business tax - 5 reasons small business pay too much presentation 021011 handouts

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5 Reasons Small Business Pay Too Much in Taxes…and How to Make it Stop!

Presented by: Paul Redfern, [email protected]

E N T R E P R E N E U R I A L A C C O U N T I N GP 760.634.1120 | F 760.452.7860 | 171 Saxony Road | Suite 111 | Encinitas CA 92024

REASON 1:


Basics

:


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ResourcesPrior performanceIndustry Records

ProfitCents.comHoovers.comLibrary – Industry Data

Accountant (specialization in your field)SBDCGoals


TipsE-Myth Revisited: always be prepared to sell your business in 5 yrs Basics of tax, pay now or pay laterTry to figure out when will your deductions be necessary


Temporary Vs. Permanent Tax DifferencesTemporary differences

___________ versus ____________

_______________ methods

401k versus Roth 401k

Permanent differences________________investments vs. ____________

Health Savings Accounts

______________________


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REASON 2:


BookkeepingKeys:

So you will


Basic DefinitionsBookkeeping:

Accounting:


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So Why Don’t Businesses Keep Good Records?

1.

2.

3.

4.


Bookkeeping Tips

1. Separate bank account2. Accounting Software3. Accountant REVIEW4 Habitual Entry4. Habitual Entry5. Monthly Reconciliation6. BE HONEST WITH YOURSELF


REASON 3:


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TIPS


Types of Business Organization

Sole Proprietorship Schedule CPartnership Form 1065Limited Liability Companies (LLC)

Form 1065S Corporations Form 1120SCorporations Form 1120


How Taxes WorkGross Income

(Adjustments)

=AGI

(Itemized Deductions or, $5,700 or $11,400 )

(E i $3 650)(Exemptions =$3,650)

=TAXABLE INCOME

Credits


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Tax BasicsPayroll Taxes

About 14%

Federal Income Tax RatesBetween 10% and 35%

C lif i T R tCalifornia Tax RatesBetween 1.25% and 9.55%


Basic ExampleAssumptions:

Married

Sole Proprietor – Professional Services Consultant

No Kids

Spouse Does Not Work

Does Not Own a Home


Revenue $109,365

Business Expenses (10,310)

Net Income $99,055

SE Tax $12,345


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Tax Example Cont’dFORM 1040Gross Income $99,055Adjustments

½ SE Tax (6,998)AGI $92 057AGI $92,057Standard Ded (11,400)Exemptions (7,300)Taxable Income $73,357Fed IT $11,027CA IT $ 2,717


Tax Example Cont’dSE Tax $13,996Fed IT $11,027CA IT $ 2,717TOTAL $27,740

% f N I 28%% of Net Income 28%

Fail to enter $100/wk of expenses, costs $2,246/year in extra taxes

Every $1 Missed mean Extra $0.47 in taxes


California LLC Fee (plus $800)

Gross Income >

But < LLC Fee

$250k $499k $900

$500k $999k $2,500

$1M $4.9M $6,000

$5M And over $11,790


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REASON 4:


2006: ¾ of Taxpayers rec’d Refunds.

Avg Refund = $2 379Avg Refund $2,379

Lose $2,000 over 10 years


TIPSPlanMonitor your businessMAKE MONEY


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Financial Statements

shows Income and Expenses

shows Assets Liabilities & Net Worthshows Assets, Liabilities & Net Worth

shows how cash comes in and leaves your company


DEDUCTION TIPSThink in Terms of _____________ and ________________

Great Deductions:••••


Travel and TransportationTravel Expenses

VERSUSTransportation Expenses

______________versus ________________


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REASON 5:


TipsSET GOALS BUDGET FOR THOSE GOALSMONITOR ACTIVITYInvestments

Retirement

Fixed assets

Advertising

Think – difference Expense and Investment


5 Reasons Small Business Pay Too Much in Taxes…and How to Make it Stop!

11.2.3.4.5.


