Tax Breaks Threatened for Historic Homes

Property Tax Hikes Part of National Trend

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/31/2004 08:03:00 PM Send this post:

For some reason, my several years old Quicken Tips have been popping up on the internet search engines, prompting the following recent emails  

1:

Subject: Quicken Info Commendation

Thanks for a very informative web page re Quicken although a user for years I learned a great deal from the visit today and am in gratitude.

2: 

Subject: Your Quicken Tips Website is appreciated

Dear Mr. Kerstetter,

Being a fairly new user of Quicken Home & Bus. (converted from Money about 4 months ago) and having had the need to... well, shall we say clean it up and reorganize it... due to the launch of a second home business, I came across your website while looking for advice that would help be best utilize it for my needs.

After scouring many websites and forums and uncovering nothing but scattered bits and pieces of the sought-after info I came across your site.  Just a quick scan of it has already proved to be of immense help - allowing me to understand how to properly treat returns and rebates, and applying the Class assignment to reduce the number of categories used when differentiating between expenses for each business.

I guess what I'm trying to say is thank you very much for posting your tips, it is appreciated.

sincerely,

I sent this same reply to both writers:

I'm glad to see that you found the info I've posted useful.

While I have no plans to add any more info specifically on Quicken to my website, I will be adding quite a bit of tips for QuickBooks, many of which will be just as applicable to Quicken users.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/31/2004 07:16:00 PM Send this post:

Q:

Subject: BeneTrends - ESOP

Hi Kerry, What are your feelings on the ESOP program which allows use of IRA funds for business start ups? I am weighing the options of using a small business loan, home equity or tapping my IRA for approx 150K.... Any advice is greatly appreciated. Thank you

A:

I'm still as supportive of using one's own retirement account for a new business start-up as I was when I wrote my earlier article on this eight month ago:

There must be other companies providing this service; but BeneTrends is the only one I am currently aware of.

Good luck.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/31/2004 04:50:00 PM Send this post:

High taxes are driving people away from LI - Thanks to Ben Cunningham for this additional example of the steps people will take to reduce their tax burdens.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/31/2004 02:15:00 PM Send this post:

Lottery winner, 94, sues to get it all now - If anyone's a candidate for the secondary market to sell off her future rights to these payments, this 94 year old woman is.  Making her wait 20 years to be paid off is ridiculous.

Nebraska Man May Have Rare Coin. Silver Dollar May Be Worth Millions. - Nice retirement benefit.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/30/2004 10:30:00 PM Send this post:

Smokers make run on loose tobacco before tax begins - Just another reminder of how much taxes affect personal behavior.  One of the long running frustrations in debates over tax issues is that the other side remains so oblivious to this simple fact of life.  In their fairy tale world, tax rates can be raised and new taxes can be added and everyone will continue doing the exact same things as before.  The fact, as proven over and over again, is that higher rates stimulate less taxable activity and lower rates encourage more.  Please remember this in the face of so many calls to raise tax rates to attack the deficit. 

This is also the reason I have never been in the least bit afraid of losing my livelihood if we were to achieve our wish and replace the Federal income tax with a national sales tax or any other such change in the way governments fund their activities. People will still need our services to help them minimze those new taxes.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/30/2004 08:49:00 PM Send this post:

Q:

Subject: Section 179 Deductions

I've been studying this section all day, and according to EVERYONE on the internet, a self-employed taxpayer may take a one-time deduction of up to $25,000 on a 6000+ lb. vehicle in the year the vehicle was put into service.  BUT, according to the IRS, and 3 CPA's, who I have been on the phone with ALL DAY LONG, no such deduction exists!  Where can I find this in an IRS publication? TaxGuru, help me please!
Respectfully,
Debbie

A:

Debbie:

If you go to my blog (www.TaxGuru.net) and use the search tool at the top to look for 179, you will see dozens of postings on this very topic.  You can also see it described on my main website at:
http://www.taxguru.org/incometax/Rates/Sec179.htm


Since you don't seem to be doing very well at finding a tax pro who is very current on important tax topics, you should also check out my guide to finding a good tax advisor at:
http://www.taxguru.org/incometax/prepare.htm


Good luck.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/29/2004 09:40:00 PM Send this post:

The Feds have released more details on the six people convicted in the Anderson's Ark tax scam.

