Tax Guru-Ker$tetter Letter
Wednesday, June 30, 2004
Section 179 & Leases
For some reason, the topic on which I receive the most inquiries is the Section 179 expensing election, especially in regard to vehicles weighing more than 6,000 pounds, which are most often trucks, vans and large SUVs. Most of the time, I just refer the writer to my discussion of this topic on my main website.
However, when a new angle or aspect which I haven't previously covered comes up, I do my best to share that info here.
Yesterday, I received an email asking if the writer had to purchase a truck in order to claim the Section 179 or could he lease it? I wrote back that he does have to buy it; but that how he pays for it (cash or loan) is irrelevant.
He later wrote back: "So, if I intend on purchasing the vehicle at least term for the residual value as stated in the contract, whether or not my contract is called a lease, I have a conditional sale. And that would qualify?"
I informed him that he was wrong with that reasoning. The Section 179 deduction is only allowed in the first year the asset is purchased and placed into service. Possibly buying it several years from now is not even close to being eligible.
I could understand someone possibly wanting to claim the deduction in the year of the buy-out, but at the beginning of the lease is ridiculous. A possible purchase at the end of the lease is not certain enough of an event to warrant even taking seriously, regardless of the lessee's intention now. Who knows what will really happen at the end of the lease?
While this question addressed a normal operating lease, where the ultimate purchase price is a relatively large amount (normally thousands of dollars), my answer would have been different if it had been a capital lease. Capital leases are what we accountants call "disguised purchases" because they are often used to keep liabilities off of a company's balance sheet (Enron, et al). At the end of the lease, the asset typically becomes the property of the lessee, often for a nominal amount (such as a one dollar buy-out). With that type of lease, which is actually a purchase in economic reality, the Section 179 deduction could be claimed in the first year just like with a normal purchase.
Thanks to Andrew Roth at The Club For Growth for these news updates:
Republican Tax-Hikers Lose In Oregon
It’s Not a Choice of Health Care or Tax Cuts - It’s Bigger Government vs. Greater Freedom
Cigarette Tax Increase Should Go Up in Smoke - Unfortunately, exploiting nicotine addicts is itself an addiction our rulers can't kick.
Social Security Reality. A call for reform.
IRS Guidance On Charitable Donations
Interesting news from the IRS Press Room
Treasury and IRS Issue Notice Regarding Improper Deductions for Conservation Easement Donations - I haven't personally encountered any of these issues; but I have heard of these kinds of overly creative games being played with values of easements donated to charities.
New Publications Focus on Car Donations - This is more guidance for both charities and donors on an issue I have encountered and discussed on several occasions. As I've always said, people claiming charitable deductions for their beat-up vehicles based on inflated Kelly Blue Book prices are wrong. Fair market value is what an unrelated buyer would actually pay for the vehicle, and not some theoretical book value based on a condition very different from reality.
Tuesday, June 29, 2004
It's funny how private enterprise can solve most problems faster and for far less money than government can. So, why are the only solutions proposed by our rulers for every problem more money (and higher taxes) for bigger incompetent government programs?
Far too many of our rulers believe that all money belongs to them and we should bow down and kiss their feet as thanks for their allowing us to keep any of it.
Gov. Jim McGreevey is forcing New Jersey taxpayers to swallow a $6.4 billion pill of new taxes and fees - The wrong kinds of things are growing in the Garden State.
Tax On Stupidity
Whole Lotto Stealing Going On - Amazingly, people still fall for this ages old scam and send in money to claim their supposed prizes.
Texas State Lottery Jackpot Now at "Infinity Plus One" - The higher the jackpot, the more people want to play, when their odds actually decrease.
Butt of Jokes
The corporate accounting scandals have raised our profession up in terms of public profile and as a target for ridicule. I doubt, however, if we will ever catch up with the number of lawyer jokes floating around. They have too much of a head start.
Monday, June 28, 2004
Economic issue squeeze - The media, in their effort to only report bad news about Bush, don't want us to hear another example of Reaganomics working in real life:
"Just for the record about the tax cuts' long-term impact, budget officials now forecast the deficit will be about $100 billion less than expected this year because of rising federal tax revenues from a growing economy."
They would prefer to continue harping about how destructive tax cuts for the evil rich are and completely ignore how they stimulate economic growth for everyone.
