Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for March, 2008

Posted by taxguru on March 31, 2008

From the Late Show’s Top Ten Dumb Guy Ways to Boost the Economy

10.   Rummage through rich folks’ trash to see if they’ve tossed any cash

 4.   Give tax refunds in Cheetos (I’m not sure how that would help the economy, but boy am I hungry for some Cheetos)

 1.   Put Chuck Norris in charge of collecting money from deadbeat taxpayers

 

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Posted by taxguru on March 30, 2008


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Conflicting corp advice…

Posted by taxguru on March 30, 2008

Q:

Subject:  Does your information on C corporation vs. S corps apply to Personal Services providers?

Hi,

I’ve been reading a lot of your pages and I’m thankful for all of the great info. I even purchased a NOLO book (‘Deduct it!’). However, I’ve talked to 3 accountants, in my search for one to help us with our new company and not one has agreed with our decision to create a C corp. For the reasons you said most CPA’s steer clients wrong, the double taxation and extra paperwork. One even went so far to say that everything that’s deductible in a C-corp is deductible in an S-corp. and that I was paying the max. tax rate because we are a personal services corp.
The hubby will be a sub-contractor for a gov’t project providing consulting services, so would that make a difference?
Thanks for any help! If you don’t have time, a book recommendation that would have the answer is perfect, too!

 

A:

There are far too many options to consider and possible scenarios that can be used to achieve your goals for me to even begin giving you specific advice via this medium.  You will need to work directly with an experienced tax pro who can analyze your unique circumstances.

In regard to the problem with conflicting advice from different tax pros you speak with, I would ignore anything from anyone who proposes any strategy without asking you a ton of probing questions first.  Anyone who relies on “one size fits all” solutions is not competent to work with.

In addition, any recommendations should be accompanied with a reasoned and complete explanation of the specific reasons why that particular approach is best for your unique circumstances and why the other possible alternatives are not.  Any tax pro who cannot defend his/her recommendations properly should be avoided. Any tax pro giving any indication of reaching a conclusion for your situation without thoroughly evaluating all of your unique circumstances should also be avoided.

I wish I could be more help; but I already have too many clients to take care of properly; so we are still trimming back on the difficult clients and are not accepting any new ones at this time.

Unfortunately, we don’t have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country.   

If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you.  
You should note that geographic location should not be the main criterion for selecting a tax pro.

I wish I could be of more assistance; and I wish you the best of luck.

Kerry Kerstetter

 

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

 

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Reporting Business Sale

Posted by taxguru on March 30, 2008

Q:

Subject:  Tax question

Hello
I closed my short lived business at the end of 2007.  I opened it in August of 2006. I sold the business at a cost that I used to pay off my creditors. How do I report (which forms do I use) that the moneys I received for the sale of my business was used to pay off a debt.  The debt was originally created from purchasing equipment that I used for my business.

 

A:

This is far too complicated an issue for you to attempt to report on your own, especially in regard to the proper treatment of recaptured depreciation.

You need to work with a qualified professional tax preparer, who can ensure that everything is reported properly on your tax returns.

Good luck.

Kerry Kerstetter

 

 

 

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Possible Dem Tax Hikes?

Posted by taxguru on March 30, 2008

Q:

Subject:  Primary residence tax question

This morning I was speaking to a friend who is a local REALTOR.  She is suggesting that some people seem to be under the impression that if the Democrats win this election, this tax law could be changed or eliminated.  What is your impression or awares on this subject.

 

Thank you for your time,

A:

If you’re referring to the Section 121 $250,000 tax free gain rule, I haven’t noticed any discussion of anyone suggesting repealing this.

The Dems are seriously discussing several other huge tax hikes, such as allowing the Bush tax cuts to expire in a few years, removing the special lower tax rates for long term capital gains, and no repeal of the Estate Tax.

As I posted in my blog recently, in California, the Dems are attempting to remove the deduction for home mortgage interest, which could be an indication of how DC Dems might move.  There’s always a chance that they could scale back the limit on how large deductible home mortgages could be from the current million dollar level.

It’s all speculation and conjecture at this point, but as much as I fear the Dems’ tax hiking urges, I’m not very worried about them removing the tax free home sale rule.  Luckily, it’s not part of the Bush temporary tax cuts, so it will live on until enough of our rulers in DC decide to attack it.

Worst case scenario that I could imagine would be for them to scale its savings opportunities back a bit, such as by making it a once in a lifetime deal, as the previous law was, instead of the current ability to use it every two years.

There’s also the possibility that they could reduce the amount of tax free gain from the $250,000 per person level.  However, since that amount was established in 1997 and has no provisions for any inflation adjustments, I don’t see that happening either.

That’s how I see it.  Thanks for writing.

Kerry Kerstetter

  

  

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Free pens?

Posted by taxguru on March 30, 2008

Courtesy of RiffTrax:

 

 

 

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Posted by taxguru on March 29, 2008

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Possible restrictions on 1031s for real estate?

Posted by taxguru on March 29, 2008

As a means of saving huge amounts on taxes, 1031 exchanges of real estate have always been in the cross-hairs of our rulers looking to generate more tax revenue.  Rather than completely repeal Section 1031, the more likely approach is to whittle away at its usage.  I recently came across two such attempts that are in the works.

Federal regarding farm land:   1031 Proposal In The Farm Bill Update

In California, a frequently proposed idea has resurfaced, to disallow referral of gain on the disposal of Calif. property when the replacement property is not also in Calif.  Some other states have already implemented this kind of restriction, and if Calif does this, we can only expect many more states to follow.

We recently received the following news item in an email from Wachovia Exchange Services

Hello friends,

I recently received some information about California that might interest some of you.  Hopefully, we will never see this proposal get
enacted.  And I would hate to think that it might give any other states the same idea.

California, like a number of states, is faced with a severe budget shortfall. The legislature is therefore looking at a number of proposals
to raise revenues and reduce expenditures. As part of this effort, the California Legislative Administrative Office has proposed a revenue
raiser wherein an exchange of California property for out-of-state commercial property would not be eligible for deferral as a like-kind
exchange.

California currently has a claw-back regime where California property is exchanged for non-California property. In such case, while the gain is deferred, if the replacement property is subsequently sold, the deferred gain is subject to California tax. The reason for the proposal is the administrative difficulty in taxing the gains once the property has left the state.

This is just a proposal at this time; however, it should be noted that California has a history of non-conformity with the federal tax rules,
so it would not be out of character for it to have different rules for like-kind exchanges.

 

 

 

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Death & Taxes?

Posted by taxguru on March 29, 2008

From DribbleGlass:

ACCOUNTANTS

Q: When does a person decide to become an accountant?
A: When he realizes he doesn’t have the charisma to succeed as an undertaker.


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Posted by taxguru on March 28, 2008

A Tax McCain Could Cut The key operative word here is “Could.”  The real world word is “Won’t.” A RINO like McCain, who cares more about the approval of Ted Kennedy than of Rush Limbaugh, would never even consider reducing the payroll taxes.

It’s actually much more likely that he will continue to adopt DemonRat policies as his own and push for an elimination of the ceiling on the amount of earned income subject to the 12.4% SS tax. 

 

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