Deals on New QuickBooks Software
As I’ve often said, it is possible to save quite a bit of money on the more expensive software, such as QuickBooks and Microsoft Office, by buying them from eBay sellers. I have saved substantial amounts of money that way over the past several years, including some times where I bought an earlier version of a program in order to be able to buy the newest version from the manufacturer at their much lower upgrade price.
The most expensive version of QuickBooks is their heavy duty Enterprise Solutions (ES), which used to come only in a 10 user version that cost $3,500. I have been using ES for our books here since it first came out, but only because I received a free copy as part of my ProAdvisor membership. For accountants who are not ProAdvisors and who have clients using ES, it could get expensive being able to support them. Luckily, Intuit recently started expanding the flavors of ES, offering versions for 5, 10, 15 and 20 simultaneous users, costing as much as $9,000 plus another $2,000 per year for their service plan.
The best aspect to this product line expansion, from a purely selfish sense, has been the introduction of a special single user version for professional accountants that allows us to work with client files from any of the other larger programs. It retails for only $849.
I am discussing this now for an even more selfish reason. As a beta tester for the 2008 program, Intuit sent me a free copy of this special accountant version of the newest Enterprise Solutions program. Since I already had a copy as part of my ProAdvisor update, this redundant copy has been put up for sale on eBay by Sherry at a huge discount off of the retail price. The auction expires next Sunday, January 6, 2008.
Updates from IRS on the upcoming filing season:
Sorry to bother you, but could you tell me if a husband and wife can EACH receive $12,000 (and stay within the legal limits) from the same donor, say one of the parents of the husband or wife?
Good luck. I hope this helps.
For gifting purposes, each person, including spouses, is subject to his/her own limits. Thus, gift splitting between spouses has long been a standard tactic to essentially multiply the amount of wealth a husband and wife can transfer tax free to their kids and grandkids.
The annual maximum without requiring any need to dip into the million dollar lifetime exclusion is currently $12,000 from each donor (giver) to any one donee (recipient). For example, say a married couple has a married daughter. The father can give $12,000 to their daughter and another $12,000 to their son in law. The mother can give another $12,000 to the daughter and another $12,000 to the son in law. This makes a total of $48,000 that can be transferred tax free during each calendar year. If there are grandkids, the older parents can also each give another $12,000 to each of their grandkids.
Since gifts of any size or total amount are always tax free for the recipients, the potential gift or estate tax hit is on the donors (givers) if they give away too much. Therefore, it is critical for them to work on any gifting and estate planning scenarios with their professional advisors.
There are also other aspects to consider, especially if the gifts are not of after tax cash. Gifts of appreciated assets carry with them potential capital gains taxes on the recipients if and when they sell those items; so deciding exactly what is transferred is something that should be done with the assistance of professional advisors.
FYI: Here is an excerpt from the QuickFinders Tax Planning For Individuals that covers this point.
A taxpayer can give $12,000 per person (for 2007) to any number of recipients in a calendar year without paying federal gift tax. An unlimited amount can be given each year as long as no recipient receives more than $12,000. Gifts that qualify for this annual exclusion are never taxedno gift tax is owed when the gift is made, and the gift is not taxed at death. If a gift is over $12,000, only the excess is a taxable gift. The annual exclusion is indexed for inflation and will change again when cost of living adjustments reach the next $1,000 multiple.
Present interest required. To qualify for the annual exclusion, a gift must be a present interestthe recipient must have all immediate rights to the use, possession, enjoyment and income of the property. The annual exclusion does not apply to a future interestthe recipient’s rights to benefit from the property begin at some future date. Most gifts to trusts do not qualify for the annual exclusion because they are gifts of future interests. Exceptions include gifts to a minor’s trust and gifts to a trust that includes a Crummey power.
Gifts from married couples. Each spouse has an annual exclusion. Couples can therefore transfer a combined total of $24,000 to a single recipient in 2007 and not exceed their combined annual gift tax exclusions.
