President Bush Says Current Tax Laws Are a ‘Complicated Mess’ – And we know how all attempts to fix it end up.

The Franchise Tax Board has officially announced their income tax brackets for individuals for 2004, as adjusted for inflation. I have updated the link to this new schedule on my main website.

Next President to Face Pressure on Taxes

IRS Clarifies Portions Of Home-Sale Tax Law – What’s still amazing to me is that, more than seven years after this huge change in the law for residence sales, there are so many people, including a lot of tax and real estate professionals, who think the old replacement rule is still in effect. Rarely a day goes by that I don’t see or hear someone explaining that the way to avoid tax on a home sale is to buy another more expensive one. That’s very scary for their clients.

What’s also interesting to consider is that the tax free exclusion was set at $250,000 per person ($500,000 per heterosexual married couple) back more than seven years ago. With some of the appreciation in real estate values in places like the PRC and Las Vegas, that often isn’t enough to cover the entire gains people are realizing. Unfortunately, the chances of that figure being raised, or even allowed to rise with the CPI (Consumer Price Index), are very slim. Most of the country already believes that people have to be nuts to live on the Left Coast, and there just isn’t much sympathy for the fact that only half a million dollars of tax free profits every two years isn’t good enough.

You may not be headed for an illustrious career in accounting if your professor uses this text.

Another frequent question I receive is whether a business asset (normally buildings and vehicles) should be owned individually or in the corporate name. Here is my response to a client who asked about an office building.

There is no cut and dried answer to the best way to own business assets, personally or in a corp. There are pros and cons to each tactic.

However, from a general sense, it is more advantageous to own real estate individually and lease it to the corp. This accomplishes a number of things. It allows you to pull income out of the corp that is not subject to payroll taxes. When you sell the property, the long term capital gains rates are lower for individuals than they are for corps.

The only big advantage I can think of for owning the building in the corp name has to do with liability. If someone were to get hurt in or on the business property, having it owned by the corp would prevent any lawsuit or judgment from going against your personally owned assets.

If you are going to keep the property in your personal name, you do need to clean up the payment stream. The corp should be writing you a monthly check for rent, and you should be making the loan payments out of personal funds. For loan payments already made out of the corp account, you should categorize them in your QuickBooks as rent expense and pick up equal amounts on your personal QuickBooks as rent income.

As I’ve long said, there are few areas with more confusion than having to deal with the growing number of kinds of IRA accounts. This will only get worse as our rulers add more and more different flavors of specialized savings accounts to the tax code.

Besides tax questions, the most common inquiries I receive have to do with how to appraise the value of a small business, either for possible purchase or sale. The actual details of how to do this are too much to include here. However, this is how I answered a client’s recent question about possibly buying an existing business.

Business valuations are very tricky because the values can have a wide range. Basically, the low end is the distress sale value; what you could get if you held an auction for the hard assets with very short notice.

The high side of a business valuation is capitalized earnings. You look at the expected net profit without deducting anything for interest, depreciation, income tax, or owner compensation. You then divide the annual expected net income by the rate of return you want to earn. For example, if you want to earn 20%, you would divide the net of (using your figure) $150,000 by 0.20. This gives a value of $750,000. The higher the capitalization rate you use, the lower the valuation and vice versa (lower rate = higher valuation).

So, we end up with a very wide range of acceptable values for the business. Your goal, as well as the seller’s, is to come to an agreement somewhere in between.

I’m sorry I can’t be more definitive; but that just isn’t possible with a business purchase.

I’d be glad to discuss the various options in more detail if you want.

This reminds me of the controversies around business values during the dot-com stock bubble of the 1990s. I wrote several articles decrying how insane and unjustifiable the prices were, and I was severely criticized by some financial pros who claimed that old valuation methods were obsolete for the new modern era. I stuck to my guns and was obviously proven right.

If a company has no hard assets or profits, the only reason to pay anything for its stock is based on pure speculation, or what is often called the “greater fool theory.” The only way you can ever expect to recoup your investment is if someone more ignorant than you are can be found to buy the stock from you. The entire run-up in the dot-com stocks was based on that premise and as was inevitable, the supply of fools eventually ran out.

Unfortunately, we are destined to see this exact behavior again, as the collective memory of the public is so short and the ability to learn from past mistakes is very limited.

Why those of us who respect the Constitution will be voting Libertarian.

Federal Court Bars Tennessee Man From Promoting Home-Business Tax Scam – I don’t recall hearing about Dan Gleason before this; but it sounds as if he and his company have been a little over aggressive in regard to tax deductions for their clients.

What Middle Class Squeeze?

Debate on small government gets swept under the rug

GOP Hopes For More Tax Cuts, ‘Ownership’ In 2nd Bush Term

A Poor Critique: Personal Retirement Accounts and Transition Costs

The Miracle Economy

$9 Trillion Didn’t End Poverty — What to Do? – Of course, the DemonRats’ answer to everything is to throw more money on it, even when it’s a proven failure.

John Kerry Will Raise Taxes

Kerry Will Massively Increase Spending

Snow Says Bush Tax Reform Will Be `Bold,’ Nothing Ruled Out

Playing With The Numbers – Lying about the economy is as commonplace for John sKerry as is lying about his military records.