Richard Preciado was recently interviewed by Valley Women Magazine about the Firm and his career path that led up to his current position as Managing Partner of Hutchinson and Bloodgood.  Read the article.

Making a difference where we work and where we live has always played an important role to us at Hutchinson and Bloodgood.  

The Glendale office was recently recognized by the Glendale Adventist Medical Foundation with the Frank F. Dupper Award for Outstanding Corporate Philanthropy.  John Merrell, acknowledged our Firm’s contributions of “time, expertise and dollars to many civic and charitable organizations in its respective communities.” 

 In accepting the award, Pete Weir commented, “From our inception in 1922, the tradition and spirit of giving has always been a part of who we are as a firm and that attitude is shared by every one of our Partners and team members.  Giving back to the community is a big part of who we are and something we are very proud of.”

Hutchinson and Bloodgood makes Accounting Today's list:  Beyond the Top 100: Firms to Watch.  Read the article

In January, 2013, the Department of Housing & Community Development (HCD) has proposed several changes to the California Enterprise Zone program through a set of Proposed Regulations.  Here are some of the more significant items being impacted:

·         Voucher applications only allowed within 1 year from date of hire.

·         Employees hired before the effective date of the proposed regulations will have a 1-year grace period for vouchering.

·         Form W-4 no longer accepted for TEA support documentation.

·         Increase state voucher fee from $10 to $15.

The Proposed Regulations are scheduled to be adopted within the year, depending on comments received and any revisions being made.  We’ll keep you posted on the status of the proposed regulations and any new updates.

Proposition 30, approved by California voters on November 6, 2012, retroactively increases California individual income taxes effective January 1, 2012.  The new California tax rates below will be effective until the end of 2018.

•  Individuals (and Married Filing Single) with taxable income of $250,001 to $300,000, Heads of Household with taxable income of $340,001 to $408,000, and joint filers with taxable income of $500,001 to $600,000 - 1% increase from 9.3% to 10.3%.
• Individuals (and Married Filing Single) with taxable income of $300,001 to $500,000, Heads of Household with taxable income of $408,001 to $680,000, and joint filers with taxable income of $600,001 to $1,000,000 - 2% increase from 9.3% to 11.3%.
• Individuals (and Married Filing Single) with taxable income over $500,000, Heads of Household with taxable income over $680,000, and joint filers with taxable income over $1,000,000 - 3% increase from 9.3% to 12.3%.

When you factor in the additional 1% tax for incomes over $1,000,000 under the previously approved California Mental Health Services Tax, filers with taxable income over $1,000,000 will be subject to a California income tax rate of 13.3%.

We hope this information helps clarify the recently passed Proposition 30.  If you would like further information or help with your tax planning, please contact us at info@hbllp.com.

If you don't plan ahead, the federal and state governments could collect a huge portion of your retirement savings. Uncle Sam can take as much as 35 percent. When you add in state taxes (if applicable), as well as phase-out rules that can reduce or eliminate tax breaks as income rises, you could be looking at an effective marginal tax rate of 45 percent or higher.

So the relevant number to watch is the after-tax return - that's what you get to keep. Here's a rundown of some of your saving options:

Tax-Deferred Retirement Accounts

As you know, taxes are deferred when you save and invest with a traditional IRA, company-sponsored qualified retirement plan (such as a 401(k) plan), or a self-employed retirement plan (such as a Simplified Employee Pension or Keogh plan). With these tax-deferred accounts, you don't owe any taxes until you withdraw money. In effect, your tax bill is postponed until you reach retirement age and start taking withdrawals. At that point, you may be in a lower tax bracket.

Saving in a tax-deferred retirement account allows you to take advantage of tax-free compounding for many years. Although you'll eventually have to pay the tax collector, you're still better off than if your earnings had been taxed annually. Plus, you can generally deduct your contributions to these accounts.

Tax-Free Roth IRAs

If you qualify to contribute to a Roth IRA, your contributions are not deductible. For most people, this disadvantage is more than offset by the fact that your earnings are allowed to accumulate tax-free (as opposed to just tax-deferred). Specifically, you won't owe any federal income tax as long as you don't withdraw any earnings before age 59 1/2. (Also, at least five years must elapse between when you open your initial Roth IRA and when withdrawals commence.)

Taxable Retirement Savings Accounts

When you save and invest via a taxable account (such as an investment account with a brokerage firm), there are two basic federal tax rules to keep in mind:

• Under current tax law, you pay no more than 15 percent to the U.S. Treasury on long-term capital gains from selling investments held for over one year. The same rate applies to qualified dividends.
• You pay your regular income tax rate (up to 35 percent) on "ordinary income" from short-term capital gains and interest.

Thankfully, you can often invest on a largely tax-deferred basis even with a taxable account. How? By buying and holding low-dividend stocks or "tax-efficient" mutual funds. With this strategy, you are only taxed currently on dividend payouts, which can range from nonexistent (with many growth stocks) to minimal (with low-dividend stocks and tax-efficient mutual funds).

