Tax Guru – Ker$tetter Letter

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Archive for December 16th, 2007

Posted by taxguru on December 16, 2007

Posted in comix, IRS | Comments Off on

Posted by taxguru on December 16, 2007

Don’t Be Afraid of the AMT … Get Some Help Another short guide to dealing with the Insane AMT. 

The longer this mess drags on in DC, in terms of our rulers officially addressing this fiasco, the more obvious is their utter incompetence at dealing with common sense.  While they may not agree with me that the entire AMT system should be jetisoned, how hard is it to understand the need to at least adjust the threshhold figures for inflation, as most other items in the tax code already are?

 

Posted in AMT | Comments Off on

What is a new profession?

Posted by taxguru on December 16, 2007

Q:

Subject: Tax deductioin question

 

I have a question about job hunting deductions. If one is a medical malpractice lawyer looking to go into becoming a tax lawyer, would these deductions be allowed? I know job hunting deductions are allowed is in the same field but I’m unsure as to the exact meaning of that phrase.

  

Thank you for your help!

A:

That is an interesting twist on the long standing Catch 22 regarding the deductibility of both job hunting and education costs.  I have always considered the inability to deduct costs associated with entering a new profession to be idiotic and counter productive for a society that needs its citizens to be able to adapt to new market opportunities, such as the shift from a blue collar manufacturing economy to one more dependent on white collar service jobs.  However, we do still have to deal with this ridiculous restriction on real life tax returns.

I don’t have time to do a lot of specific research on this exact point, but I have a pretty comfortable gut feeling of how it should turn out.

Normally, cases where IRS disallows these kinds of deductions hinge on the person crossing the hurdle to enter an entirely new profession, often signified by a license.  I have seen cases where IRS wouldn’t allow a paralegal to deduct costs to study for the bar exam because they consider being a licensed attorney to be completely different for tax purposes from a paralegal doing the exact same kinds of things.  Likewise, IRS has been tough on CPA candidates trying to deduct their costs to study for the CPA exam, even though those individuals were already working in a CPA office,

However once you have crossed the threshold into a licensed profession, I don’t recall ever noticing any IRS hostility towards allowing full deductions for the job hunting and educational costs associated with changing one’s specialized area of practice. Doctors, lawyers and CPAs can all deduct their costs with learning and working in new specialized areas that still require the use of their existing licenses.

While you should have your own personal professional tax advisor take a loser look at the exact kinds of things you are trying to deduct, in a general sense, I would feel comfortable deducting education and job hunting costs associated with any kind of legal practice that will require your being a licensed attorney, even if it is in a completely different area of law than you were previously involved with.

As I often do, I plan to post this on my blog and will share any comments form other tax practitioner who may have a different take on this question; as well as from anyone who may want to confirm my opinions on this matter.

I hope this is of some help to you.  Good luck in the fun are of tax law.

Kerry Kerstetter

 

 

TaxCoach Software: Finally! Plain-English Tax Planing That Builds Your Business!

 

Posted in Uncategorized | Comments Off on What is a new profession?

Sec. 179 for Assets Leased Out

Posted by taxguru on December 16, 2007

Q:

Subject: Section 179

Tax Guru:

I have a circumstance regarding section 179 and am a little confused.  A client of mine bought 2 medium sized trucks weighing over 6,000 lbs. each for $113,000.  He bought them personally and rented it to his business!  Would there be any circumstance that he could take section 179 deduction? 

I have done research under codes and publications and do not specify this situation.  The descriptions and examples are very vague.  Thank you for all of your help.

A:

I recall posting an email about this on my blog a while ago, but I can’t seem to locate it.

The rules for claiming Section 179 for assets that are to be leased out have been summarized as follows in the QuickFinder Depreciation Handbook:

Leased property. For noncorporate taxpayers, leased property is not eligible for Section 179 expense, unless:

1)     The taxpayer manufactures (or produces) the property to lease to others.

2)     The taxpayer purchases the property to lease to others and both the following tests are met:

  The term of the lease (including options to renew) is less than 50% of the property’s class life.

  For the first 12 months after the property is transferred to the lessee, the total business deductions on the property exceed 15% of the property’s rental income.

Basically, the Section 179 is really intended to benefit the owners of assets who actually use them in the conduct of a business.  If your client can set up the leases of his trucks so as to comply with the above requirements, such as short term lease time frames and his paying some of the maintenance costs, he should be able to claim Section 179 deductions for them.

Good luck.  I hope this helps.

Kerry Kerstetter

 

 

Posted in 179 | Comments Off on Sec. 179 for Assets Leased Out