Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for January, 2007

The key to e-filing?

Posted by taxguru on January 31, 2007

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Posted by taxguru on January 31, 2007

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Employee Expense Reimbursements

Posted by taxguru on January 30, 2007

 

Q:

Subject: 1099-MISC
 
Hi Kerry,
 
My daughter is a salaried employee.  During the past year she received reimbursement for work-related travel expenses via an allowed mileage rate.  She just received a 1099-MISC reporting the total of the reimbursed amounts as if it were compensation.  The amount is too small to be deducted as an employee expense.  My tax software wants to treat this as taxable income which hardly seems fair or appropriate.  What should she do?  Thanks.
 
I forgot to mention that the amounts are being reported under Block 7, Non-employee expenses.

 

A:

She needs to list all of her personally incurred out of pocket business related expenses, including appropriate miles on her car  on Form 2106.  The reimbursements received should be reported on Line 7 in the appropriate columns.  As the Step 3 portion of the 2106 will show, if she received more in reimbursements than her expenses were, the excess amount only will have to be shown as income on Line 7 of her 1040.  If her net expenses were higher than the reimbursements, that excess will be entered on Schedule A.

If she doesn’t have enough deductions to itemize and uses the standard deduction, she should still include the 2106 and Schedule A with her 1040 just to show IRS that the amount from the 1099-MISC has been reported in the proper place (Line 7 of the 2106).  If these schedules aren’t included with the 1040, IRS could very easily mistake the 1099-MISC amount as unreported income and send your daughter a bill for taxes on that in a few years’ time, plus interest and penalties.  I have seen that happen on several occasions.

Your daughter should really be working with a professional tax advisor to make sure she is claiming all of the out of pocket business expenses to which she is entitled.

I hope this helps.

Kerry Kerstetter

 

 

 

 

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Timing of Income Recognition

Posted by taxguru on January 30, 2007

 

Q:

Subject: Income recognition problem
 
Hi Kerry,
I love your blog, esp. the cartoons, and I had a question for you. I run
a website where I earn affiliate income and I use the cash accounting
method (where you recognize income when it’s paid, not when the work is
performed) with my sole proprietorship. My problem is that the program
will recognize monies paid out on Dec. 31st via check as part of my
earnings in 2006 on the 1099 and I didn’t know if I had to as well and
whether that discrepancy would be a problem.
 
Thanks,

 

A:

I’m assuming that you’re referring to how to handle a check to you that was printed on 12/31/06, but not actually received by you until sometime in early January 2007. 

By not having constructive or actual receipt of the money, you are correct that you do not have to pay tax on it on your 2006 income tax return, even if the payor has reported it to IRS as 2006  income. The way I have long handled this very common situation is to include the full 1099 amount on the Schedule C line for gross revenues and then on a line below that, enter a negative amount for the check not received until 2007, with a description of what happened.  This way, the IRS computer will match the 1099 amount and the actual amount of income you are paying tax on will be accurate.

You then need to be sure to make the same kind of adjustment in the opposite direction on your 2007 Schedule C.  You need to add the January 2007 payment received to the 2007 1099 amount. 

You really should be  addressing issues such as this with your own personal professional tax advisor.  If you don’t have one, you should know how I feel about that if you have been reading my blog for any length of time.

Good luck.  I hope this helps.

Kerry Kerstetter

 

Follow-up:

Hi Kerry,
Thank you so very much for the response and you understood my poorly explained question perfectly! And yes, after reading your blog for several months, I do know your stance on hiring a professional and I have considered it – I just haven’t gotten all my docs together so I have been putting it off.

Thanks again and if you ever have blog related questions, feel free to shoot me an email 🙂

 

Go Daddy Domain Names

 

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Posted by taxguru on January 29, 2007

Some 1099 forms will arrive late – And most likely with errors.  This is just one of the many reasons why it’s not a good idea to try to rush a tax return out too quickly.  Be sure to take plenty of time to make sure everything is as accurate as possible.

 

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SUV Shopping By Weight

Posted by taxguru on January 28, 2007

 

Q-1:

Subject: Corp. tax deduction
 
Hello Kerry,
 
Is this vehicle rated ok for a one time full purchase price tax deduction for our corporation?
 
