Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for February, 2009

Be sure to thank the evil rich for the free lunch…

Posted by taxguru on February 28, 2009

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Deductions for the Evil Rich

Posted by taxguru on February 28, 2009

Q:

Subject: 2009 Standard Deduction

Hi:

Your Blog indicates that in 2009, the Standard Deduction will be eliminated for those filing jointly, and earning over $166,800.

What will it be replaced with ?

Will this be positive, or negative, for those whose AGI is $2000,000 + ?

Regards

A:

You are misunderstanding what that provision of the tax law means.

Standard deductions aren’t eliminated for anyone based on AGI.

What has been part of the tax code for several years now has been a dollar limitation on the total amount of itemized Schedule A deductions that people considered to be evil rich (as measured by AGI) are allowed to claim. At the threshold levels, which are increased each year based on inflation, the limit starts to be applied.

However, although this type of penalty on the evil rich can completely eliminate their personal exemptions, I have never seen where it has completely eliminated their Sch. A deductions.

The trend of punishing people with high AGIs is looking like it’s going to get worse. From what I have heard about our Supreme Ruler’s plans for future tax laws, there will be even tighter limits on the deductions allowed to be claimed by those folks he considers to be evil rich.

I hope this helps you understand this part of the tax code.

Good luck.

Kerry Kerstetter

Follow-Up:

Hi Kerry:

Many thanks for your explanation.

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

Posted in Deductions | Comments Off on Deductions for the Evil Rich

Posted by taxguru on February 28, 2009

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Higher Tax Free Employee Benefits

Posted by taxguru on February 27, 2009

From a reader:

Subject:  Mass Transit Provision of the Stimulus Package Provides $1K

Kerry,

I have been following your posts lately and thought you’d be interested to know there is a provision in the bill for commuters to save up to an additional $1,000 per year on transportation costs. A raise in the cap on pre-tax commuter benefits should increase mass transit ridership and help hard working Americans keep a good chunk of money in their wallet, according to TransitCenter (the non-profit that has been advocating this change for nearly seven years).

The CEO of TransitCenter, Larry Filler, decided to setup a blogger resource room to explain the change in the IRS Code to help individuals get access to the information they need to take advantage of this opportunity. Feel free to use any of the material on the blogger resource room to inform your readers and get them the $1K per year.

Also, Larry’s happy to provide a personal quote that would be exclusive for your blog. Feel free to contact me if you have any questions.

http://www.transitcenterblogresource.com/accounting.html

Best,

Jonathan Blank, representing TransitCenter

My Reply:

Jonathan:

I have always been a huge fan of pre-tax employee benefits as a great way for both employees and employers to save on their taxes.

I appreciate your alerting me to this recent increase for mass transit users and I will make sure to post the link to your site on my blog.

Thanks for writing.

Kerry Kerstetter

 

 

Business Plan Pro

 

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Reporting sale of inherited property

Posted by taxguru on February 27, 2009

Q:

Subject:  Gain on Inherited Property

How do I record my gain on inherited property?

I inherited property in 1982 when my husband died. I am considered 1/12 owner and received 1/12 of the proceeds when the house sold in 2008. If the house was assessed at $60,000 in 1982, then is my cost basis $5,000 (1/2 of $60,000). In addition, do I reduce my proceeds by the settlement charges I paid at closing. Finally, does this get reported on Schedule D?

 

A:

You really need to be working with a professional tax advisor on this because there are many factors that need to be considered.

Some of the issues that you will need to discuss with your own personal professional tax advisor so that s/he will know how to properly report the sale include the following.

For the basis of the property, it is important to know if it was owned as separate property by your late husband or jointly by both of you. The amount of the step-up in basis will also depend on whether or not you were in a community property state or not if it was jointly owned.

Any improvements to the property that you paid for will be added to the basis.

You didn’t say what kind of property it was and what it was used for. If it had been used for rental or other business purposes, any depreciation claimed or claimable will reduce the basis and trigger depreciation recapture at a higher rate than the other profit.  It will also require reporting the sale on Form 4797, which will then flow onto Schedule D.

I assume you received the full amount of your share of the proceeds; but if you are receiving periodic payments, it will probably need to be reported as an installment sale on Form 6252, with any interest received reported on Schedule B.

If you had been living in the property as your primary personal residence, you would most likely be eligible to exclude up to $250,000 of profit.

These are all important items to clear up with your own personal professional tax preparer who will then now how to show the sale on your 1040.

Good luck.

Kerry Kerstetter

 

 

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Hammered from both sides…

Posted by taxguru on February 27, 2009

Posted in comix, PropertyTax | Comments Off on Hammered from both sides…

Just enjoy the ride…

Posted by taxguru on February 27, 2009

Posted in comix, TaxBurden | Comments Off on Just enjoy the ride…

The two certainties in life…

Posted by taxguru on February 25, 2009


(Click on image for full size)

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Posted by taxguru on February 25, 2009

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Posted by taxguru on February 23, 2009

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