Corporate Tax

Tax Issues Affected by Estate Planning

It is wrongly judged that estate planning is free from income tax compliance. The truth is that when a client is filing for income tax return, the individual has to plan meticulously on how to itemize properties so that tax expense can be curbed to some extent. Careful practitioners try to balance both factors: estate arrangement techniques and tax compliance. Following are some important points that a practitioner should keep in mind while planning estate arrangements for a client:


Family Loan:


One of the most popular wealth management methods is to transfer property rights/ loan out cash to family members. For instance it’s easier for a son/daughter to pay back “intra-family loan” at minimum interest (under IRC sec. 7872) than to clear home loan debts, taken from a bank or a private creditor.


Also the family sentiment which help heirs put up with financial problems is one reason which makes intra-family loan more popular. To go by the proceeding, an intra-family loan agreement document is drafted. It acts as a promissory memorandum. The practitioner, it is advised should keep a copy of this document.


The creditor charges a minimum interest from the benefactor who, as per rules and terms penned in the loan agreement, is required to pay back the debt amount. Most of the agreements are time bound and the tax returns are filed in the name of the lender. In case the interest amount falls within a tax-return deductible slab, it must be shown by the borrower.

Also the income and the interest payment terms should be in sync as per the loan agreement doc. The borrower should not skip payments; otherwise, the whole purpose of revenue management becomes futile.


Compensation Issues:


S corporation return deals with reasonable compensation possibilities which can help save payroll taxes.  Under Sec. 1402(a) shareholders can apply for compensation by filing personal Form 1040. However there are many key issues that might affect estate planning for the client.


Unreasonable high compensation demand implies that a client is still interested to derive profit from business partnership, gifts and family property handovers. Gifting stocks or shares to heirs is one of the most judicious ways of doing justice to estate planning. However if the parent lender continues to extract interest amount over prolonged period then IRS can debate on and preside over the matter.


The tricky part is that if the creditor is sanctioning gifts to GRATS (grantor retained annuity trust) that is trying to gain an absurdly low compensation then it could unveil the ‘real’ estate-arrangement plans and put at stake all possibilities to save payroll taxes.


Therefore a practitioner must be alert not to stress much on compensation; rather they must understand how the process works and how it must be approached at.


Grantor Trusts


Grantor trusts, a very popular technique for asset protection and estate planning, must be included in the trust provisions when a client transfers his assets to an irrevocable trust. The ubiquitous revocable living trust is a common grantor trust used to segregate gift assets from inherited assets. Mostly used in determining equal share in divorce proceedings, living trusts are often used to avoid probate.


The Beneficiary Defective Irrevocable Trust (BDIT) caters to the child alone and not the parent because if the trust is established by the child’s parent or any other benefactor for that matter it includes an annual demand called the Crummy power for the child/ benefactor which makes the child its rightful trust. BDIT should be handled with precision different from the traditional ones. Again all those assets’ immunity stands jeopardised under revocable living trusts if assets received as gifts or inheritance by the client are use to pay income tax.


Insurance Transfer for Value Rules


If an insurance transfer is not subjected to IRC Sec.101(a)(2), its proceeds then are income tax free. Transfer for value rules are triggered only if it takes place between a corporation and a shareholder and not between two partners in a partnership. Following this life insurance transfers that appears on any return must be investigated to avoid transfer for value rules.


Disregarded LLCs


In order to bring down the administrative expenses of a business partnership, clients often prefer utilizing ‘single member ignored Limited Liability companies’. The only disadvantage of this policy is that if a lawsuit is filed against the client then the executive organ of the government can investigate all personal accounts of the client. Filing a Schedule C on the other hand much guards income information of an individual.  


Schedule B: Titles To Assets


In 2010 the IRS sanctioned the “asset portability” tax act. This provision allows the surviving spouse to ignore estate tax payment in a de-coupled state. However this provision is only limited to state tax exemption policies and does not work at the federal level.  The practitioners on the other hand, more often follow the traditional technique of paying subsidy to a trust in the name of the deceased. But it seems that there are many loop-holes in the asset portability act which the IRS needs to address.


Non-retirement asset division, balancing property distribution etc should be carefully planned by the practitioner so as to avoid complications while preparing Schedule B concerning Titles to Assets.

2012 and 2013 Tax Tips

Considering the uncertain global conditions and economic downturn, federal tax rules in US have not been formulated beyond the year 2012. In this context, it has become very difficult to prepare a final layout for estate and gift tax. In the face of such a situation, some important tax tips have been discussed below, which can efficiently help plan income tax propositions.

