Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for February, 2006

One kind of filing system

Posted by taxguru on February 28, 2006

Others use shoe boxes.

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Posted by taxguru on February 28, 2006

Don’t Forget about 2006 Tax Law Changes – From Intuit’s latest issue of ProConnection

 

IRS Related Photoshop contest – Some funny IRS pics from the creative folks at FreakingNews. Too many to post here, so take a browse through them.

 

House Leaders Indicate Budget Process Reform, Spending Cuts Likely I’m not holding my breath waiting for this to actually ever happen, especially not with the current crew of drunken sailors in charge. 

 

Estate Tax Must Go, Says Frist Uphill battle against the growing number of supporters of Marxist wealth redistribution, such as this blogger.

 

Questions Remain on Private Collection as IRS Poised to Hand Out Contracts – What could possibly go wrong with freelance tax collectors?  Look at who’s waiting to use his skills in this lucrative profession.

 

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Garbage In, Garbage Out

Posted by taxguru on February 28, 2006


(Click on image for full size)

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I’ve got the 1040 blues.

Posted by taxguru on February 28, 2006

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Free Tax Help

Posted by taxguru on February 28, 2006

From an attorney:

Subject: EIC disallowance

Dear Mr. Kerstetter:

Regarding your blog reader who inquired about challenging the disallowance of the EIC, another alternative would be to contact the nearest law school.  Many law schools offer low-income tax law assistance and can help with a Tax Court petition.  The matter will probably be resolved before it gets to litigation, and the representation is free.  Not all taxpayers qualify, and not all schools have this program, but it is an effective recourse for a taxpayer with limited means.

My Reply:

That’s a very good idea, which I will pass along.

That sounds like a slightly more technical version of the IRS’s VITA program, where I got my start in the tax prep profession over 30 years ago while an accounting student in college

Thanks for sharing that idea.

Kerry Kerstetter

 Follow-Up:

I appreciate your reply.  I did both VITA and tax law clinic as a law student at Quinnipiac and enjoyed both of them.  The clinic requires students to focus much more on tax procedure than on aspects of the return.  If you want more information on these programs, I would suggest asking Prof. Paul Caron of the TaxProf Blog; he probably can get you a list of schools that offer assistance to low-income taxpayers.  Thank you for your work on your sites; they’re always enjoyable.
 
 

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Top Ten H&R Block Excuses

Posted by taxguru on February 28, 2006

From David Letterman’s Late Show:

10. “Instead of CPA training, employees got CPR training”

9. “Forgot to carry the one 32 million times”

8. “For years we’ve been secretly funding Hamas”

7. “H was out sick that day and R was on jury duty”

6. “We were using Martha Stewart’s guy”

5. “Were testing the world’s first accounting monkey”

4. “Come on, it’s a couple of dollars. It’s not like we shot a guy in the face…”

3. “Hard to stay focused when you’ve been drinking since April 16th”

2. “Thirty-two million dollars?! We lose that much on a good day”

1. “Hoping for hot make-up sex with the IRS”

 

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Posted by taxguru on February 27, 2006

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Sec 179 Limited At Entity Level

Posted by taxguru on February 27, 2006

Q:

Subject: Question regarding 179 expense

Hello,
I happen to stop by your web site and read your article regarding 179 expense.
 
I am a major stock owner of a S corporation.
Last year, the company got not a samll loss
 
I have other source of income and overally I have some income to report last year.
In this case, may I apply section 179 expense deduction for the S-Corp.
 
Your prompt and kind reply will be highly appreciated.
 
Best regards 

A:

As your corporate tax accountant can tell you, an S corp with a net loss before counting the Sec. 179 deduction cannot claim Sec 179 on that year’s 1120S. Sec. 179 is limited at the S corp level, and it doesn’t make any difference whether or not the shareholders have other income to offset it.

Work with your corporate and personal professional tax advisors to work out the best strategy for your unique situation.

Good luck.

Kerry Kerstetter

Follow-Up:

Thank you for your kind and concise answer
bye
 
 

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Offering Stock

Posted by taxguru on February 25, 2006

Q:

Subject: Stocks to Offer
 
Good Morning,
 
We are a small group of R&D researchers looking to form a small C Corp and would like to offer stocks to investors in order to try and gain enough funds to prototype a few different models for producing liquid fuel with the co-generation of electricity of systems we’ve been designing and preparing to build out.

Can you tell me where we can learn about the stock offer limitations and total funds we can collect? I understand there are limitations on the number of offers that can be made as well as cap on total funds.

We are also looking at partnering (or possibly contracting with) a Canadian Company. Are there restrictions for receiving funds from their investors directly or through the Company and would one way or the other be better?

Thank you so much for your time and an advice you can offer. Have a great week.

A:

This is area where you absolutely must work with an attorney and a CPA firm that both have experience in public stock offerings in your state.  The rules differ in each state and can get very complex in regard to several different aspects of this kind of thing.  Your attorney will inform you of the potential penalties, including investor lawsuits, that can arise from failing to properly dot every I and cross every T.

Good luck.

Kerry Kerstetter

 

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Adjusting For Sec. 179

Posted by taxguru on February 25, 2006

Q:

Subject: Section 179 Deduction

I’m hoping you can answer my question.  I work in a bank and I’m wondering about the effect of the 179 deduction on the company cash flow.  Is this considered a depreciation expense that can be added back to get traditional cash flow?  (net income + depreciation + interest expense)

A:

Section 179 is essentially a form of accelerated depreciation and is usually included on the same expense line with regular depreciation expense, except for pass-through entities, where it is shown separately on the K-1s because of the individual-level limits . 

Any adjustments you make to book income to add back in depreciation expense should be sure to add back the Section 179 if it is not already included in the stated depreciation total.

Kerry Kerstetter

 

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