title>Tax Guru-Ker$tetter Letter Wizard Animation


Tax Guru-Ker$tetter Letter
Thursday, November 30, 2006
Loophole or noose?

Football Lights



 Subject: football lights

 I noticed your response to the Florida couple who bought a house and then the woods were cut down and football lights installed.

I would recommend they question their realtor and check their disclosure forms. Sellers (at least in CA) should have disclosed this change - I can't imagine the neighbors didn't know about it.  It might be why the sellers moved. It might also be grounds to sue the realtor and the rescind the sale.



That is a very good point.  A change that large in the neighborhood doesn't usually happen overnight without plenty of warning.  There are often environmental impact reports and neighborhood comment meetings.  It does sound as if the sellers weren't very forthcoming about what they know of the impending changes.  If the Realtor was also aware of those plans, it seems s/he also has a potential liability if the buyer chooses to pursue legal action for misrepresentation and improper disclosure.

Thanks for writing.

Kerry Kerstetter



Advertising on Blogs



Subject: Query: Advertising on Your Blog?

I'm contacting you from Zecco.com, the new free financial trading portal.  We launched officially in October and are now seeking blogs on which to advertise.

If you're interested, to initiate the process, I'd like to know some stats of your site. What is your monthly traffic? What is your current CPM revenue?  With this basic data we can start the ball rolling.

Thank you for your time and information.
By the way, if this isn't something you're interested in, would you consider an RSS feed in the future or perhaps blogging on the www.Zecco.com site (we do share advertising revenue with bloggers)?


Trish Telesco
Zecco Research



I appreciate the offer to run ads on my blog.  Unfortunately, based on similar discussions with other potential advertisers, I have learned that I simply don't have the detailed kinds of stats that you need.

You may want to use the Google AdWords service that I have, just as you have on your website.

You may also want to approach the suspiciously anonymous proprietor of the taxblogger.org website that has very obviously been developed for the express purpose of selling ad space.  I'm assuming that they are keeping much better records of traffic for the benefit of potential advertisers than I am currently set up to do.

I also appreciate the offer to blog for your website.  However, I barely have enough time to post the few things I want to for my own blog.

Good luck with your website.

Kerry Kerstetter



Converting Rental To Residence



Subject: Exchange question

What is the test of intent in an exchange. Suppose someone exhanges an apartment rental building for a single family home, their true intent is to eventually turn the home into a personal residence.  They have told numerous people city building officials that their intent is to remodel the home for their use as a personal residence.  Before they purchased this replacement property, they arrange with the broker and seller of the property to convert the property to a rental in order to qualify as a rental property under 1031 rules.  This seems like a scam the IRS would frown upon.


You are absolutely right that somebody who announces right up front the intention to personally occupy the home is setting himself up for serious problems with IRS accepting that property as proper like kind for a 1031 exchange

Conversion from a rental to personal use is allowed, but it has to appear that the decision to do so took place after the completion of the exchange.  I have long advised people who have a long-term goal of exchanging into a rental home and later on converting it to personal usage to keep that plan to themselves. The more they announce that intention to other people, the more damage they are doing to their case for a valid 1031.  Loose lips sink ships, etc.

As a tax practitioner, I always keep in mind the way in which everything would play out in real life.  Any audit by IRS of a 1031 exchange would normally be a few years after the actual exchange took place.  If the taxpayer is already occupying that home when the audit occurs, it will be a much tougher case to make that it was acquired with the intention of being for rental usage.  That wouldn't be an impossible argument to win; but each bit of evidence the IRS auditor could find indicating prior intent to occupy it, the more difficult it would be.  Obviously, the more people who had been told of this previous intent, the more damaging the evidence against the validity of the 1031 exchange.

The moral of the story is that anyone stupid enough to be bragging around about his intention to only appear to be acquiring a rental property probably deserves to lose the tax savings from a 1031 exchange.

Thanks for writing.

Kerry Kerstetter






Wednesday, November 29, 2006
Section 179 For Vehicles


Subject: Section 179 vehicle deduction
Hi Kerry, Thanks for the great web site!!!! I found it and have learned quite a bit from it.
Two questions I have regarding the deduction of vehicles weighing over 6k pounds:

  1. Can this deduction be used on the purchase of a “used” vehicle? Or is it only for new ones?
  2. If it is the purchase of a pickup with an open cargo area greater than 6 ft, does the $25k limit still apply?

