Q:

Subject: Corporate Tax Rate Schedule

Hey Kerry,

I’m a student at Binghamton University and I’m trying to understand you’re tax rate schedule after looking at the 1120-W form.  What I’m having trouble with is how the rate resets at 335,000 and 18,333,334. 

The first makes sense, but I do not understand either the $550,000 at the second to last bracket, or the reset rate for all income over $18,333,334.

Thanks for any help,

Oh, and I’m doing this for a simulated 2% reduction in the corporate tax rate, just to let you know what I’m trying to do.

A:

This is a good time to repeat my long standing policy on not answering homework questions.  This has always been my online policy, going back several years ago when I was answering questions on the old AskMe.com website. 

I barely have time to address real life questions from many people; much less provide short-cuts for students who should be doing their own research and utilizing the resources they are paying for with their tuition. 

The answers to your questions are very easy if you work through the figures in the tax rate schedules.  If you can’t figure it out on your own, you should ask your professor or his/her teaching assistant to explain it to you.  That’s what they are there for.

Good luck.

Kerry Kerstetter

 

Q:

Subject: In regards to something you wrote…..

“The most confusing thing about running so many versions of QuickBooks at the same time is that the icons that show up on your desktop and QuickLaunch bar look exactly the same for each year. I have to float the cursor arrow over them to find which is which, and even then I occasionally open the wrong program.”

I am not sure if you are referring to your desktop icon, but if you are, you can change the icon by right-clicking it. Go to properties, and then select “change icon” Maybe that will help with the minor frustration of running multiple Quickbooks programs on your desktop.

A:

I had tried that years ago and was disappointed to find the icons that come with the program all look almost exactly the same, with nothing to distinguish their year. I’m sure it’s because most people only have one version of QB installed, so have no need to worry about identifying different ones.

I launch most of my programs from the Quick-Launch tool-bar at the bottom of my screen, where I currently have over 80 tiny icons in alpha order.

I guess I could design my own icon for each version of QB; but that sounds too time consuming.

The icons that come with my Lacerte tax prep programs each have the last two digits of the year very prominently displayed in their tiny quick-launch bar icons; so I don’t even need to float my cursor over them to know which is which, as I need to do for the QB programs.

Thanks for writing.

Kerry Kerstetter

Q:

Subject: quickbooks tips

Hi Kerry,

I see you’re a quickbooks expert, so here’s a quick question for you. Is there an easy way to enter monthly recurring bills once so that they show up in the unpaid bills (or checks to print) automatically? I’m thinking of stuff like my monthly rental payment.
It’s a total pain to have to enter the bill every month when it never changes.

A:

It’s quite simple. When you memorize the payment, you are given a choice to have it entered automatically on a variety of time schedules, including monthly.

Kerry Kerstetter

Many Americans Don’t Take Steps To Minimize Income-Tax Liability – This is what I have always been saying when so many people make the assumption that everyone tries to cheat on their taxes.  More often than not, people are too lazy, ignorant, naive or trusting to do things to reduce their taxes.  Many even intentionally overpay in attempts to keep IRS out of their hair.

Buy or Build A Business — Which Is Better for Beginners? – There are enough pros and cons to each approach to fill several books.  Neither should be attempted without competent professional tax counsel.

Weighing Independence And Big-Firm Advantages – There are obviously some benefits to working for a large company,.  However, every time I see a story about another big company reneging on its retirement or health care programs, I’m more confident that the only way to ensure our future is by doing it ourselves.  Relying on any company or government program to take care of our future can lead to nothing but disappointment.

Is There Still Profit to Be Made From Buying Fixer-Upper Homes?

Mortgage Muddle Puts U.S. Consumers at Risk – Not surprising that people sign up for mortgages without understanding the terms.  Too much fine print to be bothered with, which is why lenders toss in all kinds of sneaky provisions.

Claiming Parent As a Dependent

Phony IRS Refund Notification – Snopes.com looks at this phishing scam that has been circulating for the past few months.  If the IRS really wants some good PR, they’ll track down the scum-suckers behind these scams and publicly hang them by their short and curlies. It’s not too hard to track down celebrities at the Oscars.  Let’s see the IRS show off their investigative skills and  locate the scoundrels behind these phony emails.

