S Corp Vehicle Purchase
Subject: Section 179
Can the two shareholders of an s-corporation take a loan to purchase a company vehicle and be able to get the 179 deduction? The lender will not lend to the company but will personally to the 100% shareholders.
Time is of the essence to buy today or tomorrow
That is a very similar situation to the one I discussed in one of my earliest vidcasts regarding an LLC.
LLCs and S corps are very similar for tax purposes, so this should help you.
As always, you should be working with an experienced professional tax advisor to make sure you set everything up properly.
Sec 179 - Cash Same As Loan
These last few days of the year are historically very busy at car dealers, as people try to get their hands on a new business vehicle before New Year’s Day and thus qualify for the lucrative Section 179 deduction, especially for heavier (over 6,000 pounds) vehicles.
Amazingly, there are still a lot of people who believe that the Section 179 deduction is based on the amount of actual cash paid out for the new business equipment, as in this vidcast. This is just one more of an endless stream of emails from small business owners who think they can handle their own tax affairs. Anyone working with an experienced tax pro would know that the Section 179 deduction is the same whether you pay cash for the full price or take out a loan for the full amount, or use a credit card.
Likewise, credit card charges as of 12/31/09 are treated the same as 2009 cash payments for tax purposes. These are almost always missed by taxpayers acting under the misguided assumption that they can come out ahead by avoiding the cost of a professional tax preparer.
Deducting Forfeited Down Payment
Subject: Forfeited Earnest Money - Tax Help
Hello Kerry/Tax Guru,
I am an avid follower of your blog for all the tax help - I made a down payment on a condo in FL as part of an investment in Jan of '06. However due to the slump of the real estate, the value of condo is really down that its worth like 40% of the original value. I hired a lawyer to negotiate with the developer on the price, but the developer recently filed for bankruptcy and it looks like at this stage the earnest money is forfeited.
Is there anyway I can use this as capital gains loss for my '09 filing - It's a huge amount (41,500), so it is kind of a big blow on my investments.
Thanks in advance for all your help!
It sounds as if you would have a capital loss for the amount of your down payment if you will be receiving no property or claim on property for that money and no part of the down payment in cash as part of the bankruptcy settlement.
You should be working with a professional tax advisor, who can explain the rules regarding deducting an uncollectible debt, especially in regard to the proper timing of that deduction.
If the bankruptcy case is still ongoing and there is a chance of your receiving something back from your down payment, you will have to wait until that is completed before you can claim the loss on Schedule D, which can possibly take several years.
If that kind of uncertainly is part of the equation, it may be possible to lock your loss up as being in 2009 if you were to sell your claim to the down payment to an unrelated party before 1/1/10 for a nominal amount, such as one dollar. You would then have a valid completed disposition to report on Sch. D.
Again, your own personal tax pro should be able to offer more specific assistance for your situation.
Gifting based on calendar year
Subject: Question about gifting
My dad passed away this year and my mom is now interested in gifting to have some money in my name only. The non taxable amount this year I know is $13,000. Does the 2009 contribution need to be written out (dated before dec 31st) or do we have until April and the end of the tax season to have the gift given? I know after Jan 1st she can gift again for 2010. I believe this is how it works according to an accountant friend of mine. Do you know if these gifts are excluded from the 5 year look back rule which applies to turning over ownership of a house?
For Gift Tax purposes, gifts are totaled up on a strict calendar year basis from January 1 through December 31. The Gift Tax return (709), if applicable, is due on the same schedule as 1040s are, April 15 plus extensions.
So, to be a valid 2009 gift, you do have to receive the actual money before midnight New Year's Eve.
The look-back rules in regard to impoverishment planning for elderly Medicaid eligibility are state specific; so you all need to be working with an elderly law specialist in your area.
Good luck. I hope this helps.
War Against the Wannabe Rich – Punishing success with Marxist “progressive” tax rates has long been the cornerstone of tax policy in this country and will only get worse with an openly Marxist administration and Congress in charge of our lives.
Just as with other kinds of entities, there are pros and cons for using LLCs. As with any entity choice, there is no such thing as a cut and dried selection process. It requires an intelligent judgment from an experienced professional tax advisor after asking a lot of questions, as I explain in this vidcast.
