Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for February, 2009

Wishful thinking…

Posted by taxguru on February 22, 2009

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*The above assumes that the tax rates for CapGains/QualDivds are not repealed.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


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Posted by taxguru on February 21, 2009

Created on this French website

With working links:

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Posted by taxguru on February 20, 2009

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Posted by taxguru on February 19, 2009

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Posted by taxguru on February 18, 2009

(Click here to check out this parody tax calculator)

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Posted by taxguru on February 17, 2009

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Tax Provisions In Porkulus Bill

Posted by taxguru on February 17, 2009

Just as none of our rulers in DC had the time to actually read the humongous 1,000 plus page spending bill before voting on it, none of us in the tax profession have time to slog through it. The first summary of the tax provisions I have come across is this five page one from ClientWhys.

Here are some of the provisions about which I have received the most questions over the past few months:

Vehicle 50% Bonus Depreciation – Some years ago, to prevent higher-income taxpayers from creating large tax writes-offs from expensive vehicles, Congress implemented the “Luxury Auto Limitations,” which places a cap on first-year depreciation. The provision that extends the 50% first-year bonus depreciation to 2009 purchases (mentioned elsewhere in this article) also extends the increased dollar cap for new vehicles placed in service in 2009 by $8,000. The regular luxury auto depreciation caps for 2009 have not yet been announced by the IRS. For 2008, the regular cap was $2,960 but was increased to $10,960 when the 50% bonus depreciation was claimed. The 2009 amount will likely be similar.

Bonus Depreciation Extended – Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow, by permitting these businesses to immediately write-off 50% of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the United States. This temporary provision has been extended through 2009.

Extension of Enhanced Small Business Expensing – In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. This is commonly referred to as the Sec. 179 deduction. Until the end of 2010, small business taxpayers are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase out once capital expenditures exceed $500,000 (indexed for inflation). Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000, and increased the phase-out threshold for 2008 to $800,000. Those increased amounts have been extended to 2009.


I’m sure more such summaries will be published over the next few weeks. I will post links to those as I learn about them.


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