---

Becker Conviser CPA Review Accounting & Reporting 1

GROSS INCOME

<ADJUSTMENTS>

ADJUSTED GROSS INCOME '

< ITEMIZED DEDUCTIONS>

<EXEMPTIONS> {

TAXABLE INCOME

Wages Interest Dividends State Tax Refunds Alimony Received Business Income Capital Gain/Loss IRA Income Pension and Annuity Rental Income/Loss Unemployment Compensation Social Security Benefits Other Income

Alimony Paid Retirement Plans Interest Penalty Self Employed Health Insurance Tax - Self Employed FICA Education Loan Interest Educational Expenses Moving Expenses Medical Savings Accounts

Medical (7% %) Taxes - Paid to State Interest Expense Charity (up to 50%) Casualty/Theft (10%) Miscellaneous (2%)

Yourself x Spouse

Dependents

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IRS Form Schedule C, Form 1040 Form 1065 Form 1120 Form 11205 Form 1065****

Entity Description

Asole proprietorship consists of one individual who carries on an unincorporated trade or business.

Apartnership is an organization having two or more owners that functions as a trade or business. Ajoint undertaking merely to share

Acorporation is a business entity that carries its own legal status, separate and distinct from its owners.

Acorporation can elect to be taxed as an S corporation by filing Form 2553. Only domestic corporations with one class of

An LLC is a liability-limiting entity formed under state law. It is treated as a disregarded entity, partnership

(If ahusband and wife carry on a expenses or ownership of property does Acorporation cannot elect out of stock are eligible. An Scorporation is limited or corporation for federal income tax. business together as partners, they not necessarily constitute apartnership. An corporate taxation. See Check the Box to 100 shareholders, and may not have For purposes of this chart, the LLC should file Form 1065, U.S. Retum LLC with two or more members is generally Rules on Page F-1. another corporation as a shareholder. (An Is assumed to be a multi-member of Partnership Income.) Exception: classified as a partnership for tax purposes. exception exists for qualified subchapter S LLC taxed as a partnership. SingleHusband and wife residing in a Apartnership can elect to be taxed as a subsidiaries.) Other restrictions apply. member LLCs are usually treated as community property state may treat the corporation. disregarded entities taxed directly business as a sole proprietorship. to their owner. See the LLC Entity

Classification discussion beginning on Pace F-1.

Taxation Net profit or loss is computed on Schedule Cand is reported as income or

Partnership income and expenses flow through to the partners. Income is taxed to the partner

ACcorporation pays tax on its profits. When shareholders take profits from the

An Scorporation is taxed similar to a partnership. Income and expenses flow

Same as a Partnership In this chart.

loss on the owner's Form 1040. whether or not distributed. Pass-through items corporation, the distributions are usually through to shareholders. Pass-through items retain the same character in the partner as they taxable dividends (double taxation). retain the character in the hands of the had in the partnership. Personal service corporations are taxed shareholder they had in the corporation.

at ahiah, flat rate.

Wages and

SETax

The owner is subject to SE tax of 15.3% of net earnings from self-employment. SE tax is computed on Schedule SE and is reported as "Other Taxes" on

Ageneral partner's share of business income (including guaranteed payments) is subject to SE tax. Alimited partner's share of business income is not subject to SE tax unless the

Shareholders who perform services for a corporation, including officers, are treated as employees. Wages of corporate employees are subject to

An employee-shareholder of an S corporation receives wages for services rendered. These wages must be reasonable. Additional profits are passed through to the

Profits are subject to income tax in the same way as a partnership. Members' business income (including guaranteed payments) may be subject to SE tax. See

Form 1040. Deduct one-half of SE tax partner performs services for the partnership. payroll tax and withholding. shareholder and are taxable for income tax Difference Between LLC Members and as an adjustment to income on line 27 of Other items, such as interest and dividends, Wages paid to employee-shareholders purposes but not for SE tax purposes. Limited Partners in a Partnership on Page Form 1040. retain their character and are passed through to must be reasonable. Dividend Double taxation of profits is avoided. F-3 for exceptions.

the partner's individual income tax return. distributions are not subject to SE tax.