In the first case, it is suggested that income should be deferred to the subsequent year, secondly tax deductions should be enjoyed and last of all if there is any such tax provision that has expired, it must be taken into account. In the following passage, we have discussed the federal tax rules, which have been implemented by the U.S. government in the year 2012 and the proposals, which have found a place in the 2013 US budget.

Transfer tax rules in effect for the year 2012

The transfer tax rules, which have been put into effect for the year 2012, are as follows:

1. In the event of a person’s death in 2012, an exemption limit of $5,120,000 has been set which is a revised and adjusted figure compared to the one that had been fixed in 2011. Other than the exemption limit, the landed properties will be taxed at 35% rate.
2. Tax enactment plan for married couples implies that if in the event of death of one spouse the other person can utilize the unused portion of the dead partner’s deduced amount. Such a provision is called portability and this will remain in operation only for the year 2012. To get the fullest advantage of portability or deceased spousal unused exclusion amount, as it is technically known as there is the need to produce federal estate tax return of the dead partner’s estate. It does not matter even if the gross value of the estate is marked below $5,120,000 because whatever the case may be estate tax return of deceased person’s estate has to be filed.
3. There are other spheres, which are subjected to the same amount of exemption limit and are known as lifetime gift tax and generation skipping transfer tax. The exemption amount stands at $5,120,000 and like in the first two cases and the taxable amount for the lifetime and generation skipping transfers remains the same at flat 35% tax rate.
4. The deductible amount remains the same at $5,120,000, which is applicable for lifetime gift tax. Like in the earlier cases, 35% tax rate has been decided for all taxable gifts over the exemption amount. In a whole, the gift tax and the estate tax have been brought under a single section.

New tax proposals indicated by President Obama in the 2013 budget 

If the tax proposals, planned for 2013 US budget are finally implemented and brought into effect then there will be notable changes in estate tax payments, generation skipping transfer and gift taxes.

1. Talking about exemption limit the new exemption amounts that has been fixed for estate and generation skipping transfer tax are kept at $3.5 million and $1 million respectively.
2. The new taxable amount has been increased from the earlier 35% to a new flat 45% tax rate.
3. Coming to the section, which talks about the provision of portability where the earlier facility that allowed a surviving spouse to utilize a deceased partner’s unused exempted amount, has been made permanent.
4. Valuation discounts has also been talked about in the 2013 budget plan. In the present scenario due to the absence of good control and proper marketing techniques, the interests of business organizations suffer heavily. However, according to the 2013 plan module the value of interests will only be discounted in case of family businesses.
5. Grantor retained annuity trusts will face several changes as per 2013 tax rules. Going by the present condition laid down in the rule book, a person can save those extra money which he has to shell out for paying transfer tax costs by using grantor retained annuity trust. Two different conditions have been mentioned in the 2013 budget plan, which will bring the earlier provision of zeroing out the gift in the trusts to a permanent stop.

Some other significant changes that has been noted in the tax evaluation rules applicable for grantor trust’s are that unlike before landed property owned by the grantor trust’s will be included at the time of evaluating the grantor’s total estate under his possession. In addition all kinds of distributions which will be made in the lifetime of the grantor will be indicated as gift tax.



How Is Your Small Business Financial Fitness ?

Do you think all small business owners understand the financial aspects of business.  You will hope so but that is not always the case.  Many business owners don’t understand the difference between gross profit and net profit.  Some can’t plan the meaning of turnover.  How about you ? Do you understand what needs to be on your invoices once you’re VAT registered, or the turnover threshold before you business is eligible for VAT?

Intuit, make of quickbooks, released a info graphics that some interesting information.  I hope you will enjoy this really cool graphic.

See original post on the Small Business Matters blog

Picking a Good Business Bookkeeping Services in San Francisco Bay Area

In a recent Bookkeeping services review on Yelp, reviewer name Girlie, commented that “If you are ever audited, hire an accountant who is organized, respectful, a good communicator, and a good listener, someone who respects the IRS and treats them seriously.”

Girlie summed up the qualification for good accountant but more importantly of a good bookkeeper.   Good bookkeeper can make an IRS audit as easy as eating a pie.  Having a bookkeeper who works under a direct supervision of certified public accountant or one with number of years experience can be very helpful.   Apparently Girlie didn’t do enough research and further explained the frustration “First of all, he is not a CPA. This is a personable guy who open up a chic office in Noe instead of working at HRBlock.”

