Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for January 15th, 2004

Posted by taxguru on January 15, 2004

What is Poverty? – It’s really hard for any objective person to not see how well off our citizens are who are considered to be below the poverty line. Their living standards, and the things they have, would have classified them as very well off not too long ago.

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Who didn’t see this coming?

Posted by taxguru on January 15, 2004

Tax Withholding Proposed for Independent Contractors – Here is the other shoe dropping after the recent tax gap propaganda. If this plan to deputize more people as government tax collectors doesn’t encourage more use of the corporate form, people are less intelligent than I thought. I have already seen plenty of businesses refuse to work with any service that isn’t incorporated just to avoid the potential for the workers being classified as employees. This new rule, if enacted, would push more business owners to the same conclusion because payments to corporations are not subject to the same 1099 reporting or tax withholding rules that apply to payments to unincorporated individuals and businesses.

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Avoid Premature Reaction

Posted by taxguru on January 15, 2004

With the constantly changing tax environment, it is important to distinguish between what are actual real life changes in the laws and what are just proposals. I’ve never done a scientific study of this; but my guesstimate is that there are at least 100 tax change proposals for each one that makes its way into actual law. Changing your behavior based on the proposed changes can be very counter-productive.

What also happens is that people, including many tax pros, hear about the proposed changes and go around spreading them as if they were true; as in this letter I received today.

I am in Baghdad, Iraq until March and have the opportunity to buy a vehicle for my business at a reduced cost (one perk to being activated) while I am here. I read that the Senate voted to reduce the SUV tax break from $100,000 back to $25,000. Is this true? If so, will that affect the 2004 deduction of $100,000? It may be a factor on whether or not I purchase a large vehicle.

My Answer:

I guess it’s good that you’re able to think about tax matters while in the battle zone. I don’t know if I would be able to even consider taxes while in such a dangerous situation.

The rule limiting the Section 179 deduction for vehicles to just $25,000 did receive a lot of publicity; much more than it deserved. I never worried about it actually becoming law; so I didn’t spend a lot of time discussing it at the time.

As I had expected, that provision never got beyond the one Senate committee that passed it. It never reached the full Senate, any part of the House, or the President. The net effect is that restriction on deducting the cost of heavy vehicles is still nothing more than a wet dream for environmental wackos like Arianna Huffington and other busy-body hypocrites who want to tell the rest of us what kind of vehicles we can buy and drive.

I hope this helps resolve any confusion and lets you better plan your purchases.

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