject to the 2% floor on Adjusted Gross Income. For example, if your adjusted gross income is $200,000 and your home office deductions total $5,000 you would only be able to claim a $1,000 deduction for the amount that exceeds 2% of $200,000. Even worse, if you are subject to the Alternative Minimum Tax, you would get no benefit since Miscellaneous Itemized Deductions are not allowed for purposes of the Alternative Minimum Tax.
As a planning technique, you can have the corporation adopt what is called an “Accountable Reimbursement Plan” that meets certain IRS qualifications. Basically, it requires employees to submit expense reports and get reimbursed by the corporation on a dollar for dollar basis for IRS deductible business expenses, including home office deductions that meet the IRS requirements of a home office. When an accountable plan is used, the employee does not have to pick up the reimbursements as income on their W-2 wage statements, and the employer gets to deduct the expenses as if they were the expenses of the employer. Accordingly, the expenses are moved from the personal tax return to the corporation tax return as reimbursed employee business expenses rather than expenses of a corporate office rented from the shareholder.
So far this technique has not been challenged by the IRS and I recently successfully defended it on an IRS audit. If you have concerns about losing the benefits of your home office, please contact me for a consultation at 650-400-2539 or email me at peter.diaz@diazconsulting .com for more information.
The Prime Buyer's Report names Peter B Diaz CPA & Associates as Top 10 Tax Return Preparation Services in San Mateo County
By Lauren Bongard Schwarz, Associate Editor, The Prime Buyer's Report
Smart consumers have found they can save thousands of dollars at tax time by working with a professional accountant to plan ahead throughout the entire year, well before April. In fact, the right CPA (Certified Public Accountant) can help you get larger returns when you finally file your taxes, and make smarter financial decisions all year long.
A Proactive Approach to Saving You Money
Did you know that discount tax preparers or software programs can actually cost more than hiring a CPA? Peter B. Diaz, a CPA based in Redwood City CA, says they can—and the proof is in the savings. "Since not all tax return services offer the same result, what looks like a cheaper option can end up being a lot more expensive," he says. "Tax law isn't black and white, and there might be different options for the same set of facts. You can't judge the value of tax return services on their upfront cost. Instead, you should consider the tax savings."
Experience counts for a lot in the tax return business. But many employees at those tax chain outlets have only done a few seasons of tax filing, or less. Even at large accounting firms, tax preparation is often done by only junior accountants. That means you could be missing out on major deductions because junior accountants haven't learned yet all the ways to save clients money. And if you're doing your taxes at home with one-size-fits-all tax software, you could be losing even more money.
When you work with Peter Diaz, you benefit from his professional know-how. "I have over 25 years of experience doing taxes, and I handle every return for every one of my clients from start to finish," he says.
A San Mateo County client named Alan said Peter Diaz was skilled enough to prepare complicated tax returns. "And best of all, he knows how to save you lots of money," says Alan. "And that is what I want, someone who knows how to get me the biggest tax savings."
Your Own Financial Adviser
What is the biggest perk of working with a CPA? "My clients get the benefit of a relationship. When they work with me, they get their own financial adviser," says Peter Diaz. "And that's something you'll never get from a tax software program or a tax filing-only company. Those services are enough for some people, but other clients expect more. That's why I focus on consulting, planning and that client-professional relationship."
Peter Diaz in Redwood City CA has been Renate's personal and business accountant for more than 15 years. During a research phone call, Renate said she continues to work with Peter because of his business skills and reliable year-round consulting help. "Peter is thoroughly experienced and remembers everything. It's extraordinary. He is exact and straightforward. We always know what we can expect from him."
Tax filing centers are only open for a few weeks around tax time, leaving you without an advocate for most of the year. The same holds true for do-it-yourself software. If there is a problem with your numbers, there is no one to call for help.
And it's not uncommon for tax filers to get letters from the IRS. Peter Diaz says that can send some people into panic mode. "That is when most people realize they need an educated professional who can tell them what that notice means and how to respond to it," he says.
Even if you never need to respond to an IRS notice, chances are you'll have financial questions throughout the year. "My clients often use me as a sounding board for financial consulting matters," says Peter. "And with my background in business, I am able to help them with a lot of questions that don't have to do with taxes."
Peter says this open line of communication helps his clients make financial decisions that save them money all year long. "I encourage my clients to communicate with me," he says. "Any time they have a financial question, I want them to call and run it by me. By making smart financial decisions throughout the year, most clients can save a couple of thousand dollars even before they factor in tax savings."
