H&R Block Agrees to Pull Ad Dissing CPAs

I guess a lot of CPAs have no sense of humor. I haven’t seen this commercial, but any CPA who feels threatened by H&R Block has bigger problems to worry about.

Section 179 Expensing Election

It seems like a lot of people were not aware of the ability to claim the very lucrative Section 179 expensing election for business vehicles weighing more than 6,000 pounds. It’s only been the law since 1984; so it takes a while to filter out into the tax practitioner community.

I have had some people asking about going back and claiming it for past years. Unfortunately, that isn’t possible. As with many tax return elections, they can only be made on original tax returns or on amended ones that are filed by the due date (including extensions) of the original return. That kind of thing is the reason that it has always been my policy to file tax returns late rather than rush something together that can’t be changed, such as the Section 179 election. I still have several 1999, 2000 and 2001 tax returns in process.

KMK

Loose Lips

I have long advised people who are able to claim generous tax breaks to be happy about that fact and keep it to themselves. Brag about something too much and sooner or later those who don’t qualify for it will scream loud enough to force our rulers to scale back on the breaks. Envy, jealousy and outright hatred for anyone getting any more tax breaks than you are pervasive in this country.

This is the very reason for the 1984 luxury car rules. Before 1984, business cars of any cost could be fully depreciated over three years. Because so many big-mouths bragged about this, the backlash from those who couldn’t deduct their vehicle costs was too much for our rulers to ignore. They limited the amount of a vehicle’s cost that could be depreciated over five years. After adjustments for inflation, that limit currently stands at $17,410. Any vehicle costing more than that is by definition a luxury vehicle.

To distinguish between normal passenger and utility vehicles, our rulers established a break point of 6,000 pounds gross vehicle weight. Any vehicle weighing more than that is not subject to the luxury car rules and can be fully depreciated over five years. In addition, it qualifies for the immediate expensing election under Section 179 of the Internal Revenue Code, currently $24,000 per year. While I have been discussing this tax break since it as first enacted in 1984, the rest of the public didn’t become aware of it until very recently as part of the open attack on SUVs and their owners by such loud mouth Socialist hypocrites as Arianna Huffington. It doesn’t surprise me one bit to see editorials such as this one from the Atlanta Urinal-Constipation calling for our rulers to eliminate this lucrative tax break for evil SUVs. How long will it be before we have a repeat of 1984?

KMK

Loophole In Tax Code Means Big Tax Breaks For SUV Buyers

In typical incompetent fashion, this reporter implies that SUVs receive huge tax credits, making the cost to purchase almost zero. As I have been pointing out since this law was enacted in 1984, there is a very lucrative extra deduction for vehicles weighing over 6,000 pounds; but the actual taxes saved are based on your tax brackets. I have always advised against buying new vehicles just for their tax deductions. However, when already in the market for a new (to you) vehicle, the extra deductions for a heavier one may be the deciding point.

Since I last commented on this issue, I have received some questions as to whether or not the vehicle has to be brand new to qualify for the lucrative Section 179 expensing election. The vehicle only needs to be new to you to qualify for the Section 179, as long as you buy it from an unrelated party. This gives you the best of both worlds, if you buy a one or two year old truck or SUV. The bulk of the real world depreciation is gone and you can deduct up to $24,000 of the cost immediately.

If you buy it from a close relative or a corporation you own, IRS will treat that as churning and force you to continue the depreciation schedule that had been used by the previous owner.

KMK

Heavy Vehicles

The Wall Street Journal has a good piece today on how much more lucrative the tax deductions are for business vehicles that weigh over 6,000 pounds. I have been advising on this tax break since it was first enacted by our rulers in 1984 and am always amazed when I hear of a tax pro who is unaware of it. In fact, after each of my seminars on tax tips for Realtors, I would receive several inquiries from other tax pros asking me when special rules were enacted for vehicles over 6,000 pounds, assuming they were brand new.

What’s also been surprising is how little the car companies are doing to publicize the extra tax benefits of buying one of their heavier vehicles. I can still remember receiving a letter from American Motors in 1984 comparing the lucrative tax breaks (including the now defunct investment tax credit) from buying one of their Jeep Grand Wagoneers that weighed 6,100 pounds instead of a lighter weight vehicle from another manufacturer. Over the years, many of the formerly heavy vehicles, such as the Grand Wagoneer, have gone on diets and no longer qualify for the special rules. However, there are still plenty of other SUVs and trucks that do have gross vehicle weights over 6,000 pounds. As I have always advised, it’s not a good idea to buy a heavy vehicle just for the tax breaks. However, if you are debating between a vehicle that weighs over 6,000 pounds and one that doesn’t, the additional tax deductions may be the deciding point.