Losses Business losses can offset other income such as interest, capital gains or a

Losses flow through to partners. Recognition of loss by apartner is limited by

Capital losses are allowed only to the extent of capital gains. Net operating

L~sses flow through to shareholders. Recognition of loss is limited by the

Losses flow through to members. Recognition of loss by members is limited

spouse's wages if filing a joint retum. the partner's basis, at-risk rules and passive loss of a corporation is carried back or shareholder's basis, at-risk rules and passive by the member's basis, at-risk rules and SUbject to hobby, passive activity and at activity rules. Subject to "hobby loss" rules forward against corporate income, but is activity rules, Subject to "hobby loss" rules passive activity rules. Subject to "hobby risk loss rules under Sections 183,469 under Section 183. not passed through to shareholders. under Section 183. loss" rules under Section 183. and 465, respectively.

Fringe Benefits

(See Tab K)

Amounts paid on behalf of employees are deductible: those paid on behalf of proprietor are not. Exception: Proprietor can deduct medical insurance premiums

Generally included in partner's income as a guaranteed payment. Exception: Nontaxable benefits include, among others, legal service plans, educational and dependent care

Owner-employees are entitled to the same tax-free fringe benefits as other employees (subject to discrimination rules).

Generally included in income for employeeshareholders owning more than 2% of stock. Exceptions: Contributions to retirement plans; compensation for injury or sickness;

Same as a Partnership in this chart.

and reimbursement costs under an programs and certain working condition and educational and dependent care programs; accident and health plan that covers de minimis fringe benefits and employee employee discounts: working condition and all employees. If proprietor's spouse is achievement awards. de minimis fringes and no-additional-cost covered under a plan that also covers services. owner as part of family, deduction is allowed.

Personal Liability

The sole proprietor is liable for all business debts and actions.

General partner personally liable for all partnership debt. Limited partner's liability usually limited to investment in partnership.

IShareholders not liable for debts incurred by corporation. Liability generally limited to amount invested.·

Shareholders not liable for debts incurred by corporation. Liability generplly limited to amount invested.·

The degree of liability protection for LLC members varies from state to state.

• Caution: The courts may disregard the so-called "corporate liability shield" In the case of single shareholder corporations. •• In the 1040 Quickfinde~ Handbook.

••• IRS Pub. 589 regarding Scorporations was last issued in 1995. .... Adisreaarded sinale-member LLC is included on the tax form of tts owner (1040, 1120, etc".

IRS Pub.

Sole Proprietorshi

334

Partnership-Tab B

541

C Corporation-Tab C

542

Limited Liabilitv Companv-Tab F ;, 541

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Business insurance. The limited liability characteristics of certain business entities should not be considered asubstitute for proper insurance coverage. The business owner should consider coverage to protect against fire and theft, business interruption, errors and omissions, employment practices, employee benefit plans and employee dishonesty. General liability coverage, including umbrella policies for personal injury and property damage, should also be considered. See Worlcers' Compensation on Page M-10.

... Caution: The courts may disregard the so-called "corporate liability shield" in the case of single shareholder corporations. .... In the 1040 Quickfinde~ Handbook.

*.. IRS' Pub. 589 regarding SCorporations was last issued in 1995. .... Adlsreaarded single-member LLC is included on the tax form of its owner (1040,1120, etc.

Disadvantages: - Inconsistent treatment state to state. - Must have at least two owners to be

taxed as a partnership for federal tax purposes.

- Sharing of profits. - Disagreements in decision making.

Disadvantages: - Shareholders pay tax on eamings even if

undistributed. - Less flexibility in choosing atax year. - Contribution limits to aqualified retirement

plan are based on employee-shareholder's wages, not overall profits such as asole roprietor or partner.