Louisiana's inheritance tax going away — mostly
Day of Reckoning For Social Security
More Bad News for Social Security
Families, Deep in Debt, Facing Pain of Growing Interest Rates - Classic double edged sword. What's good for savers is bad for borrowers.
Sunday, June 27, 2004
HAL bankruptcy trustee kicked off plane by pilot - I don't know if this is a trend or not; but people are finding more creative ways to get back at people who they feel are ripping them off. There have been a number of recent stories about doctors refusing to treat lawyers and politicians (and their families) who were not supportive of limits on malpractice judgments. Now this case where a pilot is unhappy about how things are looking for his company pension plan.
Saturday, June 26, 2004
Friday, June 25, 2004
Pork Alert: We've Only Just Begun
Florida to Tax Home Computer Networks - It sounds stupid that Florida rulers would just now think about applying a 1985 state law to levy communications taxes on people who have two or more computers networked together. Of course, that state has a reputation for not being the sharpest knife in the drawer; so who knows?
House kills DemonRats' bill to tax rich, fund programs
Stephen Moore's Prescription for Ending Fiscal Malpractice in Washington
Gas Coupon Scam to Loot bank Accounts
N.Y. Property Tax Follies
QuickBooks File Identification
The following is a rather lengthy discussion that will only be of interest to other accountants who work with multiple QuickBooks files.
Intuit has finally implemented a feature in QuickBooks 2004 that I have been requesting for years and years.
I receive dozens of QuickBooks data files from clients every week. While a new version of the program is issued every year, most people hold onto their versions for several years before upgrading. The frustrating thing for me has been that there has been no way to distinguish which version of the program the files I receive were produced in. The file names look exactly the same, with nothing to distinguish a 1999 file from a 2004 or any other year. It then involves a lot of trial and error, with different versions of QB, for me to open the file without converting it into a newer version than the client can use.
Several weeks ago, I received an email from QuickBooks with the following announcement:
Subject: QuickBooks ProAdvisor Alert: Intuit introduces QuickBooks Version Detector for Accountants with QuickBooks 2004
(This Alert email is being sent to you because you are a valued
* Audience Affected: QuickBooks(R) ProAdvisors, and their clients who
use older versions of QuickBooks (back to 1999).
* Notification: Intuit's new QuickBooks Version Detector (included in
QuickBooks 2004 Release 6) lets QuickBooks ProAdvisors quickly
identify which version of QuickBooks a client is using, without
having to open the QuickBooks file.
* Timeline: Mid June
* Action: QuickBooks ProAdvisors that have "QuickBooks Update" enabled
on their computer will automatically receive the QuickBooks R6
update from Intuit which includes the version detector feature. If
you do not have "QuickBooks Update" enabled, you may visit:
to download the QuickBooks R6 update for free.
Intuit introduces free QuickBooks Version Detector for Accountants
with QuickBooks 2004
Intuit's new QuickBooks Version Detector lets you quickly identify
which version of QuickBooks a client is using, without having to
open the client's QuickBooks file. QuickBooks Version Detector
works with your QuickBooks 2004 software, and will detect QuickBooks
versions dating back to 1999. The version detector is included,
along with a variety of other improvements and fixes, in
QuickBooks 2004 Release 6.
Simply "mouse-over" a client's QuickBooks file to identify the
version and year. A message box message appears, showing the:
* Version of QuickBooks that last opened the file
* File type
* File size
* Date when the file was last modified
Every couple of days, I would go to the manual download page and look for Service Release 6. It was finally up there as of a few weeks ago. Unfortunately, this new feature wasn't working properly. I installed it multiple times on my main computer and it just wasn't working. I noticed that other QB pros were also unable to get it to function properly. Based on this advice from Intuit, I ran the Update QuickBooks function once again. I noticed a small file being downloaded and installed. This time, the version detector feature seems to have been properly activated. It works from within all of the QB programs, not just 2004. It also shows up when I'm looking at files in "My Computer" and Windows Explorer, which is what I had really been hoping for. I can now verify the proper version of QB to use before even starting up the QB program.