Gift splitting. If a gift in excess of $12,000 is made by only one spouse, the couple can use both annual exclusions by filing gift tax returns electing to split gifts. A gift-splitting election applies to all gifts made by the couple in a calendar year and attributes one-half of each gift to each spouse.
Community property. Gifts of community property are considered for federal gift tax purposes as made half by the husband and half by the wife. This results not from gift splitting, but from federal recognition of the state’s community property rules. Thus, a gift-splitting election is not needed for community property gifts.
Direct payment of medical expenses or tuition for another person is not a gift for gift tax purposes [IRC §2503(e)]. Payment must be made to the school or medical provider and not to the beneficiary. The beneficiary of a qualified transfer does not need to be related to the taxpayer. A qualified transfer does not prevent the donor from making an annual exclusion gift directly to the beneficiary of the qualified transfer. Qualified transfers are not reported on Form 709.
Tuition. Tuition paid to primary, secondary, preparatory or high schools, and colleges and universities for another person qualifies for the tuition exclusion.
Payments for books, supplies, dormitory fees and board do not qualify. Tuition for part-time students qualifies.
Medical care. Medical payments can cover any type of expense deductible for income tax purposes, including payment of insurance premiums.
Contributions to a qualified tuition program (QTP) are not direct payments of tuition excluded from the gift tax as qualified transfers. However, these contributions are considered gifts of a present interest and are eligible for a special election spreading them over five years.
Thank you very much. This helps a lot!!
Obviously, Neal Boortz has a very different opinion on this.
Driving through the tax maze unescorted...
Subject: Question submissionHi Kerry,I asked a while ago and am still trying to understand the implications. I wonder if you could help out.In August, 2004 I purchase a 2004 Chevy Suburban for business use and depreciated the entire ~$48,000 cost under sec. 179 that year.It's now 3.5 years later and I'd like to know the tax ramifications of trading in the 2004 Suburban for a 2008 Suburban (cost ~$54,000).I understand that right now the cost basis of the 2004 chevy is $0.Given that taxes and depreciation are not my strong suit, can you explain what the tax consequences are for such a transaction?Specifically, how much of the new vehicle will be available to depreciate, and can it be depreciated all in a single year (2008)?With that information, I can understand the real (net) cost (that is, for example, if the trade-in value of the 2004 chevy is $30,000, leaving me paying $24,000 in cash for the new 2008, but if I can depreciate all of that, then my post-tax dollars cost will be somewhere in the $14,000 range (40% taxes) -- do I understand this correctly)?Thank you,
I have already discussed this exact thing in several previous posts; so I am not going to give as detailed an answer as I have already done.
Basically, the additional price you pay for the new vehicle after the trade-in credit is what will be eligible for depreciation and Section 179 expensing. In your example, that would be the $24,000.
As always, the amount of Section 179 you will be able to claim will be based on the business mileage percentage for the year, your net earned income, and the total amount of new qualifying property you acquire during the year.
In regard to the actual after tax cost of the new vehicle, that will depend on your marginal tax bracket, as well as whether your income is subject to the 15.3% SE tax. You didn't say where you will be deducting the vehicle costs, such as on Schedule A for W-2 employee expenses or on Schedule C for a sole proprietorship. The actual tax savings will be dramatically different for each schedule.
If you are deducting your vehicle costs on Schedule A, you will also have to deal with the Insane AMT, which severely penalizes people with high Schedule A deductions. A reduction in your regular income tax could be more than offset by the AMT.
If a certain level of tax savings is a critical component in your decision to go through with the Suburban trade, the only smart approach would be to have your personal professional tax advisor run your pro forma numbers for whichever year you are considering the trade under both assumptions; with the new Suburban and keeping the old one.
If, as I suspect, you don't have a personal professional tax advisor, trying to answer this critical question by asking strangers on the internet for help is a dangerous way to handle this.
Good luck. I hope this helps.
Are they going to be a delay in quick refunds in 2008
That is looking very likely.
There are tons of articles about this on the web, such as this.
