Q:

Subject: S-corp

 

Mr. Kerstetter,

 

I just read your article on S-corps on the internet, and now I am more confused than ever.  I am an insurance agent and my wife is a teacher.  In

2004, we had a net income of $112,000.00 and we paid $27,000.00 in state and federal taxes.  A friend of mine who is also an agent say’s that he will only pay around $13,000.00 on the same income.  Can you give me an idea of where I can find out what is best for me?  I really do not want to pay $30,000.00 in taxes if I can legally pay less.  I appreciate your article and any help you can give me.

 

thanks,

A:

It is really not possible to do a direct comparison of two tax returns with the same amount of income because of all of the variables that come into play to affect the bottom line.

However, if you are reporting all of your income on Schedule C, odds are that you are paying in several thousands of dollars each year just in self employment tax that could easily be reduced or eliminated by using a C corp.  A C corp also allows you to keep your maximum Federal income tax rate at 15% if you use the income shifting techniques properly. 

There are far too many variables involved for me to be able to advise the best entity and jurisdiction to use for your particular situation via this medium.

To work out the best solution for your particular circumstances, you really need to work with a tax pro who can help you set up a strategy that will work for you.

I wish I could help you; but I already have too many clients to take care of; so we are not accepting any new ones at this time.

Unfortunately, we don’t have anyone else to whom we could refer you. If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you.

Good luck.

Kerry Kerstetter

Q:

If the next Congress does away with the inheritance tax exclusions, if someone has already given away

part of his estate (against the now legitimate exclusion), I assume that will not be taxed retroactively.

What do you think?

And do you think the Democrats will work to repeal all the exclusions?

Thanks.

A:

I wouldn’t be so sure of that.  There used to be a time when laws weren’t changed retroactively.  That sense of fairness is no longer the case, especially for the Dems. 

One of the first things the Clinton-Gore team did when they assumed power in 1993 was to ram through a huge tax increase that they made effective retroactively to before they were even in office.  This included sticking it to Senior Citizens by raising the taxable portion of their Social Security benefits from 50% to 85%.  They are still very proud of this achievement.

When Hillary is coronated for her third term as co-president in 2009, we can expect the same kind of thing.  Repealing all of the Bush tax cuts has been a very explicit goal of the Dems, so we can pretty well kiss them goodbye when the Clintons move back into the White House.

Kerry Kerstetter

Follow-Up:

Thanks for your cheery reply.