Updating QB Programs
In a similar vein, while I do think it's worthwhile upgrading to the newest version of QuickBooks each year, users shouldn't wait more than three years to do so. Intuit has recently started sunsetting (aka retiring, orphaning, abandoning) versions of QuickBooks that are more than three years old. The most recent case was QuickBooks 2001, which was officially retired as of April 30, 2004. Anyone using the 2001 or older programs should just go ahead and buy a copy of the 2004 program and be set for three more years rather than try to get by via picking up a cheap copy of the 2002 or 2003 program from some place like eBay.
As a rule, I do my best to ignore the thousands of spam messages I receive each and every day in my several email accounts. However, I endeavor to catch any real messages by skimming the incoming mail through the extremely handy MailWasher program.
Late last night, I received a number of spams from this company promoting the concept of setting up a more prestigious virtual office in New York City.
I'm sure it's the tax-centric way I look at everything; but setting up an office (virtual or otherwise) in NYC just seems like a completely counter-productive thing to do. I have written extensively on how to reduce or eliminate State taxes by sourcing income through tax free locales, such as Nevada, Florida or Texas.
In addition to the New York State income tax, New York City has its own expensive set of taxes. Anyone wanting the prestige of an NYC address for their business will end up having to fork over a lot of additional taxes for that privilege. Even if the business is really operated out of a lower or zero tax location, using an NYC address will give the New York tax authorities jurisdictional right to levy income and other taxes. I noticed that this point isn't included in the virtual office company's FAQs.
Money Causes Its Own Problems
We all believe that receiving a huge windfall of cash, such as winning the lottery, would solve all of our problems and make our lives much easier. In an all too common scenario, this woman, who suffered a heart attack from all of the pressures she encountered after winning the lottery in Canada, discovered a whole new set of problems. While not all lottery winners have heart attacks, the kinds of demands on them for money from all sorts of people is a standard after-effect of this kind of "lucky break."
Thursday, June 24, 2004
Treasury Warns Against Abusive Tax Reduction Scheme - It's good to see IRS alerting people earlier about these kinds of scams rather than waiting for several years, as has been their previous strategy. As I have been advising them for years, their silence in response to the idiotic claims by tax protesting and evasion promoters has always been taken as a sign of agreement as to their legality. They should be able to nip more of these scams in the bud if they continue to make public pronouncements as soon as they become aware of new angles being promoted, such as this one that tries to pretend income is from the Virgin Islands and is thus tax free.
Wednesday, June 23, 2004
Tuesday, June 22, 2004
Charitable Giving Holds Steady, Report Finds
For Third Year Running, No Member of Congress Voted for Net Reduction in Federal Spending
Monday, June 21, 2004
Contract revisited - With the huge growth of our Federal government over the past ten years, it's frightening to think of how it would have been if the GOP, who are supposedly the good guys for those of us who still respect the Constitution, hadn't taken over Congress.
The Reagan Presidency II - Jude Wanniski rebuts the lies about Reaganomics as written by the New York Times' Marxist columnist, Paul Krugman. As Donald Luskin proves on a daily basis, Mr. Krugman has no credibility and doesn't even deserve the press he receives exposing his leftist propaganda. It seems that Krugman writes such obvious lies just for the attention it brings him.
This would be funnier to many people who participated in the dot-com bubble if they didn't have to pay taxes on phony income, such as the AMT on options for stocks that couldn't be sold. Many people had tax bills of hundreds of thousands of dollars on this phantom income; and many more will if the insane AMT is not repealed or at least made more fair.
Saturday, June 19, 2004
For decades I've been writing about the idiocy of the logic behind the arguments of tax protesting scammer Irwin Schiff. Now that he is facing a bill for over two million dollars in taxes and penalties, he is taking a new approach; pleading insanity. I always said his ideas and anyone who fell for them were insane.
Friday, June 18, 2004
Thursday, June 17, 2004
Are IRA Accounts Exempt From Bankruptcy Creditors? - A local couple will have this issue decided by the US Supreme Court in the Fall.
Just like '84 - Besides the similarities with the economy 20 years ago, it's looking more and more like a repeat of the November election results. The ass-kicking Walter Mon-dull received will look tame compared to what we'll see if John sKerry stays on the ticket.
KPMG Documents Reveal Users of Corporate Tax Shelter - One of the unfair aspects of tax law that we learned in basic accounting classes is that the client confidentiality protection that attorneys can provide doesn't apply to CPAs. If IRS suspects a CPA firm of helping clients do bad things, they have the power to get the list of all of that firm's clients and go after them.