So, how do you pick a good Bookkeeping services in San Francisco Bay Area ?  

Not required but strongly recommended that you stick with a CPA firm that also provide bookkeeping services.    Check their reviews on Google, Yelp, Yahoo or other online sites.   Ask for reference letters of their past client or current clients.  You may even ask for client phone number and speak with other business owners to get the understanding of CPA firm and their process.

You don’t have to be super picky but you want to do business with firm you can depend upon.  You want to know the truth before you end up in an Audit or some other serious tax trouble.   You can take advise from Girlie, ” the CPA I finally hired to take over my tax situation had 30 years experience, advanced degrees in accounting and tax law, and charged 30% less than Mark. His financial advice is golden. So if you want to pay for a real accountant, you can find one.”

Before picking your next bookkeeping service provider, make sure to:

  • Check the reviews
  • Check the degree
  • Check the references and
  • Check the fees

What are some of the red signal you can look out for ?

Picking a new bookkeeping services provider can be challenging.  After all you will depend upon this person to be a safe keeper of your financial documents and ensure complete compliance with current tax laws.   There are some things you can look out for that can help you avoid trouble.

Inexpensive or Cheap :   Sure, you want the best deal in town.  But you get what you pay for.   Is it worth paying hundreds of thousand dollars in taxes to save couple hundred dollars of bookkeeping fees.

Office and Staff:  We live in society where companies like Google and Facebook came to life from a garage.  But those are just couple of examples.  Truth is that hundreds of companies are born and die in a similar garage.   If the office and staff of your CPA or Bookkeeper looks unorganized than you are surly heading for trouble.   Look around the office to see if paper work is properly filed. How are the desk of accountants.

Pay attention to phone calls. How is staff answering the client phone calls.   If possible, ask to see the profile of office staff.  Good CPA or bookkeeper will happily share the work experience of their staff.

Office Hours:  Odd office hours or office that is only open during weekends can be troubling.  Make sure that your CPA or bookkeeper will be available when you need them.

We hope that your next bookkeeper is than better than you expectations.  Please share your experience regarding bookkeeper or CPA services.


Non Profit Tax Filing | Due Date is May 15Th 2012

Tax time is over ? Not for everyone.

Exempt Organization need to file their tax return by May 15th 2012.  Non-Profit tax returns are complicated and very tedious.   We strongly recommend that you consult with CPA for the filing for tax return.   Our office can also help with your non profit tax return.

Not-Ready to file your non-profit tax return ?

No problem. Simply file for an extension.  You may incur penalties if you file tax return late without filing for an extension.

What do I need to file:   There are many requirements for filing the tax return but key is Form 990 and its related schedules.  This form and schedules include significant amount of financial reporting.   Here are just some of the thing you will need.

  • Revenue and Income Statement :  This should include categories (e.g. salaries, postage, rental revenue),
  • Balance Sheet:  Once again, this sheet should include categories (e.g. cash, accounts receivable),
  • Statement of Functional Expenses:  Tell how all expenses are allocated to either program services, fundraising, or operations.
  • Expenses Report: This report should have all expenses divided into individual program service (e.g.  mailings, a seminar program).
  • Revenue Report:  This report should include the details of sources of the revenue, with categories.  Basically IRS wants to know how money was raised.

As you can see IRS wants the detail of your operation including income and expenses.  This can be quite tedious specially if this is your first time filing the return.  Also note that IRS provides specific categoires and classes for revenue and expenses.  Your tax return can be quite complicated if are not using these categories.

Our firm can help you set up proper book keeping practice for the non-profit and help you file your tax return.


Legal Zoom Alternative In San Francisco Bay Area

Sanjiv Gupta CPA firm is great alternative to legal zoom business and corporation set up offerings.  We serve clients from Fremont, San Jose, Cupertino, Palo Alto, and entire San Francisco Bay Area.   Our firm set up Corporations, LLC, S-Corporatons, Partnerships and Sole-Proprietorships.  If you are thinking about starting a new business than Sanjiv Gupta CPA firm can be a great choice over Legal Zoom online website.

Why Should You Do Business With Sanjiv Gupta Instead of Legal Zoom ?

Starting a new business requires proper planning both from tax prospective and long term survival of the company.   What kind of corporate structure you set up should depend upon how your business will operate and how you plan to exit your business.  This kind of advise is hard to get from Legal Zoom or other online corporation set up practices.  When you sit down with Sanjiv, you will understand why you should choose one kind of business structure over the other.  You will learn how one structure can save your thousands of dollars in taxes.  You will learn how you can exit out of the business when you are ready to sell or retire.