Q:

Subject: Corporation S vs. C

 

Dear Mr. Kerry,

I would like to tell you that I  really enjoyed reading your web site, I think it’s very informative and knowledgable. It prompted me to do a research about the benefits of corporation C vs. S.  Both, my husband and I currently own a corporation S, and as you pointed out there are a few downsides of such entity. Passed on taxes are obviously some issue which affects us in two ways:

1. it inflates our income and that becomes an obstacle in applying for a student loan (I have 4 high school/college age children),

2. The taxes that we pay on 1040 are partially owed by the corporation. At the end, the corporation “owes” us some money and it always takes a lot of time to pay ourselves back ( not to mention that the due taxes are higher because of the tax brackets).

I’ve also  learned from your web site that as a corporation C we would be able to benefit more with the medical reimbursement plan. I am curious though, if being an officer of the corporation, I can provide myself with a different level of medical reimbursement, than for the other two employees of my company. I’m not trying to be cheap, I just can’t afford an extensive medical coverage for my employees yet. I  work on this issue with my CPA but she wasn’t sure if the reimbursement plan  can be different for officers and other employees.She also wasn’t sure if a part time employee is eligible for such benefit. So, I was wondering if you could provide some insights on this issue.

Also,  I was always wondering what is behind “royalty payments” that you mentioned on your web site.

I would really appreciate your comments on this issue. ( I’ve already consulted two tax lawyers, but sadly they weren’t very helpful)

Thank you in advance

A:

IRS is very strict regarding discrimination in regard to employee benefits.  This does mean that every eligible employee has to be allowed to have the exact same benefits as the top brass. 

There are several long used ways around this that any experienced tax pro should be able to help you with.  For example, I have seen countless doctors who don’t want to provide full benefits to all of their staff; so they set up a separate management corporation, which only employs the doctor and his/her family members.  The management corp has a generous benefit plan, while the other corp (with the non-family employees) doesn’t have such a plan. 

Another technique I have seen used is to only work with incorporated service providers.  Payments to corporations cannot be considered employee payroll because corporations are not human, a basic requirement for employees.

The employer can establish the eligibility thresholds for inclusion in the benefit plans, such as age, full time vs. part time and years of service.  These have to be reasonable and in compliance with your state’s labor laws.    

Royalty payments are similar to what franchisees pay to the main franchise HQ for the use of the company name and operating standards.  For example, if you set up a corporation and design its operating manual and provide it with certain key technology and customers, you can license the use of those to the corp.  The income would be reported on Schedule E of your 1040 and would not be subject to SE tax.  The amount or rate would need to be reasonable.  I have seen people use flat amounts per month or year, as well as percentages of gross revenues, which is more like conventional franchise agreements.

None of these concepts are new or out of the ordinary.  Any experienced tax pro should be able to help you set things up in the best manner for your situation.

Good luck.

Kerry Kerstetter

Follow-Up:

Dear Mr. Kerry,

I just wanted to say thank you for your quick and detailed respond.  After many thoughts I decided to revoke my S status and I hope that in my situation I could benefit from this decision. I will continue using your resourcefull web site, where I can find great amount of practical knowledge. I know that you don’t accept any new clients but maybe in the future you will consider organizing some seminars?  I’m pretty sure it would be very popular and you’d have an audience from all over the country. Maybe one day?

Thank you again,

 

 

IRS Debunks Frivolous Arguments on Paying Taxes – IRS has finally abandoned their previous ostrich approach to tax protestor scams and is addressing them head on. This is a very welcome change in strategy for those of who have long been frustrated by their silence in the face of scam promoters who claimed that IRS silence equaled agreement.

Feds Bust More Crooked Tax Pros:

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Ohio promoter of idiotic “Document Decoding” scam

Over the past decades, I’ve amassed quite a collection of different versions of various musical artists performing George Harrison’s classic (and still very timely) TaxMan song, some of which I have posted on this blog.

Thanks to Andy Roth of Club For Growth for finding this slow soul version by Junior Parker, which he found via the Soul Sides website. I just downloaded it and added it my collection.

Would Donald Trump have change for a one billion dollar bill?  Who would be stupid enough to believe that such things actually exist?

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Feds bust Wichita-Based Father and Dallas-Based Daughter who Allegedly Claim Bogus Deductions as tax preparers

IRS Debt Collection Contractor Has Questionable Legal History – And who’s surprised by this?

From WSJ:

Swapping Mixed-Use Properties: Can Capital Gains Be Deferred?

Tackling Tax Questions About Vacation Homes

Tax Flubs Vacation-Home Owners Make When Selling Their Houses

St. Paul Man Prepared Fraudulent Returns for African-Immigrant Customers; Second St. Paul Return Preparer Enjoined By Federal Judge This Month