IRS Interest Rates Rise for the Second Quarter of 2005 – To six percent as of 4/1/05, from the five percent rate it’s been since 10/01/04. I have updated that info on my Quick Reference page.
Archive for March 2nd, 2005
Posted by taxguru on March 2, 2005
Q:
Subject: can we change to a c corp now
We are an s corp and made money this year but took a very small salary.
We are using the Intuit tax preparation program. It asks if we are an s corp or c corp. Can we decide not to be an s corp and just prepare our taxes with the c corp forms?
The 1120S forms that are due by June 30 of this year: Are they establishing that we are an s corp for the last tax year (2004) or this tax year (2005)? thanks for any input you have.
A:
If you have a corporation, you really should be working with a tax pro to handle easy issues such as this. In fact, you should have been working with one before you chose to become an S corp.
If IRS has accepted your election to be an S corp, you need to file S corp returns (1120S) for every year until you formally revoke the S election. You can’t just arbitrarily change the status from S to C year by year. When you filed the S election form, you obligated yourselves to reporting all corp income on your 1040.
The 1120S for 2004 is due 3/15/05. You can get an automatic six month extension (to 9/15/05) by filing Form 7004 by that date. I have no idea where you are getting a June 30 due date. All tax return due dates are on the 15th of the month.
Good luck.
Kerry Kerstetter
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Posted by taxguru on March 2, 2005
Q:
Subject: Section 179
Hi Ken,
Can you tell me if a sailboat put into charter or as a rental qualifies for section 179 deductions. I have inherited a large sum of money of which some is taxable. I read that aquistion of property through inhertance does not qualify, but in fact I could use other monies to purchase the boat. I need to find a way to write off up to 140K, can you help me?
Thanks in advance,
A:
Paul:
If you are going to be providing services along with the rental of the boat, its purchase should qualify for the Section 179 expensing election, which is up to $105,000 for 2005 purchases.
Where the money comes from for the purchase doesn’t affect the Section 179 deduction. As I’ve mentioned several times before, the deduction is the same whether the asset is paid for with cash or financed completely with a loan.
What you may be referring to is the limit on the Section 179 deduction to your taxable income. In most cases, this limit does include income from other trades and businesses, including W-2 wages, in addition to the one for which the asset was acquired. Depending on what kind of income is being passed through to you via the estate, it may or may not raise that eligible deduction. Any Sec. 179 amount that can’t be claimed for the current year because of this limit can be carried forward to the next year’s tax return via Form 4562.
When dealing with large amounts of money, you would be well advised to consult with a tax pro who can give you more specific advice based on your circumstances. There are also ways to double the potential Sec. 179 deduction with the use of a C Corporation, which you should discuss with your personal tax advisor.
Good luck.
Kerry Kerstetter
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Posted by taxguru on March 2, 2005
Q:
Subject: Primary Residence Sale
Hasn’t the capital gains rule of 2 out of aggregate of 5 years rule changed in Oct 2004? Doesn’t the IRS code now require you to OWN the residence at least 5 years and live in it as principal residence at least 24 of the 60 months before sale? Or is that just for investment acquisition? I am darn confused here.
Thanks,
A:
The only change was for residences that were acquired as part of a 1031 exchange. I discussed it in my blog back in October.
Kerry Kerstetter
Posted in 1031 | Comments Off on
Tax Guru - Ker$tetter Letter 