I couldn't agree more with Spidell that, in their unquenchable thirst for tax dollars, the rulers of the PRC are crossing even more fairness lines by adding new fangled penalties.  Having worked with plenty of other former PRC residents, as well as non-resident owners of investment property there, I know that contacting Governor Arnold and other elected officials to play fair is a waste of time. Non-voters are easy targets for taxation who literally have no ability to punish those who want to fleece them.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/29/2004 09:33:00 PM Send this post:

AMT Can Complicate Timing of Tax Breaks From Charitable Gifts - Excellent point from the Wall Street Journal.  Normally at this time of year, there's a mad rush to get as many deductible expenditures in as possible before January 1.  However, if it looks like you will be subject to the insane AMT, you will just be wasting your money because the tax calculation will ignore many of your Sch. A deductions.

As I've frequently said, the tax savings are higher for any deduction that can legitimately be shown on the front of your 1040 instead of on Page 2 via Sch. A.  This is just one of the reasons for that. 

For those folks still wallowing in the naivete that the AMT only hits the evil rich, this quote should be a wake-up call to contact your elected rulers in DC before it's too late.

The AMT is expected to ensnare 29.9 million taxpayers by 2010, compared with 3.5 million this year, according to forecasts from the Tax Policy Center, a joint-venture of the Urban Institute and the Brookings Institution in Washington. More than half of those affected will be filers with income between $75,000 and $100,000, according to the center's database.

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/29/2004 03:36:00 PM Send this post:

State to tax illegal drugs. Tennessee targets dealers, users with new levy. - Thanks to Bill at HobbsOnline for this perfect example of "if you can't beat them, join them."  Since the Drug War is impossible to ever win, governments might as well make some money off of it.  Also, as Al Capone found out, not paying taxes is treated by our rulers as much more important crimes to prosecute than other trivial things, such as murder and drug dealing; so those drug pushers in Tennessee had better not miss a payment.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/29/2004 01:41:00 PM Send this post:

Enron: The Accounting Profession's 9-11?

Enron: Fraud, Deception, and the Aftermath

Securities Trading in the Post - Enron Era

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/28/2004 09:16:00 PM Send this post:

Six Convicted in Anderson's Ark Tax Shelter Case - My senses perk up when I see a story that looks like it may be about something going on here in Arkansas; but this isn't one of those.  Joe Kristan at Roth & Co. has been doing an excellent job covering this "Ark" tax scam.

Bush Ready to Name Tax Reform Panelists This Week - My invitation seems to be hung up in the mail.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/28/2004 09:14:00 PM Send this post:

Q:

Subject: why aren't corporate brackets indexed?

The same goes for the retained earnings limit. Neither have increased for what, 25 years?

A:

You are absolutely right that the C corp tax brackets and threshold for the accumulated earnings tax haven't been changed in far too long and haven't come anywhere close to keeping up with the overall cost of living in this country.

We all take for granted the annual inflation adjustments for the beginning and ending points of individual income tax brackets, as well some other tax items, such as personal exemptions and standard deductions.  However, these are a relatively new part of our tax code and are not even beyond repeal.  Every so often someone in Congress will float the trial balloon of freezing the individual income tax brackets where they are, along with an estimate of the billions of additional tax dollars the Feds will be able to reap just from the bracket creep, where people just keeping pace with normal inflation in terms of their incomes are pushed into higher percentage tax brackets.

The C corp tax brackets are just one item in the tax code that hasn't been allowed to increase with the cost of living.  There are actually several more, such as related to tax free employee benefits and dependent care expenses.  For example, $50,000 of coverage under a group life insurance plan was a lot of money decades ago when this became the cut-off point for a tax free employee benefit; but it's nothing today when policies for millions are more common practice.  Other unfair fixed dollar amounts that readily come to mind are the thresholds for taxing the benefits of evil rich Social Security recipients.  Those figures of $25,000 of gross income for single people and $32,000 for married couples have been in place for so long that more and more people have found themselves having to pay tax on what were supposed to be tax free benefits. 

