Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for April 23rd, 2008

Documenting vehicle weight…

Posted by taxguru on April 23, 2008


Subject: Section 179 & Toyota Highlanda Hybrid, GVWR 6150 lbs

Tax Guru,

I’ve come across an interesting situation. The 2008 Toyota Highlander Hybrid has a sticker/plate inside the drivers side door that states the GVWR as 6150 lbs. However, all the marketing brochures and even Toyota’s web site lists the GVWR as 6000lbs. We’re thinking of buying this SUV for our small business and want to understand if it qualifies under Section 179.
The plate on the SUV would seem to indicate it does but all other posted information seems to indicate it doesn’t.

Any advice?



You really need to be discussing this with your own personal professional tax advisor. However, I am willing to explain how I would address this if it were with one of my clients.

I am guessing that the discrepancy in the listed weights may have something to do with some optional equipment that was installed on the vehicle with that ID plate. The promotional literature from Toyota most likely deals with the standard vehicle before the addition of any optional equipment.

I’ve mentioned on several occasions how some auto dealers actually offer “tax deductibility” add-on packages of options that take an under 6,000 vehicle into the over 6,000 pound qualifying area. This is why feeling limited to the weights shown on promotional literature is not appropriate.

If, as it seems, you are nervous about IRS possibly disallowing your larger Section 179 deduction for a vehicle over 6,000 pounds, I would go the extra mile in documenting the legitimacy up front. As I’ve mentioned on numerous occasions, one of the main reasons I am opposed to electronic tax returns is the inability to include additional documentation of potentially questionable items. This is a perfect example.

In your case here, I would take a photograph of the ID plate indicating the GVW of 6,150 pounds and attach it to the tax return where you are claiming that Section 179 deduction. I can’t imagine any IRS auditor wanting to quibble over that being wrong. If anything, you may be questioned about your business usage of the SUV; but I can’t see the weight being an issue of contention if you have that photo attached.

Again, you should run this by your own professional tax advisor.

Good luck.

Kerry Kerstetter

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

Posted in Vehicles | Comments Off on Documenting vehicle weight…

Reduced tax free gain on home sale…

Posted by taxguru on April 23, 2008


I came across your information on the web and was wondering if you could clarify what the pro-rated capital gains exclusion (amount) is for selling your primary residence less then 2 years. Is this $342.47 per day, per person for the length of time that you lived in the house before selling?

I would be happy to compensate you for your advice.




The tax free gain does work out be $342.46 per day that you both owned and lived in the home as your primary residence.  This is $250,000 divided by 730 days.

IRS has a worksheet for calculating the reduced excludable gain in Publication 523 on their website.   

Most professional tax software has the capability to calculate this based on the number of qualifying days; so be sure to give that figure to your personal professional tax preparer.

Good luck.

Kerry Kerstetter


Go Daddy Domain Names


Posted in 121 | Comments Off on Reduced tax free gain on home sale…

Working with cash…

Posted by taxguru on April 23, 2008


Subject: Cash Tags


Cash tags, does cash have to be taken out of your business to be spent on expenses as cash. Or is all cash spent on expenses regardless of its source deductible as long as you have your receipts saved. Money from savings an example.

Do you have to divulge the source of the cash to use the deduction?



If you are posting cash expenditures made for business related expenses, it doesn’t matter where the cash came from, as long as it wasn’t from unreported taxable cash income. It could be from personal or business accounts.

Depending on the overall size of the cash expenditures for the year, the level of documentation should coincide.  Small amounts shouldn’t be anything to worry about.

However, if you’re getting into thousands of dollars, you need to be prepared to defend the original source of the cash in case IRS were to ever inquire about it.  They actually have audit teams that examine people in businesses that deal primarily in cash to ensure that every penny is accounted for.  Many of those people actually cut their own throats by reporting thousand of dollars more in personal and business expenses than the level of income they are reporting. There are plenty of classic cases of tax fraud where people are living very high on the hog, while reporting very small amounts of income on their tax returns.

IRS auditors are trained to start off from the premise that all money received is taxable income unless the person can prove otherwise.  So if you do come into a large amount of cash that was a gift, inheritance or one of the few tax free sources, you need to be diligent in documenting this fact.

One of the best ways to document cash is with QuickBooks.  Set up a bank account called Cash and show money going in and out just as you do with a normal bank account.  Doing it that way would protect you from IRS accusations of having unreported income.

Good luck.  I hope this helps.



Business Plan Pro


Posted in Accounting | Comments Off on Working with cash…

Is double taxation good?

Posted by taxguru on April 23, 2008


Subject:  Double taxation?


Thanks very much for your informative and enjoyable blog.

I often hear the line that C corporations are a bad choice because of the double taxation issue. I know you have explained before that there are many ways to avoid double taxation.  But I have tried to figure out why “double taxation” is really worse than the alternative.

Let me explain my thinking. As I understand it, the first $50,000 in income for a C corporation is taxed at 15%, and any dividend that would be paid to shareholders is also taxed at 15% (maximum). Combined, that is a 30% tax rate.  This seems like a bargain compared to the corporation paying a salary:  The individual would likely pay a 28% tax rate on the salary (assuming the individual has already reached the 28% bracket from other income), and then would pay an additional 15.3% FICA tax (half paid by the corporation), for a total federal tax rate of 43.3%.  Since 43.3% is more than 30%, isn’t “double taxation” actually the preferred outcome here, at least for $50,000 worth of corporate income?



I’m too busy right now to go into too much detail.

However, you may have missed the point that I am not a fan of using payroll as a means of shifting income from the corp to the 1040 because of the payroll taxes.  We use unearned income, such as interest, rents and royalties, which have no payroll taxes associated with them; just normal income tax.

By properly shifting income back and forth, we have been able to very easily achieve a maximum Federal income tax of just 15% overall; not the 30% under your double taxed scenario.

A good tax advisor, along with accurate up to date QuickBooks data, should be able to help you achieve this.

Good luck.

Kerry Kerstetter



Posted in corp | Comments Off on Is double taxation good?

Phony IRS Emails

Posted by taxguru on April 23, 2008

I received the following from a client about a week after another client faxed me a copy of  similar email she had received:

Subject: Is this a scam?–>> Tax refund – Online form


I got the below notice – supposedly from the IRS.  There is a link to push – but I see the words –redirect- and I think this is some kind of scam to get my ss# or who knows what.  

Do you think that this is legit or scam?

—— Forwarded Message
From: Internal Revenue Service
Date: Tue, 15 Apr 2008 13:09:37 -0700
Subject: Tax refund – Online form

After the last annual calculations of your fiscal activity we have determined that
 you are eligible to receive a tax refund of $620.50.
Please submit the tax refund request and allow us 3-6 days in order to
 process it.

A refund can be delayed for a variety of reasons.
For example submitting invalid records or applying after the deadline.

 To access the form for your tax refund, please click here

Note: For security reasons, we will record your ip-address, the date and time.
Deliberate wrong inputs are criminally pursued and indicated.

 Internal Revenue Service

Copyright 2008, Internal Revenue Service U.S.A. All rights reserved.


My Reply:

That URL appears to be in Japan.

That is one of the scams that IRS has been warning people about. covered this specific scam on their site.   




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Posted in scams | Comments Off on Phony IRS Emails