Wednesday, June 16, 2004
Price discrimination - Walter Williams has a good look at the erosion of our freedom by efforts of some people to legislate how private companies may charge for their products and services.
Former Commissioners Say It's Time to Scrap AMT - It's well past time to remove this insanely unfair tax.
Confessions of a "Rich" Businessman - Favorite scapegoat of DemonRats and RINOs.
IRS Confirms it is Unlawful for Same-Sex Married Couples to File Jointly - Regardless of how wackos in alternate universes, such as Massachusetts and San Francisco, define marriage, IRS still has the final say for Federal income tax purposes. For State tax returns, it could possibly be a different story.
Lieutenant Governor: No-Show John Kerry Should Quit Senate - One of the big reasons real life people like me don't run for high office is that we have to actually work to earn a living and can't afford to take time away to campaign. That is why most candidates are either so wealthy they don't need to work, or have jobs where they don't actually have to do anything. John Kerry fits both those descriptions.
In just one of many examples of the most inept and incompetent political campaign I can recall, John Kerry (or sKerry, as Neal Boortz calls him) wants people to believe that he would work hard as President, when he does almost nothing as a US Senator, even when there are close votes on issues he supposedly cares about. What kind of business would promote an employee to a much more prestigious and important position when that person doesn't even show up for the job he currently has? Only in government is this even a possibility. John Kerry doesn't need to be parodied. He is a parody.
Speaking of parodies, several months ago, when the American Candidate reality show was announced, I considered entering in order to get some campaign experience and spread the Libertarian message. After reviewing the application, I decided I couldn't afford to make the commitment to taking ten plus weeks off from my business. Checking the web site a few weeks ago, I see that I made a very fortunate choice. Rather than parallel an actual presidential campaign, as the original premise had been, the show's format has been changed to that of a spoof. The original application required the candidates be constitutionally eligible for the presidency (at least 35 years old). They are now accepting anyone, including teenagers.
John Kerry to Expand Middle Class by Taxing Wealthy - With a candidate as inept and stupid as this moron, it's impossible to distinguish between parodies and his actual proposals. This idea to bring the successful down, rather than boost the poorer classes, is actually right out of the DemonRat playbook.
Tuesday, June 15, 2004
As I've said on many occasions, going into business with someone is very similar to getting married. It still amazes me to see how many people enter into business co-ownership with someone they barely know. What's even more frightening is how few people actually put the terms of their business relationship into writing. Consider it a pre-nuptial agreement for a business.
Spelling out the terms of the relationship, especially how to terminate it, is a lot easier to do up front when everyone is on good terms. The alternative is to run up a lot of legal bills fighting over a split. It's a classic "pay me now or pay me later" scenario. The legal fees to draw up a basic partnership or management agreement in the beginning are a drop in the bucket compared to having to pay for years of litigation when things go bad.
While not all marriages will end in divorce, every business relationship will eventually come to an end, even if it's just from the death of a co-owner. How that person's share is to be handled is a very important issue that needs to be put into writing when the business relationship begins.
This was prompted by the following email I received recently:
Re: bad partner in s corp.
just wondering if you had any advice for ridding my partner in an s corp we formed. we are equal in amount of shares owned, he is lazy, does nothing and has the worst work ethic I know. Please help.
I'm assuming that you didn't have a formal written partnership or management agreement drawn up at the beginning that would have addressed this situation.
It's basically going to involve negotiating with your co-owner. There are several optional strategies that could be used, based on the details of your particular situation.
You will need to consult with an attorney or corp tax pro to see what would work out best for you. I can't do any more in a medium such as this. Ideally, you and your co-owner should both consult with the pro; kind of like marriage counseling.
Federal Bankruptcy Court Permanently Bars “National Audit Defense Network” From Selling Tax Scams and Preparing Tax Returns - All 640,000 of the people stupid enough to fall for this scam will be paying the price as well.
Surprise! Most senators are wealthy - The gap between the Washington Royalty and the average American just keeps growing farther and farther from our founding fathers' goal of having a constant rotation of average everyday people serving in office and then returning to their normal lives.
Many Senators Have Stakes in Large Companies. Firms Would Benefit Under Tax Bill - What conflict of interest?
Saturday, June 12, 2004
Another Tax Protestor Busted
Every political party has its share of nut jobs. The Libertarian Party is no exception. This bozo's claims that income taxes are unconstitutional and that nobody has to file tax returns are as idiotic as those of this other moron who claims, when it's convenient, to be a Libertarian.
