By: Dwight Kay

By Jon Coupal

What’s the difference between a tax and fee? There is no easy answer and the political class likes it that way. In fact, they would prefer that the public remain confused to the point of apathy.

The political class, of course, consists of elected officials, bureaucrats and their special interest allies who are to the Capitol what insider traders are to Wall Street. Working in lockstep, their approach to increasing the take from taxpayers was best outlined by Jean Baptiste Colbert, Minister of Finance under Louis XIV of France: The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.

But taxpayers are not defenseless because they have approved three constitutional amendments defining – and limiting – taxes and fees. These include Propositions 13 (1978), Proposition 218 (1996) also known as the Right to Vote on Taxes Act, and Proposition 26 (2010) which provides comprehensive definitions of taxes and fees. All three provide effective weapons against an insatiable government ever in search of more revenue.

However, to protect themselves, taxpayers must be knowledgeable, alert and ready to fearlessly protect and exercise their rights.

Therefore, while most taxpayers don’t have a law degree, here are some basics about the difference between a “tax” and a “fee.” There are very few legal limitations on “taxes.” About the only way a tax could be unconstitutional is if it impaired a fundamental right (a “poll” tax on the right to vote) or if it singled out some group for discriminatory purposes. But fees are different. A fee is a charge for something that confers a benefit to the fee-payer that is not available to those who do not pay the fee. A classic example is a charge for entering a state campground.

Until the passage of Proposition 26 in 2010, the legislature could approve fees with a simple majority vote. But in 2011, the Legislature approved, with a simple majority, charging 850,000 rural homeowners an annual “fire fee” of $150. The “fee” was not accompanied by any additional benefit or service, clearly making it a tax requiring a two-thirds vote of the Legislature. This issue is currently being litigated by taxpayers, but it is a classic example of the dishonest ends to which tax raisers are willing to go to wring ever more money from taxpayers.

Moreover, the political class has a habit of pursuing taxes that are not apparent to the general public. Almost any tax on business fits into this category. As Howard Jarvis liked to say, businesses do not pay taxes, “we do.”

As part of Obamacare, the federal government imposed a tax scheme designed to stop employers from offering top quality health plans. Backers of the Affordable Care Act included a 40 percent tax on providers of what were derisively described as “Cadillac” plans.  As these plans disappear, the uninformed will assume that it is their employer who is responsible, when, in fact, it is government.

Here, in California, a major hidden tax is cap-and-trade legislation, not approved with a two-thirds vote, that compels companies to buy carbon credits. Of course, these costs are passed on and drivers feel the impact every time they fill up with gasoline that costs, by the most conservative estimates, an additional 12 cents per gallon with more increases on the horizon. Unaware of the impact of cap-and-trade, many motorists may mistakenly assume that the high cost of gas is entirely due to the petroleum companies.

This is why taxpayers are closely watching a case just argued before the Sacramento appeals court, where opponents argue that cap-and-trade charges amount to an unconstitutional tax. The court is expected to render a decision within 90 days but, regardless of the outcome, the loser is likely to appeal to the California Supreme Court.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.  

By Becky Bower | ApplyConnect.com

As the year comes to a close, take the time to prepare for tax season early. With just a little extra prep work, you’ll avoid a huge headache next year. Here are 4 tax resources to get you started on organizing your office, getting all the deductibles you can get, and achieving a stress free tax season.

1. Organize Your Home Office in 4 Easy Steps

When it comes to taxes, before you can do anything, you need to be organized. In this article, we break down the organizational process into 4 easy steps. Your office never looked so clean. Read More!

2. Use Apps to Deduct from 2016’s Business Tax Return

You want to get as many deductibles as you can get, but compiling the mileage, paperwork, and receipts behind those hefty tax deductibles can be stressful. By utilizing apps, you can cut down on the physical paperwork and access everything from your phone or laptop. Easy. Read More!

3. Cash in on Tax Deductions for Your Rental Properties

When you have a rental property, utilizing every tax deduction you can is very important. Take advantage of our common deductible checklist and organizational list now. This can help you make sure no stone goes unturned. Read More!

4. Tips to Having a Stress Free Tax-Season

There’s no denying that tax season can be pretty stressful. While utilizing handy apps and utilizing deductibles are certainly important, it’s also important to maintain good communication with your tenants during this time, and setting goals for 2017. Read More!

While tax season might be far from your mind as Thanksgiving comes close, by taking some time to start going through your documents and receipts, and utilizing our tax resources above, your workload next year won’t be as hefty. Once it’s all said and done, and you have that big tax refund check in hand, you’ll be happy you started your taxes early.

