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 690 other subscribers

  • Blog Stats

    • 330,034 hits

  • Posts By Day

    November 2007
    M T W T F S S
     1234
    567891011
    12131415161718
    19202122232425
    2627282930  

  • Subscribe

  • Special Pages

Archive for November, 2007

« Previous Entries
Next Entries »

Capitalizing startup costs…

Posted by taxguru on November 18, 2007

Q:

Subject: Depreciation on web site enhancements and portal additions

We are an HMO with website for “E-Health”, designed to enable employees, clients, brokers, practitioners, etc to access info on claims, broker checks, practitioner info/update etc.  We have previously expensed costs associated with this site, to the tune of 800K.  

 

We are now expanding, adding portals, new software, accessibility, info expansion, in the amount of 1.2 million, using third-party vendors. Is there any part of this that can be capitalized?  (Can we change horses in midstream)?

 

Additionally, we have a contract vendor on-site.  We pay them a monthly fee for maintaining all our applications.  All this is expensed as consulting.  If we use folks from this contract pool to develop, train, implement this project, we can’t very well capitalize these costs.  But if we have a special “project contract” with this vendor, for a certain cost, etc., wouldn’t we be able to capitalize this labor?

 

Thanks for your help–our object is to capitalize as much as possible.  If there is a good place to go (besides you!) to get answers, please let me know.  I’ve downloaded every IRS publication I can find on depreciation already and haven’t found an answer.

 

A:

I don’t mean to cop out on this kind of issue; but there is no place to go to help decide how to properly handle the capitalization of start-up costs.  There are several ways in which it can be handled.  That kind of decision requires a lot of analysis of your past, current and future circumstances by an experienced professional tax and accounting advisor. This is in no way something you can do on your own.

Frankly, I find it shocking that you would invest two million dollars in a business start-up without the assistance of tax and accounting professionals from the very beginning.  That is extremely reckless and dangerous on so many fronts.  If that was all your own personal money being used, I guess you will be learning some expensive lessons.  However, if you are using money from outside investors, operating without competent tax and accounting professionals, you are exposing yourself to lawsuits by the investors for fiduciary negligence.

I realize this isn’t the kind of response you were expecting; but anything else would be irresponsible.

Good luck.

Kerry Kerstetter

 

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

 

Posted in Uncategorized | Comments Off on Capitalizing startup costs…

Buy SUV personally or through LLC?

Posted by taxguru on November 18, 2007

Q:

Kerry,

I currently have a day job where my gross pay will be around $110,000 for 2007.  I also own a 60% stake in an LLC, seperate from my $110,000 job.  I need to buy an SUV for my LLC for about 80% business and my use only. In respect to Tax Code Section 179, what is my best strategy for buying a $30,000 SUV that is section 179-eligible? Can I personally take the Section 179 tax break? Or do I get only 60% of the section 179 deduction? Can I take the section 179 deduction on my own or does it have to be through the business?  Your help is greatly appreciated.

 

A:

This is the kind of thing you should really be discussing with your own personal professional tax advisor because there are a lot of factors to take into consideration.

Tax-wise, you could achieve pretty much the same benefits either way; buying it personally or through the LLC.

From a more practical sense, what would concern me more is how you and your partner in the LLC can ensure that you are each getting your fair share of the deal.  It’s an easy enough task to specially allocate the Section 179 for the purchase to your K-1.  What gets messier is how to allocate the operating expenses.  Are you going to pay them personally or is the LLC?  The person who is handling the tax and accounting work for the LLC should also be part of this decision process to see if it would just be cleaner to have each of you take care of your vehicles on your own, which is what I frequently see with situations similar to yours.

There are obviously other factors to consider when working with a multi-owner business that wouldn’t be a concern for a company owned by a single person or a married couple. 

Good luck.  I hope this helps you and your personal professional tax advisor work out the best game plan for your unique circumstances.

Kerry Kerstetter

 

Follow-Up:

thanks for the response Kerry!

 

 

 

 

Posted in 179, LLC, Vehicles | Comments Off on Buy SUV personally or through LLC?

Other kinds of employees?

Posted by taxguru on November 18, 2007

Posted in comix, Employees | Comments Off on Other kinds of employees?

Posted by taxguru on November 18, 2007

Posted in comix | Comments Off on

Squeezed…

Posted by taxguru on November 17, 2007


(Click on image for full size)

Posted in comix, TaxBurden | Comments Off on Squeezed…

Posted by taxguru on November 16, 2007

Democrats’ ATM, the AMT – A good piece by David Freddoso on how this coming tax season could be even messier than normal.

Posted in AMT | Comments Off on

Insurance companies love the death tax…

Posted by taxguru on November 16, 2007

Many people wonder why supposed capitalists, such as Warren Buffett, are fighting so hard against the attempts to repeal the Estate (aka Death, Inheritance) tax. It isn’t just their obvious love of Marxism; but good old fashioned personal greed. Insurance companies, such as those owned by Mr. Buffett, make a fortune by selling policies to cover estate taxes. No more estate taxes would dry that cash cow up in a hurry.

There is some good coverage of this topic on National Review Online:

The Oracle of the Death Tax

Death tax is a lifeline for insurance industry

Thanks to David Freddoso at The Corner for this info.

Posted in comix, DeathTax | Comments Off on Insurance companies love the death tax…

Pushing Sec. 179 deductions into next year…

Posted by taxguru on November 16, 2007

Q:

Subject: Section 179

 

Questions:

 

If a company begins in November 2007 can the section 179 be taken in the 2008 calendar year???

 

Thanks

A:

Your question is a bit vague, so I’ll see if I can hit on what you’re after.

If you’re asking if a calendar year business buys new equipment during 2007, can it claim the Section 179 expensing deduction for that equipment on its 2008 tax return, the answer is NO.  Equipment acquired and placed into service during 2007 must be claimed on the 2007 tax return.  Equipment acquired and placed into service during 2008 will be claimed on the 2008 tax return.

I’m assuming your question has to do with the fact that there won’t be enough net income on the 2007 tax return to justify any Section 179 deduction, so it would be better suited to 2008 when you will be receiving more income.  As your professional tax advisor should be explaining to you, you can probably get the same effect as you desire by actually entering the full Section 179 on your 2007 tax return.  The tax program will then apply the income limitation test, which will make all or most of the Section 179 carry over to the 2008 tax return, where it will be available to be offset against the 2008 net income.

Another possible scenario would be that you have a new C corp with its first fiscal year ending some time in 2008, such as September 30.  In that case, any new business equipment purchased and placed into service by 9/30/08 will be eligible for Section 179 on that tax return, which will technically be a 2007 1120.

I hope I addressed your point.  Your professional tax advisor should be able to give you more relevant advice, better suited to your actual circumstances.

Good luck.

Kerry Kerstetter

 

Follow-Up:

Kerry:

 

Yes, you have answered my question.

 

Thank you very much

 

 

 

 

Posted in 179 | Comments Off on Pushing Sec. 179 deductions into next year…

Mugged by the Insane AMT…

Posted by taxguru on November 15, 2007

Posted in AMT, comix | Comments Off on Mugged by the Insane AMT…

Posted by taxguru on November 15, 2007

As always, the latest Intuit Pro Connection newsletter has some interesting articles.

Home Foreclosures Trigger Tax Headaches

IRS Revises Circular 230 Rules

Entity Comparison Chart

Accountant Incorporation Guide (24 pages PDF)

Look for New Twists to Year-End Capital Gain Planning

 

There are also some QuickBooks related references, which I have posted on my QuickBooks Tips blog.

 

Posted in Uncategorized | Comments Off on

« Previous Entries
Next Entries »