Disadvantages: - Double taxation of profits. - Corporate charter restricts types of

business activities. - Subject to various state and federal

controls.

Disadvantages: - Apartnership is often easier to get into than

out of. - General partners are liable for actions of

other partners-unlimited liability. - Sharing of profits. - Disagreements in decision making.

Disadvantages: - Unlimited liability. - May not bring in new owners or outside

capital contributions. - Income tax cannot be deferred by

retaining profits.

Sole Proprietorship-Tab 6** Partnership-Tab B CCorporation-Tab C SCorporation-Tab D limited liability Company-Tab F

IRS Pub. 334 541 542 None*" 541 IRS Fonn Schedule C, Fonn 1040 Form 1065 Form 1120 Form 11205 Form 1065""

Organization Asole proprietorship is the easiest Apartnership is easy to organize. Awritten Acorporation is difficult and expensive An Scorporation is set up as aregular An existing partnership. can gener~lIy and business to organize. Intermingling of partnership agreement is recommended, to organize. Corporations must hold corporation. Scorporations must make register for LLC statu~ In the sta~e In .

business and personal funds is allowed but not required. The agreement determines periodic board meetings and keep election to be treated as an Scorporation which it conducts busl~ess. Reglstratlo~ Administration (although not recommended). Business how income and losses are allocated to the minutes. Corporations must comply with by filing Form 2553. Certain events will is generally less complicated than forming

income is reported on Schedule C, which partners. If apartnership agreement does not federal and state regulations. cause automatic termination of Sstatus. See acorporation. is filed with the owner's Form 1040. exist, partnership items pass through based on Terminations on Page 0-3.

partners' ownership interests. Bookkeeping There ate-fewer--requirements on Depending on income and assets, the The balance sheet on acorp.oratiOn'S~he balance sheet on an Scorporation's ISame as apartnership.

and what type of bookkeeping system or partnership may be required to include a income tax retum must agree with income tax retum must agree with the accounting method is used in sole balance sheet with its income tax retum. the corporate books. Acorporation corporate books. An Scorporation must use

Accounting proprietorships. The system must be Therefore, the partnership should use the must use adouble-entry bookkeeping double-entry bookkeeping. An Scorporation consistent, clearly reflect income and double-entry bookkeeping method. If a system. It must file all necessary must file all required payroll and income tax expenses, and allow the taxpayer partner exchanges property other than cash employment and income tax returns. retums. to file an accurate retum. The sale in exchange for an Interest in apartnership, proprietorship must use the same tax special accounting rules apply. See Contributed year as the owner. Property on Page B·6.

Owner Control The owner is free to make all business Control of the business operations is divided Shareholders have control over the Shareholders have control over the IControl is divided among members. and decisions. among partners. corporation to the extent they own corporation to the extent they own voting

Flexibility voting stock. stock.

Transfer of Asole proprietorship is not a separate The partnership agreement may restrict the Ownership is easily transferred by Ownership is easily transferred by selling \The operating agree~ent may restrict Ownership entity from its owner. "Sale" of asole sale of apartnership interest, and may control selling shares of stock. The corporate shares of stock to eligible shareholders. transfer of ownership Interests.

proprietorship is actually a sale of assets. the terms of the sale. charter may place certain restrictions on The corporate charter may place certain the sale of stock. restrictions on the sale of stock.

Advantages IAdvantages: Advantages: Advantages: Advantages: Advantages:and - Minimum legal restrictions. - Apartnership combines the skills and/or - Limited liability. - Limited liability and perpetual life. - Avoids certain Scorporation

. - Easy to discontinue. financial abilities of several people. - Perpetual life. - Avoids double taxation of profits. restrictions. Disadvantages _ Easy to establish. - Ability to raise capital through - Profits passed through are not subject to - Avoids double taxation of profits.

