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Some of our services include Personal Tax Preparation, Corporate Tax Preparation, Bookkeeping & Payroll Services, and Tax Planning.  Call us today with any questions about your tax needs! (415) 320-7871

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We offer a broad range of services for business owners, executives, & independent professionals. We are affordable, experienced, and friendly. Please call us today at (415) 320-7871 we'll be happy to offer you a free initial consultation.

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At Robert's Tax Service we can simplify the payroll process for you.  We assist in all areas of payroll and can provide full-service payroll duties upon request.

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If you're looking to minimize your sales tax risks, we can discuss your needs to identify an appropriate system that will streamline and organize the process of accurately collecting and reporting the proper amount.

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We promise to be responsive to your every move. We never lose sight to what really makes us valuable to you as a client, our genuine expertise.

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Please call us today at (415) 320-7871 - we'll be happy to offer you a free initial consultation. Thanks for visiting!

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We can help you plan your taxes! No one likes to pay too much. Neither does anyone like giving free loans. My tax planning services can provide you w/ calculated projections for tax withholding & estimated taxes.

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If you own a business in Redwood City, working with Robert's Income Tax Service can help you save more money! Contact or call me at 415-320-7871 to learn more about our Business Tax Preparation & Planning services.

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How Entrepreneurs Can Significantly Reduce 2018 Taxes by Choosing the Right Business Entity

Self-employed (example: Uber driver)

Self-employed individuals such as independent contractors and freelancers pay self-employment taxes in addition to regular income tax, to satisfy social security and Medicare requirements. If they qualify for the new 20 percent tax deduction, their top effective marginal tax rate could be reduced to 29.6 percent or less. However, these individuals will likely get better tax savings and asset protection as an S Corp or C Corp.

S-Corp (example: accountant, doctor, lawyer)

One of the biggest benefits of forming an S corp versus remaining a self-employed contractor is asset protection. An S-Corp also does not have a legal responsibility to pay taxes on its corporate income.

Instead, the owners of the company pay taxes on their personal tax return. The new tax law includes a 20 percent deduction on qualifying companies, including S Corps, with limitations. S Corps must also be domestic (meaning the company and its owners must live in the United States). Shares must be held by individuals, estates or certain trusts (not by other companies).

C-Corp (example: a health tech startup)

A C Corp may be better for tech startups or companies that have future plans for equity crowdfunding or want to go public. A C Corp is a corporation where the shareholders are taxed separately from the entity.

C corporations have no restrictions on ownership. They can have an unlimited number of shareholders, in contrast to S corporations which can have only 100 shareholders, maximum. The biggest drawback of a C corporation is a "double taxation" potential. The corporation is taxed, corporate profits first, and then shareholders are taxed again when dividends are distributed. And the corporation cannot deduct dividend distributions.

Because of the low (21 percent) corporate tax rate, many new startups will want to consider being taxed as a C corp. In addition, Section 1202 of the new tax law allows startup shareholders to sell their stock after five years, with no tax on the first $5 million of gain.

LLC (example: a real estate consulting company)

Some businesses may choose to be an LLC, and then select to file as a partnership, sole proprietor or corporation. An LLC is a legal designation, not a tax designation. The owners of the LLC report profits and losses on their personal federal tax returns as a "pass-through entity,” unless the LLC owners elect to have the LLC taxed as a C corporation.

If taxed as a pass-through entity, the LLC itself does not pay federal income taxes (though some states charge an annual tax on LLCs). As part of the LLC tax process, these companies will want to fill out Form 8832 to define their entity (corporation, partnership or sole proprietorship). Assuming that the owners elect to tax the LLC as a pass-through entity, the 20 percent deduction may apply.

The impact on asset protection

In addition to tax savings, the business entity that you choose will have an impact on your asset protection. Most attorneys will tell you that if you own a business, it’s not a matter of if you get sued, it’s when you get sued. As a result,  you'll want to establish an LLC or corporation between yourself and your actual business, to reduce the opportunity for someone to sue you personally.

