Tax Guru – Ker$tetter Letter

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Archive for November 20th, 2008

2009 Luxury Car Limits

Posted by taxguru on November 20, 2008

Ahead of the official IRS news release, CCH has calculated the inflation adjusted luxury car limits for vehicles placed into service in 2009.  Some of those limits have actually dropped from their 2008 levels.

 

Posted in comix | Comments Off on 2009 Luxury Car Limits

Offsetting other income with Sec. 179

Posted by taxguru on November 20, 2008

Q:

Subject:  2008 Section 179

I found your info on the web. I have a quick question. I am looking at a cap gains tax on the capital account of an LLC which I left in January. The account is about $460,000 and the tax about $69,000.

I am considering starting a property restoration business and the equipment is about $20,000 to $30,000. I might also need a van. If I spend 30,000 on equipment, will that reduce my cap gains tax by $30,000 because I am deducting 100% up to $250,000?

Thanks,

A:

This is something that you need to work on with the assistance of your personal professional tax advisor because it is more complicated than you are assuming.

The first misconception you have is regarding how the Section 179 deduction reduces taxes.  It is a deduction and not a credit; so it reduces taxable income and that reduces the income tax only by a percentage.  It is not a 100% reduction of tax as a credit would be. The amount of actual tax savings will be based on your Federal and State tax brackets, along with several other factors.  So, a $30,000 Section 179 deduction may only reduce your net taxes by only $10,000; not by $30,000.

The other big issue that you need to deal with is the limit on the Section 179 that you can claim based on your business related income. Normal capital gain income does not qualify for the Section 179 purposes, so the gain on your LLC termination can’t be offset against new Section 179 unless it also includes business profit and depreciation recapture.

The best thing to do would be to have your personal professional tax advisor run some pro-forma 2008 figures for you based on the real info you have, as well as the different assumptions you want to test in order to get a realistic estimation of any potential tax savings from buying and starting to use new business equipment before the end of 2008.

Good luck.  I hope this helps.

Kerry Kerstetter


Follow-Up:

Yes very helpful.

Thanks a lot.

 

 

Posted in 179 | Comments Off on Offsetting other income with Sec. 179

Corp Fiscal Years

Posted by taxguru on November 20, 2008

Q:

Subject:  C Corp fiscal tax year.

Hello Kerry,

    I was interviewing an account for my taxes and he was telling me that the only choice for a C Corp fiscal year is either Oct. 1st or Jan. 1st. I could not find the info on the IRS web site and I knew you would know off the top of your head. Thanks for your time. I was wanting the  July 1st to June 30th  like you mention in some of your articles. Thanks for your time.

 

A:

A C corp can have a fiscal year ending at the end of any calendar month. I have some more info on fiscal years on my main website.

It looks like you need to find yourself a professional tax advisor who is a little more knowledgeable about such basic matters.

Consider yourself lucky that this person revealed his ignorance so early in your potential relationship.

Good luck.

Kerry Kerstetter

 

 

Posted in Uncategorized | Comments Off on Corp Fiscal Years

2008 Fixed Assets

Posted by taxguru on November 20, 2008

Q:

Subject:  2008 section 179

We have a “C” corporation that has a fiscal year ending September 30th. If we purchase equipment between 10/01/08 and 12/31/08, can we still get the addition 179 expense deduction and bonus depreciation?
 
Regards,

A:

That specific provision is currently based on the calendar year of 2008, so any assets that you do place into service from 10/1/08 through 12/31/08 will qualify for that special bonus depreciation on the 1120 you file for the FYE 9/30/09.

Your professional tax preparer’s tax software should pick that up automatically.  I know that my 2007 Lacerte software is automatically claiming the bonus depreciation on any asset that has a 2008 setup date.

There is also the possibility that the provision for the bonus depreciation will be extended for assets placed into service in 2009; but that will be up to our new rulers in 2009.

Good luck.

Kerry Kerstetter

Follow-Up:

Thank you very much .

 

 

Posted in 179 | Comments Off on 2008 Fixed Assets

Section 179 Webinar

Posted by taxguru on November 20, 2008

Since it is one of the largest potential deductions available on income tax returns, the Section 179 expensing election generates a lot of email from people who are confused about it.  In the last few months, I have been receiving at least one each day, often from salespeople who are looking for ways to induce their customers to buy more products.  These sales pitches often include a flyer or short article on the benefits of Section 179. 

I am still plowing through a massive backlog of email, and I noticed one yesterday from a scientific equipment company promoting a free online seminar on December 2 presented by a CPA on what they call “Tax Code 179.”   It appears to be open to anyone and aimed more for small business owners than for tax professionals.  It doesn’t appear to qualify for CPE for tax pros; but it may still be useful for the newer ones.

I have no connection with any of the parties involved and don’t even know how I go on that particular mailing list.  I am passing it along in the hope that some folks will check it out and not need to send me so many repetitive questions on the issues of Section 179.  You can sign up for this webinar at Gerber Scientific Products’ website:
www.gspinc.com/taxcode179/

 

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Posted in 179 | Comments Off on Section 179 Webinar