Planning to buy Hummer
Subject: Vehicle Tax DeductionMary,Can you tell me what the changes to the deductions for vehicles are after this year? I am considering buying an 2008 Hummer H2 and am wondering if I will be able to use the accelerated tax deduction for tax year 2008 or if I need to purchase by the end of the year?Thank you,
There's nobody named Mary here, so I'll handle this.
There are no big changes in the vehicle deductions scheduled for 2008 other than the inflation adjustment of the overall Section 179 maximum and the possibly new amounts for depreciation deductions on new vehicles of less than 6,000 pounds.
While unlikely, there is always the possibility that any last minute attempt by our rulers in Congress to patch up the AMT fiasco will include some reductions or eliminations of certain tax breaks, including the $25,000 Section 179 for SUVs, which is a popular target of the environmental wackos.
Your personal professional tax advisor can give you more specific advice based on your actual numbers.
Kerry,Thank you for your response. I think you have answered it. I was being told that after this year a vehicle would have to have a six foot bed and weigh over the 6000 pound threshold to qualify for the accelerated tax deduction. I am assuming you have not heard the same thing? This is all based on the changes that came into affect a few years back where business owners could write off a much larger amount in the first year on vehicles in excess of 6000 pounds.I may have myself thoroughly confused here. Any help is appreciated.Thanks,
I have addressed this issue in several blog posts, as well as on the Section 179 page on my website.
As always, you should be working closely with your own professional tax advisor who should be current on these areas. If you are trying to navigate your real estate business without professional tax assistance, you are in dangerous waters and need to find help ASAP.
Don’t Be Afraid of the AMT … Get Some Help – Another short guide to dealing with the Insane AMT.
The longer this mess drags on in DC, in terms of our rulers officially addressing this fiasco, the more obvious is their utter incompetence at dealing with common sense. While they may not agree with me that the entire AMT system should be jetisoned, how hard is it to understand the need to at least adjust the threshhold figures for inflation, as most other items in the tax code already are?
What is a new profession?
Subject: Tax deductioin questionI have a question about job hunting deductions. If one is a medical malpractice lawyer looking to go into becoming a tax lawyer, would these deductions be allowed? I know job hunting deductions are allowed is in the same field but I'm unsure as to the exact meaning of that phrase.Thank you for your help!
That is an interesting twist on the long standing Catch 22 regarding the deductibility of both job hunting and education costs. I have always considered the inability to deduct costs associated with entering a new profession to be idiotic and counter productive for a society that needs its citizens to be able to adapt to new market opportunities, such as the shift from a blue collar manufacturing economy to one more dependent on white collar service jobs. However, we do still have to deal with this ridiculous restriction on real life tax returns.
I don't have time to do a lot of specific research on this exact point, but I have a pretty comfortable gut feeling of how it should turn out.
Normally, cases where IRS disallows these kinds of deductions hinge on the person crossing the hurdle to enter an entirely new profession, often signified by a license. I have seen cases where IRS wouldn't allow a paralegal to deduct costs to study for the bar exam because they consider being a licensed attorney to be completely different for tax purposes from a paralegal doing the exact same kinds of things. Likewise, IRS has been tough on CPA candidates trying to deduct their costs to study for the CPA exam, even though those individuals were already working in a CPA office,
However once you have crossed the threshold into a licensed profession, I don't recall ever noticing any IRS hostility towards allowing full deductions for the job hunting and educational costs associated with changing one's specialized area of practice. Doctors, lawyers and CPAs can all deduct their costs with learning and working in new specialized areas that still require the use of their existing licenses.
While you should have your own personal professional tax advisor take a loser look at the exact kinds of things you are trying to deduct, in a general sense, I would feel comfortable deducting education and job hunting costs associated with any kind of legal practice that will require your being a licensed attorney, even if it is in a completely different area of law than you were previously involved with.
As I often do, I plan to post this on my blog and will share any comments form other tax practitioner who may have a different take on this question; as well as from anyone who may want to confirm my opinions on this matter.
I hope this is of some help to you. Good luck in the fun are of tax law.