Gift Tax History
I was wondering if you could help me out with a few questions. I have been doing quite a bit of extensive searching for the maximum gift exclusions for years 1994, 1995, and 1996 and haven’t been able to get anywhere. Was wondering if maybe you might know what these numbers would be? I found your website during the many searches I’ve done.
Thanks so much for your help in advance.
It was $10,000 for each of those years, as you can see in the attached chart, which was part of the more extensive history of the gift tax that you can download from here.
Good luck. I hope this helps.
Timing of Sec. 179 Deduction
Subject: Section 179 question
I found your organization via Google, and the information is very helpful!
I own a Dental Laboratory, and want to purchase a $33,000 cad cam system. My question: can I take advantage of a year-end purchase incentive by the manufacturer, and have the purchase documents dated December 2009, but take advantage of the section 179 deduction in 2010? I won't begin using the new equipment until January.
Thank you for your help!
You seem to have the opposite situation than most people present; when they want to claim Section 179 in the year prior to actually using the equipment.
If you don't actually place the new equipment into service until 2010, you shouldn't have any problem setting it up on your 2010 tax return's depreciation schedule and claiming Section 179, subject to the other limitations that could affect the actual deduction.
Your own personal professional tax advisor should be able to give you more specific advice on this.
Santa Harry’s Sleigh Full of New Health Taxes – Another look at some of the new taxes we will have to cope with thanks to our new socialized health care system.
Comprehensive List of Tax Hikes in Reid-Obama Health Bill UPDATED – As always, much more work for us in the tax profession.
Explanations of some new tax laws
From the latest issue of Intuit’s ProConnection newsletter:
Three Versions of Homebuyer Credit May Confuse Clients – On a related note, the folks at Jennings Seminars have a handy table of the different applications of the homebuyer’s credits available for download.
New Law Mandates Electronic Filing by Return Preparers If Filing Ten or More Returns – As a stubborn hold-out on e-filing so that I can attach a lot of explanatory details to tax returns, this was something I was not happy to see. I will be investigating the penalties for not complying with this request and will most likely continue to only prepare paper tax returns. The Bob Jennings seminar speaker a few weeks ago mentioned that e-filing is going to allow attachments of pdf pages in the next few years, so that may be what I need to be able to attach all of the self defense documents that I like to include with tax returns. Until that is possible, I will continue to refuse to e-file.
Beware of Churning
At the risk of further offending stockbrokers, there are enough of them who worry about their own commissions more than their clients’ welfare to be concerned when they advise a lot of sales without proper substantiation.
This letter from a client is typical of many that we will be seeing as the year comes to an end and the stockbrokers need to get their own numbers up.
Dear Kerry:Keep coming back to doing absolutely nothing in regard to what I am presenting to you. But want to out fox Congress and Obama, I had planned to sell stock and take profits. But recall, we sold and closed on our rent house and $46,000 profit without calculating 2009 expenses. This rental profit may affect these stocks sales.Should we sell some stock for $25,000+/- Net Gain (Gross = $105,000+/-) so as to take the 15% Capital Gains instead of the 25% retro 2010 Capital Gains? Our Financial Advisor (who is merely an order taker) claims we have $20,000. profit for 2009. In fact, he called and asked if we wanted to sell some stock at a $20,000. loss so to pay no Capital Gains for 2009. This seems stupid and I have yet to explore his assertion. But he would get his commissions. I am not feeling benevolent to him.
Following is his message. If we sold stock we would propose selling all Home Banc (3,302 sh)$75,000) Apple. (120sh),$24,000 & Acxiom (1,600 sh) $18,900.I would look at selling 1/3 of your HOMB or $25,000. Your cost basis is 8.60 and it is currently at 23.00. Sell 1/2 your Apple or approximately $11,600. Your cost basis is 120.57 and is currently at $195. Sell ACXM or %19,200. Cost basis is 9.64 and is currently 12.02. This would take about $55,000 out of the market. I think we should take it and look at something more conservative or in the bond market as you need to get your assets larger in that area. Call me and we can go over it.
While there have been indications that Obama wants to raise long term capital gains (LTCG) tax rates as part of his twisted concept of "fairness," nothing has been done yet to change what we have for the next few years. 2010 rates are scheduled to be the same 15% max as they are for 2009. If no new legislation is enacted before 2011, the LTCG rate is scheduled to rise to a 20% max for 2011 and beyond.
While I have seen a lot of people advising investors to sell off appreciated assets in 2009 and 2010 so they can avoid the higher rates in future years, I'm not a big fan of intentionally paying a lot of taxes sooner rather than later.