As I've always said, there are valid ways to work for lower taxes. Advising and encouraging people to break the law is not one of those. Anybody stupid enough to follow the lead of illegal tax protestors deserves the consequences that will be forthcoming.
I do find it a bit offensive that these news accounts play up the political affiliation of this idiot. Why don't we see the political party mentioned in news accounts of people arrested for other crimes, such as rape, murder and robbery?
IRA Tips for Non-U.S. Residents
Miss. Lawmaker's Kin Is Refused Treatment - There's just something about this that seems right. As long as the person's life isn't at risk and there are other doctors to refer, it's perfectly understandable that a physician would feel uncomfortable about doing work for someone who is technically an enemy. I would have the exact same feelings if a member of the Clinton or John Kerry gang were to want me to do any tax or consulting work for them. Their support of high tax policies would be just too hypocritical for me to reconcile with my focus on minimizing client taxes.
President Ronald Reagan: Best Friend to Small Business
Friday, June 11, 2004
Bank error only buys trouble - This kind of story pops up every so often. A bank accidentally deposits thousands or even millions of dollars into someone's account. That person then spends the money, claiming it was a gift from God. It's not. It's theft to exploit a clerical mistake and spend money that doesn't belong to you. It's no different than finding a lost wallet on the street. You're supposed to turn it in to authorities and wait for the rightful owner to claim it. Sooner or later, the rightful owner of the money that was accidentally deposited into someone else's bank account will discover that fact. This is also another reminder of how important it is to reconcile one's bank account as often as possible.
Calif. Dems seek to tighten 'yacht tax loophole'
Bush Spending--a Comparison With Reagan's
Debating Reaganomics - Interesting debate between Capitalist Stephen Moore (head of the Club for Growth) and Socialist Robert Reich (Clinton's Labor Secretary).
Some stock funds strike discordant notes
Thursday, June 10, 2004
I want to be ready with a camera in case we get another visit from a bear. Last Sunday afternoon, one came right up to the bird feeders in front of my office window, but Sherry chased him away and he ran off through the woods before we could take his picture. In fact, he ran so fast, we couldn't see if the old cliche about bears was true or not.
I was trying to learn how to work Sherry's new fangled fancy digital camera and snapped a few shots while sitting at my desk today as Rush's show was on. This one with him checking out my constant companion Hercules came out pretty nice, even in this much reduced web friendly size.
California Lawmaker Proposes Ban on Insurance Against Abusive Tax Shelters - I had wondered about these policies, effectively insuring against being caught breaking the law.
Roughly 10 Percent of Forms 1099 Erroneous This Year, Study Finds - With the mid-year change in the rates for dividends and long term capital gains, I'm surprised that the error rate is so low.
Retrospective on the 1981 Reagan Tax Cut
The Bush Tax Plan: How Big is the Tax Cut?
Hiking Taxes on Gasoline: Who Gets Hurt? - As always, the DemonRats hurt the groups they claim to be helping.
The Tax Man and the Moving Van: Fiscal Policy and State Population Shifts - I have always known that excessive taxes and regulations will motivate people to migrate to areas with lower taxes and fewer burdensome regulations. We did that in 1993 and I have worked with literally hundreds of others who have done the same thing. This study (full 19 page pdf report) has many more quantitative statistics on how many people have made the same kind of move. While each state's change in population between 1995 and 2000 is shown, it is no surprise to see the highest growth in Nevada. I've lost track of the number of people I've known and worked with who have moved there, most often to the Las Vegas area.
Thanks to Ben Cunningham for passing this along.
Wednesday, June 09, 2004
I've seen stories of a drive to put Ronald Reagan's picture on the ten dollar bill or a new gold coin. This other proposal is courtesy of Sacred Cow Burgers
Tuesday, June 08, 2004
Ameri-Debt Files For Bankruptcy - I guess scamming people who are in debt trouble doesn't pay as well as it used to.
I have written and spoken countless times on one of my biggest pet peeves; the outright lies that are told about the effects of the Reagan tax cuts. The leftist media, and even some idiot RINOs, are afraid to tell the truth; that the lower rates signed into law by President Reagan (from 70% down to 28%) stimulated huge economic activity and actually doubled the Federal tax revenues.