Online practices like legal zoom do not focus on customized and individual service but firms like Sanjiv Gupta can deliver exceptional value to new business owners in this arena.   In addition to setting up your company, you can also learn about tax saving strategies and how you should handle payroll and other taxes.

Is Legal Zoom Cheep ?

Legal Zoom is only doing the paper processing.  You decide how much paper processing should be worth.  You should still consider consulting with your CPA or attorney even if you started your business using Legal Zoom.

Can you do this yourself ?

Offcourse, you can do the paperwork yourself.   But key is to indentify what makes a long term success.  Saving money on important task as setting your company may not be a wise move. You may end up paying extra taxes just because you picked a wrong structure or timing of setting up your company was wrong.

Is it as easy to set up company with Sanjiv Gupta CPA firm as with Legal Zoom ?

This one is tricky question.  Sanjiv Gupta CPA firm specialize in customized solution that can be good fit for long term.  Therefore, you must set up an appointment with Sanjiv Gupta before we can set up your corporation or LLC.  You may consider it an extra step but this can very useful and save thousands of dollars in taxes.

Ready to set up your business. Give us a call at 510-825-7563 or visit us online at

Discounted Kaiser Insurance for Small Business Owners

Our public accounting firm is focused on Small Business Owners and Individuals and many times new business owners ask us about the health insurance.   Most of us live in Bay Area and prefer  “Kaiser” as a  health care provider and therefore I gathered some basic information about Kaiser health care plans for small business owners.

Kaiser offers many health care plans but one that suites the need of small business owners is called “GROUP POLICY”.  You can buy this group policy in two flavors.  One with annual deductible and one with no annual deductible.

Plan with annual deductibles cost about $250-$300 less than the non-deductible plans.  Both policies cover doctors visit and other services offered by Kaiser.  Both plans have minimum out of pocket doctor’s visit cost but the key difference is that with annual deductible plan you have to pay the minimum deductible ($1500) before your major benefits kick in.   For example,  daily rate for hospital room may be $500/night and you will have to pay for 3 nights before your insurance pays.  However with non-deductible plans you won’t be required to pay for these three days.

So, if you and your employees are in fairly healthy and won’t be needing any major services than you can opt for deductible plan and save a significant amount on monthly basis.

How about Spouse and kids ?

Yes, off course your employees along with officers/owners of the company can also enroll their dependents including kids and spouse.  Most polices don’t allow to include your parents.

What are the requirements of this kind of policy ?

  • You must have a business in good standing.
  • You must have two or more people enrolling in the policy.
  • More than 50% of all eligible person should have an insurance.

Can I get tax deduction for the health policy ?

You can read my post about health care policy deduction for more details.

How much does the policy cost?

I found the group policy of very good value.   Rate very by age but here is a simple example. Female less than 30 years old can get this kind of policy for about $300.  Not Bad ?

How can I enroll for group policy ?

Simply call Kaiser and ask for enrolling in group policy.

Red Flags | Invite For An Audit

One of the common question asked by Tax Payers is “Can I get audited?” or “What can flag my tax return for an audit?”. These questions bug so many tax payers that we are often bombarded with same question via email and phone calls.

Good News | Less than two percent of taxpayers get audited a year. Your chances of getting audited increases with your income. How IRS selects tax returns for audit is “Top Secret” and I would assume that even the IRS employees don’t know the answer to that question. However, experts presume that it is combination of multiple factors that may prompt your tax return for audit. You will need to have multiple flags in order to get audited – but you never know.

1. Making Calculation/Math Error(s): “This is simplest but one of the common flag for an audit,” says Sanjiv Gupta, CPA. Most tax payers use computers these days and this reduces the risk of math error. However, software depends upon the data you enter. So if moved couple of zero’s here and there – you may be called for an audit. Sanjiv pointed out that common math errors typically time pressure. Folks trying to do their tax return at the minute are more prone to making a mistake.

2. Taking Abnormal deductions. How about $100,000 charitable donations from someone making $50,000 year – possible but outrageous. If something is out of ordinary, attach proof with your tax return.

3. Submitting inconsistent information. What happens if you report income of $25K but your employers reports $45K ? Audit, off course. Make sure information going to IRS from all places matches with numbers you put on your tax return. This is especially true if you were paid in cash or have any kind of reported income.