-Business usually benefits from partners who issuance ofstock. SE tax as in a partnership. - Business usually benefits from have complementary skills. - Ease of transfer of ownership. - Ability to raise capital through issuance of members who have complementary

stock. skills.

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Form 1040 Department of the Treasury—Internal Revenue Service

(99) IRS Use Only—Do not write or staple in this space. U.S. Individual Income Tax Return 2010Name, Address, and SSN

See separate instructions.

P R I N T

C L E A R L Y

For the year Jan. 1–Dec. 31, 2010, or other tax year beginning , 2010, ending , 20 OMB No. 1545-0074 Your first name and initial Last name Your social security number

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions. Apt. no.

▲Make sure the SSN(s) above and on line 6c are correct.

City, town or post office, state, and ZIP code. If you have a foreign address, see instructions. Checking a box below will not change your tax or refund.

Presidential Election Campaign ▶ Check here if you, or your spouse if filing jointly, want $3 to go to this fund . . . . . ▶ You Spouse

Filing Status

Check only one box.

1 Single

2 Married filing jointly (even if only one had income)

3 Married filing separately. Enter spouse’s SSN above and full name here. ▶

4 Head of household (with qualifying person). (See instructions.) If

the qualifying person is a child but not your dependent, enter this

child’s name here. ▶

5 Qualifying widow(er) with dependent child

Exemptions

If more than four dependents, see instructions and check here ▶

6a Yourself. If someone can claim you as a dependent, do not check box 6a . . . . .

b Spouse . . . . . . . . . . . . . . . . . . . . . . . .} Boxes checked

on 6a and 6b

c Dependents:

(1) First name Last name

(2) Dependent’s social security number

(3) Dependent’s relationship to you

(4) ✓ if child under age 17 qualifying for child tax credit

(see page 15)

No. of children on 6c who: • lived with you • did not live with you due to divorce or separation (see instructions)

Dependents on 6c not entered above

d Total number of exemptions claimed . . . . . . . . . . . . . . . . .Add numbers on lines above ▶

Income

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

If you did not get a W-2, see page 20.

Enclose, but do not attach, any payment. Also, please use Form 1040-V.

7 Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . 7

8a Taxable interest. Attach Schedule B if required . . . . . . . . . . . . 8a

b Tax-exempt interest. Do not include on line 8a . . . 8b

9 a Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . 9a

b Qualified dividends . . . . . . . . . . . 9b

10 Taxable refunds, credits, or offsets of state and local income taxes . . . . . . 10

11 Alimony received . . . . . . . . . . . . . . . . . . . . . 11

12 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . 12

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here ▶ 13

14 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . 14

15 a IRA distributions . 15a b Taxable amount . . . 15b

16 a Pensions and annuities 16a b Taxable amount . . . 16b

17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17

18 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . 18

19 Unemployment compensation . . . . . . . . . . . . . . . . . 19

20 a Social security benefits 20a b Taxable amount . . . 20b

21 Other income. List type and amount 21 22 Combine the amounts in the far right column for lines 7 through 21. This is your total income ▶ 22

Adjusted Gross Income

23 Educator expenses . . . . . . . . . . 23

24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ 24

25 Health savings account deduction. Attach Form 8889 . 25

26 Moving expenses. Attach Form 3903 . . . . . . 26

27 One-half of self-employment tax. Attach Schedule SE . 27

28 Self-employed SEP, SIMPLE, and qualified plans . . 28

29 Self-employed health insurance deduction . . . . 29

30 Penalty on early withdrawal of savings . . . . . . 30

31 a Alimony paid b Recipient’s SSN ▶ 31a

32 IRA deduction . . . . . . . . . . . . . 32

33 Student loan interest deduction . . . . . . . . 33

34 Tuition and fees. Attach Form 8917 . . . . . . . 34

35 Domestic production activities deduction. Attach Form 8903 35

36 Add lines 23 through 31a and 32 through 35 . . . . . . . . . . . . . 36 37 Subtract line 36 from line 22. This is your adjusted gross income . . . . . ▶ 37

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2010)

Form 1040 (2010) Page 2

Tax and Credits

38 Amount from line 37 (adjusted gross income) . . . . . . . . . . . . . . 38

39a Check if:

{ You were born before January 2, 1946, Blind.

