When Your Landlord Is a Cat – Another story of creative estate planning, leaving property to dependents of the Feline-American variety.

Q:

Subject: inheritance tax question

 

Hi. You know my cousin … and she suggested I could try to ask you a question.When my mom dies all of her accounts have her 3 kids as beneficiaries. We should share almost 300,000. These are cd’s, bank accounts, treasuries, mutual funds…some in an IRA account. Do we pay any tax? She has paid tax on all of the money except her IRA.

Thank you,

A:

These are the kinds of things you need to work on with your own personal professional tax advisor.

Basically, in most cases inheritances are tax free to the heirs.  The most common exception to this is with pre-tax retirement accounts, such as conventional IRA accounts.  If the account was a conventional IRA, where your mom claimed deductions for the deposits, or a rollover from another pre-tax account, the balances passed on to the heirs will be taxable on their 1040s.

If the IRA was a different kind, such as a Roth or non-deductible, part or all of its balance could be tax free.  You will need to work with the account’s custodian, as well as your mom’s professional tax advisor

If the account is of the fully taxable type, you have a variety of different options as to when you will report it on your 1040 and pay the taxes.  You can do it all at once in the first year.  You can take it out in increments, completing the withdrawals by the fifth year following death.   There are also some different rules depending on whether your mother had already begun a withdrawal program before she died.

As you can see, there is no quick and easy answer.

Good luck.

Kerry Kerstetter

 

Q:

Subject: QB classes

 

Hello,

 

I read an article you wrote about classes, and I’m starting a new business and just setting up QB and trying to decide the best way to do it.

 

I don’t know if you have time, but I’ll try anyway.

 

This business is to be an employer agent, and will handle the payroll & taxes for people who are medicaid recipients. This allows a consumer to be the employer of record and to hire/fire their own homehealthcare workers. My company will get paid an amount per month per person to do this, the company will file electronically to the state for both the fee and the $ to pay the clients employees, and we’ll pay the employees every 2 weeks, and print a report showing how much has been paid YTD and whats left in each persons yearly budget.

 

I’m trying to decide the best way to set this up. I was told once that each Client/Customer should be setup as a separate class within Quickbooks, and there are some bookkeeping and accounting entries that need to be made to adjust for this type of set-up, but I haven’t figured out how to do it.

 

Do you have an idea as to how best to set this up that you might share with me?

 

Thanks,

A:

There are several ways in which you can set up your QB for your business.  There are too many options to consider for me to be able to advise which specific one would be the most practical for your unique situation; so you need to work with a professional accounting advisor.

I can make a few observations that may help you focus in on the best format for you.  One mistake I often see is when people set up a class for each customer.  This frequently makes the Class list too large and unwieldy to be practical, especially when you run a P&L with columns by Class.  I have normally found it more appropriate to have classes by type of business or tax return schedule (C, E, F, etc) and then make sure each income & expense entry is coded with the Customer or Project name.  That will enable you to produce plenty of different reports for each customer or project. 

Good luck.

Kerry Kerstetter

 

From a new Tax Blogger:

Subject: Enjoy Your Tax Blog

Kerry,

 

I’m a long-time reader of your tax blog and more recently a subscriber via bloglines. As always, I find your content very insightful and humorous, especially regarding politicians and lobbyist. Yes, our representatives (if you want to call them that) in Washington have never met a spending bill they didn’t like. We all know that if our federal government was a private enterprise that it would be bankrupt. Oh well, I’ll get off my soapbox. I’m a CPA in Atlanta with nearly 20 years experience in both public and industry. Presently, I’m in industry. However, over the past six years, I’ve gradually established a part time tax practice of mostly individuals and a few corporate returns. I’m getting to the point of possibly making the jump to establish my practice on a dedicated full time basis. At the present, much of my development is via referrals and via my website and blog. The website is http://www.brianbrowncpa.com/ and the blog is at www.brianbrowncpa.com/blog/ I would invite you to subscribe to my feed. My posts mainly focus on tax issues with a mix of personal finance and other small business issues.

 

Some of my post that you may find insightful are as follows:

 

Who does Uncle Sam audit?

 

Organized Tax and Other Financial Records – A Guaranteed Return on Investment!!!

 

You, Inc. – Run it like a business

 

Also, I would welcome any insight into starting and growing a practice. Thanks and keep you the great service.

 

P.S. I can see that you are a Neal Boortz fan as well. As a resident of his home city, I do find him both insightful and entertaining. Glad to see that he has fans all over the country.