The following analysis illustrates how taxes and compounding interact dramatically to affect what you'll have to finance your retirement. These examples are based on the assumption that you are in the 28 percent federal income tax bracket and five percent state tax bracket (for a 33 percent combined rate). Let's say you save $10,000 annually, start at age 35, and earn an eight percent annual return. At age 60, you would have accumulated:

1. $501,655 after taxes if your money is in a taxable investment account and you pay taxes each year (8 percent equates to a 5.36 percent annual after-tax rate of return). This scenario produces the lowest amount because you get hit with a tax bill each year. This dramatically reduces your annual after-tax rate of return and that negative factor is compounded over the 25-year period.

2. $511,740 after taxes if your money is in a tax-deferred retirement account (such as a 401(k), Simplified Employee Pension or Keogh plan) and you pay a combined 30 percent rate for federal and state income taxes at age 60. You can increase this amount substantially if you scrupulously invest the annual tax savings from your deductible retirement account contributions in a taxable investment account.

3. $704,170 in after-tax money if you put $5,000 annually into a tax-free Roth IRA and $5,000 into a tax-deferred retirement account. (This assumes no state income taxes on Roth earnings, which is currently true in some but not all states.) This scenario produces the greatest after-tax wealth, because you completely avoid taxes on half your earnings.

Conclusion: Never underestimate the power of smart tax strategies to boost the end result of retirement saving. Minimizing taxes makes a big difference in the wealth you can enjoy in retirement. want more information? Contact us and let our team help you make the best, most informed choices about your financial future.

At Hutchinson and Bloodgood LLP, we take the mystery out of estate planning while being sensitive to your family’s circumstances, needs, and concerns.  Living trusts have become popular estate planning tools, but do you need one?  Here are some answers to common questions about living trusts to help you decide whether to consider implementing one.

What is a living trust? With a revocable living trust, you transfer ownership of assets you choose to a trust while you're alive. The trustee then administers the trust according to the trust's terms. You can keep any or all of the income from the trust, act as trustee, change the trust's provisions, or even terminate the trust. However, once you die, a successor trustee takes over and the trust then becomes irrevocable, meaning no further changes can be made. The trust can continue to exist or can be terminated, with the assets distributed to heirs or to another trust.

What advantages are there to setting up a living trust? A living trust has several potential advantages:

·    Trust assets will be distributed to your heirs without going through the probate process. This typically means heirs will receive their inheritances sooner, without probate costs.

·    You can name a successor trustee to take over the trust's management if you become mentally or physically disabled. This is usually less expensive and less cumbersome than having the court appoint a conservator.

·    By placing assets in the trust that require immediate management, such as a business, your successor trustee can immediately take over those assets after your death or disability.

·    Since the trust's provisions are not subject to court review, it is usually more difficult for heirs to contest a living trust's terms than to contest a will.

·    Property is subject to probate in the state in which it is located. Thus, if you own property in more than one state, your estate may have to go through two or more probate proceedings. Placing the property in a living trust bypasses the entire probate process.

What are the disadvantages of living trusts? Living trusts also have several potential disadvantages:

·    Depending on the assets you own, you may not need a living trust to avoid probate. Insurance proceeds, retirement accounts, and jointly owned property pass to your beneficiaries without going through probate.

·    Once you set up the trust, it must be funded by retitling assets to the trust's name. This can be time consuming and may require a significant amount of paperwork.

·    Creditors have a limited time after your death to make claims against an estate in probate. There is no comparable time limit for living trusts, so creditors can make claims at any time.

Do living trusts save estate taxes? Because you retain control of the assets during your life, a living trust by itself does not reduce estate taxes. You can, however, make provisions in your living trust to preserve the use of your unified applicable exclusion amount or to set up other trusts that can help reduce estate taxes.

Is a will necessary when a living trust is in place? In most cases, you would still want a pour-over will that places any assets you intentionally or inadvertently left out of the trust into the trust after your death. Individuals with minor children will also want a will to name a guardian for their children.

Do all assets have to be placed in a living trust? You decide which assets should be placed in the trust. Assets with beneficiary designations, such as life insurance, individual retirement accounts, and retirement plans are generally not transferred to the living trust, although the trust can be named as beneficiary. Before doing so, however, you should understand the income and estate tax ramifications.

While living trusts can provide many estate planning benefits, they aren't appropriate for everyone.  Contact us if you would like more information to make this decision.  Our goal is to take the mystery out of estate planning and provide you a unique solution tailored to meet your needs.

John Hoyt directs strategic planning, sales and support for enterprise information management solutions and related consulting, focusing on products from Sage Software, including MAS 90, MAS 200, MAS 500 and BusinessWorks, and SYSPRO enterprise software solutions for manufacturers and distributors.  He recently attended the Sage Summit 2012 and shares with us a synopsis of the event. 

