Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Archive for December, 2010

C Corp Tax Rates

Posted by taxguru on December 31, 2010


From a reader
:

Subject:  Incorrect corporate tax rate

The tax rate table is incorrect (and outdated) – http://www.taxguru.org/incometax/Rates/1120.htm – the incorrection is as following:

Under the Tax column, you have, as an example, 25% “minus” $5000, it should be (25% of amount greater than $50,000) + $5,000.

My Reply:

Actually, that table is still correct.  It is set up as a short-hand method of calculating the tax by multiplying the total taxable income by the appropriate rate for the effective bracket and then subtracting the effect of the lower brackets.  It’s a faster calculation method than figuring each bracket individually and adding them together.

Here is a link to the most recent C Corp tax table from my main reference book, TheTaxBook.

From Tax Info

You can see that it is the exact same as the table I have had on my website for the past several years.

I hope this clears this up for you.

Kerry Kerstetter

 

 

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Opting Out Of Mandatory E-Filing

Posted by taxguru on December 31, 2010

For the past few months I have been working on a rather lengthy piece on the upcoming new rules mandating electronic filing of 1040s by almost all professional tax preparers.  As a long-time opponent of e-filing, I was always planning on not going along with this mandate and continuing to prepare paper returns with a ton of additional info attached, such as QuickBooks financial statements. 
I have been monitoring the run-up to the implementation of this new requirement with a keen interest in the acceptable procedures for opting out.  There had been mention of some different IRS forms to allow us to submit paper 1040s; but copies of those actual forms were nowhere to be found –  until now. 
I like to browse the IRS’s Draft Tax Forms page at least once a week to see what new changes are in the works.  As I reviewed that page today, I came across Form 8948: Preparer Explanation for Not Filing Electronically and downloaded a copy of that.   

From Tax Info

I am assuming that once this form has been formally placed into service by IRS, Lacerte and other software services will add it to the 2010 program because I will be using it for all of the tax returns I prepare.
Update: I was checking TheTaxLibrary to see if they had the 8948 posted in their forms section.  They didn’t; most likely because it is still only a draft.  However, they did have Form 8944: Preparer e-file Hardship Waiver Request. I’ll look it over and possibly submit it to IRS to obtain a blanket waiver from their new e-file requirement.

From Tax Info

Update 2:  I just downloaded and installed the second 2010 CD for Lacerte and I found that it now has Form 8948 with the following input section.

From Tax Info

 Update 3: IRS Notice 2010-85 has a lot of inf on this issue.

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Happy New Year 2011

Posted by taxguru on December 30, 2010

Click for mini-animation:

Happy New Year 2011

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Posted by taxguru on December 30, 2010

From Blog Comix

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Posted by taxguru on December 30, 2010

New Study: Estate Tax Compromise Impacts 65,000 Small Businesses and Farms –  Interesting look at the effect of the evil immoral Marxist estate (aka Death) tax on small businesses.  The full 13 page pdf report can be downloaded here.

 

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Posted by taxguru on December 30, 2010

From FoxBusiness: Free Tax Help for the Self-Employed –  And worth every penny you pay for it.

 

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Beware taking tax advice from stockbrokers…

Posted by taxguru on December 29, 2010

 

From a client:

Subject: Stocks’ GAINS 2010

Hi Kerry (&Sherry):
 
It’s that time of the year where our Stock Broker calls and says SELL and save on taxes. 
 
Per Broker, Net gains (all Long Term) in 2010 was +/-  $45K (with 15% tax). 
Losses +/-  $15K.
 
I typically pay this matter no mind.  Plus I do not feel right when someone suggests “you better sell”.
WHATCHATHINK???

 

My Reply:

I’m feeling a bit of deja vu here, because I think we have had this exact scenario pop up in previous years, possibly with the same stockbroker who clearly appears to be more interested in making his personal sales quotas and commissions than in doing what is best for you.

My advice is still the same as it has been for all of the previous years.  Selling just for tax losses is not a wise move.  Sales and purchases should be based on the probable investment potential for the stocks.  If they appear to be heading down, by all means dump them ASAP.  However, if they are doing well and have good upside potential, hold onto them.

If he advises selling off stocks at a loss that you want in your portfolio, you need to be aware of the IRS’s Wash Sale Rule.  If you repurchase those shares or similar ones within 30 days of the sale that showed a loss, IRS will not allow you to actually deduct that loss on your tax return.  You will have to add the loss from the first sale to the cost basis of the replacement shares.  Stockbrokers eager for their commissions will conveniently forget to tell you about that twist to the plan and it will be up to me to break the news to you when I prepare your tax return.

As you know, long term capital gains are taxed at the lowest rate available in the tax system; so having a net positive LTCG isn’t necessarily a bad spot to be in.  For 2010, we actually have those gains taxed at zero and 15% by IRS; so it’s not going to cost you a ton to show a net LTCG on your 2010 Schedule D; definitely not enough to warrant selling off stocks that you would prefer to hold onto.

That’s my two cents worth.  I hope it helps.

Kerry

 

From Tax Info

 

 

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

 

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Posted by taxguru on December 28, 2010

From Blog Comix

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Posted by taxguru on December 27, 2010

From Blog Comix

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The New Tax Law

Posted by taxguru on December 27, 2010

New tax law packed with obscure business tax cutsFrom AP

TheTaxBook Summary (11 page pdf)

QuickFinder’s Summary (8 page pdf)

2010 TAX RELIEF/JOB CREATION ACT (11 page pdf) –  From CCH 

HR 4853 (30 page pdf) –  From GPO

What the Tax Deal Means to Your Wallet –  From Fox Business

Tax bill finally passes –  From Spidell

What will the big new tax law mean for you?  –  From AP.

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