Sec. 179 for Assets Leased Out
Subject: Section 179
I have a circumstance regarding section 179 and am a little confused. A client of mine bought 2 medium sized trucks weighing over 6,000 lbs. each for $113,000. He bought them personally and rented it to his business! Would there be any circumstance that he could take section 179 deduction?
I have done research under codes and publications and do not specify this situation. The descriptions and examples are very vague. Thank you for all of your help.
I recall posting an email about this on my blog a while ago, but I can't seem to locate it.
The rules for claiming Section 179 for assets that are to be leased out have been summarized as follows in the QuickFinder Depreciation Handbook:Leased property. For noncorporate taxpayers, leased property is not eligible for Section 179 expense, unless:
1) The taxpayer manufactures (or produces) the property to lease to others.
2) The taxpayer purchases the property to lease to others and both the following tests are met:
The term of the lease (including options to renew) is less than 50% of the property's class life.
For the first 12 months after the property is transferred to the lessee, the total business deductions on the property exceed 15% of the property’s rental income.
Basically, the Section 179 is really intended to benefit the owners of assets who actually use them in the conduct of a business. If your client can set up the leases of his trucks so as to comply with the above requirements, such as short term lease time frames and his paying some of the maintenance costs, he should be able to claim Section 179 deductions for them.
Good luck. I hope this helps.
Online Tax Services
Subject: Excellent BlogKerry,Congratulations on your successful tax blog. I see you like to other leading industry blogs as well. If you ever get a chance and want to do an article on online tax prep send me an email or give me a call and I’ll be happy to set you up with a free account. We are also developing a modern solution to tax prep, droptax.com which connects real CPAs to people who want to file their taxes online.Online taxes: http://www.efile.comI would rather you trust our service before recommending any types of advertising however let me know if there are any opportunities with your blog.Sincerely,
Thanks for writing and telling me about your web based services. I visited both of them
As I have frequently discussed the dangers of both e-filing and trying to do tax returns without experienced professional help, it would be hypocritical of me to recommend the use of your efile site; so I'll pass on that.
I am interested in learning more about your droptax site; so please keep me posted as to when that service is up and running so that I can check it out.
Kerry,Thanks for being open to discussion about dropTax. We are still in the process of lining up our first CPA. Once the dropTax system is in place I will be glad to provide you with any information you need to try it out.I appreciate your time,
Taxing Time for Democrats? – A reminder by Michael Barone of what a messy tax planning environment we are looking at over the next few years. The increasing hit by the Insane AMT, as well as the upcoming expirations of the Bush tax cuts, are going to make realistic tax planning nearly impossible.
Again, this means more work for us in the tax minimization profession than we have ever seen before. Each change in the tax code will require more client consultations. Anyone who worries about being able to earn a good living in the tax business is crazy.
and a new one from a different contestant:
Outsourced tax prep work...
I’ve written several times on the trend for USA tax preparers, including some large CPA firms, to secretly farm out their tax return preparation work to much lower paid workers in India. I even added this issue to my points to consider when selecting a tax pro. As long as this is all disclosed to the clients, and they don’t have any problem with not being able to personally interact with their actual tax return preparer, I guess it’s okay.
This goes completely against the very personal style of tax prep work I do with my relatively small list of clients; but I guess it makes sense for the big impersonal assembly line operations that measure their success in quantity rather than quality. However, when this is done covertly without the clients’ knowledge, it’s nothing less than fraud in my opinion.
As an indication that this outsourcing trend is still growing, I recently received the following email from someone promoting their service. I haven’t independently verified his claims; but it seems that all clients and preparers need to be more open and honest in fully disclosing if they are using a sub-contracted service in India for their actual prep work.
Subject: Help Wanted Tax Returns - I'm looking for work
My name is KC Truby; I have been a marketing and advertising consultant to accountants for over 25 years. Four years ago I opened an office Bangalore India where we do tax returns.
The accountants who use us (last year we did about 3,500 returns) are paying me a low of $45 for a 5 page 1040 up to $100 for a complicated corporate or partnership return of 25 pages on average.
