Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Archive for June, 2005

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Section 179 For Phone System

Posted by taxguru on June 5, 2005

Q:

Subject: May I ask you a quick tax question about section 179?
 
Please advise me on your thoughts regarding the purchase of a new business telephone system and being able to utilize section 179 for a tax break on this purchase.  We are debating at our company on whether you can write off some of the purchase expenses or not…I thought I would ask an expert.

Thanks,

  

A:

While buying a new phone system would possibly be eligible for Section 179 expensing, whether you can or cannot actually claim it depends on various other factors. 

These include:

The total cost of new equipment placed into service during the tax year; i.e. $420,000 for 2005

Whether there is a net profit for the year, because Section 179 can’t create or add to a net loss. 

You really need to be working with a tax pro who can analyze your figures and give you advice based on your actual numbers.

Good luck. 

Kerry Kerstetter

 

Posted in 179 | Comments Off on Section 179 For Phone System

Exchanges and Business Sales

Posted by taxguru on June 5, 2005

Q:

Subject: Exchange Question
 
Dear Sir,
 
Can I exchange my business in England for a similar business in California? As I am taxed on my worldwide income I should also have all the benefits which are available to all US residents.I am a US citizen

 

A:

Using 1031 like kind exchange rules for business sales is extremely complicated and is something that you will need to consult with a tax pro on.

This is due to the fact that when a business is sold, the price needs to be allocated between the different components involved, such as equipment, real estate, inventory, goodwill and covenant not to compete.  With each of those items, you will need to determine whether it is even eligible for a 1031 exchange, and if so, what constitutes eligible like kind replacement property. 

One thing that is in the tax code that may mess up your plans has to do with real estate.  United States real estate must be replaced with United States real estate.  Likewise, British real estate would need to be replaced with British real estate.  California real estate is not like kind for British real estate.

You didn’t specify exactly how the sale will be structured.  The above refers to the sale of business assets.  Another complication could cause problems for you if you are selling a corporation by selling off its stock.  This would automatically make it ineligible for a 1031 exchange.

There are plenty of ways to minimize your tax bite.  However, the only way to do so effectively is by working with a tax pro.

Good luck.

Kerry Kerstetter

 

Posted in 1031 | Comments Off on Exchanges and Business Sales

Posted by taxguru on June 5, 2005

A warning from Strange Politics:

Posted in Uncategorized | Comments Off on

Actual Starting Estate Tax Rates

Posted by taxguru on June 3, 2005

Q:

Kerry Kerstetter,
 
Your Estate & Gift Tax page is well laid out and quite informative. However, I have one question for clarification. In your example of one dying in 2005 with an estate valued at $1,700,000.00, you mention that, because of the current exclusion, only the “overage” of $200K would actually be taxed. You also mention that it would be taxed at 45%, per the table following further down that page. Would that $200K actually be taxed at only 32%, that being  the  actual taxable amount, per the chart heading. Or is the actual taxed amount taxed at the rate for the entire estate value?
 
I would see owing 32% of $200K, or a total estate tax burden of $64,000.00. Am I mis-interpreting your table and verbiage?
 
It is a critical question and I thank you for your attention to this query.

 

A:

The verbiage on my website is accurate.

The way the estate tax exclusion works is that it effectively wipes out the lower rate brackets.  On the estate tax form (706) itself, it shows up as a credit against the total tax on the full taxable estate.

The net effect of the way this is set up is to subject the excess taxable estate to the next marginal tax rate.  A net estate  of $1,700,000 falls in the 45% bracket. Since the current exclusion wipes out the first $1,500,000, this leave the additional $200,000 still in the 45% bracket, for a tax of $90,000.

I know this is confusing; but that is how our rulers in DC like it to be.  As always, anyone with an estate large enough to be subject to tax should be working with a tax pro.  Estate tax returns are definitely not a do-it-yourself area; especially since a very large percentage of them are audited by IRS.

Kerry Kerstetter

Follow-Up:

Superbly logical and communicated response, sir.

Thanks!

 

Posted in Uncategorized | Comments Off on Actual Starting Estate Tax Rates

Cooking Up Texas Taxes

Posted by taxguru on June 3, 2005

Posted in Uncategorized | Comments Off on Cooking Up Texas Taxes

Posted by taxguru on June 2, 2005

Q:

Subject: Section 179 expensing

I find your blog to be very informative.
 
Would you please explain to me how a C corp is able to deduct its own 179 expenses in addition to what is claimed on the 1040s of the owners?
 
Your response would be most appreciated.

 

A:

This is covered in my article on the differences between C and S corps:
http://taxguru.org/corps/scorp.htm

Kerry Kerstetter

Posted in 179 | Comments Off on

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