Q:

My Mother is wondering if she buys things for our farm or pays bills for our farm are there ways she can get tax breaks.  The money that she has from when my grandmother passed away…I don’t know alot about it.  I just know Momma said the only reason she didn’t have to pay taxes this year was because my grandmother had paid ahead.  She is wanting to help us some but she needs the breaks.

 

Also, when we incorporate is there a way she can benefit from that?

A:

These are the kinds of things she really needs to be discussing with her own personal professional tax advisor.

Most kinds of inheritances are tax free for the heirs.  Investment income earned on those assets after she owns them are taxable.

Basically, tax deductions are only allowed if there is a profit motive behind them.  She can’t just pay for your expenses and deduct them unless there is some expectation of income from that operation.  One possible scenario that could allow deductions would be if she were to buy some pieces of farm equipment and lease them to you.  She could potentially deduct up to $108,000 of the cost in the first year; but there would have to be some lease income showing on her 1040 to justify it.  Her tax advisor can give her more specifics.

In regard to working with your corporation, there aren’t as many tax savings for a non-owner as for the owners.  However, if you were to set her up as an employee of your corp, and have a corp medical reimbursement  plan available for all employees, the corp could pay for all of her medical costs and she wouldn’t have to report any of that as income.  Again, her personal tax advisor can give her more specific advice, including whether it would be even better for her to set up her own corporation.

Good luck.  I hope this helps.

Kerry

Follow-Up:

Thanks and I am sorry to keep bugging you with questions.  She doesn’t have a tax advisor and that is the problem!!!  I am encouraging her to do something.

 

Health Insurance Covering S Corporation Shareholders – Interesting clarification from IRS. 

The scam accounting techniques used by our rulers in DC make Enron’s financial statements look like the most honest numbers in existence by comparison.

From a Texas CPA:

Subject: GOOD DEEDS

 

re: LIFE-LEAGUE LADY…

 

JEEZ… I HOPE THIS LADY IS NEVER MY HOSPITAL CARETAKER.

AND NOW I KNOW WHAT THEY MEAN WHEN THEY SAY…

“NO GOOD DEED GOES UNPUNISHED”.

 

PEACE.

My Reply:

That was pretty much the exact same reaction my wife and I had to that email.  It doesn’t instill a lot of confidence in the quality of care from a hospital that would have someone so obviously mentally unstable on their staff.

Thanks for writing.

Kerry Kerstetter

 

That’s all I can think of after the final response from this woman, who I’m sure would love to hear from other readers.  As always, these are unedited, copied and pasted, from our actual emails.  I’m sure her employers at the local hospital are so proud of her for the way in which she represents their attitude towards people.

Q-1:

From: “Life League” <lifeleague@lifeleague.com>

Subject: Tax question

I was wondering if you could answer a very basic tax question for me.

If myself and a partner were to setup an LLC, and have it organized as an S Corp with the IRS, and then we were to for example receive a payment of $100,000.00 to the LLC.

 

What would be the best way for myself and my partner to split the $100,000.00 generated by the LLC with the minimum tax burden on us personally?

Would the LLC be taxed as an S corp and then could we as members of the LLC take some sort of distribution from the LLC that would not be considered personal income?

Or would it be best to take the money out and then just pay standard IRS Personal income tax on the money?

 

Thanks much.

 

Liz

Life League

A-1:

Liz:

You absolutely must be working directly with a professional tax advisor to set this kind of thing up.  You are heading for major problems if you go any further without such assistance.

You need to cover with your professional tax advisor how the various types of entitles are taxed because it is obvious that you haven’t any idea how it works.  For example, if you elect to have your LLC treated as an S corp, that means that  you agree to have all of the LLC’s income pass through to your 1040s regardless of how much money you take out of the LLC.

Good luck.

Kerry Kerstetter

Q-2:

So if the S Corp LLC made $100,000.00 and as you say, that means we agree to have all the funds flow through to our 1040’s, would each partner be responsible for 50% of the $100,000.00?? (Provided that the partners are 50/50 partners in the LLC that is.

 

Thanks much.

 

Liz

A-2:

Basically, that’s how it works.  Any business expenses are deducted and the net profit flows to your and your partner’s 1040s via the K-1 forms.  How much actual cash you each receive personally will have no bearing on the taxability to each of you. 

You need to be working directly with a tax pro and not relying on advice you find from strangers on the internet.

Good luck.

Kerry Kerstetter

Follow-Up:

From: “Life League” lifeleague@lifeleague.com

Subject: Thanks so much for all your help…..

Your unprofessional condescending comments are appreciated and well noted!!!

And I quote: “You need to be working directly with a tax pro and not relying on advice you find from strangers on the internet”.

And yet again from your previous email: “….because it is obvious that you haven’t any idea how it works”

How do you know I am not a local resident of AR near Harrison and looking for a tax professional and just testing the waters to see what you in fact do and do not know? You can be sure I will NOT be calling you for one of your “seminars” after all of your little rude comments you unprofessional prick.