The 35 firms using us now are charging these returns out at 10 times to 20 times what they pay me to do them. (We have references of course)
If you would like more details send an email to me at email@example.com and I’ll send you an invitation for the next teleconference we do. You’ll see exactly how this works in less then 20 minutes on documents, quality checks, security, skill set, turn around and cost.
PS No $5,000 minimum like Xpitax, we’ll do a test run of 10 returns so you can see how good we are for yourself.
Sec. 179 & Date Placed Into Service
Got this address on the internet........I have a general question
Would really appreciate an answer.
I have a C Corp......restaurant biz.......I am planning on buying some big kitchen equipment........and I can buy it in Dec 2007
Is there any reason I can't pay for it and then Section 179 the depreciation in order to offset some profit.........even if I am not yet using the equipment..
As your own personal professional tax advisor should have told you, the Section 179 law is very specific about the new equipment needing to be purchased and placed into service during the tax year. Just prepaying for something and not actually using it in your business until the next year will not fly. Any salesperson who told you otherwise is blowing smoke up your ass and cares more about his/her commission than being honest.
The good thing is that when during the year the items are placed into service isn't relevant. Starting to use a new piece of equipment on December 31 is just as good for the Section 179 eligibility as any other date during the year, assuming a calendar tax year.
Get with your personal professional tax advisor and s/he should be able to give you other ideas on how to smooth out your income before the end of your tax year. There are plenty of perfectly legal ways to bleed out corporate profits without having to cheat on Section 179.
If you don't have a professional tax advisor helping you with your business, you are in very dangerous territory and you need to start working with one pronto before you do any more damage to yourself.
Tax Software & Reference Materials
Thank you for your blog and dedication to updating often. I am a subscriber and always look forward to your posts.
I am a young CPA going on my own soon and have a few questions regarding the accounting firm logistics. I read on your blog that you use Intuit Lacerte, QuickBooks, Tax Coach, The Tax Book, and Thompson's QuickFinder.
- I am thinking about going with Drake Software for the tax prep etc. Do you have any knowledge or insight between Lacerte and Drake?
- What products do you purchase from The Tax Book and QuickFinder? Do you purchase the complete package of both each year?
- Do you offer your clients Microsoft Accounting or Peachtree support, or do you strictly work with QuickBooks?
- Are you satisfied with Tax Coach?
With starting out, I am looking at the bottom line costs with these products. However, I understand the value of some products and companies should not be determined by the cost. As the old sang "You get what you pay for."
Thank you for your insight. Please feel free to add anything additional wisdom.
Interesting timing on the Drake Software question. I had just visited their website a few days ago and requested a sample copy of their 2006 program so that I can test it out. It hasn't arrived yet, but I am looking forward to testing it out after the October 15 crunch.
I have been using Lacerte since 1985, so switching is a big step. However, problems with their 2006 programs, as well as huge price increases for 2007, have motivated me to look at alternatives. Reading various articles and message boards, Drake seems to have a good reputation.
Since relocating here to the Ozarks almost 15 years ago, and down-sizing my workload from over 700 clients to about 100, I have stayed with Lacerte. However, after some annoying problems with their customer service people, I did experiment with two other tax programs a number of years back, ATX and Bailey. Both were very big mistakes that I very much hope aren't repeated with Drake. While less expensive in purchase price, both programs were much less sophisticated than Lacerte about adding new forms and schedules automatically when the need arises. I've become very dependent on this; so if Drake doesn't do as well as Lacerte, I will be sticking with Lacerte for another year.
If Drake does look like a good program, two very important additional factors will be how well Drake is able to convert Lacerte data files. Many of my clients have hundreds of deprecation items that would be a pain to have to manually reenter. I am also hoping that Drake will toss in free copies of earlier year programs if I do buy their 2007, so that I can use them for the older returns I still have to do for clients. Their website had no info on this, so I'm assuming I will need to discuss it with a sales rep.
For someone starting out, you don't have the burden of having to convert hundred of clients form one system to another or having to unlearn how one system works and learn a completely different one, so you are in a better position to choose whatever program looks good to you without the entanglements I will have to endure if I choose to change.