As I constantly have to remind people, any sane investment strategy should be based on the fundamental economic realities and not on tax aspects. This means that you should sell off stocks when they appear to have peaked in value and are close to dropping.
The other reason to sell prematurely would be if there is an alternative investment opportunity for the money you have tied up in stocks that will be much more profitable than you are currently earning, including enough extra to cover the taxes you would have to pay on the sale of the stocks.
I don't want to accuse your stockbroker of partaking in the time honored tradition commission based professionals have of churning your account simply to generate commissions, but it is smelling a lot like that to me.
Danger sign #1: If the stocks he is advising you to sell have peaked and will soon be on their way down, why is he only advising you to sell off part of your holdings in those stocks? If they are still a good stock to hold onto for basic investment fundamentals, why sell off any?
If he has a new investment opportunity that he can guarantee will outperform the stocks you currently have, a wiser move would probably be to invest new money into some of that rather than selling off stocks that are still doing well.
While it has always been a truism to diversify investment portfolios and not keep all of your eggs in one basket, the stockbroker comments about this are a little too vague to give me any confidence that moving the money from the stocks to something else will be any better for anyone other than his commissions.
I don't have a crystal ball in regard to predicting future stock values; but I have developed a keen sense of smell for churning. It may sound extremely cynical, but I have seen so many cases where clients' accounts have been literally wiped out by transaction costs that served no purpose other than to generate commissions for the stockbrokers that I wouldn't advise making any such trades until he can make a strong and valid case for the deal on its basic investment principles, regardless of the tax consequences.
Using vague and possibly nonexistent tax savings as the reasoning for a sale of stocks is another big danger sign that you are dealing with an incompetent or unscrupulous advisor.
This is obviously another one of my vague replies to your investment inquiries; but I hope you understand the gist of my philosophy in regard to this kind of thing and it is of some help to you.
Let me know if you have any other specific questions or ideas you want to discuss.
Selling Two Residences
Each taxpayer can only have one primary residence at a time. However, if a married couple can prove that they lived in separate homes, a couple can have two primary residences, as discussed in this vidcast.
Taxes and the Family – Interesting look at the family aspects in our tax system from National Affairs.
Postal Service Employees Owed $300M in Taxes, IRS Data Shows – It’s not just cabinet secretaries who are allowed to avoid paying their taxes and still hold onto their lucrative Federal government jobs.
How Many Ways Can You Tax the Rich? – The most politically correct target for fiscal rape continues to be the evil rich. Exploiting class envy never goes out of style with leftists.
IRS hires "hundreds" for new wealth unit – The infrastructure is being expanded for nailing those evil rich folks who have to carry most of the tax load in this country.
Screwing with the IRS
Last week's episode of Nip/Tuck had an encounter between one of the plastic surgeons and an IRS auditor unlike any I have have ever seen or heard of. It’s wacky enough to amuse taxpayers, tax pros, and IRS employees.
The Highest Tax Increases Ever. State and local governments demand that their residents shut up and pay up during a recession. – An interesting look at some of the recent State tax hikes.
Think ahead when setting up corp
If the future plans for a business include taking it public or bringing in venture capitalist funding, those will materially affect the most appropriate entity to use, usually ruling out an S corp, as I discuss in this vidcast.
Life insurers lobby to save the death tax – Another example of “follow the money.” As if the insurance companies don’t already have enough bad press. They are openly supporting the Marxist grave robbery as a means of making money selling insurance policies to offset those same taxes.
Servants to Slaves
Does anyone else long for the time when our elected officials were considered servants of the people, working for the public's best interest? What we have obviously evolved into is the opposite situation. The elected elite have become unaccountable royalty and we are their slaves in more and more ways every day.
2010 IRS Mileage Rates
Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 50 cents per mile for business miles driven
- 16.5 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
Confusing tax rate schedules?
Another broken promise...
2010 estate tax may go from 0 to 45 percent – You had to know that the tax free year wasn’t safe from attack by our money starved rulers in DC. They simply can’t resist the urge to raise taxes on the “evil rich.”
For them, promises are meant to be broken and they have no qualms about backing off of lower tax promises. As I have been warning since the inception of Roth IRAs, I wouldn’t be surprised to see their tax free status removed for those considered by our rulers to be evil rich.