Model
TK10906 -2007 YUKON XL DENALI -AWD
 
Gross Vehicle Weight Rating
3360 kg (7409 lb)
 
Purchase price of 2007 Yukon XL is approx. $55,900.00.
 
Thanks for your help,

 

A-1:

Since the Denali is an SUV, its first year Section 179 deduction is limited to $25,000.  If it were a pickup truck, the maximum would be $108,000.

The rest of the cost over the first $25,000 would be depreciated over five years.

On a related note, I checked on the info that the local Chevy dealer was passing on in their ads.  They weren’t saying that the tax law changed as of 12/31/06. They were only pointing out the obvious fact that calendar year taxpayers had to buy a new vehicle by 12/31/06 in order to claim it on their 2006 tax returns.  Since your corp tax year doesn’t end until later, your deadline is later than those who use December 31 for their tax year.

I hope this helps.

Kerry

 

Q-2:

Hello Kerry,

 Is a Chevrolet Avalanche Truck ok as a one time full purchase price tax deduction for our corporation?

 Is an open bed truck the only kind of a vehicle that is ok for an one time full purchase price tax deduction?

 Thanks for your help,

 

A-2:

The rules for which vehicles weighing more than 6,000 pounds are subject to the $25,000 Section 179 limit are on my blog here.

“To not be subject to the limit:
I) is designed to have a seating capacity of more than 9 persons behind the driver’s seat,

`(II) is equipped with a cargo area of at least 6 feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or

`(III) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.’.”

With the Avalanche, it would need to weight over 6,000 pounds and have an open bed at least 6 feet long.

This sounds similar to a discussion we had last year about a Denali, which I actually posted on my blog.

Good luck.

Kerry

 

 

TaxCoach Software: Are you giving your clients what they really want?

 

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Posting Stocks in QuickBooks

Posted by taxguru on January 28, 2007

Q:

Subject: Stocks

 
Kerry,
 
I have made the dividend entries as I understand your instructions.  Of course the balance in QuickBooks does not agree with the balance on the statement for this account.  Since I only pay tax on the dividend income, I assume this in not a problem.
  
P.S.  I see my question made your newsletter so I don’t feel too dumb!


A:

Most non-accountants are confused as to the proper way of handling reinvested dividends; so I thought your question was perfect for educating others.

If you are referring to the market value of the shares, you are correct that the stockbroker’s statement will not match the figures in your QB because QB is strictly a record of your cost basis, or what you have invested into the shares.

However, the dividend income reported by the stockbroker for the previous year should match what you have in your QB and is the most important way we have of double-checking the accuracy of the QB data.

Kerry


Follow-Up:

Kerry,
 
My dad just had his 88th birthday.  He is a retired accountant so I thought you might enjoy seeing his reply.

He is much better on the computer than I am.  He teaches classes at the senior center!

Thanks for sending Kerry’s reply.  I am impressed with him and his explanation.

Your QB is more detailed and accurate, as he said.

Over the years I have become accustomed to the automatic steps taken by
Quicken and MS Money and forgot I ever used a General and other Journals.

In MS Money,  my portfolio page shows in each investment the number of
shares owned,  The total value as of the last entry date and the amount
of gain.  This is a backward way to arrive at the investment cost, but
arrives at the same answer.
 
 

The best book on QuickBooks Premier Editions

 

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Working With Corporations

Posted by taxguru on January 25, 2007

I receive dozens of emails each week from people confused as to how to properly utilize a corporation; a very few of which I post on this blog. It was no surprise that, when I was invited to give a presentation to the Tri-Lakes Board of Realtors in Branson tonight, that this would be the topic. I rarely make live public appearances any more, but the chance to set 200 or so Realtors onto the right track was too tempting to pass up.

For those who can’t make it, I have posted the handout that I prepared for the attendees, using the TaxCoach Software templates.

I have another few pages of notes that I am assembling of major points I intend to cover. I will probably post those in the next few days, along with comments from the actual presentation.

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IRS Moving to Costa Rica?

Posted by taxguru on January 25, 2007

It was well publicized that the big floods in DC last Summer forced IRS to close its World HQ for several months. I wasn’t aware that some nut-jobs took that temporary vacancy in DC to signify that IRS had moved much of its top brass to Costa Rica until I saw this piece from Snopes.com debunking that.  

 

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Use TurboTax and go to prison?

Posted by taxguru on January 23, 2007

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