While you’re cooling off by the pool this summer, your opportunity to save on taxes might just be heating up. Here are some summertime tips to keep your 2014 tax plans simmering.

If you are a sole proprietor with children, you might consider putting them on the payroll during the summer months. Wages paid to your children under age 18 are not subject to social security and Medicare taxes. These wages must be reasonable, given the children’s age and the tasks that they perform. Be sure to keep time cards or other records of their work. What’s more, their earnings are not subject to Federal Unemployment Tax until they turn 21.

If employing your children is not an option, you might still be able to score a deduction by sending them to summer camp. Day camp expenses for kids under 13 can provide a tax credit of up to 35%. Just remember, overnight camps do not qualify, and child-care must be necessary to allow the parents to work.

Summer is also a common time for home selling and moving, so be on the lookout for deductions related to these activities. Carefully file away all home sale or purchase papers for next year’s tax filing. If your move is job-related, there is the potential for additional employment related moving deductions if you meet the 50 miles or more test.

Perhaps your sights are set instead on some leisure travel. Tacking on a few fun days before or after a business trip might be a tax (and cost) efficient way to pay for a vacation — if you follow all the rules. Travel that is primarily for charitable work might also qualify you for a tax deduction.

And finally, no matter what your summer plans are, this is always a good time for a general tax check-up to ensure your withholdings and estimated tax payments are on target. For assistance with any of these issues, please contact our office.



I quit my job at the helium gas factory. I refuse to be spoken to in that tone. Readers Digest

If you too are leaving your job for another position or retiring completely, you probably have a zillion things on your mind. But don’t forget about the assets in your 401(k) plan or other qualified plan at work. There are several options to consider.

• Leave the money where it is. But remember that you won’t be connected any longer with the employer providing the plan.

• Cash in the funds at a hefty tax price. Generally, the payout will be taxed at ordinary income rates, now reaching as high as 39.6% Federal and 9% to 12% in California. Plus, you’ll be assessed a 12.5% tax penalty (for both Federal and CA) if you’re under age 59½, unless a special exception applies.

• Roll over the funds to a traditional IRA (or another qualified plan if one is available at a new job). The rollover is exempt from income tax if it is completed within 60 days of the distribution.

The rollover-to-an-IRA option is often preferable since it preserves your nest egg without any tax erosion while offering a wide array of investment choices. But this tax-saving technique is not without its perils.

Notably, if you don’t meet the 60-day deadline, the payout is treated as a taxable distribution. Also, if you receive the funds, the plan administrator will withhold tax at a 20% + rate, even if you intend to roll over within 60 days. Thus, you can’t recoup this amount until you file your tax return for the year of the transfer. To avoid withholding, arrange a “trustee-to-trustee transfer” to the IRA where your hands never touch the money. Finally, if you roll over funds to a Roth IRA instead of a traditional IRA, you must pay tax like any other Roth conversion.

Review your options and choose what’s right for you. Contact us if you would like help investigating the alternatives.



Ever poke a pin into an electrical outlet? The same thrill can come when receiving correspondence from the IRS or the Franchise Tax Board. Getting a letter or notice from the IRS can be upsetting, confusing, and unnecessary. The IRS sends taxpayers notices to request payment for taxes, to notify them of a change to their account, or to request additional information. Attention to the following details will reduce the likelihood that you will become pen pals with the IRS.Never send a payment to the IRS without designating what it is for. Otherwise the IRS may apply it in any manner they want. Every payment should include your name, your taxpayer identification number, the type of tax you are paying, the tax form number, and the period the tax payment is for.Make sure the name and social security number on your tax return agree with the Social Security Administration’s records. If you change your surname, notify the Social Security Administration and request a new social security card.Don’t claim a tax exemption for your child unless you are entitled to do so. Special rules apply to divorced parents. If both parents claim the child as a dependent, both returns will be subject to further IRS review.Respond promptly to any notice you receive from the IRS, even if you think the notice is incorrect. If the IRS doesn’t hear from you within the time specified on their notice, you may lose the right to protest any changes made to your return.

Send all correspondence, tax returns, etc. via Certified Mail, return receipt requested. This help you to prove your case in the event that the government misplaces your mail.

Send a change of address form (Form 8822) to the IRS when your address changes. If you fail to provide the IRS with your current mailing address, you may not receive a refund check or a notice if there are problems or adjustments to your return. And even if the IRS can’t find you, penalties and interest will continue to accumulate on any tax due.