His critics had no respect for the truth while he was alive; so it's not surprising to see those same lies being tossed around now that he has passed. Their claim that the budget deficits of the 1980s were Reagan's fault conveniently misses the fact that all spending bills were passed by the backstabbing lying DemonRats in Congress who reneged on their promises to control spending and went on a drunker sailor spending spree much like we have had in the past few years. Reagan, just the same as all other presidents, was frustrated with the lack of line item veto power, which most governors have. His choices were to either veto the entire spending bills and shut the government down or accept them in toto.
What has always been so puzzling to me is how anyone can have any faith in the media when they lie about such obvious things just because they despise Reagan and Bush so much. If they won't tell the truth about obvious things, how can anybody possibly trust them to be straight with us on any issue?
Some people who have their facts right:
Reagan Tax insights and triumphs - Bruce Bartlett
We loved you, Mr. President - Jack Kemp
Monday, June 07, 2004
Reagan and Capitalism
Reaganomics Won the Day and the legacy lives on.
A taste for pork
IRS and State Partnership Moves Forward to Improve Compliance and Service - Maybe if our law enforcement agencies coordinated and cooperated as well together as the tax collection agencies, we wouldn't be so at risk for terrorist attacks.
Web Bill Payments Hurting Check Printers - As technology changes, so do the ways in which people pay their bills. In spite of my extensive use of QuickBooks, I don't use any online bill paying service except for PayPal, which I do use a lot as more online vendors accept it.
I did try another online bill paying service a few years back; but considered the process to be less efficient than just sending out my own checks. If they ever set things up so that we can transfer money directly from our bank account to the payees', that will be an efficient way to do things. As these services work now, they charge you a fee to print out a check and mail it to the payee via snail mail. I have received a few such payments from clients. I don't like this because it still puts you at the mercy of the postal service and gives you no control over the timing. They often take weeks to make the actual payment.
Besides the growth of online payments, the check printing companies have to be feeling the impact of software that allows us to print our own checks in smaller, more convenient, batches. It's been a while since I've written about the VersaCheck programs, which I have been using for several years to print blank checks to use in Quicken and QuickBooks, as well as to print check drafts for clients who fax their payments to us.
I have been buying each year's new version and have found enough improvements in each one to justify the additional expense. In fact, the 2004 version has had the handiest new feature in several years. It has what they call "one pass printing." With past versions, I had to print out a bunch of blank checks with our company and bank info, which I would then later put into my printer's paper tray when I wanted to print checks from Quicken and QuickBooks. With this newest version, I can put virgin blank check paper into the paper tray and when I go to print a check from QuickBooks, it starts up a driver that activates VersaCheck and prints absolutely everything onto the check paper at one time. Other than a problem with the memo info printing below the line instead of on top (which I have reported to the company and yet to see any fix for), I have been very pleased with how much time this saves me from printing checks twice.
And, as I've had to remind several clients, if you are not using QuickBooks to print out your checks - whether preprinted ones you buy or via a utility like VersaCheck - you are missing out on the biggest time saving feature of QuickBooks. It also improves the accuracy of the data input over entering check info after the fact.
Sunday, June 06, 2004
Saturday, June 05, 2004
Firms taught to milk 'cash cow' - I guess we in the tax practitioner community each have our own ideas of what is ethically acceptable in terms of services we provide for our clients. Helping them minimize their tax outlays is something I've always been proud to do. However, helping them fleece taxpayers through various corporate welfare schemes is far beyond anything I could stomach doing. It seems that Ernst & Young has no qualms about assisting in this.
Maybe it's just my Libertarian philosophy that believes strongly in small inexpensive government; but I could never take part in anything that adds to the cost of government. I've even refused to take part in any of the lucrative farm subsidy programs for my 55 acre ranch back in California and our 285 acre ranch here in the Ozarks for that very reason. If we couldn't make money from them on our own, it wouldn't be fair to have the taxpayers pick up the tab.
Selling Residence After Death of Spouse
For decades, I've used the phrase "swap 'til you drop" to explain the benefit of using 1031 exchanges to legally avoid taxes on sales of real estate. The drop part refers to the step up basis property receives in the hands of the heir. It essentially wipes out the accumulated profits at the time of death and is what I have always called the "ultimate escape from capital gains taxes."
