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Tax Reform Impact on the Bay Area

The largest group of real estate agents in California has cautioned that a tax reform proposal made by Republicans would diminish the appeal of purchasing a home in the Golden State. However, it has since been pointed out by economists that the effects of such a proposal could also result in a decrease in skyrocketing home prices.

Geoff McIntosh, President of California Realtors Association has suggested the Republican proposal to eliminate local and state tax deductions, including property taxes, could have a negative effect on the housing market in California and on the state itself.

Under the new proposal, the average home buyer in California could end up paying $3,000 in additional taxes each year. Only those home buyers who opt to list deductions would be impacted if the reform plan takes away their capability to subtract property taxes on the federal returns of these individuals. Some economists have stated that even if the proposed tax reforms are permitted and this makes home buying less appealing in the end, it could mean possible benefits for buyers as well.

Fred Foldvary, an economics lecturer at San Jose State University, has stated that there are a number of variables involved; however, home prices would be reduced. He goes on to say that home prices are currently propped up by subsidies that are implicit. They include property taxes, deductions for interest on mortgage and other tax benefits. The value of residential real estate is puffed up by all of these subsidies.

Our San Jose tax attorneys have researched this topic extensively, and have found that the experts say that this all comes down to the simple rules by which economics are governed. Annette Nellen, an accounting and taxation professor at San Jose State University has summed it up as being simply a case of ‘supply and demand.’ She goes on to say that if the housing demand drops, home prices could also drop.

An economist and founding partner at Beacon Economics, Christopher Thornberg, is in agreement that the prices of homes could drop. However, he questions how apparent the decline could actually be, especially considering the dramatic rise of home prices in the state of California. This is particularly true in the Bay Area where housing prices are extremely high.

Thornberg estimates that there would be a 0.5 percent reduction in home prices caused by the property tax deduction loss. He says this has to be placed in the normal context of a market in which home prices rapidly increase.

The prices for buying a home in the Bay Area have been rising, based on the region in which these homes are located. It ranges between 7 percent per annum and 15 percent per annum. This is an indication that any effect of the tax reform that could reduce home prices might be hard to notice.

Geoff McIntosh believes the proposed Republican tax reform will remove the incentive for individuals to purchase homes, diminish the middle class and increase taxes on

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Perpetrators Of Homeless Tax Fraud Face Justice In San Jose

Our tax attorneys in San Jose recently learned that identity theft and tax fraud allegations involving homeless people have become one of the latest scams perpetrated by criminal elements in San Jose.

A significant number of individuals who are eligible for tax refunds do not make an effort to file a tax return. The inaction is due to a variety of reasons, including living in shelters or just outside the mainstream society.

For this reason, scammers target homeless people and prepare tax returns based on identity fraud. As a result, tax refunds are funneled to illegitimate recipients. The perpetrators may act as a syndicate or individually. However, law enforcement officials told reporters that it is possible that some individuals charged with the offense may be unaware of the actions of their co-conspirators.

In such cases, some individuals sent to collect personal identifiable information (PID) from the homeless people may be unaware that the personal details would be used for criminal purposes.

San Jose woman pleads guilty

A 74-year-old San Jose woman known as Diep Vo recently appeared in court after being implicated in a homeless tax fraud scheme. According to the Attorney’s Office, she pleaded guilty to the charges brought against her. Federal prosecutors told journalists that the defendant was accused of stealing social security numbers from several homeless people (aggravated identity theft). She proceeded to file fraudulent tax returns.

Federal prosecutors say the elderly woman visited a couple of halfway houses and homeless shelters in a bid to acquire the identity details of people living in the centers. She allegedly promised the individuals money from a government program. The homeless people were asked to sign blank income tax return forms, which Vo later handed over to John Nguyen. The forms were later filled and submitted to the Internal Revenue Service (IRS).

The woman allegedly conspired with John and Trong Minh Nguyen to commit the crimes between May 2012 and December 2013. The trio identified people who had filed a tax return or worked in previous years in addition to visiting homeless shelters.

The co-conspirators filled the forms with bogus information with the aim to avoid arousing suspicion since they were submitting several tax returns. Using a single mailing address would have compromised their plan. According to official court documents, the trio rented a number of private mailboxes at various locations. Some of the mailboxes were rented in areas close to Senter Road in San Jose.

Approximately 1,740 fraudulent tax returns were filed by Diep Vo (also known as Nancy Vo). The fraudulent refunds totaled over $3.5 million. In May, the elderly woman was indicted by federal grand jury on three counts of aiding and abetting in filing fraudulent claims and one count of conspiracy to file fraudulent tax returns. In addition, she was indicted on two counts of aggravated identity theft. Sentencing in the matter is scheduled for November.

