Tax Guru – Ker$tetter Letter

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Archive for October 22nd, 2007

Trading in RV

Posted by taxguru on October 22, 2007

Q:

Subject: Disposal of 179 asset

Kerry,  I used 179 deduction in 2005 to purchase an RV that I use for business purposes.  I plan on “upgrading” to a larger RV and trade the original one in on the new one.  What are the tax implications?  Will I be able to take an additional 179 deduction on the new RV?  The old RV cost $103,000 and I should be able to trade it in for about $75,000.  The new RV list price is $225,000.  I file a schedule C and have other income from other sources ($450,000) other than the Schedule C income.  Thanks for your help and I love your Blogs.

 

A:

I have discussed this very topic in a number of previous blog posts, so I will only give the quick and simple answer.

Only the new investment in business equipment would be eligible for the Section 179 deduction.  In your case, that would be the additional $150,000 ($225,000- $75,000) that you would be paying for the new RV, assuming it is going to be used 100% for your  business.  How much you can actually deduct will be subject to the various other limits, such as applicable earned income and total investments in Section 179 property for the year.

If you’ve been reading my blog for long, you should be able to anticipate my biggest concern in your situation.  Why are you asking a stranger on the net for this kind of advice instead of your own personal professional tax advisor?  That is very scary and frankly reckless for someone earning $450,000 per year. 

You need to start working with a tax pro ASAP and before you buy the new RV because there are some very simple tricks that can be used to allow you to very easily double the amount of your Section 179 deduction from the current maximum of $125,000 for 2007 to $250,000 by using a C corp to acquire some of the new business equipment.  If you’re running all of your income through a single 1040, you are grossly overpaying your taxes.

Good luck. I hope this helps.

Kerry Kerstetter

 

Business Plan Pro

 

Posted in 179 | Comments Off on Trading in RV

How to work with S corps…

Posted by taxguru on October 22, 2007

Q:

Hi Kerry,

 

I’m confused.  My accountant advised me to form an S-corporation citing dividend payments would lower my taxes.  I’m confused about federal tax returns.  As an S-corporation I have to declare all earnings on my 1040 and won’t be able to deduct the corporation expenses?   The way I presently have it structured is I’m paying myself 60% of the corporations earnings, and an additional 40% as nontaxable dividends. 

 

If you have a moment would you please clarify.  Can I write off meals, uniforms, etc.  as a sole owner LLC electing s-corp tax filing statues?

 

Thank you,

A:

You need to be working with your accountant on this matter; not a stranger on the internet.

Your accountant should have explained all of the pros, cons and logistical details when s/he helped you come to the conclusion that an S corp was the proper format for your busyness.  S/he should then be available to help you handle the finances properly for your situation, as well as help you maintain the books and prepare the tax returns.

It sounds like either your accountant abandoned you or you chose the insane path of going it alone.  I’m not sure how you got the idea that business expenses are no longer deductible, but that is not the case, nor is it necessary to bleed out all of the profits from an S corp in the manner which you described.  You are operating under some seriously misguided concepts that no decent professional tax person could possibly have told you; so it appears that you are trying the extremely dangerous task of navigating the tax waters on your own.

You need to either reconnect with your previous accountant and get all of the logistical details worked out or find yourself a new one ASAP before you do any more damage.

Good luck.

Kerry Kerstetter

 

 

 

Posted in corp | Comments Off on How to work with S corps…

Posted by taxguru on October 22, 2007

Posted in comix, IRS | Comments Off on