Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for April 3rd, 2008

Posted by taxguru on April 3, 2008

From Letterman’s show last night per the NewsMax recap:

It’s tax season. You always gotta be careful. In fact, I always ask my date for a receipt.


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The dilemma with Sin Taxes…

Posted by taxguru on April 3, 2008

(Click on image for full size)

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Comparing tax prep methods…

Posted by taxguru on April 3, 2008

Taxes, Three Ways – Thanks to Ed Lyon from TaxCoach Software for the link to this interesting article comparing three different ways to have your tax return prepared.  It was featured in his latest weekly email bulletin, which anyone can subscribe to, even if you don’t subscribe to the full TaxCoach service

The gist of the article is just what I have always said.  Those of us in this profession who stay up to date on tax savings opportunities for our clients have absolutely nothing to fear from do it yourself software or the assembly line tax prep services. I have never considered either to be any kind of competition.

To be quite frank, anyone not savvy enough to understand the benefit of paying someone like me one or two thousand dollars in fees in order to reduce their annual tax bill by $10,000 to $20,000 from what it would be with the other kinds of tax returns isn’t really the kind of person I want to work with. Of course, those kinds of fees are more for timely advice and strategic planning assistance, while the assembly line firms’ fees are just for filling in forms, as it is for do it yourself software.


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


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Posted by taxguru on April 3, 2008

It would be easy to mix up these two appointments…

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Who makes the most profit from high gas prices?

Posted by taxguru on April 3, 2008

When are the congressional hearings going to be scheduled on price gouging by our bozo rulers in DC?

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Posted by taxguru on April 3, 2008

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Do extensions affect the upcoming rebates?

Posted by taxguru on April 3, 2008


Hi Kerry


If I file my 1040 in Oct, does this mean no rebate?
If I do get a rebate is it taxable?

Is 2008 the year where there is ZERO capital gains?

If so, does this mean that if I sell some highly appreciated stock (held 15-17 years) before 12/31/08 that I will NOT have to pay ANY cap gains?



The rebates, which are supposed to be sent to anyone who files a 2007 1040 by October 15, 2008, are similar to rebates we had a few years ago.

While not technically taxable as income; they will decrease the refund or increase the tax due with the 2008 1040. It’s pretty much the same effect as having $600 less withheld from your paycheck for the year or reducing your 1040-ES payment by $600.  If IRS sends you a check for that amount, it will just mean that your refund next tax season will be $600 lower than it would have been.  It’s a desperate plan to give people part of their next year’s tax refund a year early in order to give them some spending money to goose the economy now.

People who don’t file their 2007 1040s by 10/15/08 will actually be able to have their rebate amounts applied against their 2008 tax return.

The special 0% Federal tax rate for some long term capital gains does start in 2008. It’s not the entire gain that is subject to the 0% rate; just the portions that would have been taxed at 10% and 15%.  Check out the bottom of my web page on 2008 tax rates.  

I hope this isn’t too confusing.




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Deducting 100% of meals?

Posted by taxguru on April 3, 2008


Subject: Meals 100% Deductible for Strategic Planning Meeting?


I am a sole practitioner and I came across this article on CNN Money.

Linda Rey (pictured at right, with sister Laura and father Frank) is co-owner of Rey Insurance, a broker based in Sleepy Hollow, N.Y. She and her partners (who also happen to be family members) hold a monthly dinner at a restaurant, which they treat as an offsite strategic planning meeting (100% deductible) rather than a business meal with a client (50%). Even with coffee and Dunkin’ Donuts for the Friday morning meeting, she always takes the full 100% deduction, while many companies wrongly file this under meals and take half. “I pay careful attention,” says Rey. “Otherwise you end up giving a lot of money away.”

I have never heard of deducting meals at 100% for an off-site strategic planning meeting. I researched this issue and could not find support their comment. I can’t see where this type of meal falls within the 100% allowed M&E categories. Everything I find says 50% disallowed for this type of expense. Are you familiar with deducting meals at 100% for an off-site strategic planning meeting (and morning donuts), or is this just another case of the media giving false information which makes us explain why it is wrong to our clients.



I’ve heard of people trying this; but I can’t agree with the logic or stand behind this idea.

As we know, there is a lot of the honor system in the tax game in regard to how we post expenses. Calling something a “Meeting Expense” effectively hides it from the 50% limit that business meals have.

I browsed the online QuickFinder and the printed and WebCD TaxBooks for any mention of 100% deduction for meals at strategic planning meetings and came up empty.

For example, QuickFinder online had this for a similar situation:

Home Meetings
Direct sellers who hold business meetings in their homes can deduct expenses for the meetings as entertainment expenses and expenses related to the business use of their home only when they meet certain tests.

The expenses of entertaining business associates in the direct seller’s home are deductible as entertainment expenses if they meet the rules discussed under Meals and Entertainment. The expenses of maintaining the direct seller’s home as a place of business are deductible if he or she meet the tests discussed under Business Use of the Home.

Example: Barbara and Bill hold bi-weekly meetings in their home for the direct sellers who work under them. They discuss selling techniques, solve business problems and listen to presentations by company representatives. Because the meetings are for business, Barbara and Bill can deduct 50% of the cost of the food and beverages they provide. See Deduction Limit. They keep a copy of their grocery receipts for these refreshments, and record the date, time and business nature of each meeting. Be­cause the meetings are held in their living room rather than in a special area set aside only for business, they cannot deduct any of their home expenses for the meetings.

I’ve had cases where meals were one part of a business related meeting that had a single admission price. I have posted those to 100% deductible Meetings expense. However, where the meeting is at a restaurant and the full amount being paid out is for food, I have to believe that the deduction would be limited to the standard 50%.

It would be interesting to hear what other tax practitioners have to say about this.

I feel that those people bragging about deducting 100% of their meals in that article had better prepare themselves for an IRS audit which will also delve into other creative deductions they may be claiming.

Thanks for writing and good luck with the rest of this Tax Season.

Kerry Kerstetter

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Assuming someone else’s Sec. 121 eligibililty?

Posted by taxguru on April 3, 2008


 Subject: 1031 question

 I know you deal in the 1031 exchange field and I also know from reading your blog your deal with tax issues in a liberal reading. So I feel you are a good person to get an open minded view from.Is there a way to use someone else’s 2 out of 5 years? Drew Miles, Tax Attorney claims there is a way/program to do this. Is this something you have heard about? Can you guide me to some references.



The only way I am aware of for one person to benefit from someone else’s time in a home in terms of qualifying for the $500,000 tax free exclusion, is with spouses.  IRS allows the full exclusion if either spouse owns the home for at least two out of the previous five years. However, they require both spouses to use the home as their primary residence in order to exclude the full $500,000.  Shorter times as a residence by each spouse would require prorated adjustments in the excludable gain.

In regard to being able to walk in and assume the tax benefits of an unrelated person’s use of a home as if they were yours, I don’t see how that is possible.

I checked Drew Miles’ various websites and see nothing other than his vague promises of tax savings secrets, with no mention of this issue.  I would be interested in seeing what you are referring to before concluding that you are misreading it.

Kerry Kerstetter



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


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