Even parts of the tax code that have inflation adjustments aren't safe.  The thresholds for the insane Alternative Minimum Tax (AMT) are actually scheduled to drop in 2006, forcing many more people to pay what was supposed to be a tax on only the evil rich.  

When tax laws are passed by our supreme rulers in DC, they include language describing either specific dollar amounts that don't change or a specific provision allowing for an inflation adjustment factor.  While I have never had the time to sit down and actually count each and every tax provision as to whether it uses a fixed dollar amount or one that is raised periodically, I would guess that there are more fixed amounts than floating ones.  That would actually make a very interesting project for some college tax course.  Each student could be assigned a portion of the tax code and tabulate the different threshold amounts and categorize them as fixed or adjustable.  Adding them all together to encompass the entire tax code would be quite enlightening.

Back to your original questions about adjusting corporate tax brackets for inflation, I wouldn't hold my breath waiting for that to happen. In our society today, corporations are considered the focus of evil and anything to reduce their tax burden is a very tough sell.  We would have better luck asking for inflation adjustments of things affecting lower income individuals.

I realize this is a long answer to a short question; but there are few simple things when it comes to discussion of our Frankenstein tax system.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/28/2004 04:51:00 PM Send this post:

The blogger take on the issues - A good look by Bruce Bartlett at the growth of specialized blogs, including a few of the tax related ones.  He has completely grasped the fact that, while many of the other tax blogs cover taxation issues from an academic and theoretical perspective, mine strives to cover the more practical real world applications.  I appreciate the recognition and am glad so many people are able to share so many viewpoints via blogs and the web in general.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/28/2004 04:08:00 PM Send this post:

Social Security reform ambush by AARP

The Economics of Gift Giving

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/24/2004 06:04:00 PM Send this post:

As California Deficit Grows, Finance Director Vows 'Honest' Budget, No New Taxes - That will be the day.  The rulers in Sacto are no more able to produce anything close to an honest budget than are their counterparts in DC.  Smoke and mirrors are standard stock in trade for governmental budgets.

Beware of Altered IRS Forms Used for Identity Theft

  Distorting Social Security reform

Two-faced advice on Social Security

A stealth tax

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/23/2004 09:01:00 PM Send this post:

I really do appreciate the assistance of the other tax pros around the country who have been helping me keep up on the various topics we have been discussing here.

Ohio CPA Dana Stahl has been a big help and has provided this update based on a recent conversation he had with Dan Pilla after attending one of Dan's seminars.

Mr Guru - just got off the phone w/Dan Pilla.  Some items you may find interesting:

 

1.    Regarding the IRS/1040x matter, Dan said he is unaware of any national policy along those lines as we've previously discussed.  He did say there is a "Revenue Protection Policy" in effect, which is an apparent threshold of a refund claim that would trigger an audit.  Dan said he didn't know the threshold amount, but other than that policy, there is no movement within IRS he can identify.  Dan commented that, if such a policy were in effect, it still shouldn't effect someone with a $10,000 or more refund, since one would not want to leave that kind of money on the table.  Anyway, I let him know what you & I have discussed, and I said I'd let him know if any other information becomes available.

 

2.    I also asked him about those IRS abuse hearings, as you & I discussed a couple of weeks ago.  I told him about the Edward Jones teleconference with the former IRS Commissioner denying that the abuses were true.  Dan said that the abuses WERE true, and apparently Dan helped put together much of the research (including testifying before the Committee himself!) used during the hearings.  He said there has been an effort to discredit the testimony given during the abuse hearings in order to undue the protections put into place as a result of the hearings (since the government now needs more money).  I told him I'd let him know what kind of response I get from the Edward Jones people to my inquiry on the Ex-Commish's remarks (as I will you, also).

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/22/2004 08:35:00 PM Send this post:

Q:

Kerry- You have a great Website with lots of good information.  Thank you for sharing your knowledge.  I elected to purchase a SUV in 2004 and will take the 179 deduction.  I have a LLC, but purchased it in my name and use it 95% for business.  I do not really like driving it.  It is OK for me to just give the Vehicle to my wife next year and let her inherit my cost basis which will be zero?  Seems like that would be too good to be true.  Thanks if you answer the question.

A:

Your "too good to be true" analysis is right on the money.