Regarding the reference books, I have changed my purchase pattern over the years. Since the mid 1980s, I used to always buy copies of all three QuickFinder books for myself and my staff members. When the QF founders left to start their own company and produce TheTaxBook a few years ago, I bought both of their main books, as well as the three QB books.
Last year, before the 2007 filing season, I bought both TaxBook editions (Deluxe and All States), as well as their CD-ROM. However, I didn't buy any of the physical QF books, opting instead for their online versions, subscribing to all of the titles they offer. This has been very useful for me in my answering of client and blog questions by allowing me to copy and paste very easily. Just last week, I noticed that they had added an online version of their tax Planning for Individuals book, so I subscribed to that.
Until a few years ago, I was doing a lot of speeches and seminars, as well as meeting clients at their locations; so it was very handy to bring copies of the QB books with me. Now, I almost never leave my office, so I can rely more on computerized info. However, I do like the ability and speed of being able to pull out a book and look something up. I do refer to the TaxBooks several times a week, so I am planning to order them all again for the 2008 filing season, along with their CD-ROM, so that can copy & paste info from them.
I haven't used the Tax Coach service as much as I would be if I were accepting new clients. It is ideal and actually designed for showing prospective clients new tax savings techniques. However, I have used it a dozen or so times to produce reports on various topics and I have been extremely impressed with the quality of its information and its presentation format. I am big on time saving tools and am still holding firm in not hiring any employees after freeing myself from that burden in 1993; so a service like Tax Coach is a bargain in being able to whip out a very professional looking report in very little time. Having an employee do the research and typing would cost me a lot more, besides the headaches of having to go back to babysitting employees. Even with the recent price increase from $49 per month to $59, I still see it as a bargain.
Years ago, I tried to keep up with various accounting software, in addition to Quicken and QuickBooks. Now, I simply do not even have enough time to keep up to date on all of the new versions of QuickBooks; so trying to learn anything else, such as the programs from Peachtree or Microsoft, would be impossible. It is also a fact, just as PDF has become the standard format for electronic documents, and Microsoft Word for word processing, QuickBooks has become the most widely standard for small business accounting. It has the largest user base, making it easier to find assistance when hiring bookkeepers, than any other program; so I plan to continue to only support the use of QB. If I had a large staff, I might consider having some of them specialize in the other accounting programs and work with clients using them; but as a one man show, I can only handle one brand.
I hope this helps you with your decisions as to which way to go. I will most likely be posting some comments on the Drake test run to my blog.
Thanks for writing and good luck with your new tax practice.
Kerry,Wow! Thank you for the in-depth insight that you provided. It has given me tools to think about and options to consider.I am going to purchase the Drake pay-per-return option ($285) for the 2007 tax season, which gives me the full-version of all suites. As a financial controller currently, I plan to "moonlight" this tax season and go from there. I do not have any big clients yet, but a few small personal returns and my wife's business return. I did attend a Drake 4-hour seminar about the product and am impressed; however, I do not have the experience of a complex tax returns as you perform. I think Drake is a good company with great values, so they should accommodate your requests to enable you to purchase & I think the conversion should be performed smoothly as they explained in the seminar. I do look forward to your final analysis and opinion after you review the product & will see on your website when you post. Drake also prides itself on the 11-second to answer with a live person when you call, so I would think any questions or negativity you could call to ensure. In addition, if you are not certain after your review, I would find out the 2007 updates, as it seems quit a few enhancements from what was discussed at the seminar. (I am rooting for you to like and convert to Drake because I have heard some negatism about Lacerte of late + the enormous price and price increases).Since I am just starting, I will purchase the Tax Books and CDRom as you suggested. In the future, I will click on your Tax Coach link on your website to sign up.I look forward to your blog entries daily. Keep up the great blogging!
UPDATE – I held off posting this until I had a chance to test drive the Drake program, which I have done. This is what I sent the Drake saleswoman.
I did receive the conversion program that you sent me. Unfortunately, I was not able to get it to work on any 2005 or 2006 Lacerte files. I tried all kinds of variations on the settings and file locations and it wouldn't work.
