Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Archive for October 7th, 2008

Exchanging businesses?

Posted by taxguru on October 7, 2008

Q:

Subject:  Exchange Question

can I exchange a retail business for another retail business?

 

A:

It is a little trickier than just selling one business and reinvesting into another one.

When a business is sold, the sale price is allocated between the different assets being transferred, such as real estate, fixtures, equipment, goodwill, inventory and covenant not to compete.

The profits from some of those assets can be deferred via a Section 1031 exchange if that portion of the proceeds is used to acquire like kind assets of equal or higher value within the statutory 180 day reinvestment period.

For example, if $100,000 of your sale price was allocated to the business real estate, you could defer the gain on your original real estate by acquiring $100,000 or more of new (to you) investment or business real property.

The like kind rules and definitions are also a little tricky.  Real estate has the widest scope of like kind status, with any kind of investment or income producing property being eligible on both sides of the exchange.  Equipment and fixtures have to be the same kind.

Goodwill in one business cannot be classified as like kind for goodwill in any other business; so it is not possible to defer any of that profit.

Same thing for a covenant not to compete.  That will be taxable income as it is received and cannot be exchanged tax free for anything else.

This is why, if you are considering reinvesting business sale proceeds into another business, it is critical that you work with your own professional tax advisor ASAP to have the gains and possible taxes calculate for each type of asset involved and to assist you in negotiating the allocation with the buyer of your old business and seller of your new one.  The allocations you use must be reported consistently on everyone’s books.

This is a quick and dirty answer to your questions   Your own personal professional tax advisor should be able to give you more specific advice with your actual figures.

Good luck.

 Kerry Kerstetter 
 

 

 

Posted in 1031 | Comments Off on Exchanging businesses?

Offending Obamaniacs?

Posted by taxguru on October 7, 2008

From an obviously new reader:

Subject: Obama for President

Dude, you are so full of it. You waste your time making fun of our next president – Obama – but are so blind to the ruins made by the republican party and their war agenda. The man is brilliant. Stop and listen, you might just learn something. You and your red neck followers have no clue what goes on around America and just want to line your pockets with more cash at the expense of hard working families and the poor. Whine Whine Whine about taxes. You really don’t care about helping people do you? Can’t see past your capitalistic raciest views. Do you even know about the social issues this country faces? Guru, my ass. Stop criticizing and come up with some real solutions (blogs, cartoons, etc…whatever) people over 8 yrs old can discuss and articulate on. Don’t you know that all you do is spread hate and create division between people through your blog. Show some wisdom and professionalism in your work. You have no appreciation for the different opinions people have and the beliefs they stand for. So out of touch with reality, that even your portray of yourself is a cartoon.

From: (Name Removed By Request)

My reply:

I’m sorry if telling the truth about your Messiah’s tax plans offends you and your fellow Marxists. You should avoid my websites in the future, as I will continue to discuss what he has in store for us.

Your idiotic and ignorant comments aside, I do appreciate your writing to let me know that what I am posting on my tiny little blog is touching a nerve with you Obama disciples. That encourages me to continue.

Kerry Kerstetter

Posted in Obambi, politics | Comments Off on Offending Obamaniacs?

Palin Tax Returns

Posted by taxguru on October 7, 2008

Sarah and Todd Palin have released copies of their 2006 and 2007 income tax returns, which you can download from the McCain website

I took a quick glance at the returns and had just a few comments.

I found it interesting that for both years, they had them prepared by H&R Block rather than by an expensive tax attorney or CPA, and that they e-filed.  I guess that is another part of the Palins’ bond with Joe SixPack.  I wonder if that will still be the case if she becomes VP. 

Copies of their W-2s are also included.

They claimed home office deductions for both years for Todd’s Schedule C commercial fishing business.

Some of the numbers, such as non-cash donations and vehicle miles, end in double zeroes, a sign of the SWAG method of guesstimating.

There are already stories all over the internet on how much more the Palins deducted for charitable donations than the other candidates. I don’t feel like piling on to that right now, and may discuss my opinions on that issue at a later time. 

For those even more curious about the Palins finances, the financial disclosure form on the McCain website lists many of their investments and other assets.

 

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