The law is very explicit that any Section 179 deduction has to be recaptured if the business use of the asset falls below 50% during its normal depreciable life, which would be five years in your example.

Your plan would still have some merit if you are just looking to shift some taxes into a future, possibly lower rate, tax year.  You could claim the Sec. 179 on your 2004 1040 and then pick almost that same amount up as income on your 2005 1040 when you convert the SUV to zero percent usage.  Actually, the recapture amount will be less than the full Sec. 179 because you only need to pick up as income the excess of what you claimed on your 2004 1040 over what the normal depreciation deduction would have been without the Sec. 179.

Good luck.  I hope this clears this matter up for you.  Your personal tax advisor should be able to help you decide if claiming the Sec. 179 under these circumstances is a good idea for you and your wife or not.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/22/2004 03:18:00 PM Send this post:

National Sales Tax - Walter E. Williams' take on the plan to eliminate the insane Federal income tax system and its effects on the out of control spending by our imperial rulers in DC who long ago stopped caring what the US Constitution says about authorized government activities.

What Social Security 'crisis'? - We all know what they say about denial.  This idiot's "solution" is to just repeal all of the Bush tax cuts for the evil rich and everything will magically balance out. 

Social Security Reforms Could Make or Break Careers - To say nothing of the people who are stuck with whatever our rulers force on us.

Don't Count on Immediate Tax Overhaul

Who are the nation's 'cheapstates'? Try the blue ones.

Bush Criticized Over Social Security Plan

Bush's Tax Overhaul May Be Incremental

Bush Social Security Plan Worries GOP 

Bush Plans a Media Blitz on Social Security

Krugman lies about personal accounts for Social Security

Details Cloud Support for Social Security Plan - The opponents of private property ownership are using similar tactics to fight any change to the Social Security system as they do to fight tax reform.  They scare everyone with so many different possibilities and details that the only recourse is to stick with the "devil we know" rather than take a chance on anything else that could possibly be worse for some people.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/22/2004 12:47:00 PM Send this post:

Treasury and IRS Issue Final Regulations on Student Exception from Employment Taxes

Study Indicates Tax Shelters Improve Companies' Financials

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/21/2004 10:19:00 PM Send this post:

I just learned that Intuit has another what appears to be unnecessary product on the way to the market place, Quicken Rental Property Manager.  We have been using plain old QuickBooks just fine for keeping track of all rental activities for years and years.  Setting up a Class for each property makes it a very simple task to complete Schedule E.  If Intuit sends me a copy of this program to review, I'll check it out; but I doubt if it will be any more useful than the Simple Start program I reviewed a few months back. 

As much as I love the QuickBooks programs, the folks at Intuit are creating a lot of unnecessary confusion with these various new versions that serve no useful purpose in the real world of accounting and taxes. Just a guess here; but it's as if they set a goal of introducing a certain number of new products each year and quantity has taken precedence over quality. 

I wonder how many bad reviews of their products I am allowed before they kick me out of their Certified Pro Advisor program.  I guess we'll find out if they continue to pump out stupid programs.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/21/2004 08:54:00 PM Send this post:

The Early-Retiree Problem. Another strain on the Social Security system.

The 'Fair' Tax - No argument here that the current income tax system punishes achievement and is counter-productive to a capitalist society.

Agency calls TV money man's claims deceptive  - Another bubble has burst.  That wacko on TV, Matthew Lesko, and his free money schemes may not be on the up and up.  Who would have figured that?

Average American Spends over $250,000 on Automobiles - Thanks to AutoBlog for this article.  Amazingly, there is no mention of the fact that the financial wizards at the IRS long ago proved that vehicles cost much less to operate when used for charitable (14.0 cents per mile) or medical (15.0 cents per mile) reasons, than for evil money making endeavors (40.5 cents per mile).  Think of the savings if we only used our cars for charitable or medical trips.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/21/2004 08:26:00 PM Send this post:

As artistically inept as I am, I was able to create this in a matter of seconds at this Tombstone Generator website.  I used 1913 as the IRS's birthdate because that was the year the 16th Amendment was ratified.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/21/2004 07:21:00 PM Send this post:

I guess last year's addition of less traditional people to the gallery of action figures (aka dolls), such as political commentator (and real life doll) Ann Coulter, should have tipped us off that other professions would soon be represented with semi-lifelike plastic replicas.  

