Posted by taxguru on July 19, 2006
Smokers may get burned in cigarette-tax collection – As usual, the tax collectors in the PRC lead the way in finding ways to squeeze more money out of people. This time, nicotine addicts who bought their smokes from out of state vendors will be receiving bills for excise and sales taxes. They are guestimating this will squeeze another $52 million in additional taxes out of evil nicotine fiends on the Left Coast, very popular targets for tax loving rulers.
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Posted by taxguru on July 18, 2006
Their worst fears have become real.
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Posted by taxguru on July 18, 2006
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Posted by taxguru on July 18, 2006
Anyone who has had to deal with the passing of a loved one knows that the hassles are almost limitless. While it’s not possible to be completely stress-free; there are some things that can be done to reduce it somewhat.
I’ve written several times about Mark Colgan’s excellent Survivor Assistance Handbook.
In Mary Hunt’s Everyday Cheapskate column today, she had info on some other similar guides to dealing with this most difficult aspect of life.
“If Something Happens to Me” by Joseph Hearn and Niel Nielsen
“Ready or Not” by Julie Edstrom – available in various formats; book, CD and internet download.
“Creating the Good Will” by Elizabeth Arnold
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Posted by taxguru on July 18, 2006
I’m sure other practitioners have had this experience, where a client or someone they meet claims to have heard a certain “tax fact” from a friend of a friend and they tend to believe it more strongly than what those of us who keep up on these thing say. This comes up quite a lot with various rumors about the Section 179 expensing election, such as this recent email.
Q:
Subject: Section 179: Still going after 2006?I heard that the current level for Section 179 of $108K is dropping back down to $25K after 2006. I have seen on your website otherwise. Is your information up to date on the levels of Section 179 after 2006? Is there a chance that will go away or be reduced in future years?
A:
My figures for the Section 179 are as current as the recently signed tax legislation.
Whoever told you the maximum is dropping after 2006 is working with very old data.
No tax law is immune from meddling by our imperial rulers in DC; so there is no guarantee that the Sec. 179 deduction won’t be changed.
Kerry Kerstetter
Follow-Up:
Thanks so much for your prompt and frank reply. I guess since there is both old news and more up-to-date news, it is a bit confusing. Thanks for the clarity…
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Posted by taxguru on July 17, 2006
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Posted by taxguru on July 14, 2006
How tax breaks find their way into our tax code.
As I’ve mentioned many times before, these are extremely attractive investments, when Congress-Critters are willing to sell multi-million dollar tax breaks for literally pennies on the dollar in campaign contributions (aka legalized bribes).
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Posted by taxguru on July 14, 2006
Q:
Subject: Two entities together
Kerry,
In a recent post to your blog you wrote: “a Personal Service Corporation (PSC) which is subject to much higher tax rates than normal C corps. There are easy ways around this, often by the use of two entities. A competent tax advisor should have no problem in helping you set things up properly.”
I know of many doctors that have done this, but it made wonder why the IRS wouldnt classify this as a type of tax shelter. The only reason that someone is creating the second entity is simply to reduce their tax rates i.e. there is no true business purpose.
Thanks.
A:
I’m not really sure if I understand the motivation of your question.
If you are worried that IRS could challenge such an arrangement, that is always a possibility because IRS can always challenge anything they want to, and the burden of proof is on the taxpayer to establish the validity of the structure. Too many people self censor themselves and are too scared to take certain tax savings steps because of the fear that IRS may want to dispute it. As I’ve pointed out on many occasions, the government gets a lot of extra tax money from people for just this reason.
While one of the big benefits of setting up a separate corporation to provide various back-room business services for a PSC may be net tax savings, having those other functions handled by a separate entity can be easily justified, for liability, as well as efficiency reasons. Asset protection advisors have long advocated keeping business operations in separate self contained entities in order to shield each one’s assets from lawsuits and other legal actions caused by the other. With doctors and crazy malpractice suits, doing this would make perfect sense, without any consideration of the tax benefits.
I hope this helps you understand this issue a little better. Your own personal professional tax advisor can help you how any of these ideas and concepts would apply to your unique circumstances.
Kerry Kerstetter
Follow-Up:
Yes this does help and I do agree with you that too many taxpayers dont do enough to lower their tax burdens.
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Posted by taxguru on July 13, 2006
Q:
Subject: Exchange QuestionCan you do a Like Kind Exchange for second home (non primary residence) if it had never been rented?
A:
There are a lot of gray areas in this simple question.
If the property was only used for purely personal reasons, it does not qualify for a 1031 exchange and any gain on its sale will be taxable.
If the case can be made that it was used for either investment or business purposes, it would be eligible for a 1031 exchange.
The fact that the property appreciated in value (or else why would you even consider a 1031?) does document that it was a good investment. However, if IRS were to challenge it, they would question whether investment was the main motivation for holding onto the property or was it for personal pleasure. Whether it truly qualifies or not could hinge on how often it was used for personal pleasure. If it sat vacant most of the time, with occasional maintenance visits, a good case could be made for considering it to be Investment Property. If it was constantly being used by family and friends, that would be a harder argument to defend.
I’m sorry not to have a cut and dried answer; but this is the best that can be done with this topic.
Good luck. I hope this helped at least a bit.
Kerry Kerstetter
Follow-Up:
Yes thank you very much.
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Posted by taxguru on July 13, 2006
Q:
Subject: Payroll checks
Hi Kerry,Is it possible to create payroll checks in the regular check runs in Quick Books without having to purchase the payroll program from Intuit? Please advise.Thanks
A:
You can and should print the payroll checks through QuickBooks.
Just enter the check info with split detail, starting with the Gross Salary as a positive number and then a negative number for each item withheld.
Not using the QB Payroll Service just means that it won’t calculate the withholdings for you or prepare the payroll tax returns. As long as you are willing to do those things manually on your own, this will work fine.
I hope this helps.
Kerry
Follow-Up:
Will do. Thanks Kerry!
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Tax Guru - Ker$tetter Letter 