Short tax year rules
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Short tax year rules

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FAQ

What are the consequences of a short tax year in the USA?
If you chose to file as a fiscal filer you should be fine as long as you use the established months as your fiscal year.A tax year, whether fiscal or calendar, that is less than one year in length. Short tax years occur either when a business is started or the method of accounting is changed. Short tax years occur only for businesses, never for individual taxpayers, because individuals must file on a calendar-year basis and do not have the option of choosing a fiscal year.BREAKING DOWN 'Short Tax Year'If a business begins in the middle of May, and the business owner wishes to file on a calendar-year basis, the business will have a short tax year, with income and expenses for only 8.5 months reported on the 1040. A similar situation would occur if the business owner wished to use a fiscal year that began in a different month than that in which the business was established.A short tax year can also occur when a business desires to change its taxable year. For example, a business that reports income from June to June every year decides to change its fiscal year to begin in October. Therefore, a short tax year from June to October must be reported.A fiscal year (FY) is a period that a company or government uses for accounting purposes and preparing financial statements. A fiscal year may not be the same as a calendar year, and for tax purposes, the Internal Revenue Service (IRS) allows companies to be either calendar-year taxpayers or fiscal-year taxpayers. Fiscal years are commonly referred to when discussing budgets and are often a convenient period to reference when comparing a government's or company's financial performance over time.Choosing Between Calendar Years and Fiscal YearsIn the United States, eligible businesses can adopt a fiscal year for tax reporting purposes simply by submitting their first income tax return observing that fiscal tax year. At any time, these businesses may elect to change to a calendar year. However, businesses that want to change from a calendar year to a fiscal year must get special permission from the IRS or meet one of the criteria outlined on Form 1128, Application to Adopt, Change, or Retain a Tax Year.Individuals and corporations can use a relief procedure to figure the tax for the short tax year. It may result in less tax. Under this procedure, the tax is figured by two separate methods. If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid.For more information, see section 443(b)(2).Also, for additional information you may read more at this website: Short Tax Year http://www.investopedia.com/term...Hope this information is helpful.
What should I know before going to Dubai?
Dubai is a city filled with glitz, glamor, excess and extravagance. The city is traditional yet has the most modern approach towards development. This is the city that offers the experience of the Desert Safari with ice skating and skiing at the same time of the year. Dubai is a city that has something for everyone and will make you feel at home, no matter who you are and where are you from. The city is vibrant and has some really important things to do that no one can miss on the trip thus travel planning for Dubai is not that difficult.Here are some tipsBefore heading to Dubai try and learn some basic facts about the city. Dubai is home and host to visitors from around the world and is a melting pot of cultures, but the Arabic greeting ‘al-salaam alaykum’ (peace be with you) (the reply will be ‘wa alaykum e-salaam’/peace upon you) is always welcome and is a great icebreaker.Never offer your hand to an Arab woman unless she offers hers first. Upon entering an Arab home it’s customary to remove your shoes—make sure your socks are clean.”Emiratis are open-minded, tolerant, and hospitable. Integral to that hospitality is the coffee ceremony. Always accept the tiny cup in your right hand which is considered to be polite to drink at least three—and after finishing gently shake the cup side to side; this is a signal that you’ve finished.”At meal times your Arab hosts will be generous with portions, so forget calorie counting! Be prepared to sit in the traditional manner (on the floor); women should wear a long skirt. Try not to sit so that the soles of your feet are presented to another person; it’s impolite. Food is eaten with the right hand but you may use your left to drink.If here during Ramadan, the holy month of fasting, remember not to smoke, eat, or drink in public from sunrise to sunset. Kids are an exception and can discreetly drink and eat as usual. Hotels keep eateries open for non-Muslims, as do some malls; your concierge can advise you.Here are some Cautions Being an Islamic country some of the rules may be strict thus they need to be followed. Here are some dos and don’ts to be kept in mind.Avoid attire such as miniskirts and any other overtly revealing clothing. It is not allowed as per laws.It is also not appropriate for men to go around without a top on away from the beach.Avoid taking photographs of building that look to be of political and military importance.Do not take any photographs of any local residents without permission.Don’t eat, drink, chew gum, or even smoke in public between sunset and sunrise, as it is illegal and not allowed as per law.Dancing and playing loud music in public is banned.Couples kissing, holding hands or hugging could face fines or detention or jail.Stay away from cheap desert tours.Take care of your belongings while exploring the souks.Don’t Eat in Public During RamadanDon’t greet anyone with a left handed shake.Don’t open doors with your left hand.Don’t hand somebody something, especially food, with your left hand.Definitely don’t eat with your left hand. For more you can also visit Dubai Travel Planning Guide which may also help in the other areas like document, places to visit an much more.
