Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for December, 2016

Loose Lips…

Posted by taxguru on December 23, 2016

With holiday parties and adult beverages loosening people’s inhibitions, it’s a good time for another warning that if you have tax or other secrets that you don’t want the IRS to know about, keep your mouth shut.  Just as with people confessing to all kinds of nefarious acts on social media, there are also numerous cases where IRS agents catch people who feel safe bragging about their abilities to cheat on their taxes, while trying to impress people at parties.  There is a name for those folks; idiot blabbermouths.

IRSAgentAtParty(12-23-2016)

Posted in IRS | 1 Comment »

Gifting Confusion

Posted by taxguru on December 16, 2016

Q:

Subject: S Corp Gifting 

I stumbled into your web site back in 2007 when I was thinking of changing from a C Corp to an S Corp.
Very helpful information written for the non-accounting business owner.

My company (S Corp) has had a banner year and I am now facing a HUGH tax check payable to Uncle Sam.

Here is my question: Obliviously trying to lower my bottom line as much as I can before years end, can I
gift 2 of my best employees $100K each. Our company would pay the taxes for them but then they would
gift back to me $50K each making all of us happy and lowering my bottom line?

I love these guys and they have been employed here for over 35 years each. I have already given them
a bonus of $20K to employee #1 and $13K to employee #2 this Thanksgiving. They are both happy to
receive and willing to file form 709 on their taxes for a cut of the $100K. Can I do this?

Thank you for any help –

 

A:

I don’t want to seem harsh, but I’m getting the impression that you have been trying to navigate the tax waters on your own, without the assistance of professional tax advisors. Any tax pro would have been able to explain how misguided your proposed gifting plan is.

Your ideas regarding the use of gifting as a tax savings strategy are dangerously off-course. Here are just a few of the reasons why this idea is completely wrong for achieving your goal of reducing your 2016 taxable income.

Gifting is a strategy for reducing future Estate (aka Inheritance) taxes and does not produce any kind of current income tax deduction. You could give away everything you have and it would have zero effect on your current year income taxes.

Gifting can only be done by individuals, because only humans are subject to the Estate Tax. Corporations have potentially infinite lives, so they are not ever subject to the Estate Tax.

Gifts have to be no strings attached. Having the recipients gift you back half of the gift clouds what the transaction really is.

True gifts are tax free to the recipients and not deductible by the giver, unlike wages and bonuses, which are reported on W-2s and fully deductible by your business. If you were to gift any person more than $14,000 during a calendar year, you as the giver would need to file a Form 709 Gift Tax return and either pay Gift taxes or utilize part of your lifetime exclusion. The gift recipients do not file 709s. Only the givers do.

There are a number of simple ways that you can still actually reduce your 2016 taxable income. Since most of them will need to be done by 12/31/2016, you need to start working with a professional tax advisor ASAP.

Good luck.

Kerry

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

Posted in Gifting | 1 Comment »

Lower IRS Mileage Rates for 2017

Posted by taxguru on December 13, 2016

The recently lower fuel prices have caused IRS to reduce their standard rate per mile deductions for business, medical and moving in 2017.  Only Congress has the power to modify the per mile cost that can be claimed as a Schedule A Charitable Donation from the 14 cents per mile rate that they cemented into the Tax Code rather than allow it to fluctuate with current costs as calculated by IRS.

From the IRS press release:

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

While these rates are for 2017 miles driven, to be claimed in 2018 when preparing 2017 1040s, having this info now is very useful for employers who use the IRS rate for their own employee reimbursement policies.

My Standard Reminders in regard to deducting vehicle expenses:

Most State tax agencies synchronize their allowable deductions with what IRS allows; but some don’t.

For heavy business use of vehicles, it’s a good idea to keep track of actual operating costs.  In many cases, it is possible to switch back and forth between standard rate and actual expenses from year to year. 

The IRS rate is based on average costs that may not represent your actual operating costs.  For example, if you are like many motorcyclists and owners of older cars, who use the much more expensive Ethanol Free gasoline to prevent the expensive carburetor problems that Ethanol causes, your fuel costs will be much higher than what IRS has built into their standard rate. 

 

Posted in IRS, Vehicles | Comments Off on Lower IRS Mileage Rates for 2017

Another April 18 National Tax Day

Posted by taxguru on December 11, 2016

Practically forever, everyone in the US has associated April 15 with the dreaded income tax deadline.  It’s become such a part of our culture that it is treated as a sick kind of holiday that fosters celebrations and business sales of the kind we see for other more traditional holidays.

For the second year in a row, the calendar and a special Washington DC holiday have aligned so that we have a little longer before 2016 individual income tax returns are due.  As IRS has announced in an official press release, Tuesday, April 18, 2017 will be the magic day for 2016 1040s. 

Most States automatically synchronize their due dates with IRS’s, but you should check with your own State’s tax agency to be certain.

For this coming tax return filing season, there are also going to be several other new due dates for 1099s, 1065s, 1120s and various other types of tax returns.  I will be posting more details on these new deadlines in the next few weeks. 

   

Posted in TaxDay | Comments Off on Another April 18 National Tax Day

Trump Tax Change Proposals

Posted by taxguru on December 9, 2016

The TaxCoach folks have produced a very concise seven page pdf pamphlet with some of the possible changes the Trump Team may try to get passed after they assume power.  You can download it from:

Donald Trump Tax Change Proposals

As with most of the concepts promoted by TaxCoach, they are forward thinking ideas for people, especially small business owners, to use to reduce the amount of their wealth that is confiscated (stolen) by our rulers in government.  Many of the Trump proposals do have opportunities for modifying tax reduction techniques. 

While most of the suggested strategies are at the discretion of the taxpayers. the last one probably isn’t an optional choice for most folks, but would be a win-win if the Trump Team can eliminate the insidious Marxist grave-robbing Estate Tax.

Avoid the estate tax by deferring death to 2017 or later

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

Posted in TaxReform, Trump | Comments Off on Trump Tax Change Proposals