With an LLC or corporation, if you get sued and your opponent wins, the opponent should only be able to take money out of that company versus your personal accounts.

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Bookkeeping

Why hire staff?  Let Redwood City based Robert's Tax Service do your monthly bookkeeping at a fraction of the cost of a full-time employee. The key to bookkeeping is to make sure your financial information is filed in the proper place where you can quickly and easily retrieve it. I can help your company create an efficient accounting system that will allow you to track and summarize project expenses and create useful accurate reports. My goal is to give you accurate snapshots of your current financial progress so you can concentrate on growing your business.

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Managing payroll may not seem like a critical task until something goes wrong. It can be time-consuming, but, more importantly, it requires a good knowledge of the tax laws and deposit rules.

CALL US FOR HELP!  (415) 320-7871

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IRA Missteps to Avoid

Selecting a Type of IRA

Missing out on the Saver’s Credit

Taking Distributions before Retirement Age

Failure to Keep Designated Beneficiaries Current

Overlooking the Spousal IRA

Failing to Recognize Low Tax Distribution Opportunities

Social Security Income and Traditional IRA Distributions

Rollover Errors

Failing to Take a Required Minimum Distribution

Knowing the Beneficiary Options

Understanding the Special Spousal Beneficiary Options

Disclaiming an Inherited IRA

Failing to Realize Your Child Can Have an IRA

Not Taking Advantage of IRA-to-Charity Distributions

If you have an IRA account or are considering one, there are a number of potential missteps you will want to avoid. Some of them can lead to unwanted taxes and penalties, and of course, we are talking about your retirement funding, so it is an important issue. Here are a number of issues to keep in mind:

Selecting a Type of IRA Account – The first decision you will have to make is whether to choose a traditional IRA or a Roth IRA. A traditional IRA provides a tax deduction for the contribution and tax-deferred growth, but any withdrawal from the account is fully taxable. On the other hand, Roth IRA contributions are not deductible, but distributions after retirement are tax-free. A Roth IRA offers tax-free accumulation, meaning the earnings build up over the life of the IRA tax-free. Making the decision involves a number of factors, some of which will be discussed later in this article.

For those currently with low income and on a limited budget with little extra income to spare for IRA contributions, the traditional IRA offers a tax deduction, which will allow them to make a larger contribution and is better than having no retirement funds at all. In addition, lower-income individuals may qualify for the Saver’s Credit, discussed later, which provides a tax credit that might help them to afford a contribution.

For younger individuals, a Roth IRA provides tax-free accumulation, meaning the earnings will be tax-free when distributed at retirement. Thus, the longer one has a Roth IRA, the more tax-free income it can provide.

Missing out on the Saver’s Credit – As mentioned previously, the Saver’s Credit helps lower-income individuals to save for retirement by providing a credit to help cover the cost of their IRA contribution. The credit can be as much as 50% of the first $2,000 contributed to an IRA (either traditional or Roth), depending upon your income for the year. It is not allowed for individuals under the age of 18, individuals claimed as dependents of another or full-time students. The credit is non-refundable, meaning it can only be used to offset one’s tax liability, so lower-income taxpayers may not have enough tax to benefit.

Taking Distributions before Retirement Age – If a distribution is taken from a traditional IRA before reaching the age of 59½, that distribution will not only be taxable but will also be subject to a 10% early withdrawal penalty. So, consider it carefully before taking an early distribution. Assuming you are in the 22% tax bracket, every $100 of an early distribution will result in you owing $32 of tax, including the penalty. Only take an early distribution if you are desperate. There are exceptions to the 10% early withdrawal penalty, but not for the tax on the early distributions. The common penalty exceptions include limited withdrawals for a home purchase, medical expenses, disability and higher education expenses.