Should I change my startup's tax year to a fiscal year end, eg June 30th instead of December 31st? What are the benefits and drawbacks to doing so?
NO, DON’T DO IT.NO. NO. NO.Do not change your startup’s fiscal year end. Keep it to Dec 31.Generally, we highly advise clients against changing their tax year (and fiscal year) unless there is a very strong business purpose in order to avoid pitfalls of missed tax and statutory deadlines. Some deadlines will shift with a company's fiscal year (such as the corporate income tax return), while other deadlines will remain on a calendar basis, depending on jurisdiction and type of tax (1099s, payroll taxes, sales taxes, property taxes, etc.). Overall, this complicates tax compliance heavily while providing very little benefit.Additionally, your startup tax CPA would need to file a short year-year return for the year in which the change would occur, which would mean two tax returns in one year.If you are looking into a change of fiscal year because of a presentation standpoint, you can always present your financials to the board in any given increment you like (6/1/17-5/31/18) or one that better illustrates the life cycle of the business as this would not complicate the tax return filing.….But if you (are a crazy person and) decide to change your fiscal year end, here's how to do it for Federal tax purposes:IRS approval is required to change your tax year end, but under certain circumstances, a C-corporation can change tax year end under automatic approval procedures.Among the basic requirements to qualify for an automatic change:the corporation must not have changed its tax year within the prior 48 months;the corporation must annualize its taxable income for a short tax year (This means that a startup with a 1/31 fiscal year end would file a 1-month short year-year return for 1/1/2018-1/31/2018, but annualize the income to ensure that the company is not getting any benefits from short-year tax attributes).various other requirements to ensure the year-end change is not a method of tax avoidance (about a dozen other rules, but most are not applicable to startups).A corporation, which does not qualify for an automatic change may still be able to obtain consent from the IRS for the change under the non-automatic procedures as long as it can establish a valid business purpose (note: reduction or avoidance of tax is not considered a valid business purpose). IRS has prescribed a series of tests for establishing a business purpose for a requested annual accounting period - testing when revenue is earned, or the natural business cycle of the company, or other "facts & circumstances".To request permission from the IRS for a change (including changes which are automatically approved), the company must file Form 1128 (Application for Change in Accounting Period) no later than the due date for the federal tax return for the short tax year, but no earlier than the last day of your short year (So a startup with a 1/31 fiscal year end must apply for the change between January 1, 2021 and May 15, 2021 after the short tax year ending 1/31/2018).If you receive IRS approval for your short tax year ending 1/31, your short-year-return 2021 (and all subsequent fiscal year returns) would be due May 15, but can be extended to November 15 each year. As mentioned above, many of your other tax filing deadlines would remain on a calendar basis (such as payroll tax, W-2s, 1099s, certain state taxes, property taxes, sales taxes, etc.).Since most startups ate the Seed - Series B stage is a loss company (and since tax rates have recently all been lowed to a flat 21% for C-corporations) I don't anticipate any tax complications from a change in year-end.
How does the $800 first-year franchise tax exemption work if I register my corporation in California near the end of the year? When do I have to pay what?
A2AI blogged about California’s year-end franchise-tax exemption several years ago.Quoting Avoid Paying California $800 per Year … for 15 Days:The California $800 per year minimum franchise tax applies to both corporations and limited liability companies. Many people do not realize, however, that the tax can be avoided – at least, for a short time.As explained in Franchise Tax Board Publications 1060 (for corporations) and 3556(for LLCs), there is a “15-day rule” or “15-day exception” stating that the minimum franchise tax need not be paid for an initial tax year if:The corporation or LLC was formed (Articles filed with the Secretary of State) during the last 15 days of the entity’s tax year, andThe entity conducted no business during that period.So, if an entity has a tax year ending December 31 (as most do), then it can be formed on December 17 or later, and it will not have to pay the California $800 minimum franchise tax until the following year.
Over 2 crore candidates apply for 1 lakh Indian railway jobs. Has the government failed to create jobs for the people? How can we make this better?
