Posted by taxguru on July 21, 2004
It does appear to be quite a coincidence that our government run schools have dropped their academic standards so much and are able to keep turning out a steady supply of math morons to buy lottery tickets that supposedly help fund the schools. What an interesting cycle this works out to be.
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Posted by taxguru on July 21, 2004
Linking Social Security and prosperity – Art Linkletter staying active and very wise at 92 years old.
Accountants Who Blog – Here is one of the articles I was interviewed for over the past few weeks.
The incredible shrinking deficit – Good take on this by Jack Kemp.
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Posted by taxguru on July 19, 2004
IRS Lawyers’ Compensation Draws Criticism – Thanks to TaxProf Paul Caron for this link. For those who don’t want to divulge personal info to websites, BugMeNot is a great source of free registration codes that provide access to many sites, which is why I added it to my BlogRoll on the right side of this page several weeks ago.
Edwards and Kerry want to raise taxes, but aren’t wild about paying them. – Nothing new here. Hypocrisy in tax matters is one of the criteria for being a member in good standing of the JackAss Party.
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Posted by taxguru on July 18, 2004
Posted in Uncategorized | Comments Off on The Big Picture
Posted by taxguru on July 17, 2004
Another good question about the lucrative Section 179 expensing election.
Dear Tax Guru,
I am contemplating the purchase of a new vehicle. I am a sales person employed by a corporation that provides a car allowance and some reimbursement for fuel. The requirement of the company is to have a late model vehicle in good condition. Since I am an employee and not a small business owner, would I still qualify for the deduction allowed for vehicles over 6000 pounds since I have to provide my own vehicle for business purposes?
Thanks,
My Reply:
That is a common misconception; that only business owners qualify to deduct the purchase of business equipment.
Fortunately, IRS regulations define active trade or business income to include the trade or business of being an employee. This allows the use of Section 179 expenses to somewhat offset wages, tips and other income received as an employee.
The big difference between claiming the Sec. 179 for a self employed (SE) person and a W-2 employee is the effect on the person’s AGI (adjusted gross income). SE individuals claim it on their Schedule C and it reduces their AGI. W-2 employees have to claim it on Form 2106, which flows to the Miscellaneous Deductions section of their Schedule A. This does reduce their taxable income, but not AGI.
There is also the issue of having to reduce the Misc. Deductions by two percent of AGI.
I have also found a number of cases where high Misc. Deductions trigger the infamous AMT (alternative minimum tax).
Another difference is that Section 179 expenses will reduce a Schedule C proprietor’s 15.3% self employment tax; but it won’t reduce a W-2 employee’s FICA or Medicare taxes at all.
So, bottom line, you can claim Section 179 for business equipment, including vehicles, that you use as a W-2 employee; but it won’t save you as much in taxes as it does for a self employed person.
I hope this helps. Your personal tax advisor can better explain exactly how much you will be eligible to deduct because there is also an overall limit based on your income for the year.
Good luck.
Kerry Kerstetter
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Posted by taxguru on July 16, 2004
How Uncurbed Entitlements Will Force Large Tax Increases – Interesting PowerPoint presentation of how the drunken sailors of both parties in DC are forcing inevitable tax hikes.
IRS Strategic Plan Focuses on Service, Compliance, Modernization – Interesting 35 page mission statement for the IRS. Is it just me or doesn’t their symbolic image of themselves remind you of a killer sea creature from the movie, 20,000 Leagues Under the Sea? It looks like a four armed octopus.
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Posted by taxguru on July 16, 2004
We are still receiving resistance to our push to have all of our clients use QuickBooks. I received this email today from a long-time client, who I thought had been in the process of getting his stuff set up on QB:
Kerry/Sherry,
Is there any way we can get our taxes done for 2003 without doing Quick Books? Thanks,
My reply:
For individual income tax returns (1040), we can prepare your tax returns without QuickBooks if you thoroughly fill in every applicable portion of the organizer.
If you ever take the big tax saving step of setting up a corporation, QuickBooks must be used, with no exception.
To dispel a common misconception, the use of QuickBooks is not being encouraged for our benefit. It is the best move to ensure that you receive all of the tax benefits to which you are entitled.
When assembling their tax info, most people simply look through their main checkbook for deductible items. They miss a lot of other kinds of deductible activity, including cash, credit cards, loans and other investment and bank accounts. Keeping track of all of those items and properly combining them for tax purposes can’t be done any easier or more efficiently than with QuickBooks.
If you are comfortable using the shoe-box approach to assembling the info for your tax return organizer, and don’t mind missing out on possibly thousands of dollars of additional tax deductions, that’s fine with me. It’s your money.
Kerry
I know I’ve said these things many times before; but it still gets my goat that people think I am pushing the use of QuickBooks for my own sick pleasure of making them do something new and unfamiliar; when it is really to help them save large amounts of taxes.
What I forgot to mention in this letter was the fact that having all of your data in QuickBooks also makes it much readier in case of an IRS audit. I have been spending the past few months working on multi-year IRS audits for two different clients, and there has been a huge difference in the amount of time it has taken me and the volume of physical paper documents required for the auditors.
The client whose info was on QuickBooks only required a few envelopes of substantiating documents because the auditor was able to rely a lot on the QuickBooks reports. For the other client, who hasn’t been using QuickBooks, we already have six file boxes filled with documents, and may need even more for the auditor. I explained to the client that if the info for those years had been in QuickBooks, the audit process would have taken a fraction of the time it has.
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Tax Guru - Ker$tetter Letter 