By Michael Trainotti

It has been over two weeks since the U.S. Treasury Department issued on August 4, 2016 proposed regulations under Internal Revenue Code Section 2704 that, when finalized, may substantially increase your wealth transfer taxes by blocking a common estate planning strategy. The new regulations would only apply to individuals whose family assets are more than $5,450,00 or married couples above $10,900,000.

Some commentators believe that if they are finalized this would be the most significant change in the estate planning area since 1986.  You may have read that planning ahead is key. Since the new regulations will not be finalized until early next year, everyone who would be subject to estate taxes should strongly be thinking about making gifts this year based upon the planning example below that will not be available after the new regulations are finalized.

Historically, taxpayers could reduce the value of their taxable estates by placing assets in partnerships, LLCs or closely held corporations and claiming lack of marketability and/or lack of control discounts. These discounts typically reduced the value of the ownership interests by 25% to 45%.

Thus, for example, placing $10 million worth of assets inside a closely-held entity might reduce the value of the estate by $2.5 million to $4.5 million and, given the current 40% estate tax rate, reduce the estate tax payable by $1 million to $1.8 million.

The above example is also true for making current gifts or sale of assets that you believe will appreciate in value over your life expectancy.  Gifting or selling of assets freezes the value of your assets today and shifts the appreciation to other family members.  The sale concept is true for the sale of assets to children, especially if there is a sale to a grantor trust where there is no recognition of income or the assets sold has a high basis and no or little income tax is recognized.

I will be preparing an article shortly explaining in more detail some of the planning opportunities that can be key if the new regulations are finalized. I want to point out that there have already been comments that the proposed regulations in current form, if finalized, may violate the congressional legislative history of allowing discounts, ignoring state law provisions governing business entities and general valuation principals occurring daily in the marketplace.  If that is the case, legal challenges will be a certainty.

You should contact your advisor(s) regarding whether or not the new proposed regulations may have any impact on your family assets if they become finalized.

Don’t miss this Important Tax Article in the September 2016 Issue of Landlord Property Management Magazine!

Michael Trainotti, Inc., A Law Corp
400 Oceangate, Suite 520
Long Beach, CA 90802
Work: (562) 590-8621
Fax: (562) 590-8181
email: mike@trainottilaw.com
website: www.trainottilaw.com

by Thomas F. Scanlon, CPA, CFP®

Subchapter S corporations (“Sub S”), partnerships, limited liability companies (“LLC’s”) and estates and trusts issue form K-1′s. This form documents the stockholders, partners, members or beneficiaries share of their profit or loss from the entity. Don’t wait for this form to get started on your income tax return.

1) K-1′s Aren’t Due Until April 15th

All form K-1′s except for Sub S corporations are not due until April 15th. Sub S corporation K-1′s are due on March 15th. If the Sub S corporation files an extension however, then the K-1 does not have to be issued until September 15th. This April 15th due date makes it very challenging for taxpayers. Their individual income tax return is due the same day. You can’t file your individual income tax return without your K-1′s.

2) We Are Seeing More Amended K-1′s

Investing in limited partnerships, particularly oil and gas that issue K-1′s has become popular again. Just like amended 1099 forms, we have seen an uptick in the amount of amended K-1′s last year. The changes on the amended K-1 may or may not be material. Either way, your CPA will need to review the amended K-1.

3) Let Your CPA Get Started on Your Tax Return

This is key. Get all of your other tax material you have to your CPA. Let them get started. They can rough out the return. This will give you a sense of where you are at. Get the heavy lifting done up front. If you are timely your CPA should have the return good to go. Just add the information from the K-1 and the return should be complete.

4) You May Have to Go on Extension

The 2013 individual income tax return, Form 1040, is due on April 15, 2014. If you can’t file on time because you did not receive your K-1 timely, you will need to file an extension. This is done on Form 2848, Application for Automatic Extension of Time to File U.S. Income Tax Return. A properly filed extension request will extend the due date to file until October 15, 2014. The extension only extends the time to file the return. It does not extend the time to pay any tax due. Any tax due needs to be paid by April 15th. Failure to pay the tax then will result in interest and penalty.

Thomas F. Scanlon, CPA, CFP® is with Borgida & Company, P.C., Certified Public Accountants in Manchester, Connecticut, celebrating 44 years of tax, advisory and accounting services. Please call (860) 646-2465 or email toms@borgidacpas.comif you would like more information.

American Apartment Owners Association | Company Website | Rental property management can be very demanding. Our job is to make this day-to-day property management process smoother. AAOA provides a host of services ranging from tenant screening to landlord rental application forms and contractor directory to apartment financing.