Failure to Keep Designated Beneficiaries Current – A number of life events can change who you want to be the beneficiary of your IRA account when you pass. Divorce and the death of a beneficiary are probably the most common, but regardless of the reason, it is important to keep your IRA trustee or custodian apprised about the current names of your beneficiaries, or else the account could end up in the hands of someone you didn’t want it to be.

Overlooking the Spousal IRA – You may not be aware, but a non-working spouse can also make an IRA contribution based upon the working spouse’s income. The amount that can be contributed is the smaller of the annual IRA contribution limit or the working spouse’s compensation less any IRA contribution made by the working spouse. Contributions to spousal IRAs do not need to be divided equally between spouses, but neither spouse may make a contribution of more than the annual limit. The deduction for contributions to both spouses’ IRAs may be further limited if either spouse is covered by an employer’s retirement plan.

Failing to Recognize Low Tax Distribution Opportunities – Occasionally, a taxpayer will have an abnormally low-income year, or the individual’s deductions will be abnormally high, resulting in a negative or very low taxable income. When this occurs, traditional IRA distributions by those age 59½ or older can be taken with little or a minor tax liability. Because the distribution must be taken before the end of the year, the key is to recognize this possibility, determine how much of a withdrawal will provide the best result and then take the distribution before year’s end.

Also low-income taxable years can provide an opportunity to convert some portion of a traditional IRA to a Roth IRA with minimal or no tax liability.

Social Security Income and Traditional IRA Distributions – If you are retired and drawing Social Security, remember that Social Security income does not become taxable until one-half of the Social Security income plus your other income exceeds $32,000 for a married couple, or $25,000 for most other filing statuses. Even if you don’t need the funds from an IRA distribution, it may be appropriate for you to withdraw enough from your IRA (or other qualified plans) so that your overall income closely matches the taxable Social Security threshold. Then, you can put those withdrawals away for a future major expense item or unexpected financial liability and avoid a large distribution in one year that would cause the SS to be taxed.

Rollover Errors – You are allowed to take a distribution from your IRA accounts, and the distribution won’t be taxable if the same amount is returned to your IRA within 60 days. However, you are allowed only one tax-free rollover in a 12-month period. So, unless you need the funds for just a short period, it is always best to arrange for a trustee-to-trustee transfer, for which there is no frequency limit, when you want to move IRA funds from one IRA to another.

Failing to Take a Required Minimum Distribution – If you have a traditional IRA, you must begin taking required minimum distributions (RMDs) from your IRA once you reach age 70½. Failure to do so can result in a penalty equal to 50% of the amount that should have been distributed. Luckily, at least so far, the IRS has been very liberal about waiving that penalty for almost any reasonable excuse when a request is made.

You can take out as much as you like each year, but it cannot be less than the RMD. If you withdraw more than the RMD, the excess can’t be applied to the following year’s RMD. The RMD amount for any year is the balance of your non-Roth IRA accounts on December 31 of the prior year divided by your remaining life expectancy. The remaining life expectancy is based upon the Uniform Lifetime Table, which appears in IRS Publication 590-B.

There is no requirement for the owner of a Roth IRA to take distributions, but the distribution requirements apply to the beneficiary of a Roth account after the owner passes away.

Understanding the Beneficiary Options – Beneficiaries of a traditional IRA where the decedent had already begun taking RMDs will also be subject to an RMD requirement, even if the beneficiary’s age is less than 70½ years. They must begin taking RMDs over the longer of the deceased owner’s life expectancy or the beneficiary’s remaining life expectancy. If there are multiple beneficiaries, the age of the oldest is used in the determination (but see the section on dividing an inherited IRA later). As an option, a beneficiary may elect to take the entire account at any time before the end of the fifth year following the year of the owner’s death.

If the decedent had not yet begun taking RMDs, the beneficiary can choose either to take the five-year payout or begin taking distributions over their lifetime. For lifetime payouts, the distributions must begin no later than Dec. 31 of the calendar year immediately following the calendar year during which the IRA owner died.