And good luck selling your hilarious “K.M.K. Ranch” property for a MILLION DOLLARS!!! And you think I need a tax professional? Maybe you should do some research, asswipe, because you are in serious need of a real estate agent or a pscharitrist for asking one million dollars for that broken down shithole regardless of the acreage size!!!! Its ALMOST as funny as asking $4950 for a 1978 truck that blue books at less than $1000!!!!

Maybe try not to be such a prick next time and maybe you would not receive responses like this….It does not make you very happy, does it?  And FYI…I am employed by the North Arkansas Regional Medical Center on North Willow here in Harrison, and will be sure to advise all of my friends, family and anyone at KHOZ that will listen to me about how unprofessional and rude you have been.

Oh, one last thing..you are now blocked from this email account…so please….Get a life, moron!! Or should I say, Get a life “GURU”…..

Love and kisses!

Liz

My Reply, which I cc’d to her hospital:

To: “Life League” <lifeleague@lifeleague.com>

Subject: Re: Thanks so much for all your help…..

Cc: pr@narmc.com

 

Liz:

I’m sorry that you don’t appreciate the value of FREE advice and can’t grasp the concept that you need to be working directly with a tax professional whom you pay for advice.

I’m sure your employers at NARMC are so very proud of the way in which you represent the professionalism of the hospital.  YOUR attitude says a lot about that aspect of the hospital’s feelings towards people.

It also sounds as if you don’t have enough work to do there at the hospital if you have time to nit-pick so many items that have nothing to do with you.

Kerry Kerstetter

 

Working around the new kiddie tax – Need to modify strategies for shifting investment income to kids.  This is all part of the never ending tax game.  Our imperial rulers change the rules and we adapt accordingly. 

AARP returns to the mutual fund business – Just pointing out what hypocrites the AARP leaders are.  As pointed out frequently at the Social Security Choice website, AARP fought hard against the idea of allowing people to own and invest their own retirement funds under the premise that the stock market is too dangerous a place to put money, while at the very same time AARP has been earning huge commissions from selling the exact same kinds of investments.  This kind of attitude is one of the main reasons we refused to renew our AARP membership a few years ago.

Tax Advantage Is Driving Deal To Buy Braves – We need to look more into how we can help our small corporate clients use this “cash-rich split-off” technique to avoid taxes on cash deals.

If You’ve Got a Tax Refund, You’re Crazy – Good tips from Gail Buckner on how to adjust your W-4 to avoid giving the government an interest free loan.

John J. Miller at National Review has a interesting list of his top 50 conservative rock songs.  Two of those songs are especially appropriate for posting here.

#2. “Taxman,” by The Beatles. 
A George Harrison masterpiece with a famous guitar riff (which was actually played by Paul McCartney): “If you drive a car, I’ll tax the street / If you try to sit, I’ll tax your seat / If you get too cold, I’ll tax the heat / If you take a walk, I’ll tax your feet.” The song closes with a humorous jab at death taxes: “Now my advice for those who die / Declare the pennies on your eyes.”

http://rcm.amazon.com/e/cm?t=taxfreeexchacorp&o=1&p=8&l=as1&asins=B000002UAR&fc1=000000&IS2=1&lt1=_blank&lc1=0000ff&bc1=000000&bg1=ffffff&f=ifr

#45. “Taxman, Mr. Thief,” by Cheap Trick.  
An anti-tax protest song: “You work hard, you went hungry / Now the taxman is out to get you. . . . He hates you, he loves money.” 

http://rcm.amazon.com/e/cm?t=taxfreeexchacorp&o=1&p=8&l=as1&asins=B00000C28I&fc1=000000&IS2=1&lt1=_blank&lc1=0000ff&bc1=000000&bg1=ffffff&f=ifr

Update: While I have posted dozens of versions of the very familiar George Harrison song over the years, the Cheap Trick song was new to me; so I found this copy on the web and uploaded it.  The lyrics are a bit hard to make out, so I found these on the web as well.

Taxman, Mr. Thief Lyrics

You work hard, you make money
There ain’t no on in the world who can stop you
You work hard, you went hungry
Now the taxman is out to get you
You worked hard
And slaved and slaved for years
Break your back sweat a lot
Well, it’s just not fair
He hates you, he loves money
And he’ll steal your shit and think that it’s funny
Like the Beatles, even Dylan
Now the taxman is out to get you
You worked hard
And slaved and slaved for years
You played
And you played and played for years
Taxman, Mr. Heath (he’s a thief)
He’s looking for run-in, yeah
Taxman, Mr. Heath (he’s a thief)
He’s looking for run-in, yeah
You work hard, you make money
There ain’t no on in the world who can stop you
You work hard, you went hungry
Now the taxman is out to get you
You worked hard
And slaved and slaved for years
Break your back sweat a lot
Well, it’s just not fair
Taxman, Mr. Heath (he’s a thief)
He’s looking for run-in, yeah
Taxman, Mr. Heath (he’s a thief)
He’s looking for run-in, yeah

 

Update #2: Mr. Miller has posted a list of 51 additional conservative rock songs. While some mention taxes, none are as focused on them as the two above.