Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Archive for September, 2009

Posted by taxguru on September 23, 2009

Posted in comix, TaxHikes | Comments Off on

Posted by taxguru on September 23, 2009

ACORN: Tax Cheats. One expects better from self-styled “progressives. – Fitting right in with the rest of 0Bambi’s cabinet and advisors.

 

Posted in Crooks | Comments Off on

Income Shifting

Posted by taxguru on September 21, 2009

Q:

 Subject:  Tax issues-c corp

 Hi, thanks for the awesome website!  Lots of useful info.  However, I was wondering if you could clarify for me how the shifting of money between fiscal years works.  Why does it have to be at the end of the year?  How can I legitimately transfer funds to the corp and deduct them from my personal income?  Is the repayment in January and the paying of money from the corp in June or whenever two separate transactions?  Just trying to decide on the right business structure for the lowest amount of taxes on our precast concrete company.

thanks a lot!

 

A:

The income shifting is normally an ongoing process throughout the year based on what the businesses can afford.    However, it is also critical to have your professional tax advisor take a glance at how the net taxable income is looking about a month or so before the end of the entity’s tax year just in case there is a need to shift a lot more income than normal before year-end to get the income down to a reasonable tax bracket.

I have also been seeing some clients who have been shifting too much income during the year, creating a large negative taxable income; so that we need to make an adjustment in the opposite direction before the end of the tax year.

As I constantly warn. this kinds of strategy to shift income between entities is not overly complicated to do; but should not be attempted without the assistance of a professional tax advisor who understands the benefits of this.  Too many people simply look at their company’s bank balance as an indicator of their current level of net income; while an experienced tax pro knows that the actual taxable income figure will often be very different from the bank balance.

If your current professional tax advisor is one of those who believe that intentionally shifting income between entities is too much hassle to even think about doing, it’s time to switch to another tax pro who is not as lazy and is more concerned about helping you hold onto your money.

Good luck.

Kerry Kerstetter  

 

 

Posted in corp | Comments Off on Income Shifting

Section 179 For 2010

Posted by taxguru on September 21, 2009

Q:

Subject:  Tax Issue

Is there any information as to what the 179 election and bonus depreciation will be in 2010? Thanks!

A:

This was in the recent CCH report of 2010 tax changes that I mentioned on my blog.

“Code Sec. 179 expensing. Unless Congress intervenes, Code Sec. 179 expensing will return to pre-2008 levels for 2010. For tax years beginning in 2010, the Code Sec. 179 expensing limit will be $134,000 and the cost-of-equipment limit set at $530,000. (Note: Expensing is currently scheduled to return to $25,000 ($200,000) levels in 2011.)”

Nothing was mentioned about any changes in the special first year depreciation, so that will expire as of 1/1/10 for most types of assets, unless our rulers in DC decide to pass another extension.

I hope this helps.

Kerry Kerstetter

Follow-Up:

I like the our rulers in DC comment. Kind of scary, isn’t it! Thanks!

 

TaxCoach Software: Are you giving your clients what they really want?

 

Posted in 179 | Comments Off on Section 179 For 2010

Tax increases are coming from all levels of government…

Posted by taxguru on September 21, 2009

Posted in comix, StateTaxes | Comments Off on Tax increases are coming from all levels of government…

More "Do As I Say…"

Posted by taxguru on September 20, 2009

Posted in comix, Rangel | Comments Off on More "Do As I Say…"

Pretending a Tax Isn’t

Posted by taxguru on September 20, 2009

Obama’s Nontax Tax

A rose (tax) by any other name is still a rose (tax)

Apparently Using the Dictionary to Define ‘Tax’ Is Cheating

Health bill says ‘tax’ when President Obama said ‘not’

President Obama Offers a Taxing Definition

Mandatory insurance: Yes, it’s a tax

Classic trick by politicians; to label a tax increase as something else (fee, service charge, license, insurance) so they can pretend to not be a tax hiker. Bottom line is the exact same as a tax; so for those of us living in the real world, things are getting more expenseive.

That wasn’t anything new. What was new was the fact that former Clinton operative, George “Steffy” Stephanopoulos actually had the cojones to disagree with 0Bambi on this issue. He is obviously a racist.

Posted in comix, TaxHikes | Comments Off on Pretending a Tax Isn’t

Posted by taxguru on September 20, 2009

Posted in comix, TaxHikes | Comments Off on

Limits on Sec 179 For Pass-Through Entities…

Posted by taxguru on September 18, 2009

Q-1:

Subject: LLCs and 179 deduction

Hi Kerry,

I recently did a Google search on Section 179 deductions and LLCs.  Your site came up, but I was unable to find any reference to how LLCs handle the 179 deduction on the site.  Can you point me to the right section?  Basically, I want to know if the 179 deduction flows through the LLC to the members personal returns like other profits and losses do.