4. Making More Money. Yes – you have a better chance of getting audited if you make $200,000 or more. How much more you may ask ? Recent IRS data shows that audit of tax payers making $200,000 increased by 34& during 2010 tax year. Just imagine, how is it like if you are making over 1 Million dollars.

5. Filing a business return. Most businesses run into losses every now and then. However, if you show loss three out of five years than you are at higher risk of getting audited.

6. Taking home office deductions. This sounds like an easy deduction but big guys at IRS are looking out for home deductions.

7. Handwriting your return. Still filing paper tax return? It is a well known fact that hand written tax returns have more errors than the ones generated by computer. Guess what, IRS knows this too.

Taxes Due Today | Did you file ?

Did you file your taxes ?

Tax returns are due today.  You must get your tax return and tax payment postmarked by today. Unlike previous years post offices are not open late today.  So, get to post office on time.  Most post offices will close at standard 5:00 closing time.

Need to file extension ?

If you are not ready to file than make sure to file an extension for your tax return.  Filing extension will buy you additional time to file the tax return but it won’t buy you time to pay your taxes.  It is a good idea to make an estimated tax payment if you feel you will end up owing taxing.   If you end of owing taxes when you file tax return, you will have to pay penalty and interest.

You can file for extension by visiting IRS site here.  You can file form 4868 to get an automated 6 months extension.

Here are some important pointer you should consider if you are thinking about filing late:

1. File on time even if you can’t pay:   Some customers don’t file tax return because they don’t have enough money to pay for taxes.  This is not good.  You should go ahead and file the taxes.  There is no reason to request an extension.  Pay as much as you. IRS will send you the bill or notice of balance due.  You can also apply for payment agreement by calling IRS at 1-800-829-1040.   You can also apply for payment agreement online from IRS website.
2. Extra time to file An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the April 18 deadline, plus you may owe penalties.

3. Form to file   As stated earlier, if you do not an extension than make to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to the IRS by April 18, 2011. You can also make an extension-related electronic credit card payment.

4. E-file extension  You can also get e-file for extension.  You can go to your CPA or using one of the tax software. Don’t worry IRS will   acknowledge receipt of the extension request if you file by computer.

5. Traditional Free File and Free File Fillable Forms   Filing for extension is Free.

6. Electronic funds withdrawal While you are filing for an extension, you can also request for electronic funds withdrawal.


Have a question about filing your taxes ? Give us a call at 510-825-7563 or leave us a comment below.

California Corporation FranchiseTax Due April 17th 2012

Attention California Corporation Owners

Do you have a california corporation with no sales or no income ?  Did you set up your corporation in the last quater of 2011 and planning to start your business in 2012 ?  You operated business in 2011 ?

If you have set up corporation at any time during the year 2011  than you are required to file the California Tax Return for the year 2011.  In case you had no income or have not started your business untill now,  you are still required to file the tax return and pay minimum $800 California Corporation Franchise Tax. This is the minimum tax and all california corporations are required to pay even if they had incurred a loss or had no income for the taxable year.

What if you had LLC, C-Corp or S-Corp ?

Make no mistake – California Corporation Franchise Tax applies to all kinds of coporations.  As long as you were registered in the state of california as corporation during the tax year, you are required to fine the California Corporation Franchise Tax Return and pay the tax.   Failure to file the tax return can incure panalty and intreast.

I didn’t do any business last year, how can I avoid paying minimum $800 tax ?

In most cases you will have to pay the minimum tax but it certain cases you can get releive from this minimum tax.   There are certain rules that need to followed.   We recommend you contact your certified public accountant or give our office a call to discuss your options.

$800 Minimum Tax is only required in 2nd Year of Business:

Good way to look at this is that in California, you are not required to pay the California Corporation Franchise Tax when you incorporate your business or your first year of business.  You pay the tax for next year but you pay in advance when you file the tax return for the previous year.

Office of Sanjiv Gupta CPA can help you file California Corporate Franchise Tax Return and work with you to reduce your tax liabiltiy and improve your bottom line.  If you live or work around Fremont, Palo Alto, Cupertino, Sunnyvale, San Jose or San Francisco Bay Area than we recommend you make an appointment to come into our office for consultation.   We also offer appointments by phone for those who can’t come to the office.  You can reach us at 510-825-7563 to get your California Corporation Franchise Tax questions answerd.

You only got couple more days left to file the 2011 Franchise Tax Return.  Our office is open during weekend to accomodate the last minute filing by San Francisco California Corporations.  You can still make it in time and avoid any late panelties.