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Tax Q & A

Tax Questions Answered by Your San Francisco Tax accountant

June 2017

SUV over 6000 lbs|Is Social Security Taxable in California? |Hire a child | Estimated Tax Penalty

Is Social Security taxable?

Question: I am about to retire and receive social security. Is Social Security taxable?



Answer: The federal tax rule is: First 15% of your social security benefit is tax-free. If your adjusted gross income+tax free interest +50% of your security benefit(called combined income) if over $44,000( $34,000 for a single filer), 85% of your social security benefit is taxed. If your combined income is below the threshold, 50% of your social security is taxed. For state tax purpose, each state is different. There are 13 states that tax social security. In California, social security is not taxable.

SUV over 6000 lb depreciation

How much can you write off if I buy a brand new SUV with GVWR over 6000lb in 2017? I use it 100% for my business:



Answer: SUV with GVWR over 6000 lb are not subject to depreciation limit that applies to passenger vehicles. Here is a sample estimation of first-year depreciation of a $80,000 qualified SUV:


Section 179 deduction:                              $ 25,000
Bonus depreciation for new asset:                $ 27,500
regular depreciation first year:                    $   5,500

Total write off first year:                            $ 58,000

Put your child to work and save some taxes

Question:  I have a small unincorporated business and I heard hiring the kid might have great tax benefits. What are those?


Answer: First, children's wages are exempt from Social Security, Medicare, and FUTA taxes. In addition, the child does not have any income taxes up to his standard deduction amount($6,350 in 2017) On top of that, your child can even set up and contribute to his own IRA (5,500 in 2017), which means your child can make up to $11,850 completely tax-free. If your child is over 18, payroll taxes start to kick in. 

However, the wage must be reasonable for the work performed. I would highly recommend you should keep the employee contract, time records and issue W-2 at year end.

Estimated Tax Penalty

Question: I need the cash to buy inventory right now and don't want to pay estimated taxes. I will pay all mine taxes next April 15th. What's the consequence?



Answer: There are three type of tax penalties: Not to pay; Not file; Not to pay through the year(AKA: Estimated tax penalty)


To avoid an estimated tax penalty, generally, you will pay least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year through tax withheld or through paying estimated taxes using 1040-ES. 


Of the three penalties, the Estimated tax penalty is least expensive. As a matter of fact, it is about 3% annual rate of the underpayment portion. (federal only). The rates change each year but generally very low. Many self-employed people decide they rather pay this penalty and use the cash through the year for business.


However, If you do not pay on April 15th, IRS will charge you 9% or more.( 1/2 percent per month plus 3% interest ) It can get quite expensive.

What's your question?

Thanks! Ying will get back to you soon as possible.

Circular 230:The articles are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.

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