The National Association of Realtors® expressed “extreme disappointment” over several of the provisions contained in U.S. House Ways and Means Chairman Dave Camp’s tax reform draft released yesterday, namely proposed limits on the mortgage interest deduction and capital gains, and the repeal of deductions for state and local property taxes.

The NAR says these proposed changes to the taxation of real estate will impact every single American, either directly or indirectly.

“NAR supports reforms that promote economic growth, but we strongly oppose severely altering the rules that govern ownership and investment in real estate. Real estate powers almost one-fifth of the U.S. economy, employs more than 17 million Americans, and contributes a quarter of all federal and state tax revenue and as much as 70 percent of local taxes,” says NAR President Steve Brown.

The group will carefully analyze the details of the Chairman’s plan to determine the best way to educate Congress and the public about how this plan would impact the owners, consumers, and producers of both residential and commercial real estate.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

1) Be Prepared
Ah yes, the Boy Scout Motto, “Be Prepared”.  It is very applicable to surviving tax season. How can you get prepared?  Start with completing your tax organizer.  We send these out to our clients in early January.  This will contain all of the prior year information.  Some clients don’t like filling out the tax organizer.  That’s fine. Just organize your records as best as possible. Try to get all of your material together.  Finally, schedule an appointment with your CPA early during tax season.

2) Be Patient
Expect delays from the Internal Revenue Service (“IRS”).  This is nothing new.  We can’t really blame them. It really comes down to Congressional action. Or inaction as the case may be.

Also, expect amended Form 1099′s. This seems to be happening more frequently, particularly later in tax season. If you have had amended 1099′s in the past, let your CPA know.  They may want to complete your returns but request that you don’t file them until later in the filing season.   This may avoid having to file an amended return. It’s like what any veteran carpenter will tell you, “measure twice, cut once.”  Well said.

You may be asking yourself “Where’s my K-1?” People who have invested in Partnerships or Subchapter S corporations need their K-1 to report their portion of the profit or loss on their individual income tax return.  Unfortunately the K-1 forms are not due until April 15, the same day the individual income tax return is due. Don’t wait for your K-1′s. Give all of the tax material you have to your CPA and let them get started on your return.  You can just forward the K-1 to them when you receive them.  This will increase the odds of your return being filed on time.

3) Be Proactive
While you need to be patient, you also need to be very proactive. While 2013 may be in the books, it’s time to start addressing your tax planning for 2014.  This could be something as simple as maximizing your contribution to your 401(k) plan at work.  Taxpayers are allowed to contribute up to $17,500 into their 401(k) plan in 2014.  Taxpayers age 50 or older can contribute an additional $5,500 in a so-called ‘catch up’ contribution for a total of $23,000. Or perhaps your employer has added a Roth 401(k) plan feature to the existing 401(k) plan.  This might be something you should consider allocating a portion of your 401(k) contributions to.

American Apartment Owners Association | Company Website | Rental property management can be very demanding. Our job is to make this day-to-day property management process smoother. AAOA provides a host of services ranging from tenant screening to landlord rental application forms and contractor directory to apartment financing.

Apartment News Publications Inc. is teaming up with the Income Property Management Expo to provide Apartment Owners/Managers & Commercial Property Management Companies with tools for efficient, cost effective management, operation and maintenance of their communities & facilities!

Join us October 30, 2013 for the Bay Area Income Property Management Expo at the San Mateo Event Center!

Click Here to Pre-Register Online

Bay Area California Attendee Information:

• Apartment Owners
• Property Managers
• HOA
• Commercial Property Management Companies
• Service & Maintenance Staff
• Industry Partners & Vendors

View Expo Floor Plan: Click Here

Seminar Line Up:

10:00 am:  The Eviction Process – Learn more about Northern CA Rent Control & Eviction Laws

11:00 am:  Your Business is Mobile Are You? Learn how mobile is impacting your vacancy rate

12:00 pm:  The Essentials of NFPA Code – 6 Primary NFPA Tests & Inspections required for your property

2:00 pm:  Construction Defect Claims – Take action upon notice of construction defects

3:00 pm:  Fair Housing & How it Effects You

Visit Us Online!

To learn more about the Income Property Management Expo, or to reserve a booth for the Exhibitor Floor, visit IncomePropertyExpo.com!

By: Christopher Miller

“In Your 1031 Exchange, Pay Attention to Your Debt Replacement Requirement”

One of the most important parts of a 1031 exchange seems to be the least understood, so I am devoting this month’s article to one important detail:  Debt replacement needed in your exchange.