Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

  • Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 660 other followers

  • Blog Stats

    • 280,898 hits
  • Posts By Day

    August 2007
    M T W T F S S
    « Jul   Sep »
     12345
    6789101112
    13141516171819
    20212223242526
    2728293031  
  • Subscribe

  • Special Pages

Archive for August 6th, 2007

Facts of life…

Posted by taxguru on August 6, 2007

The best way to explain how Social Security works is to describe a typical Ponzi Scheme.


(Click on image for full size)

Posted in comix, scams, SSA | Comments Off on Facts of life…

Reduced Social Security Benefits

Posted by taxguru on August 6, 2007

Q-1:

Subject: early social security


If one takes social security @ 62 and earns more than 12K but puts the excess amount in a defered program like 401K is the earned income still counted as earned income

 

A-1:

Unfortunately, putting a huge chunk of current W-2 income into a deferred comp plan in order to avoid the SSA’s penalty on those with excess earned income (over $12,960 in 2007) would be too easy.  SSA counts the full amount earned during the year, which is normally going to be the amount subject to MediCare tax, not the smaller amount subject to income tax.

There aren’t as many opportunities for avoiding this penalty by W-2 wage slaves as there are for self employed individuals, who have several very easy methods to accomplish this since SSA looks at the net Schedule C income and not the gross pay, as they do for W-2 recipients.

I hope this answered your question.

Kerry Kerstetter

Q-2:

Sec 125 and flexbenefit plans are not subject to SS so if all the money went into pay for sec 125 benefits would that work?

 

A-2:

It’s my understanding that SSA doesn’t look at those kinds of benefits as part of their earned income calculations.  So, if they don’t show up in the Medicare Wages box on the W-2, I don’t see how they would be part of the benefit reduction process.

Depending on how much money you are talking about shifting to tax free benefits, you need to be very careful that the amounts are reasonable and in compliance with the kinds of expenditures spelled out in the business’s particular Section 125 benefit program and are not disguised compensation.  In this matter, there is more potentially to fear from IRS attempts to reclassify it as taxable income than from SSA trying to use it to reduce benefits if things are handled properly.

Kerry

 

 

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

 

Posted in Uncategorized | Comments Off on Reduced Social Security Benefits

Corporate Roles

Posted by taxguru on August 6, 2007

Q:

Subject: S CORPS

I was reading your article on S Corps and was wondering if each corporate officer must be a shareholder in the S Corp?  In other words, does the title of corporate officer imply ownership or can it be a status only recognized perhaps in the articles of incorporation or even set up at a later date?  (ie is it possible to be a corporate officer in as S Corp but not receive a K1?)

 Thanks for any input you can forward.

 

A:

While it is very common with small corporations for one person or a few persons to encompass all of the roles in operating them, that is not required.  Different people can have different roles.

It is really no different than with a large billion dollar corporation, where the roles are usually held by different people.  The most common roles are shareholders, officers, directors and employees.  Although a person can have more than one of those roles, they don’t have to and can just fill one role at a time.

So, with an S corp, just as with a C corp, the shareholders can be different people than the officers or than the directors or than the employees.  The critical difference for S corps is that there are special limits on who can be a shareholder without jeopardizing the S status.  Your personal professional tax advisor can assist you in complying with those restrictions.

Besides consulting with your own personal professional tax advisor before setting up a corp or making any major decisions as to its strategies, you may want to check out the very useful reference materials on the principles of corporations and how to operate them properly from such sources as Nolo Press.   I have been using their books for well over 20 years and still frequently refer to them.  Reading over them will save you a lot of legal fees, as well as keep you out of trouble.

Good luck.  I hope this helps.

Kerry Kerstetter

 

 

 

Posted in Uncategorized | Comments Off on Corporate Roles

Gift Tax History

Posted by taxguru on August 6, 2007

Q:

Subject: Historical annual tax free gift allowances

Kerry,

What were the annual tax free allowances for gift taxes from 1965 to 2007 by year?

 Example

 2007                                                                                  $ 12,000

2006                                                                                              $ 12,000

2005                                                                                              ?

2004                                                                                              ?

2003                                                                                              ?

 

     1965                                              ?

 

A:

My policy is to not answer homework questions.  However, check out this post from almost four months ago

Kerry Kerstetter

 

 

 

Posted in Uncategorized | Comments Off on Gift Tax History

Piercing Corporate Veil

Posted by taxguru on August 6, 2007

Q:

Subject: c vs. s corp, llc, and other other choices I might have….

Hello,

 

I ran across a page from your webiste on the s corp vs. c corp that was very informative and quite good.  I am knowledgeable in these areas and have been talking to lawyers, accountants, etc… about the best way to structure my businesses…. for tax reasons… but also quite importantly… liability reasons….. and want to set up a structure that would protect my personal assests from the company’s in the event of any lawsuits etc…  The business I am in… and most concerned with is the fitness business(gym ownership).  Questions arise when talking about “piercing” the corporate veil??  Any articles/opinions relating to that….?

 

I intend to look at your websites… blog etc.. in more detail soon.

 

Thanks,

 

A:

You are correct that maintaining the proper separation between your personal and corporate things is very important in order to protect against piercing the corporate shield by either IRS or overly aggressive attorneys.  Many small corporate owners do jeopardize this protection by commingling their personal and corporate records and assets.  This gives IRS and attorneys a perfect opportunity to ignore the corporate shield and accuse the owners of operating as if the corp is merely an alter ego of themselves.

I’m not an attorney; so I don’t write a lot about this.  I’m sure there are plenty of blogs by attorneys out there that will provide a variety of opinions on this subject.  However, the ultimate decisions as to whether you are conducting yourself properly in this regard should be determined with the assistance of your personal legal counsel, with input from your personal professional tax advisor.

Good luck.

Kerry Kerstetter

 

  

 

Posted in Uncategorized | Comments Off on Piercing Corporate Veil