This is by far the largest of the Gaylord Resorts and probably has its own weather system. Getting lost is easy to do, so a GPS might be helpful. Nevertheless, it’s all good exercise. 

Saturday night we met for dinner with some vendors and business partners, including Altec, endorsed partner for document management, and Synergistic Software Solutions, publisher of JobOps. This is a great opportunity to meet other business partners from around the country and world, and we met many last night that we have not seen since last year. I encourage clients to consider attending Summit next year for the valuable experience and great sessions.

Sunday we attended the Sage ERP X3 Project Methodology course as part of our certification requirements for the X3 software. The Consulting Group recently committed to adding this software to its offerings and should be fully certified by the end of this year. Sage ERP X3 is for mid-sized distributors and manufacturers that require a business process management system that meets advanced, industry-specific requirements without straining resources. Only Sage ERP X3 offers an extensive range of preconfigured management solutions that deliver the best standard practices for specific industries, yet is rapid to implement and easily customizable.

Although Sunday was the opening of the trade show, we attended the President’s Circle Awards Dinner and Recognition held at the world-famous Grand Ole Opry House, Studio A. Hutchinson and Bloodgood LLP was a recipient of this in 2011 for Top New License revenue for MAS 90 and MAS 200 ERP. More details on how that went in tomorrow’s post.

In today’s economy, Going Global has become a business motto for many companies as they expand internationally. Companies are increasingly sending their most valued executives into and out of the US on lengthy international assignments. This creates some very complex tax situations for the Company and for the executives. Here are a few things you may not know:

• Once a person has received a “green card: and is lawfully authorized for permanent residence in the US he or she automatically becomes a U.S. Tax resident, regardless of whether or not they are ever physically present in the US.
• Foreigners legally resident in the US (resident aliens) are taxed like US citizens subject to income tax on worldwide income. They also may be subject to US. Gift, estate, and generation skipping taxes but are denied significant tax exemptions otherwise available to US citizens.
• Gains on sales of US real property are taxable regardless of the residency status of the investor. Nonresident aliens, however, may have fewer opportunities to defer capital gains than residents or citizens.
• Timing of income recognition and the length of stay in the U.S. can significantly affect a foreign national’s US tax liability. Also, the tax basis (tax cost) of assets may not be computed for US tax purposes in the same way as in the foreign national’s home country.
• The US has a large and sophisticated body of rules dealing with the taxation of certain US resident shareholders on income earned by foreign corporations that they control (whether or not the income is distributed) and non-controlled foreign corporations that are primarily investment vehicles, as well as with taxation of the income of certain trusts to their creators. It is almost impossible to mitigate the effects of these rules once one has become a US resident, but there may be planning opportunities if the rules are addressed before a move into the US.
• The US taxes its citizens on their worldwide income and gains. US citizens have a US filing requirement for life. This means, that an executive who is transferred to Japan for four years, will have to file tax returns in both countries during the entire four year period.

Having a valued executive find that they somehow ended up with a material and unexpectedly bad tax consequence, not only hurts the executive, it impacts the employer. Employers that help their executives through the maze of international tax issues often will save money in the long run and can help ensure that the assignment is remembered as a success. Any executive that owns real estate and other investments could benefit from pre-immigration tax planning.

To help Companies face the challenges with their international business needs, we offer a customized “Pre-Immigration Educational Package.” This is a personalized package which assists both inbound and outbound executives with tax planning and complex international tax issues that come with a global assignment.  

Geri Wood is a Manager in our San Diego office.

 That quote was a favorite of a theoretical math prof I had in college.  British, he had a way with words, but he hadn’t yet accepted computers.  Of course at that point all we had were room-size mainframes - quite different from today.

The quote resonated and stuck with me because he was absolutely correct.  Computers are actually dumber than dogs – and most other living things.  They only do what we tell them to do, so if there’s a problem with the machine or the output, more than likely the “wetware” i.e. people, are to blame.  Though this could be the designer or publisher of the program, it’s often the end user.

While there still are accounting systems in the world that are atrocious, most of the current, mainstream systems work well.  The majority of problems encountered are people problems: unreasonable expectations, insufficient training, user errors, and lack of communication between users and the experts they consult.

Next time you have a “computer problem”, ask the following questions:

1.             Did I use the right program or function?

2.             Did I follow the correct procedures?

3.             Did another program or procedure cause interference?

4.             Was the computer updated since the last time it worked correctly?

5.             Was there a hardware, electrical or environmental problem?

The answers to the above may solve your issue without required assistance, and at the very least may point you in the right direction of what to discuss with your IT department or consulting expert.

John Hoyt is managing partner of Enterprise Software Solutions in Hutchinson and Bloodgood’s Consulting Group.