Spouse was born before January 2, 1946, Blind.} Total boxes

checked ▶ 39a

b If your spouse itemizes on a separate return or you were a dual-status alien, check here ▶ 39b

40 Itemized deductions (from Schedule A) or your standard deduction (see instructions) . . 40

41 Subtract line 40 from line 38 . . . . . . . . . . . . . . . . . . . 41

42 Exemptions. Multiply $3,650 by the number on line 6d . . . . . . . . . . . . 42

43 Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- . . 43

44 Tax (see instructions). Check if any tax is from: a Form(s) 8814 b Form 4972 . 44

45 Alternative minimum tax (see instructions). Attach Form 6251 . . . . . . . . . 45

46 Add lines 44 and 45 . . . . . . . . . . . . . . . . . . . . . ▶ 46

47 Foreign tax credit. Attach Form 1116 if required . . . . 47

48 Credit for child and dependent care expenses. Attach Form 2441 48

49 Education credits from Form 8863, line 23 . . . . . 49

50 Retirement savings contributions credit. Attach Form 8880 50

51 Child tax credit (see instructions) . . . . . . . . 51

52 Residential energy credits. Attach Form 5695 . . . . 52

53 Other credits from Form: a 3800 b 8801 c 53

54 Add lines 47 through 53. These are your total credits . . . . . . . . . . . . 5455 Subtract line 54 from line 46. If line 54 is more than line 46, enter -0- . . . . . . ▶ 55

Other Taxes

56 Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . 56

57 Unreported social security and Medicare tax from Form: a 4137 b 8919 . . 57

58 Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required . . 58

59 a Form(s) W-2, box 9 b Schedule H c Form 5405, line 16 . . . . 59

60 Add lines 55 through 59. This is your total tax . . . . . . . . . . . . . ▶ 60

Payments 61 Federal income tax withheld from Forms W-2 and 1099 . . 61

62 2010 estimated tax payments and amount applied from 2009 return 62

63 Making work pay credit. Attach Schedule M . . . . . . . 63 If you have a qualifying child, attach Schedule EIC.

64a Earned income credit (EIC) . . . . . . . . . . 64a

b Nontaxable combat pay election 64b

65 Additional child tax credit. Attach Form 8812 . . . . . . 65

66 American opportunity credit from Form 8863, line 14 . . . 66

67 First-time homebuyer credit from Form 5405, line 10 . . . 67

68 Amount paid with request for extension to file . . . . . 68

69 Excess social security and tier 1 RRTA tax withheld . . . . 69

70 Credit for federal tax on fuels. Attach Form 4136 . . . . 70

71 Credits from Form: a 2439 b 8839 c 8801 d 8885 71 72 Add lines 61, 62, 63, 64a, and 65 through 71. These are your total payments . . . . ▶ 72

73 If line 72 is more than line 60, subtract line 60 from line 72. This is the amount you overpaid 73Refund 74a Amount of line 73 you want refunded to you. If Form 8888 is attached, check here . ▶ 74a

Direct deposit? See instructions.

▶

▶

b Routing number ▶ c Type: Checking Savings

d Account number

75 Amount of line 73 you want applied to your 2011 estimated tax ▶ 75 Amount You Owe

76 Amount you owe. Subtract line 72 from line 60. For details on how to pay, see instructions ▶ ▶76

77 Estimated tax penalty (see instructions) . . . . . . . 77

Third Party Designee

Do you want to allow another person to discuss this return with the IRS (see instructions)? Yes. Complete below. No

Designee’s name ▶

Phone no. ▶

Personal identification number (PIN) ▶

Sign Here Joint return? See page 12. Keep a copy for your records.