Peter Diaz grew up in the Bay Area. His wife, Lana Diaz, is a financial analyst for a local biotech company. The couple and their four-year-old Golden Retriever, Harley, live in Redwood City CA, just three miles from both his parents and her mother. Peter says living close to their parents helps them keep a strong emphasis on family.
The Diazes say they're fortunate to live in San Mateo County because of all of the outdoor activities the Bay Area has to offer. They are both certified sailors and members of a local sailing club. On weekends they take their sail boats, which are up to 49-feet long, out on the San Francisco Bay. The couple also enjoys kayaking and riding motorcycles. "In fact, Lana is taking a class so she can get her motorcycle license," says Peter. "She wants to ride her own motorcycle, instead of always being on the back of my bike."
Walking in His Clients' Shoes
Peter Diaz first worked as a CPA for 10 years and then became tax director for two large publicly traded companies before starting his own business. "During my 10 years as a tax director, I worked with CPA firms who served me as their client," says Peter. "So I have been in my clients' shoes. I know what I liked about the firms that served me, and I know what I didn't like. I've incorporated those experiences into my services, and I know how to show clients they are important."
Peter's clients get one-on-one attention from him every time they call or visit. "I work with my clients over the long term," he says. "So I establish good working relationships with strong back-and-forth communication. That is the big reward for me—interacting with my clients and being a source of knowledge for them."
Peter Diaz's clients say they like the personal attention he gives them. During a research phone call, a client named Susan said Peter has handled her family's taxes for years. "He is incredible. He does his job thoroughly, and he is timely and easy to work with."
Customers who work with Peter Diaz feel comfortable talking about the details of their finances. "When clients know me and trust me, they feel safe sharing information that helps me save them money," says Peter Diaz. "If a client holds back financial details, it can cut into their tax savings, so feeling comfortable makes all the difference."
Money-savvy consumers know that hiring a personal accountant well before the tax season saves them money on their taxes when it comes time to file. So don't wait until tax time to find an accountant. Instead, choose a tax specialist like CPA Peter B. Diaz in Redwood City who has the experience and the know-how to deliver savings during tax time and throughout the year.
Peter B. Diaz, CPA, Receives Talk of the Town Award for Excellence in Customer Satisfaction
Celebration Media U.S. and Talk of the Town News choose Peter B. Diaz, CPA to receive the Talk of the Town Award for Excellence is Customer Satisfaction. The award was created to showcase companies that excel in serving their customers and getting their high marks. Celebration Media U.S is an independent professional research company that monitors positive and negative reviews, blogs and social networks to determine the highest-rated and top-reviewed businesses in all 50 states of the country. Talk of the Town News provides information, resources and solutions for online reputation management. The award celebrates the highest achievements in customer satisfaction, services, management and leadership. Company ratings can be viewed at www.talkofthetown.com.
Peter B. Diaz, CPA Receives Best of Redwood City Award
U.S. Local Business Association's Award Plaque Honors the Achievement
WASHINGTON D.C. -- Peter B. Diaz, CPA has been selected for the Best of Redwood City Award in the Tax Return Preparation & Filing category by the U.S. Local Business Association (USLBA).
The USLBA "Best of Local Business" Award Program recognizes outstanding local businesses throughout the country. Each year, the USLBA identifies companies that they believe have achieved exceptional marketing success in their local community and business category. These are local companies that enhance the positive image of small business through service to their customers and community.
Various sources of information were gathered and analyzed to choose the winners in each category. The USLBA Award Program focused on quality, not quantity. Winners are determined based on the information gathered both internally by the USLBA and data provided by third parties.
About U.S. Local Business Association (USLBA)
U.S. Local Business Association (USLBA) is a Washington D.C. based organization funded by local businesses operating in towns, large and small, across America. The purpose of USLBA is to promote local business through public relations, marketing and advertising.
The USLBA was established to recognize the best of local businesses in their community. Our organization works exclusively with local business owners, trade groups, professional associations, chambers of commerce and other business advertising and marketing groups. Our mission is to be an advocate for small and medium size businesses and business entrepreneurs across America.
SOURCE: U.S. Local Business Association
CONTACT: U.S. Local Business Association Email: PublicRelations@USLBA.net URL: http://www.USLBA.net
B. DIAZ, CPA - TAX CONSULTING & FINANCIAL PLANNING IS DESIGNATED AS
A TOP 10 BUSINESS BY PUBLISHERS OF THE
PRIME BUYER'S REPORT
Redwood City, CA
Peter B. Diaz, CPA - Tax
Consulting & Financial Planning announced it has been
designated as a TOP 10 business by The Prime Buyer's Report and so is
officially designated "Prime Buyer's Certified - TOP 10".