 

Thanks, Brian

My reply:

Brian:

Thanks for the note and the info on your new blog. I checked it out and am very impressed. I did add it to my Bloglines account so that I can pick up each of your entries as they come out.

I also noticed that Kay Bell included one of your articles in her most recent Tax Carnival. That should definitely jump-start awareness of your blog and help your readership grow.

I am a big fan of fellow Libertarian Neal Boortz and hope you’ve been able to participate in his push for the FairTax. If so, you may want to write about it. I find people very skeptical that there are a lot of us CPAs around the country who would love to eliminate the IRS and reduce our income accordingly.

Thanks for writing and welcome to the tax blogosphere. I wish you continued success with it.

Kerry Kerstetter

Follow-Up:

Kerry,

Thanks for adding my blog to your bloglines account. In fact, I took you up on the recommendation to write a blog entry regarding the FairTax. It takes a little more momentum day by day.

 Again, I enjoy your blog and related commentary.

 Thanks,

Brian Brown

KMK:

Brian:

I noticed that yesterday and wondered if it was a coincidence.

Keep up the good work.

Kerry

 

Pension Bill Will Bring Big Changes to 401(k)s – From the WSJ.

Congress Props Up Pension Plans – From Gail Buckner

Is Your College Student a “Dependent?’ It Depends! – From Gail Buckner

Q-1:

Subject: Can you recommend a traning guide for Quicken 2006

 

Dear Kerry,

 

Can you recommend a training guide/book for beginning users that do not have an accounting background.  I just loaded Quicken Premier Home & Business 2006, but have no idea how to best set it up.  I will be using it for personal finance, my real estate/business brokerage business, and my wife’s Avon business.  Neither, my wife or I, have employees now, but we may have one or two in the future.

 

Sincerely,

A-1:

Before you get too far along down the wrong path, you need to dump the Quicken program and buy a copy of the lest expensive version of QuickBooks that you can find. 

I have a lot of info on my website as to why QB is far superior to Quicken, and I say this as someone who had been a huge supporter of Quicken for small businesses for several years, before that program veered too far away from true double entry accounting and QB became much easier to work with.  With the multiple business you are running, there is no way I would feel comfortable trusting the books to Quicken.

In regard to setting up the QB data file in the most efficient manner, the best thing would be to have your personal professional tax advisor assist in configuring things so as to provide what would work best to coordinate your QB data with the tax returns s/he will be preparing from it, especially in regard to the Classes to use. 

If you don’t have a professional tax advisor, you can’t be serious about running your businesses and you need to find one ASAP.  Your self admitted lack of accounting knowledge is a cry for help from an accounting pro.  Trying to teach yourself to develop those skills would be futile and take you away from the more important use of your time, selling real estate.

Good luck.  I know this isn’t the answer you were expecting; but it is the only response I can feel comfortable in providing.

Kerry Kerstetter

Q-2:

Kerry,

 

Thank you, thank you, thank you, very much.  I am so grateful.  You have saved me from making a big mistake and from spending a great deal of time

unproductively.  I will dump Quicken for QB, and hire a tax professional forthwith.

 

I found the least expensive version of QB to be Simple Start 2006, but based on information from your website, I should stay away from it.  Should I go

with QB Pro 2006 or QB Basic 2005.

 

Please let me know.

 

Thanks again,

 

Sincerely

A-2:

It is actually a bit of false advertising for the Simple Start program to be referred to as a version of QuickBooks.  It is nothing more than a Mickey Mouse too basic bookkeeping program that should be avoided as much as Quicken.

I’ve written a few times in my blog about the problems I and other users have had with QB 2005 freezing up; so I would stay away from it.  Up until a few months ago, I would have said it was okay to start out with QB 2004 Basic.  However, after having used the QB 2006 programs quite a bit in the past few months, for both our own and several clients’ books, I now believe it would be best to start out with the QB 2006 Pro.  Besides being very reliable, it will give you a full three years of supported use before Intuit abandons it.

You can buy the program from several vendors.  The lowest prices I have seen have been from sellers on eBay and from the big warehouse stores, such as Costco and Sam’s Club.

Good luck.  I hope this helps.

Kerry

 

I was working on extensions for corporate clients with fiscal years ended May 31 and realized that, normally at this time of year – in the weeks preceding August 15 – I would be busting my butt working on preparing about 100 extensions for our 1040 clients. It’s different this year, as the 4868s we sent in back in April were for six months, giving us until Monday, October 16. 

I’m sure, in spite of the sticker I added to all of our 4868s, there will still be a lot of panicky clients calling over the next few days, wondering about their second extensions.