Thanks in advance, I am planning on purchasing a commercial vehicle in 2007 and want to know the rules of Section 179.



You really should be working with your own personal tax professional to see how to best utilize the Section 179 deduction for your particular case.

I have a page on my website devoted to the Section 179 deduction.

It includes answers to your questions:

Qualifying assets need to be new to you; not brand new.

The $25,000 maximum is only for SUVs.  Pickup trucks over 6,000 pounds aren't subject to that limit.

Kerry Kerstetter


Thanks for the info Kerry,

And thanks again for the very informative web site!

Have a happy holidays





Telephone Tax Refunds

Seadog Bytes recently posted this creative reminder of the new credit we will be seeing on 2006 tax returns.

IRS Announcements:

For individuals

For businesses & tax exempt organizations

Because this sounds like some kind of scam, Snopes.com explains that it is in fact true.

Accounting isn't as creative as some people would like...

Tuesday, November 28, 2006
Discriminatory Money?


Thanks to Matt Drudge for this latest financial news, where a Federal judge has declared that USA currency must be redesigned to make it easier for blind people to distinguish values.



Philanthropy Expert: Conservatives Are More Generous – This shouldn’t be news to anyone who understands human nature. By definition, Conservatives and Libertarians are extremely generous with their own money, while Liberals are only generous with other people's money, via government confiscation.

The book in which this study is reported:

Update: Thomas Sowell has an interesting look at this book's subject.


The ABCs of Certification – A look at the often confusing alphabet soup of professional credentials.  I’m constantly having to explain to people what the ATA and ATP stand for. 


Monday, November 27, 2006
Donation or Advertising?



Hi, I came across your site when I was doing some research for a meeting and hoped you might be able to help me and/or refer me to some materials that might be of assistance.
I have been asked to address a C corp regarding structuring a gift for a non-profit capital campaign.  Of course, they want to make their gift in the most tax advantageous way and have expressed interest in possibly matching the individual gifts of the members.  I know just enough to be dangerous on this topic, but I would think this would be a charitable gift (deductible up to 10% of AGI) rather than a business expense, which would be deductible at a higher level.  Can you point me to any resources that would be helpful?  Any other issues you can think of that I might need to make them aware of?
Thanks in advance for your help!


As you mentioned, corporate charitable contributions do have a more limited deductibility than do other operating expenses.  If the 10% of taxable income limit would rule out an actual deduction for your donors, you may want to consider allowing them to use their donations to have advertising and promotional benefits, such as when large companies pay for the rights to put their names on sports and performing arts facilities.  They would then be able to deduct those costs as advertising and promotional expenses, which don't have the 10% limit.

I hope this helps.  That's what popped into my head from your question.

Good luck.

Kerry Kerstetter


Many thanks for your help.  I mentioned this to them as a possibility when we met last week, so I am glad to hear that I was on the right track.
Thanks again,



Sunday, November 26, 2006
IRS auditor giving thanks.


Rumors fly that President Bush may be willing to raise taxes. – Unfortunately, with his track record of allowing the Dems to set policies in DC, this kind of rumor isn’t as farfetched as it should be for someone who truly supports the tenets of capitalism.


Burned Nonprofits Try to Make It Harder to Renege on Gifts – It’s about time.  Every time I see someone basking in the self-promoting publicity of a huge charitable gift that is to be made several years later, I know that the chances are very high that that person will cancel or reduce the actual amount given.  Of course, there’s rarely any mention of that change in the press.  The real lesson from these kinds of broken promises for the nonprofit organizations is to simply not rely in any way on any donations until they are actually received.  Announcements of future gifts are as reliable as political campaign promises.


IRS Turns to Eunuchs to Improve Tax Collections – A spoof on the widely publicized stories about tax collectors in India.



Friday, November 24, 2006
Let's not hold our breath.

Our rulers are too busy spending our money like the proverbial drunken sailors to be able to find any time to extend tax breaks.

Tuesday, November 21, 2006

Getting Creative with Life Insurance – From Practical Accountant magazine.

Pros and Cons of Hiring Independent Contractors – From Nolo Press.


Monday, November 20, 2006

Rolled-over cash might not be secure



Wealthy now turning to accountants for more than just tax advice – A natural extension of our services.


