Q:

Subject: home improvement –  tax deductible?

Hi,

 

I need your help, if you don’t mind.  Last year I remodelled my house so that I changed a sunroom (damaged by termited) to a garage.  Can you tell me if I can report and get money back on refund taxes?  The total cost was estimated to $9000 in home improvement.

 

Thank you for your help.

A:

I’m not sure what kind of tax savings you are expecting here.

If the newly remodeled space is being used in a business venture, you can depreciate the remodeling costs over 39 years.

If it’s not being used for any business purpose, there is no tax deduction.  You need to add the remodeling costs to the cost basis of your home, which will reduce the profit when you sell it.

Any professional tax advisor should be able to help you with matters such as this.

Good luck.

Kerry Kerstetter

 

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Q-1:

Subject: Thank you from San Diego

 

My Dad has been in the hospital at age 87 for 3 months now, having already had some Dementia, and about a month ago, my mother had a nervous breakdown, partly from the guilt of dumping all the financial stuff onto me (120 miles away).  Dad never wanted to let me help and learn, Mom never DID learn, but now, luckily I have a flexible tennis teaching career and can start to learn.

I think one of the biggest shocks was discovering from our meeting with the accountants that they file 5 tax returns, and chose not to dissolve a corporation (C?) that was formed only to handle the sale of my father’s business 2 or 3 years ago. This is so far out of my league.

I very much appreciate your website on S and C Corporations, and I have also found some online articles on LLCs, since Mom and Dad have two of them for their two rental properties.

It could very well be that the accountants are not overdoing it with Mom and Dad, since you write about “smoothing” out income by using corporate entities.

Are there any books, etc. that I can get, or more websites for me to learn? I was considering an 11-week course (3 hours/wk) at Univ. Calif. San Diego’s Extension School, called “Taxation of Business Entities,” but that might be overkill for me.

Very appreciatively,

A-1:

You or whoever is in charge of the finances shouldn’t have to guess why your accountants do things a certain way.  Ask them and they should be able to explain their rationale.

In regard to education, it depends on what your goal is.  Do you want to be a professional internal accountant, independent bookkeeper or tax preparer; or do you just want to learn for learning sake?

Kerry Kerstetter

Q-2:

Thanks very much, Kerry, for your help.  I just want to learn for learning sake, so that I can better ascertain excessive versus excellent work by

accountants, lawyers, etc.  You are correct that I should just ask accountants their rationale.

        You are sure contributing well to the world with all that you do.

Thanks from all of us! 

A-2:

While most accountants and attorneys do generally have good reasons for originally setting things up, it is very easy to just let things go on as is while circumstances change.  Having them reevaluate everything every five years or so, or after major developments (deaths, marriages, divorces, etc)  would be a wise move to see if any modifications need to be made.

If you don’t need any actual degrees or formal credentials, sitting through a college course that is most likely several years behind the times would be a big waste of time.  You would be better off buying and reading the reference books that we tax pros use, such as The TaxBook and the QuickFinder ones, as I mentioned in this recent post.

There are also several companies that provide both self study and live one and two day seminars on tax and accounting topics, such as the company I taught for several years ago, Gear-Up. They would be much more up to date and a much better value for your time than a long drawn out college class.

Good luck.  I hope this helps.

Kerry Kerstetter

Follow-Up:

You are a very kind, generous person, Kerry.  The information you have given me is invaluable (“priceless!”), and I cannot thank you enough.  I will

follow all of your advice, including going to the websites below.  A seminar would be good, too. 

 

Q-1:

Subject: Extension dates

I should probably try to send in all our own extensions for 2005 to keep from asking you folks to do more and more for us.  But I will have to ask you or Kerry to send me a list of due dates for both personal and corporate ones to be sure I get them in on time. I didn’t find them on taxguru.org when I searched there.

A-1:

Corporate income tax returns (both C & S) or extensions are due two and a half months after the end of the corp’s tax year.  For calendar years, which all S corps must use, this means the extension is due March 15.

The corp extension is Form 7004 and gives an automatic six months.  If you do want to do it yourself, you can download the form from IRS.

 It should be mailed to the same IRS service center as shown on the instruction cover letter that was with your previous year’s tax return.

Good luck.  I hope this helps.

Kerry

Q-2:

Kerry,

Yes, the info you sent on extension due dates helps a bunch.

Does the IRS see any difference between extensions filed by individual or corporate taxpayers themselves and extensions filed on behalf of the taxpayer by their tax preparer? 

It “seems” like extensions filed by a professional tax preparer might carry more weight with them somehow? But this might be a misperception or really a completely non-issue with them.

Thanks for your insight.

A-2:

I have never heard of or noticed any difference in IRS attitude between when people send in their own self-prepared extensions or if it’s done by a tax pro.  Extension forms are just entered into the IRS computer and aren’t really scrutinized very closely by IRS. 

While it may sound self serving, that is definitely not the case with actual tax returns.  Because they are so complicated, IRS does look more closely at self prepared returns, especially those done by hand, because there is a much higher probability of an error than with a tax pro’s computer prepared return. 

Kerry

Follow-Up:

Kerry,

Thanks for your views on self-filed extensions being okay. I definitely understand the need to have YOU do our actual returns– especially since we have set-up a corporation.

I feel sure I can follow your directions to file our extensions for 2005 and will send you a copy of each. 

 

 

From a client who recently moved and is having some difficulty locating a new bookkeeper:

Hi Kerry,  I contacted…who can do the Quick Books software, but likes to use “Creative Solutions Write Up for Windows”. Please let me know what you think…I thought we might change over  with the next year’s taxes.  Thanks,

My Reply:

If you want me to continue to work on your taxes, you will need to keep your data on QuickBooks.  Years ago, I did try to work with a variety of different accounting programs that clients and their bookkeepers were using, including some from PeachTree and Creative Solutions. It became a total mess tying to keep up with all of those different programs.  It was also a mess when they would send me printouts of their general ledger and then I had to manually write up adjusting journal entries to make their books match the tax returns.

It has been going much more smoothly since we migrated everyone over to QuickBooks, where I can check out and adjust their data details at the same time I am working on the tax returns.  I do have all of the QB programs, from 1999 through the most recent 2006, installed on my computer; so clients don’t have to upgrade every year if they don’t want to.

As I constantly have to remind people, using QuickBooks isn’t for my benefit. It is the most widely used accounting program in the country, and has become the standard for small businesses.  This means that it is much easier to share data with more people and to find bookkeepers who can work on it.  There are several million QB users around the country. I don’t know the size of Creative Solutions’ user base; but I’m sure it is a small fraction of QB’s.  This means that if you convert your stuff to that program, you will have a harder time finding people to work with it. 

It’s your call. If you find it more convenient to work with local tax and bookkeeping people, I understand and will have no hard feelings if you want to switch.  However, if you want me to continue to work on your tax returns, your data must be on QuickBooks.

I don’t mean to be difficult with this; but it is based on too many hassles trying to coordinate other accounting programs that I don’t want to have to repeat.

Let me know if you have any questions. 

Kerry

Follow-Up:

Hi Kerry,  No problem…Quick Books it is.  They said they could use Quick Books if you required it.  I will probably interview them shortly for bookkeeping only as I am happy with our relationship.  I will wait until we have filed the current return and then talk to you again before making  any changes with …  Many thanks for your help on this.  

 

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