I did however set up a new 1065 client and input their 2006 info. It seemed to go fine; but I just didn't feel that your program was able to pick up as many things automatically as Lacerte does. A number of years back, I bought the ATX programs and learned the hard way how many things Lacerte did automatically that were manual entries in ATX that I overlooked on more occasions than I was happy with.
I have therefor decided to stick with Lacerte for the 2007 tax year returns, even though I am not happy about their big jump in REP fees.
I do need to say that the decision on which tax prep software to use is very different from the perspective of a longtime user of a competing brand than it would be for someone just starting out with professional software of this kind or who is forced to make a change due to the discontinuation of previously used programs, as has been the case for many tax pros. While in my younger days, I used to make fun of old fogies who resisted change, I find myself in that exact same position. The older I get, the less comfortable I feel in switching from programs I know very well to ones that require a new learning curve.
I hope you understand my situation and I appreciate your assistance in allowing me to test drive the Drake software.
Kerry,I do not understand why the conversion did not work. Maybe next spring we can try it together. As far as calculating info...the only advantage Lacerte has now over Drake is on oil and gas returns. Lacerte does calculate depletion and Drake does not. I hope you will evaluate our program again next year.
I would like to take another look at it before the next filing season. I'm also hoping to hear from any other long time Lacerte users who switched to Drake and who are wiling to share their experiences.
Thanks for the help. Good luck with the coming filing season.
Bogus Sec. 179 News
Subject: 179 InuiryI like your weblog. I heard the 179 deduction for 6,000 lb vehilce is going to be eliminated in 2008? True? Also, in general, what is the best entity as a real estate broker? S Corp? Thanks for feedback.
You are the victim of either a hoax or, more likely, bad and outdated info on the Section 179 deduction, which is very prevalent on the web. As you can see on my Section 179 web page, the only change for 2008 is a higher maximum.
I have a suggestion for anyone who hears or sees notices of changes such as you are questioning. Demand that the person making the claim provide documentation of that fact beyond just that he heard it from someone. Until a rumor has been properly documented, it should not be trusted or in any way relied on. I am frankly getting a little tired of debunking these kinds of unsubstantiated rumors, where people try to put me on the spot to prove that something hasn't been changed, when the burden of proof in this kind of situation should rest on those who claim that an actual change has been enacted.
In regard to the best entity to use, that is a decision that must be made with the assistance of a qualified professional tax advisor, who can properly analyze all of the unique details involved. There is no such thing as a one size fits all approach to this kind of thing and anyone who claims that there is should be avoided.
Thank you for the time to reply at length. Best,
A Taxing Job – I have already started warning people that the confusion surrounding the Insane AMT is going to make this coming tax season quite messy, especially if a last minute patch is finally passed by our rulers. IRS tax forms have already been printed and we will have to make sure our tax software has been updated to supersede those forms that do it yourselfers will have to cope with.
Section 179 Limit for 2008
Subject: Section 179
I have been searching for the 2008 section 179 dollar limits and your website is the only place I have found an amount. Would you be willing to share with me where you found this information?
I have also been amazed at how few other professional tax reference services have updated their Section 179 info. Some, such as the CFS Quick Reference, still have outdated 2007 numbers ($112,000 instead of $125,000).
I posted the new 2008 limit on my blog back in September based on the CCH inflation adjustment calculations.
In October, IRS confirmed all of the CCH figures in Rev Proc 2007-66 which they announced in this press release.
Here is the exact quote from page 14 of that Rev Proc:.20 Election to Expense Certain Depreciable Assets. For taxable years beginning in 2008, under § 179(b)(1) the aggregate cost of any § 179 property a taxpayer may elect to treat as an expense can not exceed $128,000. Under § 179(b)(2) the $128,000 limitation is reduced (but not below zero) by the amount by which the cost of § 179 property placed in service during the 2008 taxable year exceeds $510,000.
I hope this helps.
Thank you very much. I actually did look at REV PROC 2007-66 but not in much detail since it seemed to look more for individuals and not for businesses.
