Tax Guru – Ker$tetter Letter

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Archive for February 21st, 2009

Posted by taxguru on February 21, 2009

Of course, everyone knows that the actual answer is to check out Obambi cabinet nominees.

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Cap. Gain Tax Worksheets

Posted by taxguru on February 21, 2009

From a reader:

Subject: Capital Gains Rates

In the Tax Guru-Ker$tetter Letter of 02/15/09 titled “When you may want to show capital gains…” you write “Special Zero Percent Capital Gains Tax – For 2008, 2009 and 2010 sales by individuals, all or part of any long term capital gain is subject to a Federal tax rate of zero percent. “

Another factor which determines the tax rate on LTCG are the amount of qualified dividends. The “Qualified Dividends and Capital Gain Tax Worksheet-Line 44” on page 38 of i1040.pdf [2008] calculates how Capital Gains plus qualified dividends are taxed above and below the 0% rate level. I just copy that worksheet into an Excel spreadsheet, add formulas, & enter the appropriate numbers.

My Reply:

That is an excellent point to make. Many of us forget the fact that the special zero percent tax rate has to be shared between long term capital gains and qualified dividends.

I will be posting a pdf copy of the IRS worksheet you referred to, plus a similar one from The TaxBook.

Thanks for writing.


Reader Followup:

Note for those individuals who will soon be doing their 2009 Estimated Tax [f1040es], your 2008IRSCapGainWS.pdf will work fine for 2009* by changing Line 8 using your “2009 Individual Income Taxes Federal – Form 1040” at as follows:

Line 8
Single 2009=$33,950 [2008=$32,550]
MFJ/Qualifying Widower 2009=$67,900 [2008=$65,100]
HeadHousehold 2009=$45,500 [2008=$43,650]

*The above assumes that the tax rates for CapGains/QualDivds are not repealed.

My Reply:

Excellent suggestions.

Thanks for your input.


Posted in CapGains | Comments Off on Cap. Gain Tax Worksheets

Sec. 179 With Pass-Through Entities

Posted by taxguru on February 21, 2009


Subject: 179 Question

There is a question which falls through the cracks of the answer provided below.  It’s pretty clear from your answer that Corporations can not reduce income below zero using a 179 deduction, but that a Schedule C business can (provided that there is sufficient wage income to produce a total taxable income > 0.00).  However, what about a Partnership or LLC?  Can they have a loss based on a 179 deduction, and have the partner use it on their 1040 via a K-1, provided that they have sufficient wage income to have a taxable income remain > 0.00?




I have discussed this point on a few occasions, but it has been a while.

With pass-through entities, such as S corps and partnerships, the Section 179 limit is tested against taxable income at both levels; that of the 1065 or 1120S and again at the owners’ 1040 level.

One big difference is the fact that, for this test, the 1065 or 1120S income can be increased by any owner compensation that has been deducted, such as wages or guaranteed payments.  This could result in a Section 179 deduction giving the business a net loss.

From a logistical perspective, a 1065 K-1 would most likely net out to zero when taking into account the entries for net loss, Section 179 and Guaranteed Payments.  This contrasts with the K-1 from an 1120S, which could have a net overall loss because the W-2 income isn’t shown on the K-1.

The interplay of these kinds of tests are why it is important to be working with an experienced professional tax advisor with up to date tax prep software.

I hope this isn’t too confusing to follow.  You should work with your own tax pro to see how it would look with your own businesses.

Good luck.

Kerry Kerstetter


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


Posted in 179 | Comments Off on Sec. 179 With Pass-Through Entities

Posted by taxguru on February 21, 2009

Created on this French website

With working links:

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