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Important Tax Related Questions

Q1. What is California use tax?

Use tax is in lieu of sales tax has to be paid if any purchase of tangible goods made out of state (via telephone, internet, by mail or in person) and if the seller of the product has not collected California sales or use tax and the product has been used, stored, consumed or given away in California then the purchase is subject to California Use tax. The tax is to be paid by qualified purchasers who have gross receipts both from in-state & out-state operations, does not hold permit or certification of registration for use tax and not registered with BOE (Board of Equalization).

Q2. Who is required to file Foreign bank and Financial Account Disclosure (FBAR)?

Anybody who is a citizen or a resident of United States or a person in and doing business in US, who has signatory authority in one or more financial account with aggregate value exceeding $10,000 in a foreign country, is required to file Report of Foreign Bank and Financial Account. The FBAR report is to be filed separately from federal tax return by June 30th of the succeeding year.

Q3. Withholding tax for foreign payments?

Any payments made to foreign persons that constitute US source income, the payer is responsible for withholding tax of 30% from these payments. The payer who is a withholding agent may be an individual, corporation, partnership, trust or association. If payer does not withhold and the foreign person does not meet his US tax liability, both the payer and foreign person are liable for the tax and penalty.

Q4. Can I expense the amount spent on Research & Development ?

Research and development costs can be opted to deduct as an expense in the year in which it is incurred. If this option is not elected, then the cost is capitalized and expensed over a period of at least 60 months starting from the month when economic benefits is first received. However it can be expensed only with IRS approval.

Q5. What is/are the difference between Current & Capital expenses ?

Current expenses are those recurring expenses which are incurred to ensure a normal running of the business operations like utilities, rent, and payroll expense. Whereas, Capital expenses are incurred to generate revenue for future period(s) and these expenses are shown as an Asset in the Balance Sheet and are expensed over a period of 3,5 or 7 years as per IRS rules.

Exception for capital expenditure: Sec 179 is issued by IRS which allows to expense out part or full cost of capital expenditure in the year in which it is put in service. For more details on this provision visit IRS site

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