Thank you for any help.

Cheers,

 

A-1:

Back in February, I sent you a link to a previous blog post I did on Section 179 deductions with pass through entities.  

Nothing has changed since then.  The Section 179 deduction is one of the separately stated items required to be passed through to the members via their K-1s.  The actual amount of Section 179 deduction each member will be able to deduct on their 1040s may be quite different, based on their unique tax situations.

Your LLC’s professional tax preparer should have software to prepare the 1065 and its K-1s properly, while the members’ professional tax preparers’ software should handle their 1040 Section 179 properly.

I hope this helps.

Kerry Kerstetter

 

Q-2:

Hi Kerry,

Thank you so much for your note of September 6, 2009.  My accountant is adamant that a 179 deduction can only flow through to a single member LLC.  This opinion stands to cost me about $40k and beyond that logically drives me nuts.  Why would the deduction not flow to all the members, particularly in this case where the partners are my wife and I and we file a joint 1040?

Could you point me to something in the IRS or professional literature that clearly (a faint hope on my part) lays out the 179/llc ground rules?

You mentioned that you are thinking of setting up business related Webinars, I’m very interested.  Often those of us doing business are very interested in the deductions that are allowed in the conduct of business depending on the corporate form.  As you can see, from my own very painful situation, it would have helped to know that only single member LLCs can take the 179.

I would be very interested in being kept informed about your webinars and if there is any info on the multiple partner LLC (particularly husband and wife) I would be most appreciative.

Best Regards,

A-2:

There must be some kind of misunderstanding here because what you claim is your accountant’s statement makes absolutely no sense. To claim that only single member LLCs can use Section 179 is ridiculous. I have seen and prepared thousands of tax returns with multiple owners sharing Section 179 deductions.

With a multi-member LLC that is reporting its activity as a partnership on Form 1065 or as an S corp on Form 1120S, the treatment is exactly the same.  Just as the net operating income or loss is divided among the owners on their K-1s based on their ownership percentages, Section 179 deductions are similarly allocated among the members’ K-1s.

If your accountant uses professional software to prepare the 1065 or 1120S, it will handle that allocation automatically.

If your accountant prepares tax returns by hand and doesn’t understand how to properly handle Section 179, it sounds like it may be time to move on to someone with more experience.  If it’s a family member and you don’t want to hurt his/her feelings by switching to a more competent tax pro, only you can decide if that is worth $40,000.

You asked for documentation of this.  How about the official IRS instructions for Form 1065, which you can download here.  

From Page 28:

Line 12. Section 179 Deduction
A partnership can elect to expense part of  the cost of certain property the partnership purchased during the tax year for use in its trade or business or certain rental activities. See Pub. 946 for a definition of what kind of property qualifies for the section 179 expense deduction and the Instructions for Form 4562 for limitations on the amount of

Complete Part I of Form 4562 to figure the partnership’s section 179 expense deduction. The partnership does not claim the deduction itself but instead passes it through to the partners. Attach Form 4562 to Form 1065 and show the total section 179 expense deduction on Schedule K, line 12.

Note that it says “Partners” with an S, meaning that the Section 179 is to be split between all of the partners.

Also from Page 28 is this statement of a limitation on the only kinds of partners who may not claim Section 179 deductions.

Do not complete box 12 of Schedule K-1 for any partner that is an estate or trust; estates and trusts are not eligible for the section 179 expense deduction.

Notice that there is no restriction mentioned regarding multi-member LLCs.

Good luck.  I hope this helps. Fur future reference, when a tax pro presents you with some claim that seems to be wrong on its face, you should demand that s/he present you with documentation to prove his/her point.  I would be very interested in seeing something official that states that multi-member LLCs are not eligible to use Section 179.

If you keep tabs on my blog, we will be announcing the dates of the webinars there.

Kerry Kerstetter

 

Business Plan Pro

 

Posted in 179 | Comments Off on Limits on Sec 179 For Pass-Through Entities…

Helping people cheat on their taxes…

Posted by taxguru on September 18, 2009

From Jay Leno via NewsMax:

ACORN is an organization that gets government money to help poor people. Well, now they’re in trouble. These two film-makers went to ACORN posing as a pimp and prostitute saying they wanted to buy a house and run it as a brothel. ACORN gave them advice on how to do it and how to avoid prosecution and how to avoid paying taxes. If they want to get away with prostitution and not paying taxes, they should go to Congress. These are the professionals.

Posted in Uncategorized | Comments Off on Helping people cheat on their taxes…