Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for August, 2005

Posted by taxguru on August 31, 2005

Frist Still Promising Estate Tax Repeal Vote; Grassley Outlines Compromise

…Grassley called the chances of achieving full repeal “zero,”…

…the “boundaries” of a “nebulous” deal likely encompassing an exemption of between $4 million and $6 million and a 15 percent to 35 percent tax rate.

 

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Home Sale Due To Financial Difficulty

Posted by taxguru on August 31, 2005

Q:

Subject: sale of home

If I own a home for less than 2 yrs (more than one year), and need to sell due to financial reasons…meaning I’m unable, as a single able to maintain the home’s expenses, what are the tax consequences on the gains.  I’m estimating gains to be around $50,000.  Current earnings vary and she’ll probably earn around $40,000 on income from employment.  At what rate does she have to pay the tax on the gains, and is there some way around having to pay that tax?  Thanks


A:

You should consult with a tax pro and go over your reasons why you are no longer able to afford your home.  If it is because of an unforeseen event, such as losing your job or an illness, you will qualify for the pro-rated exclusion of gain.

You can see more on this on my website.

Good luck.

Kerry Kerstetter

Follow-Up:

thank you
 
 

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S Corps & Loan Qualifications

Posted by taxguru on August 31, 2005

Q:

Subject: Section 179 expense

I don’t know if you can help me or not but I am trying to analyze tax returns for a borrower who has an S Corp and on his Sch E there is income loss under the Section 179 heading is this income that I should be able to use when qualifying my borrower or is this truly a deduction like when Sch C people write off expenses?  I would appreciate any assistance you could give me.  Thank you.

 

A:

As pass-through entities, S corps are taxed very similarly to sole proprietor Schedule C, as part of the owners’ 1040.  Section 179 expense for new business equipment purchases is required to be shown on a separate line from the other net income or loss from the S corp because it has its own limitation on the 1040 based on the Section 179 deductions from other K-1s, as well as directly from Schedules C, E and F on the 1040.

I know that different lenders have different policies in regard to using a borrower’s  AGI for loan qualification purposes.  Some lenders use the reported AGI with no adjustments of any kind allowed.  Others do allow an add-back for some kinds of quasi-personal expenses that were run through the business schedule for tax purposes. 

Normally, the Section 179 deduction wouldn’t (and definitely shouldn’t) be one of those adjustments.  There may be other quasi-personal expenses buried in the S corp’s net bottom line.  You should ask your borrower and his/her tax preparer for details on those kinds of things if you are so inclined to make that kind of adjustment. 

Just adding back the Section 179 would not be appropriate unless your borrower confesses to running personal use assets through his/her business.  In that case, you may also want to factor in possible future IRS tax or fraud charges, since they are currently putting S corps under their microscope as I explained in a recent blog posting.

I hope this helps.

Kerry Kerstetter

 Follow-up:

Thank you very much and this helps greatly. 

 

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Posted by taxguru on August 31, 2005

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Posted by taxguru on August 30, 2005

IRS Grants Tax Relief for Hurricane Katrina Victims

  “People affected by Hurricane Katrina have more than enough concerns –– taxes shouldn’t be among them,” said IRS Commissioner Mark W. Everson. “We hope the relief we are providing will help taxpayers in their financial recovery from this devastating storm.”

 

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State Licensing of CPAs

Posted by taxguru on August 30, 2005

Besides high and complicated taxes, another big area of contention has to do with ridiculous regulations that overly control our personal and professional lives.  This news piece from Spidell, claiming that Illinois and some other states are requiring CPAs to be licensed in their states if they prepare any nonresident tax returns for their states, borders on insanity. 

Maybe it’s because I prepare income tax returns for over 20 states (including Illinois) from here in my home office on a mountain top in the Ozarks. It’s bad enough that I have to maintain my CPA licenses with both Arkansas and California and deal with their different renewal and CPE requirements, even though I haven’t even been to the PRC in twelve years.  To imagine having to go through that with 20 different state boards of accountancy is mind boggling.

Perhaps this is just meant to be a method of generating more business for CPAs who are residents of those states.  My clients who need Illinois tax returns would have to hire an Illinois CPA to do those returns after I prepare the Federal and other state tax returns. 

I can understand licensing CPAs who open physical branch offices within a state.  However, requiring all of  us who may prepare state tax returns from outside their borders is a classic case of over-reaching. 

 

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The Enemy Is Hiring

Posted by taxguru on August 29, 2005

This help wanted ad was part of today’s email newsletter from the IRS.  While not everyone would be willing to work for the Dark Side, it is interesting to see what they are paying the auditors those of us on the good side have to do battle with.  Using a 2,000 hour work year (50 weeks X 40 hours), it works out to $36 per hour.  Of course, the value of the intangible income (power tripping, striking fear in the hearts of mere mortals, etc.) can only be assessed by each person.

IRS is Accepting Applications for Revenue Agent Positions

The Internal Revenue Service is accepting applications through September 9, 2005 for revenue agent positions in its Large and Mid Size Business (LMSB) Division in a variety of locations.

IRS is seeking tax professionals who are experienced in the areas of financial products, employment taxes, international concerns, information systems (CAS), and general corporate accounting.  Minimum starting salary is $72,035 based on a 40 hour workweek with many opportunities for career advancement. Other benefits include health and life insurance, 401(k) and vacation and sick leave.

Revenue agents within LMSB are responsible for coordinating and administering the tax examinations of the largest national and multinational corporations in America. In addition, revenue agents address a multitude of complex technical tax issues ranging from tax shelters to global operations.

Qualified applicants will be scheduled for interviews in October 2005.  Final selections and job offers will be made in December 2005 with a start date of March 2006.

Although applications will only be accepted online, you may contact your area recruiter with any specific questions: 
West Coast:  Iwona.I.Gwizdak@irs.gov
East Coast:  Rose.Brantley@irs.gov
Central Region: Rosalind.Y.Lewis@irs.gov

 

 

 

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Posted by taxguru on August 28, 2005

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Posted by taxguru on August 28, 2005

Equity Is Altering Spending Habits and View of Debt

 

Withdraw Without PenaltyEight exemptions related to life cycle events

 

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Reporting On Tax Cuts

Posted by taxguru on August 28, 2005

In spite of the fact that the Left’s lies about the effects of tax rate cuts are consistently disproved, there are still plenty of them calling for their repeal.

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