We financial pros now have MoneyMan to give to the younger generations so they too can dream of one day growing up to beat back IRS auditors and jump over tax shelters in a single bound. I doubt if MoneyMan could beat G.I. Joe in a fist-fight; but I'm sure he could reconcile a bank account much faster.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/21/2004 04:00:00 PM Send this post:

Dr. Roger Firestien in Buffalo, NY

Four Individuals In Southern California

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/20/2004 11:04:00 PM Send this post:

Discover how much you must save in order to become a millionaire

Get rich quick, repent at leisure - More on the media manufactured malady, affluenza.

Fed says financial junk mail is useful - Plenty of fuel for fireplaces.

A Tax Revolt in Berkeley? - Thanks to Michelle Malkin for this story proving that even the most left-wing tax lovers may eventually reach their breaking point.

Yes, Social Security has to be fixed - Thanks to Neal Boortz for this bit of common sense from New Hampshire.

Social Security Tax Limit May Go Up - As I've long predicted, the cap on earnings subject to FICA will be removed just as it was for Medicare.  To make matters even worse for those people, my other prediction still stands. They will most likely be frozen out of ever receiving any or all of their promised benefits when a means testing threshold is instituted.  Regardless of how much they may have paid in over their lifetimes, evil rich people have no right to recover their contributions according to our rulers in DC.  The definition of "evil rich" will be debated; but it can't get much worse than the one they already use to tax Social Security benefits; $25,000 AGI for singles and $32,000 for married couples.  

Funny video from the folks at JibJab on how Santa wants cash this year instead of cookies, including an appearance by his rarely seen elf accounting department.

Snow Sees Spending Slashed in '06 Budget - Less spending by our rulers in DC?  Not in our lifetimes.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/20/2004 03:48:00 PM Send this post:

Quiz Kid Ken Jennings Flat Broke, Seeks Bankruptcy Protection - Satire or prediction?

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/20/2004 12:34:00 PM Send this post:

As simple as it seems to calculate depreciation for tax purposes, there are far too many options and variables to consider; such as in this recent exchange I had with a tax pro in Virginia:

One thing you should talk about is the fact that if more than 40% of depreciable purchases are made in the 4th quarter of a tax year, all depreciation of that asset class is subject to the mid-quarter convention, not the half-year.  So long as a taxpayer is 179-expensing everything, this doesn't matter (with the exception of listed property converted from personal assets).  However, someone hoping to depreciate other pieces of 5-year property using normal GDS tables would face a larger bill.  Not a deal-breaker, just something to throw into the calculation.
 
Ryan Ellis
www.ryanellisassociates.com

I wrote back:

Ryan:

Excellent point, although a little more technical than I usually like to get in this forum, which isn't intended to replace consultations with tax pros. 

That reminds me of the following email I received a while back from someone with a Federal government (not IRS) email address with the subject of "section179"

if i buy equipment for 400,000 (laser machine) in 04 how much can i depriciate?

My Reply:

Such an answer is impossible to give.  There are too many variables to consider before being able to calculate the Section 179 and depreciation deductions on such a purchase; such as what your taxable income is, how much you have spent on new equipment for the year, as well as when in the year the item was purchased. 

Your personal tax advisor can work out more precise figures for you.  If you aren't working with a tax pro, and you're ready to plunk down that much money for one machine, all I can say is I wish you lots of luck.

Thanks for writing Ryan, and I hope your tax season goes smoothly.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/19/2004 06:17:00 PM Send this post:

Q:

My accountant told me that as a C-Corp in the state of California, I do not qualify for the IRS code 179 immediate deduction of up to $100,000 and that I need to depreciate assets I buy this year (i.e. office furniture, computers, etc.).  He also said that in California S-Corps do qualify for the 179 deduction but C-Corps don't which makes no sense to me.  Is he correct?  I hope not.......personally, I would rather deduct the whole amount and reduce my tax burden.

A:

What your accountant is referring to is the fact that California tax law - for California income tax returns - does not match Federal tax law in regard to the Section 179 deduction. Similar differences exist in many other states as well.