This is also a good opportunity to remind of how using a C corporation instead of an S can double the Section 179 expensing deduction. An individual could buy a big SUV for his personally owned business and deduct $24,000 of the cost in the first year. His C corp could also buy a heavy vehicle and claim its own $24,000 deduction. The combined deduction of $48,000 is double what would be available with an S corp, where all limits pass through to the shareholders.

KMK

Trust Nobody

As slow as they are moving against illegal tax evasion schemes, it’s good to see that IRS is at least doing something to shut down the promoters of scams such as this case in Florida, where people were paying almost $6,000 to a scamster to set up supposedly tax free trusts. Unfortunately for IRS, for every one of these con artists that they shut down, there are dozens more convincing gullible people to follow their lead with tempting but illegal schemes.

KMK

PowerLess

One of the trade-offs in living in solitude in the boonies high up in the Ozark Mountains is that we receive the extremes of the weather in the Winter time. It was too good to be true that we had the mildest October & November (almost) since we moved here in 1993. That changed dramatically this past Wednesday, when we were covered with ice; but our electric & telephone services were functioning fine. Subsequent rain, which froze on the trees, was simply too much. Trees were crashing all over the place under the weight of the ice. The roads & driveways were blocked by fallen trees. Power lines were toppled. We lost our power on Thursday afternoon. Since we rely on electricity for almost everything, we couldn’t conduct much business or even check email or receive phone calls until the power was restored two & a half days later, late Saturday night.

Luckily, while the power was out, UPS delivered some packages that kept me busy. I was able to assemble the computer components I had ordered from Tiger Direct & build my new powerful computer. I will test it out tomorrow. It never ceases to amaze me how much cheaper everything is each time I order computer parts. An 81.2 gigabyte hard drive was only $179. After this power outage (which will hopefully be the only one for this Winter season), I’m taking another look at alternative power sources. We have a dozen UPSs around the house; but they only give about 15 minutes of power. For more, I’m looking at units such as this, which claims to be able to power a desktop computer for four hours.

I was also able to work on my state required CPE classes that I had ordered from CPE Store. I finished most of the 50 hours while working with kerosene lamps on my desk.

According to this news account (+ this one), we were among several thousands of people who lost their power due to this ice storm. Sherry & I are hoping that Carroll Electric will reevaluate its policy of not clearing the tree limbs in the power line right of ways. A little preventive maintenance could have reduced the number of power outages.

KMK

It’s Not Too Late

Even though there’s only a week left in the year that wasn’t supposed to happen (according to the fear mongers who claimed the Earth would explode at midnight on 1/1/00), there is still time to reduce your 2000 taxes. These aren’t new ideas, yet they are often overlooked.

PrePay
If you pay for some of your 2001 expenses by 12/31/00, you will be able to deduct those payments on your 2000 tax return, giving you the tax savings a year earlier than if you were to pay them in 2001. The prepayable expense nearest & dearest to my heart is tax preparation costs. You can pay your preparer by December 31 and deduct that fee a year earlier. Tax preparers don’t mind receiving that money early because whatever comes in will be spent on supplies for the upcoming tax season.

Section 179
If you haven’t already used up your $20,000 Section 179 expensing election for new (to you) business equipment, you should hurry up & go shopping. Also, let me clear up one big misconception about this very lucrative deduction. It’s not only necessary to pay for the equipment before the end of the year. You also have to put it into service by December 31 in order to claim the Section 179 deduction. This means that you may not want to rely on online shopping at this late date.

Credit Cards
Many people aren’t aware that IRS treats purchases made with credit cards the same as those made by check or cash, regardless of when the credit card is actually paid off. That means that you can charge expenses and asset purchases in December and claim them on your 2000 tax return, even if it takes you several years to pay them off. In addition, even if it’s a personal credit card, any finance charges incurred on business purchases are also deductible on the same business schedule (C, E, F, etc) as the underlying purchase. If you use the credit card function in Quicken or QuickBooks, where you enter the individual charges, these will be added into your 2000 expenses.

KMK