Q:

Hello…I recently file my articles of incorporation and EIN number. And I wanted to know if it was too late to change my tax year since I already filed a ss-4 and plan on becoming a S-Corp, I read your post on how to choose a tax year and wanted to take your advice and file my Taxes in June. I noticed they ask to pick you fiscal year on the 2553 document to become an S-Corp, could this be an opportunity to change it here.

Any advice or insight you have to give would be greatly appreciated. Also if your services are available for consulting in anyway I would also be interested in hearing about it as well.

Thanks

A:

You definitely need to start working with a professional tax advisor ASAP before you take one more step with your new corp; especially before filing the 2553. I have my doubts as to whether you have evaluated all aspects of your situation thoroughly enough to warrant the decision to choose an S corp as your most appropriate entity type.

Unfortunately, I am still not caught up enough with my current client load to be able to take on any new ones; so you should check with the names of other tax pros on my website.

While you referenced my article on choosing a corp tax year, you are missing some key points. The option to have the corp’s tax year end at a date different than December 31 only applies to C corps.  S corps are required to use a calendar year, ending December 31.  The only main exception to this is if the shareholders have a tax year other than 12/31, because the IRS’s goal is to match the S corp tax year to that of the shareholders.

As you may have seen in the instructions for the 2553, a different tax year can be chosen if there is a strong business purpose for that being the case.  Saving taxes, which is the main benefit of using a different tax year, is not an acceptable justification for IRS because, as you well know, their job is not to help anyone reduce their tax bills. Bottom line, it is for all intents and purposes an impossible task to convince IRS to allow a different tax year than 12/31 when the shareholders all have a calendar tax year for their 1040s.

So, if you are positive that an S corp is a good idea, there is no option with the tax year.  It must be December 31.

If you and your professional tax advisor conclude that a C corp would work out best for your situation, the tax year can end at the end of any month, regardless of what you entered on the SS-4.  As I have said many times on my blog and websites, until you file the first 1120, the C corp’s tax year is still subject to change.  Once the first 1120 has been filed with IRS, that officially locks in the tax year for that corp.

Good luck.  I hope this helps you understand the situation a little better and you see why proceeding any further without competent professional assistance is extremely dangerous.

Kerry Kerstetter

Q:

Subject: question about selling the house

Hi Sherry and Kerry,

My house is on the market.  I know that I will have to pay for mold and radon mitigation.  If I do the work now before I have a contract on the house, can I deduct the cost as an expense of selling.

A:

Those kinds of costs can be counted as either selling expenses or as additions to the cost basis of your home; both ways reducing your gain on the sale.

Whether this actually will save you any real income dollars will depend on the size of your profit.  The first $500,000 of profit is completely tax free.  Any profit above that $500,000 will be subject to long term capital gains tax.

I haven’t been following housing values in your area; so I’m not aware of what kind of profit you are expecting to make.  If it will be less than $500,000, it will be tax free; so any additional costs you incur won’t save you anything in taxes.

I hope this helps and isn’t too confusing.  Let me know if you have any more questions.

Kerry

Q:

Subject: purchasing a business vehicle over 6000 lbs.

Kerry,
I read your article with interest as I am about to purchase a new (to me) used vehicle. I am a real estate broker in Aspen, Colorado and use my vehicle for business about 85-90% of the time. Do you have a current list of vehicles that qualify?

Since I live in the mountains (it’s snowing as I write this) and since I do a lot of large acreage land sales bashing around in the sage brush, a large SUV fits my needs but I want to make sure it qualifies for the tax break. There seems to be a lot of varying opinions on what constitutes 6000 lbs of curb weight vs. carrying or load weight.

Any information you can share with me on this matter is greatly appreciated.

Regards,

A:

I long ago discovered that it wasn’t practical for me to try to maintain a list of all vehicles that weigh more than 6,000 pounds.

With new vehicles, it’s easy to determine the weight because the salespersons are eager to help you qualify for the much more lucrative deductions.

For a used vehicle, you may want to use a simple Google search for the GVW of the vehicle you are considering.  That’s what I do when clients send me their tax info and I need to know whether a newly acquired vehicle is heavy enough for the large Section 179 deduction.  I routinely use Google to locate this info.  That will give you an approximate idea for the models you are looking at.

You can then confirm the qualification of a particular vehicle that you are considering the purchase of by asking the current owner what the documented GVW is on his/her ownership records.  That would be proof positive of the actual weight.

If the documented weight is slightly less than 6,000 pounds, the vehicle may still qualify if heavy enough permanent accessories have been installed on the vehicle after the original weight was documented to push it over the magic 6,000 pound threshold.

Good luck.  I hope this helps.

Kerry Kerstetter