Knowing an Inherited IRA Can Be Divided – When an IRA has multiple beneficiaries, conflicting interests can arise. One beneficiary may want the money all up front, while another one may want to spread it out over time. There can also be conflicting investment strategies. In addition, the distribution period is determined using the oldest beneficiary’s age, which accelerates the payout. These conflicts can be avoided by dividing the account. The law allows an IRA to be divided into separate accounts for each beneficiary, thus giving each the opportunity to select the option that best suits his or her particular circumstances.

Understanding the Special Spousal Beneficiary Option – Spouse beneficiaries not only have the same options as other beneficiaries but also have the irrevocable option to treat the inherited IRA as their own, which is accomplished by re-titling the deceased spouse’s IRA or simply transferring the IRA balance to the surviving spouse’s own IRA. A surviving spouse may also be deemed as having elected to treat the IRA as his or her own if he or she fails to take RMDs as a beneficiary within the applicable deadline or if the surviving spouse makes contributions to the IRA.

Disclaiming an Inherited IRA – If you, as a beneficiary, do not want to inherit an IRA for some reason, the law allows a designated beneficiary to disclaim an inherited IRA and permits the naming of a new beneficiary by the executor of the estate.

Realizing Your Child Can Have an IRA – It may not even occur to parents or grandparents that if a child has income from working (earned income), they can contribute to an IRA. There is no minimum age requirement for establishing and contributing to an IRA. With the tax reform’s new higher standard deduction of $12,000 (2018) for singles, most children won’t even owe any taxes from their part-time or summer jobs, so the obvious choice for starting a retirement program for a child would be to contribute to a Roth IRA. However, most youngsters will balk at the idea, since retirement is the furthest thing from their minds at this stage of their life, and they will have other spending plans for their hard-earned money.

This is where parents, grandparents or others with the financial means can step in and gift the child the money to make an IRA contribution. The child’s contribution is limited to the lesser of their earned income or $5,500, the maximum contribution allowed for IRAs in 2018. Think what that Roth IRA contribution would be worth after 50 years of tax-free earnings accumulation.

Taking Advantage of IRA-to-Charity Distributions – Taxpayers age 70.5 and older can directly transfer up to $100,000 a year from their IRA to a qualified charity. They won’t get a charitable deduction, but instead – and even better – they will not have to pay taxes on the distribution, and because their AGI will be lower, they will benefit from other tax provisions that are pegged to AGI, such as the amount of Social Security income that’s taxable and the cost of Medicare B insurance premiums for higher-income taxpayers. As an additional bonus, the transfer also counts toward their annual required minimum distribution. If you want to take advantage of this tax benefit, be sure the transfer from your IRA to the qualified charity is a direct transfer from the IRA trustee to the charitable organization and that you get the required acknowledgment from the organization to substantiate the deduction.

If you have questions related to IRAs or the issues discussed, please give this office a call. (415) 320-7871

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10 tax changes you need to know for 2018

Here are some of the most prominent changes that could affect you.

Standard deductions

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Personal exemption

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Top income tax rate

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Estate tax

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Child tax credit

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Mortgage interest

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State and local taxes

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Contribution limits for retirement savings

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Savings in IRAs

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Contributions to Roth IRAs

Those who are married and filing jointly will have an increased standard deduction of $24,000, up from the $13,000 it would have been under previous law.

Single taxpayers and those who are married and file separately now have a $12,000 standard deduction, up from the $6,500 it would have been for this year prior to the reform.

For heads of households, the deduction will be $18,000, up from $9,550.

The personal exemption has been eliminated with the tax reform bill.

A new 37 percent top rate will affect individuals with incomes of $500,000 and higher. The top rate kicks in for married taxpayers who file jointly at $600,000 and up.

The new tax law also includes changes to other tax brackets.