The determination of Peter B. Diaz, CPA as a TOP 10 business was made based
on a ten-point research process conducted by the independent publishers of The
Prime Buyer's Report. The process involved a thorough interview with Peter B.
Diaz, CPA and phone calls to previous customers of Peter B. Diaz, CPA to
determine their satisfaction.It also
included Peter B. Diaz, CPA's
pledge to maintain the highest ethical standards regarding it's pricing,
customer communications, hiring practices, and more.
"I am proud to be recognized
this way for the high quality of service and ethical business practices that
have been the hallmark of my company since it was founded", said Peter B. Diaz.
Peter B. Diaz, CPA is a
full service Tax Consulting and Financial Consulting company assisting
taxpayers and small businesses throughout the San Francisco Bay Area.
For full details on all research steps passed by Peter B. Diaz, CPA, and the
ten-point "Best Business Practices Promise" it has pledged to maintain, visit www.primebuyersreport.com
Peter B. Diaz, CPA was recently quoted by Fidelity Investments at Fidelity Investors Weekly
4 Tax Steps to Consider Now
Don't wait until it is too late
By Rick Sauder
Published: June 10, 2008
You would think it would be hard to persuade someone to put hundreds or even thousands of dollars into a savings account that didn't pay interest and would allow withdrawals only once a year. Yet that's what millions of taxpayers do when they overpay on their income taxes and receive a refund check.
Evaluating the accuracy of your income tax withholding is just one of the smart tax moves that accountants strongly recommend for taxpayers doing their mid-year tax planning, because it's early enough to be the most effective.
"The longer you wait, the harder it is to do any significant planning," says Peter Diaz, a certified public accountant in Redwood City, Calif. "I tell my clients to get a baseline on their tax situation early so they don't have any surprises when it's too late to do anything about it."
Diaz says a mid-year tax review should target:
How much you overpaid or owed on your 2007 tax return;
Changes in personal circumstances that may affect your taxable income and deductions;
Tax code changes that may impact the amount of tax you owe; and
Strategies to lower your taxable income that you haven't taken full advantage of in the past.
Step 1: Revisit your withholding Getting a big refund or having to write a big check at tax time are both consequences of the same problem -- failing to accurately estimate how much tax you owe for the year. And neither works to your advantage, Diaz says.
"It's not smart to get a big refund," he says. "Ideally, you want to owe a little at the end of the year, but not so much that you would have a penalty for underpayment."
Most taxpayers can avoid a penalty for under-withholding if they pay enough during the course of the year to cover at least 90% of their tax bill, or if they pay at least 100% of the tax shown on the return for the prior year, according to the Internal Revenue Service.
To change your withholding amount, have your employer revise your IRS Form W-4. If you're self employed, adjust your quarterly estimated tax payments.
Step 2: Evaluate changes in circumstances If you have already made or are planning to make major changes in your life, remember that they may have tax consequences. For example, says Diaz, buying a new home will likely lower your tax bill, because you'll be able to deduct your mortgage interest and any "points" you paid when you took out your loan.
Similarly, a new child in the family typically generates an additional dependency exemption of $3,500 for 2008, up $100 from 2007.
Another event with significant tax consequences is a child starting college. You might be eligible for a Hope scholarship credit of as much as $1,800 for each enrolled child or a Lifetime Learning credit of up to $2,000 per tax return. If your income is too high to qualify for one of the credits, you might be able to claim a tuition and fees deduction of up to $4,000.
Conversely, you could incur a significantly higher tax bill if you sell stocks that have greatly increased in value, get a big promotion at work, or receive an inheritance.
Whatever the event, you should incorporate it into your tax planning as soon as possible.
Step 3: Be aware of tax code changes Tax code changes can significantly impact how much tax you owe, yet many people aren't aware of them until it's too late to benefit -- or to avoid their consequences.
Two items that taxpayers should look at closely in 2008 are the "kiddie tax" rules and the sales tax deduction, says Cynthia Dulworth, a certified public accountant at Sanford, Baumeister and Frazier in Fort Worth, Texas.
The new kiddie tax rules for 2008 make it much harder for parents to shift a large amount of investment income into a child's account so that it will be taxed at the child's lower rate. The new rules specify that a child with unearned income of $1,800 or more will have to pay tax at the parents' rate on the amount of the income that exceeds $900 (the dependent child's standard deduction). The new rule even applies to children ages 19 to 24 if they're full-time students.