A C corp does qualify for the up to $102,000 of Section 179 deduction on the Federal 1120.  However, there is no Section 179 expensing allowed for C corporations on the California 100.  Those assets would have to be depreciated normally.

On individual income tax returns, the Federal law allows up to $102,000 of Section 179 deduction on the 1040.  On the California 540, the annual maximum is only $25,000.  Anything above that would need to be depreciated normally.

Since S corps don't pay income tax, and their income and expenses are passed through to their shareholders via the K-1s, it is true that some of the of cost business equipment purchased by an S corp may be able to be deducted as Section 179 expense on the shareholders' 1040s and 540s with the same maximums as I mentioned above.

The real downside to this disparity between the Federal and State rules is that you need to keep two sets of depreciation schedules.  When assets are sold, the gain or loss will be different on the Federal and State tax returns.

Over time, you will still be able to claim the same over all cost for business assets on the Federal and State returns.  The difference is in the timing.  It would be nice if there were more consistency; but that isn't always possible.

I hope this clarifies the situation for you.

Good luck.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/19/2004 06:00:00 PM Send this post:

The Blue-State Tax Burden. Dems want to soak the rich, but not the states where they live.

For lottery winner, $113m hasn't bought happiness - In spite of this almost cliche result of sudden wealth, I doubt if any of us wouldn't want to have a chance to prove that we can be the exception to this.

Wife regrets massive lottery jackpot that has husband in string of trouble

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/19/2004 05:05:00 PM Send this post:

As I've done for the past few years, I have posted the official QuickBooks 2005 Reference and Training Guides for anyone who is interested to download.  They are large pdf files that I have zipped into one file.  A link to this file can always be found on my main QuickBooks resources page.  I don't normally use these guides a lot during the year; but they do come in very handy when taking the certification courses.

I have also added a page with some tips on how to best install and run multiple versions of QuickBooks on a computer; which is a necessity for anyone working with different clients.  I've also included a screen capture of the folder system I have set up for the several versions of QuickBooks I am currently running on my main computer.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/18/2004 04:26:00 PM Send this post:

The Social Security Crisis. Without reform, it will destroy itself.

Cashing In on a Losing 529 Plan

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/18/2004 02:49:00 PM Send this post:

IRS Issues Optional Sales Tax Tables

"Taxpayers also may add to the table amount any sales taxes paid on:

A motor vehicle, but only up to the amount of tax paid at the general sales tax rate; and

An aircraft, boat, home (including mobile or prefabricated), or home building materials, if the tax rate is the same as the general sales tax rate."

My earlier comments on this still apply. 

Treasury Tax Reform Proposal to Reach Bush in Early 2005 - That would be great; but I'm not holding my breath.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/17/2004 07:53:00 PM Send this post:

Q:

Hi Tax Guru,

I was researching buying an suv for our business and ran into your column.
My husband and his brother (partnership) opened up a business in the mall (food court) on November 2, 2004 and it is doing fairly well. I was wondering if we should go ahead and buy an suv this year by Dec 31, 2004 to get the 179 deduction or should we wait until January 2005 to purchase our vehicle since we've only been in business for 2 months. I know that the deduction for a vehicle changed from up to 100k to 25k but I am not sure what that means since we've only been in business a short period of time. I also have a full time job not related to the business. Thanks for your advice.

Sincerely,

A:

As I always advise, it's never a good idea to spend money just for the tax break, especially on something as expensive as an SUV.  However, since you seem to have already decided on getting one, the other standard advice kicks in.  A deduction on your 2004 tax return (by buying the SUV and placing it into service by 12/31/04) is worth more in the time value of money than the same deduction on your 2005 tax return. 

If your SUV is going to be purchased as a brand new vehicle costing more than $25,000, this decision is even more lopsided this year.  As I've already discussed in a number of postings on my blog, the 50% bonus depreciation deduction will expire as of 12/31/04.

The Section 179 deduction is not based on how long the business was in existence.  A business that has been operating two months of the year is entitled to the same $102,000 maximum Section 179 deduction as a business that was active for the full twelve months.