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

Your signature Date Your occupation Daytime phone number

Spouse’s signature. If a joint return, both must sign.

▲

Date Spouse’s occupation

Paid Preparer Use Only

Print/Type preparer’s name Preparer’s signature Date Check if self-employed

PTIN

Firm’s name ▶ Firm's EIN ▶

Firm’s address ▶ Phone no.

Form 1040 (2010)

Single Filing Status [Tax Rate Schedule X, Internal Revenue Code section 1(c)]

• 10% on income between $0 and $8,375 • 15% on the income between $8,375 and $34,000; plus $837.50 • 25% on the income between $34,000 and $82,400; plus $4,681.25 • 28% on the income between $82,400 and $171,850; plus $16,781.25 • 33% on the income between $171,850 and $373,650; plus $41,827.25 • 35% on the income over $373,650; plus $108,421.25 Married Filing Jointly or Qualifying Widow(er) Filing Status [Tax Rate Schedule Y-1, Internal Revenue Code section 1(a)]

• 10% on the income between $0 and $16,750 • 15% on the income between $16,750 and $68,000; plus $1,675 • 25% on the income between $68,000 and $137,300; plus $9,362.50 • 28% on the income between $137,300 and $209,250; plus $26,687.50 • 33% on the income between $209,250 and $373,650; plus $46,833.50 • 35% on the income over $373,650; plus $101,085.50 Married Filing Separately Filing Status [Tax Rate Schedule Y-2, Internal Revenue Code section 1(d)]

• 10% on the income between $0 and $8,375 • 15% on the income between $8,375 and $34,000;plus $837.50 • 25% on the income between $34,000 and $68,650;plus $4,681.25 • 28% on the income between $68,650 and $104,625; plus $13,343.75 • 33% on the income between $104,625 and $186,825; plus $23,416.75 • 35% on the income over $186,825; plus $50,542.75 Head of Household Filing Status [Tax Rate Schedule Z, Internal Revenue Code section 1(b)]

• 10% on the income between $0 and $11,950 • 15% on the income between $11,950 and $45,550; plus $1,195 • 25% on the income between $45,550 and $117,650; plus $6,235 • 28% on the income between $117,650 and $190,550; plus $24,260 • 33% on the income between $190,550 and $373,650; plus $44,672 • 35% on the income over $373,650; plus $105,095

2010 California Tax Rate Schedules

Schedule X — Single or married/RDP filing separately If the taxable income is

Over But not over Tax is Of amount over

$0 $7,124 $0.00 Plus 1.25% $0

$7,124 $16,890 $89.05 Plus 2.25% $7,124

$16,890 $26,657 $308.79 Plus 4.25% $16,890

$26,657 $37,005 $723.89 Plus 6.25% $26,657

$37,005 $46,766 $1,370.64 Plus 8.25% $37,005

$46,766 And over $2,175.92 Plus 9.55% $46,766

Schedule Y — Married/RDP filing jointly, or qualifying widow(er) with dependent child If the taxable income is


$0 $14,248 $0.00 Plus 1.25% $0

$14,248 $33,780 $178.10 Plus 2.25% $14,248

$33,780 $53,314 $617.57 Plus 4.25% $33,780

$53,314 $74,010 $1,447.77 Plus 6.25% $53,314

$74,010 $93,532 $2,741.27 Plus 8.25% $74,010

$93,532 And over $4,351.84 Plus 9.55% $93,532

Schedule Z — Head of household If the taxable income is


$0 $14,257 $0.00 Plus 1.25% $0

$14,257 $33,780 $178.21 Plus 2.25% $14,257

$33,780 $43,545 $617.48 Plus 4.25% $33,780

$43,545 $53,893 $1,032.49 Plus 6.25% $43,545

$53,893 $63,657 $1,679.24 Plus 8.25% $53,893

$63,657 And over $2,484.77 Plus 9.55% $63,657

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