Vo could face a maximum sentence of five years for each count, a minimum sentence of two years for … Read More

Tax Reform May Include Upfront Tax On Retirement Savings

Our tax attorneys in San Jose have been closely following Republicans in Congress as they prepare to battle out tax reform and attempt to cut taxes. However, this leaves individuals to wonder who pays for the cuts. A solution currently being considered is an upfront tax on retirement savings. Many individuals in the retirement savings industry are concerned that Congress may decide to “Rothify” employees’ 401(k) contributions, in whole or in part.

The Fate of Future Contributions

Currently, the funds you put in a conventional 401(k) are not taxed when you contribute. Rather, the growth of the money is tax-deferred. However, when you begin withdrawing funds for retirement, these funds are taxed as standard income. The latter is the exact opposite of the way both Roth IRAs and Roth 401(k)s work. With Roth accounts, you make contributions after taxes are paid, but tax-free status comes into play regarding your gains and withdrawals. Should Congress decide to “Rothify” 401(k)s, it could enable them to regard all or some of your future contributions to 401(k) accounts as taxable income during the year the contributions are made.

Nothing New in This Approach

It is not the first time this approach has been considered: in 2014, under then House Ways and Means Committee chairman, Dave Camp, a version of this plan was discussed during conversations focused on tax reform.

Under this plan, it would be possible for you to contribute up to half of the allowed annual contribution limit before taxes. That limit is currently $18,000. Pretax status would also apply to your employer’s match; however, other monies you invest in the fund would be taxable immediately.

Tax Reform or a Fiscal Gimmick?

Because the taxes on long-term savings would be front-loaded under this plan, revenue could be raised in the short term by Rothifying 401(k)s. In fact, it was estimated that the proposal made by Camp in 2014 would raise almost 144 billion dollars over 10 years, seemingly “paying for” the permanent tax cuts desired by Republicans.

I can tell you as a tax attorney, that making such a change would result in lost money over time. This is because money collected by the federal government would decrease once employees begin making tax-free withdrawals upon retirement. According to the Committee for a Responsible Federal Budget, shifting the timing in this manner is little more than a fiscal gimmick. A spokesperson for the Committee stated that the plan would merely produce short-term savings by pushing costs into the future.

These facts and figures, however, do not really tell individuals who are saving for retirement whether the deal would be good or bad. The answer is that no one truly knows.

In a recent blog post, Nevin Adams, who works at the American Retirement Association as communications chief, noted that there is essentially no research that addresses the subject of how employers and workers might react to this plan.

However, this may soon change: The Employee Benefit Research Institute is in the process of studying

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IRS Announces Relief For Those Affected by Hurricane Harvey

In the wake of the Hurricane Harvey, our San Jose tax attorneys have learned that The Internal Revenue Service has announced hardship distribution and plan loan relief for individuals affected by the disaster. These include individuals who have their principal residence or workplace in the counties of Texas or other states that are designated for individual assistance by FEMA. (Currently, only certain counties in Texas are designated for assistance, although these can be expanded later. For a list of designated areas, visit https://www.fema.gov/disasters.) The benefits will also extend to employees who have any dependants—parents, grandparents, children, spouses—living in those affected areas. The relief will stay in place for the period of 23rd Aug, 2017 through to 31st January, 2018.

The qualified retirement plans that are eligible for relief according to Announcement 2007-11 include, among others, 401(k), 457(b), 403(b) and 401(a) plans. Loan procedures have been streamlined and hardship distribution rules relaxed for these plans. The announcement however does not allow IRA participants to take out loans, though they will be permitted to accept distributions under relaxed procedures.

The IRS’s relaxing of administrative and procedural rules related to distributions and plan loans means that the participants in eligible retirement plans will be able to receive the money more quickly than is usual. Additionally, the employees will not have to face the stipulated six month ban that applies to hardship distributions on 403(b) and 401(k).

The maximum distribution amount that can be taken out will still be restricted as per the IRS rules and regular tax rules will apply to all such distributions. However, the plan will be permitted to ignore the normal reasons for hardship distributions. If certain documentation is required for a plan to make a distribution, it can also relax this requirement. In addition, qualified plans that don’t come with provisions for loans and hardship distributions will also be permitted to make these distributions and loans given the plans make necessary amendments for such provisions by Dec 31, 2017.

Some additional relief has been announced by the Department Of Labor for benefit plans whose participants reside within the designated disaster area. This includes extension of the filling date for Form 5500, enforcement relief for delays/failures to provide blackout notices or to forward participant distributions as well as relief to certain insurance carriers and welfare plans and more.
For more information on relief announced by DLO, visit this page.

Alongside loans and hardship distributions, emergency PTO or leave- sharing plans have been proposed for employees affected by the hurricane. According to this proposal, an employer can adopt a PTO (paid time off) sharing plan and establish a PTO bank where employees can donate their PTO so that those who have been adversely affected by Harvey can access PTO in addition to their own share of paid time off. The PTO bank would be administered by the employer who retains the rights to grant additional PTO to an employee who, due to the severe hardship caused him by the natural

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San Francisco Home Owners May Take a Hit Under The New Tax Reform Plan

We all know how important the home mortgage deduction is, and as far as our tax attorneys can tell, it should be safe for the foreseeable future — even though there’s an upcoming tax reform debate.