Because estate taxes are generally higher than capital gains taxes, for those whose estates are large enough to exceed the tax free threshold, there are often benefits to using lower step up values, when that is possible.
When it comes to the $250,000 per person tax free exclusion of gain from primary residence sales, I have been seeing a lot of confusion, such as this email I received yesterday.
Hi. I just came across your website. I have a question you might be able to answer. I have a client who's husband died 6/25/03. She filed married joint for 2003 but for 2004 of course she will file single. She is selling their primary residence in 2004. Will she only be allowed the $250,000 maximum tax exclusion since she is single filing status for that year? Or do you know of any special rules about spouses of deceased taxpayers getting a longer period to sale principal residence and still claim the $500K. Please let me know if you know anything about this or if you know of a place I can research it. Thank you.
Noting that you are in Vacaville, I need to mention that if your client is also in California, the entire gain in the home prior to 6/25/03 has already been wiped out by the stepped up basis the widow receives. For community property, the entire cost basis is stepped up.
If your client is in a non-community property state, the husband's half of the property is stepped up to half of the home's FMV as of 6/25/03 and the widow's half remains as it was before.
Your client will only have to worry about the appreciated value since 6/25/03, which can then be excluded on a pro-rated basis of $10,417 ($250,000 / 24 months) of tax free gain per month from 6/25/03 until the date of sale. The death is one of the circumstances that allows the use of the pro-rated exclusion.
You can see this explained on Pages 7 & 8 of IRS Publication 523, which covers home sales.
Good luck. I hope this helps.
You can see all of the rules for the sale of a residence by obtaining IRS's Publication 523. This is available from the IRS website in downloadable PDF format and in browser friendly html.
Missing the Big Picture
High Gas Prices: Man Drives Eleven Hours to Save Four Dollars on Tank of Gas - While this is obviously a satire, I have seen plenty of similar real life stories of people doing the same kind of thing.
Friday, June 04, 2004
Getting Started On QuickBooks
We are still on our crusade to get all of our clients using QuickBooks. I received the following inquiry from a client today.
Is QuickBooks 2000 acceptable? My husband has a copy of it.
In regard to QuickBooks, you would be best off buying a copy of QB 2004 Basic. All of the programs before the 2002 version have been abandoned by Intuit; so you won't be able to get any support from them. There are also several features in the newer versions that make the program easier to use.
You can get the absolute best prices on eBay. Next best are from Sam's Club. You can also get a good price by clicking the banner ad on my website.
The cheapest single user Basic version is all you need. No need to waste the money on the fancier versions.
Draft of 1040S Form
Thanks to Mike Bahnmiller, CPA for forwarding this copy of the proposed new simple form for senior citizens. Interesting that it's two pages and will still need attached backup schedules (A, B & D) where applicable.
Virginia Passes $1.6 Billion Tax Hike: Voters May Not Forget - Let's hope they don't forget. Unfortunately, very few people connect their tax burden to the votes they make. This is why putting the tax filing deadline closer to Election Day would be so useful. Holding politicians accountable for what they are costing voters is the only way to exercise any control over them. They are supposed to be "public servants," which is supposed to mean that they serve us. Unfortunately, it has become the other way around. We work to earn money to send to our rulers.
Growing an economy - Good contrast between capitalism and the DemonRat Left. Capitalists want to stimulate garden like growth. DemonRats want to stomp on the ground to prevent anything from sprouting.
IRS is asked to investigate Springs diocese - The complaint isn't actually that a church is advising on the best ways to vote. It's because they advised to vote for the GOP. As we all know, political campaigns from the pulpit must only be in support of the DemonRats or they are in violation of the law.
Where Does Your State Rank Among Those Raising Taxes?
Council for Citizens Against Government Waste’s (CCAGW) 2003 Congressional Ratings
Fiscal Shenanigans - Big news here. The New York Times hates the very concept of tax cuts and anyone who supports them.
Separating Tax Facts From Tax Fiction - Nice look at the truth about the tax burden and the idiocy of the "tax cuts for the rich" mantra of the Left.
Tax Hikes Still Under Way In PRC
They are as desperate as ever for new sources of revenue in the PRC, as indicated by these latest proposals, courtesy of Spidell
Independent contractor withholding proposal - This is an extension of a popular tactic by government rulers, snatch some money right up front. In this case, they are proposing two percent of the gross of payments for services. It will in effect deputize millions more people as tax collectors for the State government.