US Support of Global Tax Group Is 'Ridiculous,' Senator Says The idiocy of a new global tax on US citizens should be self evident to those bright enough to be reading this blog.



Saturday, November 18, 2006

Postponing Required Minimum Distributions From IRAs – From Gail Buckner

Fractional Gifts. Having your art and selling it. - Obscure change in the rules for some charitable donations

Why stocks aren't for the faint-hearted.

Thursday, November 16, 2006
Section 179 + Depreciation


Subject: section 179

Hi Karry
I am plnning to purchse suv over 6000ld in a few days,I undrstnd the first yr dedction in 25K,Is the balanced deducted as depretition over a 5 yr priod?It will be usd 100% for busness.
We have been leasing suvs till now,our lease just ended,so we though our best option wld be prchase under sect179.The suv costs $65000.oo
We wld very much appretaite as much info as you can provide re deduction,etc.
thank you


You really need to be working directly with your own professional tax advisor if you are serious about handling your tax issues properly. A good tax advisor can show you what a rip-off leasing vehicles is so that you don't ever repeat that expensive mistake.

S/he can also show you what kind of depreciation deductions you can expect from your proposed SUV purchase. Whatever amount of the purchase price that you don't expense under Section 179 will be depreciated over the SUV's five year life, including some in the first year.

Since the 179 deduction is limited by your taxable income, you may or may not be allowed to actually claim any on your 2006 tax return. In some cases, you can actually claim more deductible expense by skipping the 179 and just claiming the normal deprecation on the full cost basis. Your personal professional tax advisor will be able to give you more specific guidance on this.

Good luck.

Kerry Kerstetter

TaxCoach Software: Are you giving your clients what they really want?


Accounting version of JackAss?

Wednesday, November 15, 2006
Have fun with QuickBooks?

Job Security

IRS working to trim a bit of Form 1040's red tape – And we all know how well they’ve done at simplifying things in the past.  That, along with the Dems’ threats to raise tax rates, will ensure a never-ending workload for us in the tax practitioner community.


Jewelry Close-Out Sale

I rarely digress from tax and finance related topics, but if I can’t use this space to help family members, what good is it?

After analyzing the amount of income generated from all of the time she has spent on her online jewelry sales business, Sherry has made the difficult decision to cut her losses and shut it down. Stuck with a ton of inventory, she has chosen to slash the prices to less than she paid just to get rid of it.

You can see what she has available on her website. They make excellent gifts; so you can start your holiday shopping now.

[Update] Everything has been sold.

From the Free WSJ:


Democrats May Eliminate IRS's Use of Collection Agencies – An uncharacteristically taxpayer-friendly move for the Dems.


Home-Office Deductions Have a Steep Price Tag – What is often more important than the amount of the actual home office deduction is the fact that establishing one’s home as the primary business location allows otherwise nondeductible commuting miles to qualify as fully deductible business miles.  I have frequently seen this extra mileage deduction be huge compared to the home office deduction itself. 


Putting Your Mortgage in Reverse To Supplement Retirement Funds – Real estate equity is just as valuable for retirement living as is cash in the bank.  This is frequently overlooked when evaluating how much people have “saved” for their retirement years.


Tuesday, November 14, 2006
Updating QuickBooks




What do you think about the new versions of Quickbooks as I am thinking of upgrading. Do you like the online version?


So far, the 2007 QB program has been working well.  I have been using it for our stuff and haven't had any problems.  It's supposed to have a more powerful Accountant's Review capability, but I haven't had any clients use it yet. 

In spite of Intuit's heavy promotion, I have never been a supporter of their online QB service because the data is not transferable to the desktop program, making users prisoners.  I have told them for several years that  I would be more willing to recommend their service if the data could flow in both directions.  I reviewed the service in my blog a few years ago.

In spite of that, I do have one client in Oklahoma who has been using the online version for a partnership for a couple of years and I have used it to prepare a couple years of partnership tax returns.  They like it because everyone can have access to the data without having to send files back and forth.  While I was able to get enough data for the tax returns, I found it much more difficult to work with than the desktop program and I am still advising against its use.  It also still has al of the limitations I mentioned in 2004.

I hope this helps.






Monday, November 13, 2006

Firms outsource CPA tasks to keep up with high demand


Timing Your RMDs and Saving Taxes With NUA


Woman Arrested for Not-so-Realistic Counterfeit Money – Wow.  Tripped up by an eagle eyed clerk who knew that money is actually printed on both sides.  (Thanks to reader Vincent Lyon for passing this along.)


