Newport Beach CPA Firm

Office Space Decisions for Small Business Owner

Office SpaceBuy or lease?

It’s a decision many Orange County businesses face. Owning real estate certainly can have advantages, including the opportunity to build equity. But many small businesses in need of space choose the rental route instead.

Cash Flow Considerations

By leasing, a company can avoid taking on debt to acquire a property. Less debt on the balance sheet may allow the company to finance other things, such as receivables or inventory and equipment purchases. And the upfront cash commitment needed to enter a lease agreement may be much lower than the down payment required for a property purchase.

Shopping Tips

If your business is looking around for the right rental location, here are a few suggestions to keep in mind. Not all of these tips are appropriate for all businesses, but some may help you get a lead on a good spot — and a good deal.

  • Find an eager landlord. Rental spots that have been on the market for a while could have some negative features, but they may be worth a look. If you find a location that suits you, you might also find a landlord who is anxious to negotiate.
  • Think about the term. A long-term lease locks in your rental rate — and that can be an advantage if you expect the market to trend upward. But leasing for short periods is often less expensive than leasing for longer periods. If your business is in its formative years, significant changes may lie ahead, so a short-term arrangement could be more practical, too. Adding an “option to renew” clause can help keep your costs down and your options open.
  • Divide and conquer. Could you make do with two smaller spaces instead of one large space? The more flexible you can be, the better your chances of finding a good deal.
  • Check rental comps. Commercial property markets can be very localized. Rents may vary considerably between one locality and another just a few miles away. Unless you’re limited to a specific location, compare rates in several areas.

At Morey & Associates, we help many of our small business clients with the office space decision and help them lower their overall taxes.  If you are struggling with this decision, simply call 949-759-5626 and ask for Jerry Morey.

 

Morey & Associates works with all types of small businesses throughout Orange County to minimize their taxes legally.  We provide additional expertise in real estate accounting, dental practice accounting and high net worth accounting.

Why Foreign Bank Account Violations are Ultra Expensive

Bank AccountIf you have a foreign bank account that has not been reported to the IRS, then you could be facing serious civil penalties and even criminal penalties. These penalties fall under the Foreign Bank Account Report, (FBAR) violations.

First, it is important to determine if you are required to report your foreign bank account. It comes down to being able to say yes to the following four questions:

  • You are now a US citizen or permanent resident or have been in the last six years.
  • You have had a foreign bank account for a year or longer since 2008.
  • Your balances in all of your foreign accounts exceed $10K
  • You have not reported the account through the FBAR paperwork to the IRS.

The civil penalties for not filing the FBAR will be the greater of 50% of your bank account or $100K. The IRS has also indicated that it is willing to charge these penalties cumulatively for up to four or even six years.

This means that you can be charged these penalties for each year you have had the foreign bank account and not reported it to the IRS regardless of the fact that the penalties may well out pace the actual dollar amount in your account.

In addition to expensive civil penalties, you can also face criminal penalties. If the IRS determines that you willfully knew that you should have filed a FBAR and didn’t, they can charge you under FBAR violation laws as well as normal criminal tax prosecution laws.

A criminal prosecution typically occurs when a person has a large amount of taxable income in their foreign bank account that has not been claimed on their tax return.

A tax accountant or tax attorney can walk you through your options if you find yourself in this situation, as the IRS does offer voluntary disclosure programs, but even with taking advantage of one of these programs, you will still suffer the sting of IRS penalties.

If you are tired of overpaying taxes and would like to lower your tax compliance risk, call 949-759-5626 and ask for Jerry Morey.

 

Morey & Associates is a Orange County CPA Accounting Firm with offices in Newport Beach and San Clemente.  We service High Net Worth clients and small businesses.  We also provide additional expertise for real estate accounting, dental practice accounting, and medical practice accounting.

Tax Treatment for Bitcoin Payments

BitcoinIf you’ve paid attention to the news the last few years, you will have heard of Bitcoins. In fact, you may even have considered accepting them as payment for services or product sales. Before you do, you’ll want to make sure you have an understanding of how the IRS treats Bitcoin payments.

First, it’s important to be aware of the fact that the IRS does not consider Bitcoins, which are virtual currency, as a legitimate state-backed currency. Instead, they see Bitcoins as property.

This means that the tax rules that apply to property transactions will also apply to payments received in Bitcoins. When a person, or business acquires property, they are required to record the fair market value of the property. This will become the owner’s basis for the property.

Once the property is sold or exchanged, if the fair market value of the property has increased, then the owner will have a taxable gain. On the other hand, if it has decreased in value, the owner will have a loss.

This means that if a business owner sells a product today and receives Bitcoins worth $100 but then converts them to dollars next week and the value has increased to $120, they will have a gain of $20 that will be taxed as capital gains.

This becomes even more complicated when multiple Bitcoin transactions take place. Each transaction needs to be tracked separately and each will have its own gain or loss depending on the current valuation of Bitcoins when they are converted to dollars.  The amount of paperwork and record-keeping becomes significant.

There are a couple of workarounds for this. First, each transaction can be converted to dollars immediately. Secondly, there are now Bitcoin merchant service providers that will deal with all of the backend record-keeping that is necessary. This allows businesses to accept Bitcoins without ever actually dealing with them.

The IRS ruling treating Bitcoins as property turned the Bitcoin world and those who want to accept them on their heads, but technology and even the IRS will eventually catch up to the new reality of virtual currencies, but it may take awhile.

