Archive for May 15th, 2007
Income Shifting
Posted by taxguru on May 15, 2007
Q:
Subject: Fiscal Year on your websiteHi Kerry,I am starting a new LLC and C-Corp to move money back and forth based on this fiscal year principle, however, after reading on your website, I’m not sure I understand your comments “Toward the end of your personal fiscal year (12/31), you bleed off some of your taxable income to your C corp by paying it for something like rent or marketing services.” I was not aware rent or marketing services is tax deductible on a personal level, correct? I understand how you can do such a thing between entities, but not between entity and personal. Could you please explain further? Thanks.
A:
The payments from your personal funds do need to be deductible in order to make the income shifting plan work. They should be deducted on whichever schedules apply to the kinds of income you have, such as C, E (Page 1 or Page 2) or F. If all of your income is from W-2 sources, these payments can be deducted as unreimbursed employee expenses on Schedule A.
Do not try this on your own. Any properly experienced professional tax advisor should be able to help you set this kind of thing up to work most efficiently for your particular circumstances.
Good luck.
Kerry Kerstetter
Posted in corp | Comments Off on Income Shifting
Sec. 1031 & 121
Posted by taxguru on May 15, 2007
Q:
Subject: Exchange QuestionWe are considering doing a 1031 exchange on a single family rental, which has been held for 32 years, and is owned free and clear.The idea would be to exchange this rental home for TWO single family homes, and use them as rentals (like/kind). Then, after 3 years, move into one of the rentals and live in it for two years, meeting the five year holding requirement & 2 year residency requirement …. Then we would sell new Rental Property #1 as a personal residence, and then move into the Rental Property #2 as a permanent residence, and live in it indefinitely.Each of the newly exchanged properties would be rentals – the first one for 3 years (then move in for 2 years), for a total of 5 … and the next exchange property would be a rental for 5 years until we could meet the time requirements.This is hard for me to explain, but I hope you can get a grasp of what I’m trying to do. Trade one rental for two, and live in the two rentals (over a period of five years before moving into rental #2) so as not to pay capital gain taxes. Would these time lines work?
A:
That plan could work, assuming our rulers in DC don’t mess with the tax laws over the next five years to change any of the timing details, which you have correct for the laws as they stand now.
I have one very big word of caution for you. Keep your intention to reside in one of the new rentals to yourself. Blabbing around to a lot of people that you had that plan from the beginning could jeopardize your 1031 exchange because an aggressive IRS agent could classify the house as personal at the time of the exchange. I have seen and heard of cases where people shot themselves in the foot by bragging about plans such as yours. All it takes is one jealous person to turn you in and you’re cooked. The decision to move into the rental has to appear to be made long after you take ownership of it.
Other than that, it sounds as if you are looking at things creatively, which is what makes the tax game so much fun.
Good luck.
Kerry Kerstetter
Section 179 For Large Employers
Posted by taxguru on May 15, 2007
Q:
Subject: Section 179
Hi,Is there a Section 179 phaseout on the # of employees a business has?Thank you,
A:
No. There has never been a direct link between Section 179 and the number of employees.
It is generally assumed that companies too large to be eligible for this special “small business” tax break will automatically lose it via the $450,000 of new property rule.
Kerry Kerstetter
Posted in 179 | Comments Off on Section 179 For Large Employers
QB Classes
Posted by taxguru on May 15, 2007
Q:
Subject: Using classes with Quick BooksIt sounds like you deal a lot with rental property. I read your article on classes. I am a HVAC contractor and would like to know if this can be useful for my business? I need to track my service, replacement and new construction jobs for residential and commercial accounts and split the labor materials and equipment to each profit center.I am taking a quick books class on line FridayAny help would be appreciated
A:
It should be fairly easy to set up QB in such a way as to give you the types of reports you need.
I don’t have time to give you details on this because that process will require some one on one consulting. You should look for a QB pro advisor on the QuickBooks.com website and see if you can find one with some experience dealing with similar situations as yours. S/he can then help you set up the file appropriately and train you on how to enter data and produce the reports you need.
Good luck.
Kerry Kerstetter
Posted in QB | Comments Off on QB Classes
Revoking S Election
Posted by taxguru on May 15, 2007
Q:
Subject: quick S Corp question
Want to revoke S Status for corp. Never filed a corp return. Am three years behind in filing. Want to file as C with fiscal year ending in March 31. Is this possible. I believe we filed 2553 in 2004.