New SUV & Sec. 179 Income Limits
Hi,Very impressive website. I have a question and would be grateful if you can help.I am an independent contractor on the side and also have a full time job. My independent contractor job pays me without tax deductions and I am expected to pay my own taxes. I have made about 15,000 this year. I am thinking of buying an SUV that meets the IRS rating of over 6000lbs for my independent contractor job, but I am worried that I might not have made enough to deduct the 25,000 IRS deduction. Can I add my AGI from my full time job to qualify for this deduction or is there another way of doing this.thanks.
I have covered this point on several occasions.
It is possible to use other kinds of earned income, including from W-2s, to allow a higher Section 179 deduction than just the net income showing up on your Schedule C.
However, this is not something you should try figuring on your own. You need to be working with a professional tax advisor, who will be able to help you properly avail yourself of the hundreds of tax issues that you would most likely screw up on your own. Any good professional tax advisor will save you much more in taxes than his/her fee; so you would be nuts to tackle your 1040 by yourself.
Likewise, a good tax advisor may see that it would be advantageous for you to operate your business in a corporation instead of as a Schedule C sole proprietor, another topic I have discussed on countless occasions.
Hi,Thank you very much for your reply. I checked your website for tax pros in North Carolina but none was listed. Do you know of any in North Carolina. Thanks again.
Those are the only names I have.
As I have said in my tips for selecting a tax advisor, as well as in countless blog posts, choosing tax pro merely based on geographical proximity is misguided. A good tax pro could be anywhere in the country and give you even better service than someone who happens to be right next door to you.
Facing off with the Insane AMT
What the “Alternative Minimum Tax” Really Means for American Families – As if the regular tax code isn’t difficult enough to maneuver in, we now have to do more to work with the idiotic and Insane AMT rules. More costly neglect by our imperial rulers in DC.
Here is what the TaxCoach service has for an introduction on avoiding the AMT:
Alternative minimum tax (“AMT”) is a parallel tax designed to prevent “the rich” from using regular deductions to avoid tax entirely. In 2005, it hit 3 million taxpayers nationwide, primarily in states with high income and property taxes. (This includes IRS Commissioner Mark Everson, who announced in 2004 that he had been hit for the first time.1) But the tax is not indexed for inflation, and by 2010, it’s expected to hit 30 million, including 94% of married filers with children making $75,000 to $100,000.
The AMT system starts with regular taxable income then adds “preference items.” These include:
- Medical expenses between 7.5% and 10% of AGI
- State and local taxes deducted on Schedule A
- Home equity interest not used to buy, build, or improve your home
- Miscellaneous itemized deductions
- Investment interest figured according to special rules
- A portion of post-1986 accelerated depreciation
- Gains from incentive stock options (“ISOs”)
- Interest from most “private activity” municipal bonds
Once you’ve determined AMT income, subtract an exemption of $62,550 (joint filers), $42,500 (single filers), or $31,275 (separate filers) (2007). These exemptions phase out by 25 cents for every dollar of AMTI above $150,000 (joint filers), $112,500 (singles), or $75,000 (separate filers). The tax itself is 26% of AMTI up to $175,000 plus 28% of AMTI above $175,000.
Here are eight ways to help avoid the AMT:
- Don’t prepay state income and property taxes in years you’re subject to the AMT.
- Avoid private activity municipal bonds.
- Defer exercising ISOs where it makes investment sense.
- Capitalize, rather than deduct, investment expenses
- Schedule business equipment purchases when you can use your full depreciation deductions.
- If your employer reimburses business expenses, make sure you have an “accountable” plan to keep them off your return.
- Defer recognizing capital gains. These gains are taxed at the same 15% rate as for ordinary income; however, they increase taxable income subject to the AMT.
- Consider emancipating college-age children. The AMT disallows personal exemptions, so there’s no extra tax to pay by giving them up. Letting children claim those exemptions can save tax and qualify them for more generous financial aid.
If your regular tax is higher than the AMT rate, accelerate income into a year when you pay the AMT. You’ll save up to 9% if you can shift income that would otherwise be taxed at the top bracket into an AMT year.