There is a limit on the amount of Section 179 that can be claimed on a tax return based on your taxable income for the year.  However, this calculation isn't limited to the income generated by the specific business that will be using the new Sec. 179 equipment.  If you have other income, such as from W-2s, the Sec. 179 can be used to offset that.

There could be a difference in the allowable Sec. 179 deduction depending on how the new SUV is purchased.  If the partnership buys it, the taxable income limit will be calculated at the 1065 level, which could mean that nothing is allowed if the partnership already has an operating loss.

If you buy it in your personal name and show it on your 1040, you will be able to use other income, such as W-2s to qualify for a higher Sec. 179 deduction. 

You really should be working directly with a tax pro who can work with your actual figures and circumstances to help you come up with the best game plan.

I hope this helps.  Good luck.

Kerry Kerstetter

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/17/2004 04:03:00 PM Send this post:

Bush Now Proposes to 'Public-ize' Social Security

Bush: Social Security Plan Has Safeguards

Bush Considers Domestic Spending Freeze

FDR is dead - And so are the original goals for Social Security.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/17/2004 01:14:00 PM Send this post:

There will never be a better time to make the tax cuts permanent than now. - If the GOP can't accomplish this simple task with control of all three houses of government, they're a disgrace.  

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/16/2004 09:07:00 PM Send this post:

Q:

Hello Guru!

I am in a bit of a dispute with my CPA regarding the 179 deduction for a huge 6000 pound  Range Rover. 

I am considering making this purchase of this huge vehicle due to a huge tax burden that has fallen at my doorstep due to a very good year.  I have a Sub Chapter S corporation in which I own all stock.  Is it necessary that the automobile be titled in the corporate name or can it be titled to me personally?  I get a much lower interest rate personally than the banks are offering for the corporation.

Any comments would be greatly appreciated.

A:

With an S corp, the actual Section 179 deduction will end up on your 1040 either way.

However, to be technically correct, you need to show the actual asset on the books of the entity which has its name on the vehicle's title.  If you register it in the corp's name, you will show it on the 1120S as a corp asset.  The Sec. 179 deduction will flow through via K-1 to Page 2 of Sch. E on your 1040.

If you register it in your personal name, you will show it on your 1040.  This then brings up a big difference on how you can deduct the SUV's costs if you own it personally.  If you set it up as a rental asset on Schedule C or Page 1 of Schedule E of your 1040, you can claim the business related expenses, including Sec. 179, on that schedule. You would need to show rent income for it which would be by leasing it to your corp.  

If you just show its costs as unreimbursed employee expenses, those will have to be reported under the Miscellaneous Deductions section of your Schedule A.

Bottom-line, claiming it on Sch. A will save you much less in taxes than if you claim it on Schedule C or E because anything that reduces your AGI has much more bang for the buck than personal Sch. A deductions.  It is also a fact that high Sch. A Miscellaneous Deductions will  often trigger the infamous AMT (alternative minimum tax), while those exact same amounts won't trigger AMT when reported on Sch. C or E.

While these comments should help you decide on the best strategy for your situation, you should also consider the issue of liability.  Many people prefer to title their vehicles in the name of their corps so that any potential lawsuit caused by them would be less likely to jeopardize other personally owned assets.

Good luck.

Kerry Kerstetter

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/16/2004 12:24:00 PM Send this post:

I've looked at the application process for these IRS advisory boards and am confident that Bernie Kerik would never have gotten very far in the selection process if he had been applying for a spot on any of them.  It's a little frightening to know that members of tax policy boards are more closely screened than those in charge of homeland security. 

IRS Selects 12 New Members for IRS Advisory Council

IRS Selects Nine New Members for Information Reporting Program Advisory Committee

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/15/2004 09:24:00 PM Send this post:

Thanks to Neal Boortz for the info on this website, Choose The Blue, which supposedly has all of the political donations by businesses broken down by political party.  Their goal is obviously to encourage consumers to patronize supporters of the DemonRat Party.  However, their info is just as useful for those of us who prefer to let our money do the talking in supporting those companies that donated more to the GOP and punishing supporters of the high taxing and regulating Donkeys.  Unfortunately, their data only includes info on donations to the two big parties.  Those of us who support third parties, such as the Libertarians, won't be able to use these stats to identify our commercial allies.&nbs