I’ve frequently commented on how leasing vehicles is a big rip-off for several reasons, especially the 20% to 30% implicit interest rate built into the payments.  The per mile penalties for excess mileage also add to the deceptively low monthly charge. 

Until I saw this article, courtesy of AutoBlog, I wasn’t aware that lessees weren’t covered by the same manufacturer’s warranties as are buyers.  The guy in the article won his case to be covered by the warranty, but he had to go through the expense and hassle of bringing legal action against Honda. 

One more reason to stay away from vehicle leases.

Q:

Kerry,

 

I found your site very helpful. Thanks.

I am trying to plan my 2005 tax year.  I have a pavement marking business which is a C Corp with it’s year ending in March.  I am trying to get the income below the magic $50,000 income level taxed at 15%.  Anyways I have been considering changing to a S Corp since this coming year 2005 I will have a substantial bottom line after 350,000- 400,000 maybe higher.  The problem for me is I am also the guy with a ex-wife which is receiving 29% and she does not have a clue that my business has expanded since we split.  My lawyer tells me a C Corp is better and my account tells me a S Corp is better if it has a lot of cash left. 

 

Anyways, I am trying to plan for the future modification of child support (even though it settled very well for her) I know it will never be enough if she looks in the corporation- which I think she has the right to in a discovery.  It has been a little over a year since the divorce was final. 

 

Currently I am engaged and will be married in Sept of this year.  Is it possible to maybe form a S Corp in her name and assign the large contract to my new wives company and keep the income lower in my C Corp to help us get the out without opening me up to the above problem.  Any thought would help,  I appreciate it very much. 

A:

Check out what I have here on my website and you will see a case very similar to yours regarding child support:

From what you are saying, it seems that using an S corp would make matters worse for you.

Good luck.

Kerry Kerstetter

Q:

Kerry,

 

   I live in the state of Arizona and bought a new home 13 months ago.  I’m in the process of buying a second home and would like to sell my current home,  but I’m worried that I will be hit hard with a capitol gains tax at the end of the year for selling my first home before the 2 year mark.  I came across your website that was filled with great information which I also read on the IRS webpage.  Do you know where I can find more information about the  ‘pro-rated exclusion ‘ listed on your webpage.  I know of the three main categories (health, work, or other unforeseen circumstances.) ,but I want to know more about the specific excuses that are acceptable for each of the categories.  I have some reasons for moving to the other side of town, but I’m not sure if they would pass for legitimate claims to get the exclusion.

 

Thanks,

 A:

 It would be impossible for IRS to list every single reason to justify the use of the pro-rated exclusion; so I wouldn’t hold my breath waiting for that to be released.

Those main categories are very wide, especially the “unforeseen circumstances” one.  If something unexpected has changed in your life since you bought your current house that requires you to move, you should be okay.

Check with your personal tax advisor for more specific planning.

Good luck.

Kerry Kerstetter 

Know the Real Price Of New Mortgages – Low monthly payments aren’t always a good thing, especially if there is negative amortization, with the loan balance increasing every money.

IRS Sees $300 Billion Gap – Since the media continue to accept these kinds of statements from IRS as absolute fact, I will once again remind everyone that these highly publicized tax gap figures are nothing more than WAGs (wild ass guesses).  I have done my own research with IRS personnel as to their source of the unreported income and its tax.  They have admitted to me that such measurements are impossible to make with any definitive accuracy.  They claim that their made up numbers are as accurate as anyone else’s because there is no way to dispute them.  It’s just the standard IRS scare tactic for tax season. 

Again, as I’ve said for decades, the premise that everyone is a tax cheat is bogus.  I have reviewed thousands of tax returns prepared by taxpayers and other tax pros and can unequivocally state that people pay too much in taxes through a combination of ignorance and incompetence in filling out the tax forms.  I have seen plenty of people who even intentionally overpay their taxes as a way of trying to keep IRS off of their backs. In the private market organized crime world (as opposed to the government sponsored one), this is usually referred to as “protection” money. 

So, I feel extremely confident in declaring that the tax gap in this country is not anywhere close to a negative $300 billion; but is quite possibly a positive figure, with people paying too much.  My numbers can’t be verified or disputed with any scientific accuracy; but at least I’m honest about that fact. Not like the IRS and their lackeys in the media who will use their imaginary figure to justify more money and power for taxpayer harassment.   

There is no end in sight of the people who are quick to set up corporations and LLCs, without the foggiest idea of what those entail, just because someone told them that was the cool thing to do.

Q:

Subject: Poor me

Hi,

Great tax info.  Now my request for the free advice.

I set -up a C-Corp March 23, March 2004.  We have approx. $30,000.00 in deductions (or at least I thought so).  However, since we were just starting the biz, we have not sold anything…or made a profit.

Our tax person says we are out of luck as far as the deductions go (since we are not an S Corp) and we must pay the $800.00 annual fee regardless. We have not made any sales, since we are still forming.

Anything good you can suggest or advise?

 

Thanks,

A:

 If any of this surprises you, it means that you and your tax advisor didn’t adequately discuss the details of owning a corporation in the PRC before you set it up. 

From the moment your corp is chartered, until all of the proper papers have been filed to dissolve it, it is required to pay the $800 per year minimum tax, whether any actual business is conducted or not.  That is the way it has always been.

The $30,000 of deductions in your C corp aren’t lost; so there’s no real reason to be upset . It’s true that you can’t deduct them on your 1040.  However, they will create an NOL (net operating loss) that can be carried over into future years, offsetting the corporation’s income from those years.

If there won’t be any corp income for a few more years, you may want to consider setting up a Schedule C on your 1040 and paying the expenses with your personal money so that you can obtain some tax benefit from them sooner.

I’m not sure what you are looking for from me; but it sounds like you need to work more closely with your tax advisor.

Good luck.

Kerry Kerstetter