For assistance with any tax concern you have, give our office a call – 209.599.5051


For a couple years I ‘ve been blaming it on lack of sleep and too much pressure from my job, but now I found out the real reason: I’m tired because I’m overworked. The population of this country is 237 million. 104 million are retired. That leaves 133 million to do the work. There are 85 million in school, which leaves 48 million to do the work. Of this there are 29 million employed by the federal government, leaving 19 million to do the work. 2.8 million are in the Armed Forces, which leaves 16.2 million to do the work. Take from the total the 14.8 million people who work for State and City Governments and that leaves 1.4 million to do the work. At any given time there are 188,000 people in hospitals, leaving 1,212,000 to do the work. Now, there are 1,211,998 people in prisons. That leaves just two people to do the work. You and me. And you’re sitting there reading jokes. Talal Sultan.

Do you plan on mixing pleasure with business on a trip this summer? There’s no problem from a tax perspective as long as you follow a basic precept: The primary purpose of the travel must be business-related. Otherwise, you’ll forfeit valuable tax deductions.

On the other hand, if you stick to the tax itinerary, you can write off most of your travel costs – even though you’re spending part of the time on personal pursuits. The key is to record significantly more “business days” than “personal days” on the trip.

Example: John Green, a self-employed individual, flies cross-country on Monday to make a presentation to a client. He is in business meetings Tuesday through Thursday. On Friday, the client inks the deal. John decides to spend the weekend playing golf and lounging by the pool. He flies home the following Monday.

The round-trip airfare costs John $1,500. He also incurs $1,400 in lodging ($200 a day) and $800 in meals ($100 a day) during his eight-day trip.

On these facts, John spends six days on business – the two days traveling count as business days – and only two days on pleasure. So the trip qualifies as business-related travel. He can deduct the entire airfare as well as five days’ lodging and 50% of the meals attributable to his business stay. Result: John deducts a total of $2,800 ($1,500 airfare, $1,000 lodging and $300 meals).

Note that any personal expenses, such as green fees at the golf course, are nondeductible. Also, if family members accompany you on a trip, you can’t deduct their expenses, but your travel may still qualify as business-related. As always, there is an exception to this rule where a family member is an employee on payroll and that family members participation in the deal is both ordinary and necessary.

Of course, this is just a brief summary of the pertinent tax rules. To review the tax requirements for your travel plans, check with us before you hop on board.


As you finalize your returns for next year, here’s one more thing to remember. If you funded a trust or transferred assets to someone during 2014, you may need to file a return reporting those transactions – and that return, along with any required tax, is due April 15, 2015, just like your regular income tax forms.

Yes, there is a tax paid on gifts to others. Gifts are not deductible by the donor and are not taxable to the donee. If the gift exceeds certain amounts, there is a tax due and that tax is paid by the donor.

Gift taxes came into the law many years ago as a way to deal with wealthy individuals who gave away their entire estates in their final moments to avoid payment of estate taxes. Congress dealt with that last-minute wealth transfer by enacting a tax on gifts at the same rate as estates.

Do you have to file? It depends on the type of gifts you made.

Some payments you might consider gifts are not subject to gift taxes or filing requirements. For instance, you can pay tuition directly to a college or other school for any student without having to file a gift tax return. The same is true for unreimbursed, qualified medical expenses you pay directly to the doctor or hospital for the benefit of a family member or stranger.

The amount of your gifts matter, too. Were your total gifts to any one person during the year $14,000 or less? That’s the annual exclusion – the maximum amount you could give anyone during 2013 and 2014 without having to file a return, as long as the gifts were currently usable by the recipient.

A caution: You may have heard of “gift-splitting,” which is an election you can make when you’re married. Gift-splitting lets you combine your annual exclusion with that of your spouse, resulting in total tax-free gifts of up to $28,000 each year to any one person. However, because gift tax returns are not filed jointly, each of you will generally have to complete Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return.”

When a return is required, you may not owe gift tax. Under present tax law applicable to 2013 gifts, up to $5,250,000 of gifts made during your lifetime can be shielded from tax. This is in addition to the $14,000 per donee annual exclusion.

Contact us if you made any gifts during 2014.

We’ll help you sort out your filing requirements.