CPA’s Answer Tax and Finance Questions!
Because we’re responding in a public forum, our answers will focus on the most common cases.
If you’re considering engaging a Certified Public Accountant for professional assistance with your finances, please contact us!
In general, early distributions taken from a 401k plan incur a 10% tax Federal penalty AND the amount distributed is added to a person’s taxable income for the year the distribution occurs. (Depending upon where you live, there may also be a STATE penalty for distribution and also state income tax. ) There are some exceptions to the penalty for immediate and heavy financial need.
The information about how the Internal Revenue Service classifies “heavy financial need” and additional information is available on the IRS site at http://www.irs.gov/retirement/participant/article/0,,id=151787,00.html .
The rules are complex, and we recommend that individuals receive advice from a tax professional.
The steps you can take to reduce the tax liability from the distribution are the same ones which you should normally take to pay the least legal amount of taxes. There are no special procedures to follow.
If a person is a resident of the California, the Federal and State governments want you to declare your income world-wide. This would include rental income from property in Germany. The Federal tax law provides a foreign tax credit to help make you whole for taxes paid to Germany. (See https://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit) However, there is no foreign tax credit available for California state taxes.
I’d like to know if there is any issue with the following scenario:
I own an S-Corp. LLC and we lease our production space in a town adjacent to my personal residence. Can my LLC pay for the installation of solar panels on the roof of my personal residence? The LLC would be allocated 100% of the benefit (future solar tax credits) so there would be a benefit to the business. Would the install of the solar panels be a legitimate business expense for the business?
The short answer is a LLC probably cannot absorb the expense of installing solar panels on the residence of its owner. There may be details we don’t understand in the scenario you outlined, but the installation of solar panels at the residence of the LLC’s owner doesn’t appear to have a commercial rationale. The installation would have to have a business purpose for the LLC for it to qualify as a deductible expense.
If I am a single-member owner of a Nevada LLC, living in Nevada, performing work as a software developer entirely for a California client, and performing that work entirely in my Nevada home, am I liable for California corporate and/or personal income taxes?
In general, if you do all of your work in Nevada and reside there, you would not owe California taxes. However, there are lots of things we do not know that could make Calfornia think you have a nexus in the state that would require you to pay income taxes. For example, if you or the LLC owned property in California, the state might try to convince you that you owe taxes.
The whole issue of nexus is complex, and aggressive state tax collectors make giving a simple YES/NO answer more difficult.