Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for February, 2008

Rebate Worksheet

Posted by taxguru on February 28, 2008

As I’ve mentioned on several occasions, I have been buying the All States and Deluxe editions of The TaxBook every year since they have been produced. I have also been purchasing the CD-ROM version and have found it useful for copying and pasting info I find in the printed book.

What has been very impressive this year is the new ability of the CD data to be updated via the internet, which I guess is why they call it a WebCD. So far, there have been four such updates, which integrate with the previously installed data beautifully.

I was just perusing the latest update and notice that they have included a worksheet for those who want to figure out how much of an advanced rebate they can expect to be sent to them. I uploaded a copy of it to my website to share with readers. Since the 2007 Lacerte cover letter already includes the estimated rebate amount, I won’t need to use this worksheet; but others may find it useful.

Posted in NewTaxLaws, Reference | Comments Off on Rebate Worksheet

Tax Preparer Danger Signs

Posted by taxguru on February 28, 2008

This latest news release from the Calif. Franchise Tax Board, titled “FTB Reminds Taxpayers to Select Tax Preparers Wisely” has some good advice, along with a link to download their brochure on how to select an income tax preparer.

The following part of the news release sounds like it could be part of a Letterman Top Ten list; but it is unfortunately a true indication of the quality (or lack of) with some people in our profession.

Some common signs that a tax preparer may be abusive include:

· Claiming they can get bigger refunds than other tax preparers. Someone unfamiliar with your financial situation cannot make such a guarantee.

· Basing their fee on a percentage of the refund amount rather than the complexity of the tax return.

· Filing schedules where the information is fraudulent or lacks documentation to support the income or deductions.

· Refusing to sign the tax return as the paid preparer or not providing a copy for the taxpayer’s records. The preparer is required by law to sign the return.

· Require you to sign a blank return or in pencil.

· The preparer is not properly licensed or registered.

 

 

Posted in preparers | Comments Off on Tax Preparer Danger Signs

Articles for small business owners

Posted by taxguru on February 27, 2008

From a Reader:

Hi Kerry,

We just posted an article “50 Tools and Resources for Freelancers During Tax Season” 

I thought I’d bring it to your attention just in case you think your readers would find it interesting.

Either way, thanks for your time!

Amy S Quinn

My Reply:

Amy:

That’s a very impressive listing of useful articles.

I’ll be sure to post a link to it on my blog.

Kerry Kerstetter

 

Go Daddy Domain Names

 

Posted in Reference | Comments Off on Articles for small business owners

Avoiding Double Taxation

Posted by taxguru on February 27, 2008

Q:

Subject: article

Thank you very much for your insightful article on S vs. C Corporations. I have a quick question I am hoping you can help me answer. You mention the possibility of double taxation with a C Corp on paying out dividends, what about paying myself commissions? Would that be similar to paying myself a salary? I have a small business, myself and sub-agents that I 1099 each year.

Please advise. Your response is greatly appreciated.

Thank you,


A:

You absolutely must be working directly with an experienced professional tax advisor on matters such as this.

Avoiding double taxation is very easy and is accomplished by shifting income from the C corp to yourself as an individual via expenses that are deductible from the corp’s taxable income and are then taxable income on your 1040.

The most frequently used types of corp expenses for this are W-2 salaries, 1099 commissions, rents, royalties and interest payments. However, these are not equal in the overall tax burden they create because some of these are also subject to payroll taxes, while other ones are not.

That is why you need to work with a tax pro who can look at the big picture to help you achieve your goals, while minimizing the overall tax bite.

Good luck.

Kerry Kerstetter

 

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

 

Posted in corp | Comments Off on Avoiding Double Taxation

Sec. 179 & Rental Property

Posted by taxguru on February 27, 2008

Q:

Subject: section 179

Kerry,
I don’t know if you will read or answer this email but here goes with my question.  According to my CPA some
items that I purchsed in ’07 will qualify for a section 179 deduction on my taxes.  When I read your blog I got really confused.  Let me explain my situation.

1031 exchanged residential real estate property that is fully depreciated.  Original purchase 1981.
In 2007 I remodeled and purchased ref, stove, dw, new tile & carpet flooring & new kit. countertops.  Cost
aprox $10,000.  Will these purchases qualify for 179?

I am retired and own two residential rental properties one rented 12 mos., the other only seasonal.

Thanks,

A:

The ability to deduct the costs of the new items depends on which schedule you are using to report the income and expenses for the properties.

For residential rental property reported on Schedule E, assets used there are specifically not eligible for Section 179 expensing.

For properties that are rented out for an average of less than seven days at a time, and which are thus reported on Schedule C, movable equipment purchased for those properties are probably eligible for Section 179 expensing, subject to the other limitations on Section 179.  Items that become a permanent part of the structure, such as tiling, flooring and kitchen counters, are not eligible.

Your professional tax advisor should understand the difference between these two types of rental properties and understand which types of equipment qualify for Section 179 and which don’t.

Good luck  I hope this helps.

Kerry Kerstetter

 

 

Posted in 179 | Comments Off on Sec. 179 & Rental Property

Another summary of new tax law

Posted by taxguru on February 26, 2008

QuickFinder has a handy three page PDF summary of the Economic Stimulus Act of 2008 that can be downloaded for free

 

Posted in NewTaxLaws | Comments Off on Another summary of new tax law

Turbo vs. Slo-Mo

Posted by taxguru on February 26, 2008

Posted in comix, taxes | Comments Off on Turbo vs. Slo-Mo

Our annual meetings with clients…

Posted by taxguru on February 25, 2008

Courtesy of the Wall Street Journal’s Opinion Journal

Posted in Clients, comix | Comments Off on Our annual meetings with clients…

Identity theft victims can be very young…

Posted by taxguru on February 24, 2008

Man Accused of Stealing 7-Year-Old’s ID

Photo courtesy of FreakingNews.

Posted in comix, IRS, scams | Comments Off on Identity theft victims can be very young…

When to deduct investment losses…

Posted by taxguru on February 23, 2008

From a client when sending in info for her 2007 tax returns:

… Also faxing a new item to consider – statement from manager of an LLC I own shares in, in which original investment was $15,000, showing a gradually-declining value of the company to a supposedly-possible low of $0.20 on the dollar.  This whole deal is in turmoil with questionable value.  Please let me know if some of this decreased-value loss can be deducted on the 2007 return and if some can be carried over or taken in future years… 

My Reply:

In regard to the offer to buy out your shares in the LLC, there can be no tax breaks until you actually make the sale.  Just the fact that the value of the shares has declined does not justify any kind of loss deduction on your tax return.

This may seem unfair; but it works in both directions.  Fluctuations in values of assets do not trigger tax consequences in either direction. Just as the fact that real estate with a very low cost basis may be worth $500,000 right now doesn’t trigger a tax on the increased value until you actually sell the property, it is exactly the same thing with decreased values.  Since there is always the potential for the value to go back up, you can’t claim an actual loss on your tax return until you sell the shares.

This is actually a common issue with many people who evaluate their investment portfolios at year end in the hopes of harvesting some tax losses that can be used to offset other gains they may have.  In order to avoid abuses in this area, IRS does have what they call the Wash Sale rule.  If the loss stock is repurchased within 30 days of the sale, no deduction is allowed for that loss and it has to actually be added to the cost basis of the replacement shares.  I just mention this in case you may be considering selling your shares to lock in the loss and then buying them back. You can do this and claim the loss, as long as you wait more than 30 days to make the repurchase.

I hope this is clear.  Let me know if you have any more questions.

Kerry

 

 

Posted in CapGains | Comments Off on When to deduct investment losses…