Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Archive for February 14th, 2006

Posted by taxguru on February 14, 2006

IRS Updates Tax Gap Estimates – No surprise here because IRS had earlier told us to expect a new SWAG from them. It’s also not surprising that so many others are swallowing these figures as gospel, such as TaxAnalysts.  The fact that these higher tax gap calculations are being used to justify more money and power for IRS couldn’t possibly have influenced their measurement of something that is inherently impossible to measure with any precision, could they?

 

Feds bust father & daughter tax preparers in Wichita for claiming bogus deductions on their clients’ returns.

 

Despite Federal Tax Credits, Solar Power Isn’t for Tightwads

Even with the new federal credit, it often takes 20 or more years to recoup the initial investment through energy-bill savings.

 

Taking Inventory of Your Home To Get Adequate Insurance – Dealing with insurance adjusters can often be worse than IRS auditors.

 

 

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State Tax Burdens

Posted by taxguru on February 14, 2006

Q:

Subject: Illinois State Taxes
 
Kerry Kerstetter: We are considering moving to Illinois and I find their residential real estate taxes are double ours in KS. Is there a site or resource that has a net, bottom line analysis of all state’s total taxes, so one can compare them to determine the most expensive/least expensive? Thanks! 

A:

Check the following that I found via a quick Google search

http://www.stateline.org/live/ViewPage.action?siteNodeId=136&languageId=1&contentId=28297

http://www.taxadmin.org/fta/rate/tax_stru.html

http://www.taxfoundation.org/publications/show/335.html

http://www.retirementliving.com/RLtaxes.html

Good luck.

Kerry Kerstetter

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Deducting Vehicle Costs

Posted by taxguru on February 14, 2006

Q:

Subject: Tax question about vehicle
 
 I have my own business and I want to be able to write off mileage and my cost for he vehicle.  If I have advertising signs on my vehicle are my mileage allowances still subject to percentage use rulings?  That is the primary use of the vehicle is to advertise my business and get to and from appointments.

A:

If you are serious about running your business properly, you will engage the services of a tax professional who can give you guidance. 

Any competent tax pro will tell you that just placing a sign on a vehicle doesn’t make the vehicle’s costs deductible.  Any deductions for that vehicle will be based on the business miles driven, either via the IRS’s standard per mile allowance or based on a pro-rata percentage of actual costs. 

Good luck.

Kerry Kerstetter

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Death of Partner

Posted by taxguru on February 14, 2006

Q:

Subject: Preparing 1065 & K1’s the Year of Partners Death

Kerry, I came across your website and Blogs while I was doing research regarding the preparation of this Partnerships 1065 & K1’s.

 I work for a partnership founded in 1946.  The percentage of ownership was as follows:

Founder – 10%

Partner 1 (Son) – 20%

Partner 2 (Son-in-law) – 20%

Partner 3 – 16.667%

Partner 4 – 16.667%

Partner 5 – 16.667%

As of June 28th 2005, our founder passed away.  He held 10% of the ownership at the time of his passing.  His percentage was absorbed by his son and son-in-law who now own 25% each of the company.  How do you suggest I set up Turbo Tax?  Am I required to do the first half 2005, second half 2005, and then a final combined return?  If you could please advise I would greatly appreciate it “oh Grand TaxGuru of ours”.

Best Regards,

A:

I don’t use TurboTax, so I can’t give any specific data entry advice on it.

However, it sounds as if you may need to make manual allocations of the 2005 K-1 info between the various partners, including the deceased one, to account for the proper split.  The actual computation of the allocation can be done various ways. 

In similar cases that I have worked on, I have figured the P&L for the time with the old ownership (1/1 to 6/28 in your case) and figured that split.  Then, I did the same for the rest of the year with the new ownership percentages and then totaled the two figures to get the full allocations for the year.   The method used should be designed with the input of all of the surviving partners, the deceased partner’s survivors, as well as all of their personal tax and legal advisors.

You only need to do one 1065 for the entire year of 2005, with proper notation on the K-1s of the beginning and ending ownership percentages of each partner.

Good luck.

Kerry Kerstetter

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Sec. 179 For LLC

Posted by taxguru on February 14, 2006

Q:

Subject: Yet another Section 179 Q

Hi Kerry,

Sure appreciate your blog and I thank you in advance for any insight you can provide.

A friend of mine started an LLC this year with another partner/member.  They wrote a note for this “Asset Purchase” and acquired mostly computer equipment, which happens to be the total assets they’ll start with at the newly formed LLC.  They purchased the computer equipment from the same company they used to work for and would have been “rightsized” out the door from if they had not agreed to this “opportunity”.

 Would these computers qualify as Section 179 property so long as they only attempt to deduct up to $105K in year 2005?

 Thank you,

A:

As long as they didn’t have an ownership interest in the previous owner of the equipment, it should qualify for possible Section 179 expensing.

The actual amount of the Section 179 deduction that can be claimed will depend on the amount of income the LLC has.  It can’t be used to create a net loss.
 
Your friends should be working with their own professional tax advisor to make sure they handle the LLC properly rather than rely on second hand information.  There are dozens of ways in which they can screw things up if they try to handle things on their own.

Kerry Kerstetter

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Selecting Corp Type

Posted by taxguru on February 14, 2006

Q:

Subject: THANKS FOR THE S VS C ARTICLE

HERE IN FL. MOST SMALL CONTRACTORS WORKING ALONE HAD TO REVERT TO CORP. STATUS TO BE ABLE TO CONTINUE IN BUSINESS DUE TO WC.

WE CHOSE S CORP.  HOPE WE MADE THE RIGHT DECISION. 

THANKS AGAIN  

A:

If you made that decision based solely on what you read on the web, I would have no faith in your conclusion.  You absolutely must work with a competent tax professional who can take all of the particular factors into consideration.

Good luck.

Kerry Kerstetter

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Posted by taxguru on February 14, 2006

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