However, this deduction doesn’t need to be completely revoked by lawmakers in order to be deemed useless by homeowners and taxpayers in San Francisco.

It seems as though lawmakers are currently trying to replace the cash flow that they would ultimately lose as a result of the trillions of dollars in tax cuts they would like to make. As a tax attorney in San Francisco, I can tell you that the mortgage deduction is one of the most expensive tax breaks we have in America. The estimated cost for the next decade is in excess of $80 billion a year.

As the law stands today, San Francisco homeowners that itemize deductions may deduct the interest they pay on their mortgage, up to one million dollars between a primary residence and secondary property. You may also deduct loan interest from home equity loans, up to $100k, as long as you’re not subject to the Alternative Minimum Tax. Seeing as how the median price for a home in San Francisco is over one and a half million dollars, these deductions are absolutely critical for home owners in the bay area.

What’s the average price of a home for the rest of the country? Not as much as you might think. A paltry $250k is the median price for a home in the United States.

So what kind of salary do you need to be pulling down in order to be a home owner in San Francisco? It’s estimated that you would need over $180k in order to own a home and make ends meet.

Under our current tax law, a lot of the expenses associated with home ownership are deductible. Eliminating these deductions could cause a hardship on San Francisco residents who rely on them in order to maintain their budget.

Of course, you don’t need a tax lawyer to tell you that any change to the mortgage deductions could cause a disruption to the housing market. In fact, the National Association of Realtors predicts that eliminating tax incentives for home ownership could cause home values to plunge across the country.

It’s been reported that we may see even more eliminations of itemized deductions that would significantly decrease the tax benefits of owning a home.

We’ve also seen reports that lawmakers are trying to increase the standard deduction, which would greatly reduce the amount of people who would itemize their deductions.

It’s important to remember that none of these laws are set in stone yet. Lawmakers are beginning to debate about what the upcoming tax reform would look like, and our tax attorneys want to make sure that the public is well informed a head of time so that you can have an informed opinion, and let your representatives know how you feel about the

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The Impact of Trump’s Proposed Tax Cuts

While plans to reorganize tax brackets, get rid of alternative tax, and eliminate several itemized deductions would save American taxpayers $4.8 trillion, it would appear that some Americans may disproportionately benefit more than others. According to a report prepared by the Institute on Taxation and Economic Policy, 61.4% of the savings would go to 15% of the top taxpayers. In contrast, 14% of the middle-income earners would pay more.

Over the past few months, the newly proposed tax cuts have been keeping our San Francisco tax attorneys busy. We’ve been studying what the possible changes could mean, and have put together the following predictions.

Likely Winners of Trumps Tax cuts

The biggest winner of this law would be Wyoming. The state would save $1.38 million in taxes if Trump’s proposed tax cuts were enacted. The middle-income taxpayers would get $940 while the richest would keep an average of $308,540 every year. The wealthiest residents of Connecticut would also benefit from the tax cuts, as they will receive 60% of the pie; while the middle income tax payers would only get 3.7%. The same goes for District of Colombia. The wealthiest residents of D.C. will receive 70% of the tax cuts while the bottom would pay an average of $600 more in taxes per year.

Other states that would win include:

• North Dakota: The state’s richest taxpayers would receive more than half of the savings. The middle income earners would only get 44% of the tax cuts received by North Dakota.

• Massachusetts: The richest from this state would save approximately $215,670 on taxes while middle-income earners would receive $1,150.

• Florida: The poorest in the state of Florida would get 5.5% of the tax cuts; the middle taxpayers would get around 8% while the wealthy would get 86%.

• South Dakota: The poorest residents of South Dakota would save around $410 while the richest would get $203,110.

Trump Tax reform losers

Evidence suggests that several states would not benefit from the tax cuts. In fact, things might actually get worse for them.

The state of Mississippi would be the biggest loser if the proposed tax became law. The poorest of Mississippi would receive less than 1% of tax cuts going to that state. The wealthiest would receive 47.8% while middle- income taxpayers would get 13%. West Virginia would not benefit much from the new cuts either. Middle-income tax payers would save $500 annually. Around three quarters of the cuts would benefit the top 20% of the richest tax payers in West Virginia.

Others that have a lot to lose include:

• Arkansas: The richest 1% of this state will receive almost half of the tax cuts while 20% of the middle income tax payers would keep1.3 % of their income.

• Kentucky: In this state, the middle-income earners would save $640 annually and the rich would get $68,550 every year.

• New Mexico: Middle-income taxpayers in this state would save around $580 annually, if that proposal were enacted. The

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