Over 2 crore candidates apply for 1 lakh Indian railway jobs. Has the government failed to create jobs for the people? How can we make this better?Lets start from this MHRD Report, where there are approximately 3.4 Crore graduates (UG, PG, MBA, M.Phil, PhD) coming out of colleges every year in India. Assuming none of them pursue higher studies , or go abroad, all of them have to search for some job in India (be it campus placements, off-campus or self-employment). India is projected to add 1.10 crore people to global workforce by 2021. Obviously there is a gap, and its not a small one.Now the question is how can we make it better?. Government is trying the best, but its not the lack of jobs, but many factors on the candidate’s side. And lets face it- government ALONE cannot pryou jobs today.According to this survey and report by Aspiring Minds:No significant improvement in employability in the last four years We did the previous large scale study of employability of engineers in 2021. We had found that only 18.43% of engineers were employable for the software services sector, 3.21% for software products and 39.84% for a non-functional role such as Business Process Outsourcing. Unfortunately, we see no massive progress in these numbers. These numbers as of today stand at: 17.91%, 3.67% and 40.57% respectively for IT Services, IT Products and Business Process Outsourcing. This is despite the fact that the number of engineering seats have not increased in the past year. We are not inferring that all initiatives for employability improvement have failed and there may be pockets of excpresent. However, the need of the hour is to find these pockets and scale them up to make an exponential impact on employability. This is crucial for India to continue its growth story and achieve the PM's vision of India becoming the human resource provider for the whole world.So the problem is not just the employment generation, but the employ-ability of students.A worryingly low employability percentage of 3.67% has been observed for this role. This is because jobs in IT product companies require a strong understanding of computer programming and algorithms. The study found that candidates strongly lacked the required skills: around 90.72% of graduating engineers do not have the desired programming and algorithm skills required for IT product companies, whereas 72.77% show lack of soft-skills and 59.40% lack cognitive skills.The above is for IT industry. The following are the findings for non-IT (designer and engineer roles):Within this job role, we tried to investigate trade-specific employability. The engineers belonging to civil, chemical, electrical, electronics and mechanical backgrounds were analyzed for their employability for a Design Engineer role. Herein, the engineers with electronics background were found to be the most employable of the lot (7.07%), followed by engineers with a civil engineering background. The least employability amongst these roles was recorded for Chemical Design Engineer (1.64%). The reasons for the same can be attributed to the current industry and market needs which in effect decide the prospects and pursuits of these trades.So, there is a hige skill gap and many students from the top colleges are found in want of skills. The below shows the skill gap for the students of Top 100 colleges vs the restGiven that the ratio of the number of top 100 campuses to the rest is almost 1 is to 10, one can conservatively ethat more than 70% of the employable engineers for the IT product role and more than 80% for IT services and KPO, are in the so-called Tier 2 campuses. According to current trends, IT product and KPO companies do not source candidates from Tier 2 campuses which creates a large artificial dip in the supply of eligible candidates. This is in line with what was reported in the 2021 and 2021 National Employability Reports for engineers by Aspiring Minds10 .There are many reasons for this, and not everything can be heaped upon the Government.Many candidates applying for a job do not know what they want out of it. “Why do you want this job/role?”, is a common question asked in many job interviews. In the analytics company I work for, we conducted an off-campus drive for the position of BA, and one of the answers I received was that the aspirant loves to make predictions, and hence would like to join our company (as a BA). This is a problem even in elite MBA colleges. People join a company by looking at its “brand name”, and the other ‘facilities’ offered [good cafeterias, lounges, weekend offs etcc…]. Nobody seems to be bothered to work or have any idea of what the role involves. What are we supposed to do with such people?.There are many constraints posed by the applicants. A person from North India might not want to travel or settle in Chennai [weather, food, language are cited as reasons]. As the old Tamil saying goes :”If you next meal is in China, better learn Chinese”. You are willing to travel to Germany/ Japan/ France, but not to Chennai. Females do not want to extend beyond 9 PM , even though cab facilities are available. I am all for a healthy work life balance, but then - No pain, No gain. Life is full of risks and uncertainties. One has to learn to deal with it.This is specific to manufacturing. Most Indians are not open to working in a manufacturing environment. IT is saturated today and farming is non-profitable. Only option is factories and high intensive labor jobs. There are not much takers to it.Last comes our Indian attitude towards big corporations and industries. My state Tamil Nadu has become the ‘Protest capital of India’, in the recent times and all of them are opposed to big corporates (under the guise of environment protection). Till we let go of this attitude, we can never have jobs for our future generations.