Pain at the Pump Easing, So Why Am I Still Paying Surcharges? – Just as with “temporary taxes,” fuel surcharges may take a while to disappear.



Friday, November 10, 2006
Vehicle Costs

Even though few clients do it, I've always advised that they keep track of their actual vehicle expenses so that we can compare those with what we come up with via the IRS's standard rate method. Since the IRS standard rate has to apply to pretty much every kind of vehicle regardless of the number of miles driven per year, it can't possibly be an accurate representation for everyone.

I came across this interesting little chart of per mile vehicle costs in the most recent TaxCoach report, which they assembled from AAA data.


401(k) fees can chomp a hole in your savings – From USA Today.

Bush to Dems: "Read My Lips, No New Taxes" - Here we go again. That worked out so well for Bush 41 in 1992. (This is obviously a parody from Scott Ott; but his satires have frequently come true.)

Thursday, November 09, 2006
New Pelosi Tax Form?

Courtesy of FreakingNews

New Version of TaxMan

It's been a while since I've come across a new version of George Harrison's classic TaxMan song.

I just stumbled across this one by Tony Levin:


It's from the new heavy metal Beatles tribute album.

IRS Confirms 2007 Inflation Adjustments


IRS has officially acknowledged the accuracy of the 2007 tax brackets, standard deductions and personal exemptions which CCH calculated almost two months ago – for those folks who don’t trust the numbers until IRS blesses them.


Wednesday, November 08, 2006
Coordinated Retirement Planning

The weak link in the reliability of all retirement plans has always been the unknown variable of exactly how long the money has to last.

(Click on image for full size)

Tuesday, November 07, 2006
Calif. Tax News


Some interesting items in the November FTB Newsletter:

Real estate withholding law changes for 2007

Disclosure of list of corporations under audit – Whoops! So much for confidentiality.


Reporting Sale of Business



Subject: Completing a Form 4797
Dear KMK:
Sold a business as a sole proprietor.  Asset allocation (Form 8594) goes as follows:  Class IV Assets:  $5500 (stock in trade) ; Class V Assets (Equipment)  $8400; Class VI/VII Assets (Goodwill and non-compete) $ 146,100.  Where do these numbers appear on Form 4797? ( and if they _all_ don't appear, then the numbers on 4797 won't "foot" to the total selling price.  Is this OK??)



If you check over the Q&A posts on my blog, you will see that I do not give people instructions on how to prepare their own tax return schedules, especially for something as complicated as the sale of a business. 

You should have been working with a professional tax advisor while your business was in operation and most definitely need to have one prepare the 1040 for the year of the business sale.  It is not as straight forward as you seem to believe.  Each component of the sales price needs to be reported in a special way, not all of them on the 4797. 

If you don't already know of a good tax pro to work with, you should check out my tips on how to select the right tax preparer for you. 

Unfortunately, we don't have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country. 

I wish I could be of more assistance; and I wish you the best of luck.  

Kerry Kerstetter


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Ranches work as retreats for rich – It’s not just a great environment for the wealthy.  Having lived full time on rural properties for the past 17 years, I can’t imagine ever going back to living where the roads are paved and we can see any of our neighbors.  


Monday, November 06, 2006

Don’t Forget April 15 on Election Day – A good idea that pops up every so often, moving the tax filing deadline to election day.

Employers expected to be responsible for 401(k)s – Another good look at costly admin fees that erode retirement savings.


Auditing Santa

Sherry found this Christmas card for sale on the web.

Sunday, November 05, 2006

"Girls of the IRS" Calendar a Hit With Male Taxpayers – Obviously a spoof.


The DemonRat Contract On Americans

(Click on image for full size)

Short attention spans...

Unfortunately, our rulers' resolve to fix the tax system in this country has always been as fleeting as...

Created with the assistance of ImageChef

Saturday, November 04, 2006
Death Tax

Wrong way to protest taxes:


Upset Over Tax, Man Throws Coffee In Clerk's Face – Shooting the messenger doesn’t accomplish anything constructive.


Who's calling?


To Capitalize or Deduct Property Improvements? – Good article from the latest issue of Intuit ProConnection, includes sample doc file you can download and send to clients.