The estate exemption doubles to $11.2 million per individual and $22.4 million per couple in 2018.

The child tax credit has been raised to $2,000 per qualifying child, those who are under 17, up from $1,000. A $500 credit is available for dependents who do not get the $2,000 credit.

The deduction for interest is capped at $750,000 for mortgage loan balances taken out after Dec. 15 of last year. The limit is still $1 million for mortgages that were established prior to Dec. 15, 2017.

The itemized deduction is limited to $10,000 for both income and property taxes paid during the year.

Employees who participate in certain retirement plans ‒ 401(k), 403(b) and most 457 plans, and the Thrift Savings Plan – can now contribute as much as $18,500 this year, a $500 increase from the $18,000 limit for 2017.

Savers who contribute to individual retirement accounts will have higher income ranges following cost-of-living adjustments. Note that the deduction phases out for individuals and their spouses who are covered by workplace retirement plans.

For single taxpayers, the limit will be $63,000 to $73,000.

For married couples, the phaseout range will vary depending on whether the IRA contributor is covered by a workplace retirement plan or not. When the spouse who is investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don't have a retirement plan but are married to someone who does, the phaseout has been raised to $189,000 to $199,000.

The phaseout was not adjusted for married individuals who file a separate return and who are covered by a workplace retirement plan. That range is $0 to $10,000.

For individuals who are single or the heads of their households, the income phaseout has been raised to $120,000 to $135,000. For married couples who file jointly, the range climbs to $189,000 to $199,000.

The phaseout was not adjusted for married individuals who file a separate return. That is $0 to $10,000.

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Tax Information

One area of major concern is the amount of taxes individuals are withholding from their wages. Tax reform was passed late in 2017, and there was a considerable amount of confusion among employers related to the amount of taxes to withhold in 2018.

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Even simple small business accounting mistakes can prove to be financially limiting and costly down the road. With the help of an accounting professional, it is possible to overcome at least some of these mistakes.

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The Tax Cuts and Jobs Act of 2017, more commonly referred to as tax reform, substantially altered the itemized deduction for home mortgage interest and affects just about everyone who has been deducting their home mortgage interest as an itemized deduction on their tax returns. Background: To fully understand the impact of the law changes, we need to compare the prior tax law to the new tax reform. Under prior law, a taxpayer could deduct the interest he or she paid on up to $1 million of acquisition debt and $100,000 of equity debt secured by the taxpayer’s primary home and/or designated second home. Qualified home acquisition debt is debt incurred to purchase, construct, or substantially improve a taxpayer’s primary home or second home and is secured by the home. The interest paid on up to $1 million of acquisition debt has been deductible as part of itemized deductions on Schedule A. Home equity debt is debt that is not acquisition debt and is secured by the taxpayer’s primary home or second home, but only the interest paid on up to $100,000 of equity debt had been deductible as home mortgage interest. Often, home equity debt is used to purchase a new car, finance a vacation, or pay off credit card debt or other personal loans – all situations in which the interest on a consumer loan obtained for these purposes wouldn’t have been deductible. The old law continues to apply to home acquisition debts by grandfathering the home acquisition debts incurred before December 16, 2017, to the limits that applied prior to the changes made by tax reform. As explained later in this article, equity debt interest didn’t survive in the tax reform’s legal changes. New Acquisition Debt Limits: Under the new law, which took effect for home acquisition loans obtained after December 15, 2017, the acquisition debt limit has been reduced to $750,000. Thus, if a taxpayer is buying a home for the first time, the deductible amount of acquisition debt interest will now be limited to the interest paid on up to $750,000 of the debt. If the home acquisition debt exceeds the $750,000 limit, a prorated amount of the interest is still deductible. If a taxpayer already has a home with grandfathered acquisition debt and wishes to finance a substantial improvement on the home or acquire a second home, the new acquisition debt, for which the interest would be deductible, would be limited to $750,000 less the grandfathered acquisition debt existing at the time of the new loan. This may be a tough pill to swallow for many future homebuyers, since the cost of housing is on the rise while Congress has seen fit to reduce the cap on acquisition debt, on which interest is deductible. Equity Debt: Under the new law, equity debt interest is no longer deductible after 2017, and this even applies to interest on existing equity debt, essentially pulling the rug out from underneath taxpayers who had previously taken equity out of their homes for other purposes and who were benefiting from the itemized deduction. Tracing Equity Debt Interest: Because home mortgage interest rates are generally lower than business or investment loan rates and easier to qualify for, many taxpayers have used the equity in their home to start businesses, acquire rental property, or make investments, or on other uses for which the interest would be deductible. With the demise of the Schedule A home equity debt interest deduction, taxpayers can now trace interest on equity debt to other deductible uses. However, if the debt cannot be traced to a deductible purpose, unfortunately, the equity interest will no longer be deductible. Refinancing: Under prior law, a taxpayer could refinance existing acquisition debt and the allowable interest would be deductible for the full term of the new loan. Under tax reform, the allowable interest will only be deductible for the remaining term of the debt that was refinanced. For example, under the old rules, if you refinanced a 30-year term loan after 15 years into a new 25-year loan, the interest would have been deductible for the entire 25-year term of the new loan. However, under tax reform, the interest on the refinanced loan would only be deductible for 15 years – the remaining term of the refinanced debt. Determining when home mortgage interest is deductible and how much was deductible was frequently complicated under the prior tax law, and the new rules have added a whole new level of complexity. Please call this office if you have questions about your particular home loan interest, refinancing, or equity debt interest tracing circumstances.