When a billionaire goes to buy a $700 million yacht, do they have to sell shares of stock, or do they have that cash in a bank account on hand?
Would it surprise you if I told that they would take out a loan?When you’re wealthy, you learn to think about money differently. The first rule is to always preserve capital (money), especially money that can be invested to earn more money. The second rule is always use leverage (other people's money) when you can. The third rule is to look for the tax advantages in every transaction.So if you have a billion dollars that is invested and earning a good rate of return, the last thing you want to do is convert it to cash to buy a yacht that will depreciate in value.So let’s assume that Billion is earning a modest 7% return, or a cool $70 million per year. As a major customer of a bank, you’ll be eligible for preferential interest rate - which is usually pretty close to the Fed fund rate (currently 2.5%). So instead of liquidating your investments and paying cash, you finance the yacht at less than 3% interest and your investments keep generating cash to pay off that loan, which would be around $3 million per month, or $36 million a year.The next strategy would be to structure the purchase to maximize the tax advantage. Many high net worth individuals list the yacht as a second home as it generally meets the tax requirements of having a bathroom, a kitchen, and sleeping quarters. That makes all or part of the $360 million in interest payments on that loan tax deductible, which would recover about $100 million of your money. In some districts, listing the boat as available for charter (even if it is never rented out), makes it exempt from property tax. (Azzam (2021 yacht) - Wikipedia) They might also designate part of the yacht as an office to potentially qualify for additional tax deductions. Entertain business clients on the yacht several times a year, and you qualify for more tax breaks.When you get bored with the yacht and are ready to sell, you have one of your companies buy it out for the loan value as a “short term investment”, rent it out for a year while it’s on the resale market (Luxury Charter Yachts | Yacht Charter Fleet), and then the firm “absorbs” any financial loss as a bad investment and writes the loss off against their earnings.Meanwhile you still have your initial stake of one billion happily earning interest.Hope this was helpful.========================================================Note: I am not a tax advisor. The strategies listed are for illustrative purposes only, and are intentionally simple so people can relate to it. This isn’t just a practice for billionaires, I know of a few high net worth individuals who bought a boat and listed it as a second home in one tax district, while living in another. The tax savings alone paid for the boat, making it essentially “free”. Typically, tax advisors are consulted before making a purchase this size, and deals are often structured to take maximum advantage of tax laws. In many cases where a business is involved, these are leases (where the entire lease payment can be deducted) instead of loans.People are also getting hung up on the loan calculations, so I’ll break it down. A 3% loan on $700 million would result in a monthly loan payment of $2.9 million or roughly $36 million per year. Over the life of the loan, total payments are just over $1 billion, with roughly $360 million of that (the amount over the principal $700 million) is interest. Drop a few zeros, and you’ll see this is the same for a $700,000 boat or a $70,000 one.
Will you prefer to live in your own $3M house with a $1M loan on the house, or in a rental property with $2M in your bank account?
Congratulations on securing the flexibility to choose between these options. Having kids in middle school puts you right on the cusp of the frequently discussed '5-year rule' for buying a home. In short, it states that by the time you pay closing costs and add the additional expenses of home ownership, you'll want to live there 5 years before moving on. I know, fellow Quora users, this rule will not apply to every housing market but it's a sensible consideration as prices push record high levels.Home ownership gives you and the kids your own space (possibly a yard), freedom to paint the walls, and a place to make your own before the kids potentially move out on their own. It also protects you from rising rental rates but does leave you responsible for additional maintenance (which can offset a lot of the tax benefits).If you are more interested in using your bank balance to grow wealth, there may be better options. That's a lot of money in one house (and it's up to you and your spouse whether you want to be in that house or in Silicon Valley after the kids graduate). You can certainly talk to someone who knows the local market but you might also consider other investments or buying multiple lower cost rental properties (I personally will gladly pay a property manager to handle all rental property maintenance/renters and just receive a monthly check). Either of these is a more diversified way to spread your bank balance and may increase both immediate and long-term earnings.Lots to think about. Between the kids, considering your empty nest plan, and growing wealth, it's a tough choice. Best wishes as you make your decision.
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