Working with Lacerte and QuickBooks

Having been a user of the Lacerte tax programs since 1985, I wasn’t a big fan of the company’s purchase by Intuit a few years back because I was afraid they would dumb the program down and merge it with Intuit’s ProSeries program.  Luckily, that hasn’t happened, and Lacerte has been maintained as its own separate division and style. 

At the time of the acquisition by Intuit, the one benefit I had been hoping to see was an easy way to import data from QuickBooks into Lacerte, a feature long available with ProSeries. It looks like that capability may finally be available for Lacerte with this new SmartMap feature. I haven’t tried it yet on an actual client’s data yet; but I should be able to give it a spin within the next few weeks. Since we require all corporate clients to use QuickBooks, this could be a big time save when it comes to tax return preparations, and a money saver for the clients, since we charge for all work based on time spent.  I’ll try to post the results of my work with this feature.



Thursday, November 02, 2006
Red meat?

Frivolous Appeals Penalties



Subject: Questions for research project
Dear Tax Guru,
I’m a lawyer doing research on taxes.  I was reading your site a the part that says that an IRS agent can fine someone $10,000 for stating that “income taxes are not constitutional. These are all bogus arguments that will earn anyone mentioning them in the presence of an IRS employee an automatic $10,000 fine.”
What is your authority for this statement?  I find it difficult to believe this is true.  Please help?


I was referring to the Frivolous Appeal (Section 6673) penalty, which is frequently assessed against people who waste the IRS's and Tax Court's time using the same kind of idiotic tax protestor arguments that have long been settled.

The actual amounts of each penalty occasionally vary from $500 to $25,000 per instance, depending on the mood of the IRS or Tax Court authority, as well the level of belligerence in the attitude of the idiot tax protestor they are dealing with at the time.

If you scan reports of Tax Court cases, such as in many of the tax blogs, you will see this penalty constantly referred to.  It is anything but rare.

I hope this helps.  

Kerry Kerstetter


TaxCoach Software: Are you giving your clients what they really want?

Wednesday, November 01, 2006
Negotiating with IRS?

2007 IRS Mileage Rates


IRS Announces 2007 Standard Mileage Rates

 Beginning Jan. 1, 2007, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

  • 48.5 cents per mile for business miles driven;
  • 20 cents per mile driven for medical or moving purposes; and
  • 14 cents per mile driven in service to a charitable organization.

 This info has been added to my Quick Reference page.


TaxCoach Software: Are you giving your clients what they really want?


Sec. 121 only important for profitable home sales.


Subject: Capital Gains question

Good morning,

First, thanks for making a site where people can ask questions. Secondly, here is my question:

My wife and I moved from NY to Florida and purchased a home. We had no idea that within a few weeks, the woods was about to be plowed away and some 80 foot lights installed for a high school football field. Needlessless to say we want to move and we have only had the house for one month.

If we sell it now, do we have to have to pay capital gains?

Thank you for any help.


If this truly was a surprise, and you are ready and able to make the case to IRS if they were to ask, that you wouldn't have purchased that particular home if you had known about the developments next door, you shouldn't have any problem qualifying for the pro-rated tax free exclusion of all or part of your profit.

However, the questions that pops into my mind is how much profit are you really expecting after owning the home for such a short time, especially after factoring in selling costs? Unless you bought the property at a bargain basement price, odds are high that you will be lucky to come out with a break even, and are more likely to end up with a non-deductible personal loss.

You need to consult with your personal professional tax advisor, who can crunch the numbers to see if there will be a profit to worry about; and if so, how long you will need to hold onto the home to cover the full amount of profit under the pro-rated exclusion calculation.

Good luck. I hope this helps.

Kerry Kerstetter


Hi Kerry,

Thank you for the response. To be quite frank, I am not expecting a profit at all. In fact, i am expecting to take a loss. I just wan't clear who it worked, but apparently I get taxed only on profit over what I paid, if in fact that happens?

Thank you,

My Reply:

That's correct. I had a hunch you were worrying about a non-existent problem; qualifying for the tax free exclusion when there isn't any profit.

As your personal tax advisor will remind you, the double standard of the tax code will hit you here. While any profit on the sale of a personal residence is potentially taxable, any loss is not deductible.

Good luck. Hopefully, you won't have too large of a loss.

Kerry Kerstetter

During this November, use discount code AFFNOV-20D to save $20 off any corporation or LLC formation, trademark service, or DBA filing.

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