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Being in debt isn't necessarily a terrible thing. Most people are, between mortgages and car loans and credit cards and student loans. Being debt-free should always be a goal, but you should focus on the management of it, not the presence of it. It'll likely be there for most of your life, and if you handle it wisely, it won't feel so much like an albatross around your neck. There are alternatives to shelling out your hard-earned money for exorbitant interest rates, and to always feeling like you're running behind and on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay off even more, faster. Know Where You Are Assess the depth of your debt. Write it down, using pencil and paper or computer software like an Excel spreadsheet or Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, any outstanding tax liens, student loans, and payments on electronics or other household items through a store. Record the day the debt began and will end (where possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged; you're going to break this down into manageable chunks, and find extra money to help pay it down. Identify High-Cost Debt Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them. • Don't use them. Don't cut them up, but put them in a drawer and only access them in an absolutely dire emergency. • Identify the card with the highest interest and pile on as much extra money as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate. • Don't close the card account, and don't open any new ones. If you do, this probably won't help your credit rating. • Pay on time, absolutely every time. One late payment these days can lower your FICO score. • Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club that you've never used? Look for line items you don't need. Then take steps to cancel those “services.” • Call your credit card companies and ask them nicely if they would lower your interest rates. It works sometimes. Save, save, save Do whatever you're able to do to retire debt. If you take a second job, earmark that money strictly for higher payments on your financial obligations. Substitute free family activities for high-cost ones; your local library may have cheap or free tickets to events. Sell high-value items that you can live without. Bag Unnecessary Items to Reduce Debt Load Do you really need the 800-channel cable option, or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny accounts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control. Don't ever, ever miss a payment You're not only retiring debt, but you're also building a stellar credit rating. If you ever decide to move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious. Do Not Increase Debt Load If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear. Shop Wisely, and Put the Savings on Your Debt If your family is large enough to warrant it, invest $45 or $55 and join a store like Sam's Club or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride: Use coupons religiously. Calculate the money you're saving and apply it to your debt (i.e., increase your debt payment by the amount you’ve saved). Each of these steps, taken alone, probably doesn't seem like much, But learn to live this way, adopting as many of them as you can, and you'll be able to watch your debt decrease every month.