Tku
A:
It won’t be as easy as you think for various reasons dealing with both IRS and your state tax agency.
You need to work with an experienced tax pro to work out the best method to resolve this matter.
Some possible issues you will encounter:
IRS and the State will probably refuse to accept the revocation until you file all of the past due 1120S returns. Even with no activity, you have to let IRS and the State know that. You didn’t say what state you’re in; but if you are in one with a minimum annual tax, such as California’s $800 per year, you are looking at some large past due amounts, including penalties and interest.
Since an S corp is required to have a tax year ending on December 31, you will need to formally request a change. As I’ve mentioned several times before, IRS is not friendly to the concept of non-December tax years; so they are not very likely to honor your request. Also as I’ve said on countless occasions, it may very well be much easier to set up a brand new C corp, where the fiscal year is completely open, than to try to adjust what you already have.
Again, an experienced tax pro should be able to help you straighten these issues out.
Good luck.
Kerry Kerstetter
Posted in corp | Comments Off on Revoking S Election
Creative Tax Saving Strategies
Posted by taxguru on May 15, 2007
Q:
Subject: FW: To Kerry, Seeking Your ServicesHello Kerry, I have been reading up on your site and also on Drew Miles, have you heard of him? Both of you seem to really understand the secrets and strategies on using LLCs for Tax Reduction, and Asset Protection.Drew Miles is very expensive, and I need a tax pro office like Drew Miles (just like Drew Miles) but without the extremely high price of $4,000.
I set up an LLC this year in January, and I have it taxed as an S-Corp. I am wondering if you could please give me a call to discuss you helping me with Income Shifting into another Corp, maybe a C Corp, protecting me from Lawsuits, etc.
Call me. I didn’t see your number listed, I really want to talk with you Kerry, thanks.
In Regards,
A:
I am very familiar with Drew Miles and his tax savings strategies. His techniques are very useful; but what rubs me the wrong way about him is his claim to be the only person on Earth who knows about them. There are several of us tax pros around the country who are very experienced using the exact same techniques as does Mr. Miles, usually for much lower fees. In fact, the tax plans prepared by the TaxCoach Software include most of the exact same things as Mr. Miles’ plans, for a fraction of the cost.
There are far too many options to consider and possible scenarios that can be used to achieve your goals for me to even begin giving you specific advice via this medium.
You all will need to work directly with an experienced tax pro who can analyze your unique circumstances. I wish I could help; but I already have too many clients to take care of properly; so we are still trimming back on the difficult clients and are not accepting any new ones at this time.
Unfortunately, we don’t have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country.
If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you.
You may want to ask any potential tax pros if they use the TaxCoach Software service in order to locate someone who can give you similar service to Drew Miles.I wish I could be of more assistance; and I wish you the best of luck.
Kerry Kerstetter
Follow-Up:
Thank you so much Kerry! I have the list of the referrals for people that are similar to you and Drew Miles. That’s basically what I am looking for, someone who knows what Drew Miles knows but is a little cheaper lol.Thanks alot, and God Bless you for this buddy.
Posted in corp, cpa | Comments Off on Creative Tax Saving Strategies
Avoiding Audits
Posted by taxguru on May 15, 2007
From a Reader:
Subject: For the Entrepreneur: How to Avoid Being AuditedHi Kerry –I just would like to pass along this link. It’s an article I recently published over at Ask the Advisor titled “How to Avoid Being Audited if You’re Self-Employed”. I thought you and your readers over at Tax Guru-Ker$tetter Letter might be interested in having a look. Let me know what you think if you have a moment.Thanks,Jimmy AtkinsonAsk the Advisor
My Reply:
Jimmy:
While not covering all of the ways in which to lower one’s profile on the IRS audit radar, you have addressed some good points.
I will post a link to this on my blog.
Thanks for sharing it.
Kerry Kerstetter
Follow-Up:
Hey Kerry. Thanks!
Posted in audits | Comments Off on Avoiding Audits
A tax refund isn’t a profit…
Posted by taxguru on May 15, 2007
Posted in comix, taxes | Comments Off on A tax refund isn’t a profit…
Tax Guru - Ker$tetter Letter 