There is an exception, Dulworth points out, for children who have earned income that covers half of their support. (For purposes of the kiddie tax, support includes the fair rental value of lodging, clothing, education, medical care, transportation, entertainment, etc.) So parents with small businesses who can employ their children and legitimately pay them enough to satisfy the threshold may be able to limit the impact of the kiddie tax.
But, Dulworth adds, "Many people are going to have to restructure how they transfer money to their children." That might include:
Opening a Coverdell Education Savings Account or 529 plan college savings account, in which the earnings are not taxed if they're used for qualified higher education expenses;
Investing in equities more likely to generate long-term capital growth than current-year income; or
Another big tax change to watch, Dulworth says, is the scheduled expiration in 2008 of the option to deduct state and local sales tax instead of state and local income tax. That's significant for people in Texas and other states without an income tax. For example, a family of four in Fort Worth with income of $90,000 to $100,000, would have been able to claim a sales tax deduction of $1,566 in 2007, according to the IRS sales tax deduction calculator.
Still, Dulworth is hopeful that Congress will reinstate the option before the end of the year, and she advises taxpayers to continue monitoring tax law changes. Last year, Congress made its last major adjustments just before Christmas.
Another action that many taxpayers are hoping Congress will take before the end of the year is once again "patching" the alternative minimum tax, or AMT.
Originally intended to prevent the wealthy from avoiding paying any tax, the AMT in recent years has resulted in millions of taxpayers, many of them in the middle class, owing more in taxes. Last year's last-minute patch raised the AMT income exemption to $66,250 for joint filers and $44,350 for individuals -- but only for 2007. Unless further action is taken, the exemption levels would revert to $45,000 for joint filers and $33,750 for individuals.
Dulworth notes another popular tax credit expiring this year is one for making energy-efficient home improvements, such as improved storm windows and doors. "It wasn't a huge tax break, but a lot of people took advantage of it," she says.
On the good news side, Peter Diaz notes that the long-term capital gains tax rate is reduced to zero for tax years 2008 through tax year 2010 for taxpayers in the 10% and 15% tax brackets. People in those brackets have taxable income below $65,100 for joint filers and $32,550 for individuals.
Therefore, Diaz suggests that "It's a real advantage for taxpayers who don't have a lot of salary income but have a lot of stock -- like someone who has been laid off and has a lot of stock options." He says, "We have a lot of people like that in the Silicon Valley. If you're in that situation, you can cash out some of the stock that would otherwise have been taxed at higher rate."
Step 4: Take advantage of opportunities If you find that you make a promise to yourself every year at tax time that you will put more income into tax-deferred accounts -- but never following through -- now is the time to make good on the promise for 2008.
"I encourage clients to take full advantage of their 401(k) plans and IRAs to reduce their taxable income," Diaz says. "At a minimum, it's silly not to at least put enough in your 401(k) to get the full employer match."
Participants in 401(k) and 403(b) plans can contribute up to $15,500 ($20,500 if they're age 50 or older by the end of the tax year) in 2008 and reduce their current-year taxable income by that amount. But it's hard to get there, Diaz says, if you wait too long into the year to increase your paycheck contributions. Check in with your employer now to increase your payroll deduction.
Also in 2008, the amount of qualified contributions to a Traditional IRA or a Roth IRA increases $1,000 to $5,000 per eligible taxpayer ($6,000 for people 50 and older).
Furthermore, Diaz is encouraging clients who cannot contribute to a Roth IRA -- because their income exceeds the contribution limits -- to make nondeductible contributions to a Traditional IRA this year and next. Because in 2010, the income limit for converting a Traditional IRA to a Roth IRA disappears -- currently only those with modified adjusted gross income below $100,000 could convert. So those nondeductible Traditional IRA contributions can be converted to a Roth, giving his clients "a nice jump start," because they will only have to pay tax on the earnings, not the principal.
One thing that all of the mid-year tax planning strategies have in common is that if you don't start early, their value will diminish over time. The best tax plan, the experts say, begins long before the end of the year.
How Fidelity can help Visit the Fidelity Online Tax Center for tax tips, tax planning tools, and tax-saving opportunities with Fidelity products, services, and investment options.
To the extent content in this article was provided by a third party unaffiliated with Fidelity Investments, such third party was solely responsible for that content, and the views expressed by the author may not necessarily reflect those of Fidelity Investments. The tax information contained herein is general in nature, and is provided for informational purposes only. Fidelity does not provide legal or tax advice and the information provide herein should not be construed as such. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, the information provided in this article. For advice specific to your personal situation, consult a qualified tax advisor.
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