If you are tired of paying too much in taxes, call 949-759-5626 and ask for Jerry Morey.

 

Morey and Associates is a Southern California CPA Firm with offices in Newport Beach and San Clemente.  We service all types of businesses and high net worth individuals.  We also have additional expertise with real estate accounting, dental accounting and medical practice accounting.

 

Tax Rules – Convert Primary Residence to Rental Property

If you’ve made the decision to rent your primary residency instead of selling it, there are tax implications to be aware of. The tax code in this area can be complex, so it’s important to understand the rules and regulations upfront before you take the plunge.

Residential Real Estate - CA BeachFirst off, a residence is considered primary when you live in it full-time and it is not rented out for more than two weeks in any given year. Conversely, a residence is considered rental property if you use it personal use for no more than two weeks of the year or 10% of the days it is rented.

Tax Implications

Once you have converted your primary residency to a rental property, you will be required to report any rental income as taxable income. On the reverse side, you will also be able to deduct expenses for repairing the property as well as general maintenance.

In addition, the IRS does allow you to use depreciation of the property to offset income received on the property as well as taking other deductions such as property taxes, insurance, mortgage interest, utilities, and association fees.

Any costs over the amount of the total rental income cannot be deducted unless you meet the following conditions:

  • You actively participate in all real estate activities for the property
  • Your adjusted gross income is under $100K for the year
  • Your total losses for all real estate activity does not exceed $25K for the year

The basis for depreciation for rental property is the lower of your adjusted basis – capital improvements plus purchase price – or the fair market value. The property must be depreciated over a 27.5 year period. Also, you are only allowed to depreciate the portion of the residency that is used for income generation.

If you are searching for a CPA Firm that specializes in Real Estate Accounting, call us at 949-759-5626 and ask for Jerry Morey.  We offer a free initial consultation.

Morey & Associates is a Orange County CPA Firm working with clients throughout Southern California.  We have convenient offices in Newport Beach and San Clemente.

Trump Fires Shot at Hedge Funds

Don Trump2If you pay attention to recent headlines, it may seem that being a hedge fund manager is the equivalent of being a punching bag, but while Donald Trump and others may be wagging their fingers and sparring verbally, there may be good reason to do so.

According to Trump, “The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky. It is the wrong thing. These guys are getting away with murder.”

He goes on to say, “They are energetic. They are very smart. But a lot of them – they are paper-pushers. They make a fortune. They pay no tax. It’s ridiculous, ok?”

While one might argue whether or not hedge fund managers are paper pushers, there is much truth when it comes to using hedge funds to avoid paying taxes. Most hedge funds are limited partnerships with the investors being the partners. There is also a person that manages the fund. This person is paid a certain percent of the profits of the fund.

Due to the fact that the manager is compensated on the profits, the vast majority of the income that is generated by the fund is not taxed as compensation or salary. Instead it is taxed as a return on investment. This means that the income this person receives is taxed as capital gains instead of regular income.

The bottom line is that the fund manager is paying 20% income tax, (capital gains), instead of the typical 39.6% tax rate for those in this tax bracket. It is this loop hole of claiming regular income as capital gains and paying a much lower rate of tax instead of paying ordinary income tax rates that rightfully causes concern and scorn from some politicians and others such as Donald Trump. It is the typical argument of one set of rules for the rich and another set for the middle class.

Estimated Taxes – What Orange County Residents Need to Know

Estimated taxes are not just for the self-employed. They’re owed by anyone who has at least some income that isn’t subject to withholding by an employer. For example, if you receive interest or dividends, rent, or income from selling an asset, you are required to pay estimated taxes.

Estimated Tax PaymentsIf you’re not deducting enough income tax deducted from your salary, pension, or other income, you’re obligated to send the IRS a payment four times a year. This is why it’s so important that you enter the correct number of allowances on your W-4 (and even add an additional amount if necessary), and that you track all income. Failure to submit enough income tax dollars prior to filing your 1040 – and by the IRS’ scheduled deadlines — will result in penalties, even if the IRS owes you a refund.

How to Pay

The form you use to submit your estimated tax payments depends on what type of business entity you are. If you are a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you’ll need to make quarterly estimated payments if you think you will owe $1,000 or more (after you subtract withholding and refundable credits) or more come filing time. You would use the Form 1040-ES (Estimated Tax for Individuals) to calculate and pay. Corporations should use the Form 1120-W (Estimated Tax for Corporations) if they expect to owe $500 or more when they file.

You’re not required to pay estimated taxes if:

  • You were a U.S. citizen or resident alien for all of the previous year, and
  • You had zero tax liability for the full 12 months of the previous year.That’s the tricky part, especially if you are self-employed or for some other reason don’t know for a fact how much you’ll owe in income tax for the current year. You can use the previous year’s return as a guide, but there have, of course, been tax code changes since then. And your income and deductions may well be different this year.
  • This is really an area where you should sit down with us and make a plan. This might involve running monthly or quarterly reports, creating projections, etc. These are good habits, especially if your income is unpredictable. Year-round tax planning will not only help you make those quarterly payments – it will provide a clearer view of your company’s overall financial health.
  • How to Estimate Your Estimated Taxes

If you’d like some guidance on taxes and how to lower your tax liability, then contact Morey & Associates CPA at 949-759-5626.

Morey & Associates is a Newport Beach CPA Accounting firm.  We service clients throughout Orange County with two convenient office locations.  We work with small businesses, real estate investment groups, medical practices, and high net worth individuals.