Proposed tax on wealthy to pay for mental health - More of the typical soak the rich mentality from the rulers in Sacramento. How hard will it be to get people to vote to stick it to those evil fat cats making over a million bucks a year? After this passes, the floodgates will open for many more such levies on the wealthy. It may only be one percent; but when you have a few dozen of those one percent taxes, we're talking about some big bucks.
Thursday, June 03, 2004
Downsizing the Federal Government
Another New Tax Form
If this bill becomes law, there will be one more "simple" type income tax form available; this one just for seasoned citizens, the 1040S. The draft of the form isn't yet available on the IRS website, but it probably won't be needed until the 2006 tax season, for 2005 tax returns; so there's plenty of time to work on the actual design. It will probably only be used by do it yourselfers and assembly line preparers, such as H & R Block and Jackson Hewitt. Most of us upper strata preparers don't ever use the "simple" forms (1040A or 1040EZ) at all, even when they would be appropriate. I always set my software to suppress all of the "easy" forms so all of my returns will be consistent with each other.
Wednesday, June 02, 2004
Sell or Donate Old Vehicles?
A common question, such as this one I received today:
We have an old mini van that the company owns. We want to get rid of it. Would you suggest donating it or selling it? The Kelley Blue Book value is $5,000. Personally I think it will be a hard sell.
My response, with handy links added:
From a pure dollars & cents approach, you're better off selling it for as much as you can get for it.
Even though the theoretical Blue Book may be $5,000, you would technically be limited to a deduction for what it would actually sell for in the real world. IRS is cracking down hard on these kinds of donations; even checking with the charity to see how much they got for it and penalizing people for claiming inflated Blue Book values.
IRS Interest Rates Drop for the Third Quarter of 2004 - It will drop back down to four percent as of July 1, 2004 for at least three months. I have already updated this info on my Quick Reference page.
Few In GOP Defy Bush On Tax Cuts - And of course, those RINOs receive all of the free publicity from the mainstream media, who never miss an opportunity to bash Bush.
The 'working poor' scam - As the old saying goes, "statistics don't lie, but liars love to use statistics."
Abolish the Penny - This is an idea that has comes up a lot over the years. With fewer transactions being handled with cold hard cash, it wouldn't affect as many as a few years ago. For those who use cash, everything would have to rounded up to the nearest five cent mark.
When Is Day Trading A Business? - Good look by Roth & Co. at the results of a recent court case denying a stock trader the right to claim that as his fully deductible business. It points out once again the idiocy of the ridiculous $3,000 per year limit on deducting capital losses.
How to balance the federal budget in less than an hour
Tuesday, June 01, 2004
Florida officials fear new property tax chop - As always, any time a tax reduction is proposed - even one as measly as this increased property tax exemption - the bureaucrats start screaming that the world will stop spinning and all life sustaining services will be shut down so that everyone will die a terrible and excruciating death. This chicken Little gloom and doom approach is all too familiar. It happened in 1978 in California when Proposition 13 was up for a vote, and it's happened here in Arkansas the past few years, as we've tried to rein in skyrocketing property and sales taxes. How dare the common people fight to hold onto $500 that rightfully belongs to the royal bureaucrats. Also, how dare the citizens try to tackle this problem on their own via an initiative rather than allow their rulers in Tallahassee to do what's best for them. The class warfare angle, claiming it to be a tax on renters to benefit homeowners, is another classic technique of tax loving officials. Of course, this is Florida we're talking about here, the land of voters too stupid to punch the right chad on their ballots; so it may be more effective than in parts of the country that are blessed with more common sense. Thanks to Ben Cunningham for passing this along.
Even the most skilled financial planners have one huge problem when trying to decide how much a person needs to save for retirement; a crucial variable that is unknown for almost everyone; life expectancy.
Democrats pass flurry of bills targeting businesses - The Left are still firmly in control of the PRC. Let's see if Governor Arnold can fulfill his promise to make things more attractive to businesses and veto these latest attempts to handcuff capitalism.
Retirement prosperity or dependency in the balance - A good update from Jack Kemp on the Social Security mess that few of our rulers want to address and his new organization, Alliance for Retirement Prosperity, to balance out the Big Government welfare agenda of the AARP.