Oops!

H&R Block is scrambling to alleviate privacy concerns after accidentally including Social Security numbers on the labels of an unsolicited mailing sent to select taxpayers across the country.

 

Ohio CPA Dana Stahl sent me the following in response to the recent news about our rulers’ unwillingness to tackle AMT reform.

Mr Guru – more detail on the AMT.  Notice how, several paragraphs down, the commentary is on how much a total repeal of the AMT will “cost” so many billions of tax revenues.  The focus on “cost” is, of course, part of the propaganda, right?

 

DS, CPA, ABA, ATA, ATP

My Reply:

Dana:

As you know, it has always been a pet peeve of mine when money is accepted as a justification for doing bad things to people.  Being fair to people has always been a very distant second place to our rulers, behind the money. 

To me, it’s no different than stories where a reporter expresses outrage over someone being murdered for a small amount of money.  I used to actually write to reporters and editors asking why it’s so bad to kill someone over $5, yet it would be understandable for a much larger amount.  I tried to explain that killing someone over a million dollars is just as wrong as killing someone over 25 cents.  Needless to say, they never responded to me. 

While many people may consider this an inappropriate analogy to tax policy, I don’t see it that way.  Immoral and unfair socialist confiscation of wealth from people is just plain wrong, regardless of how much money it generates for the imperial government rulers.  Unfortunately, those of us who think this way are too small a minority in this country to influence such policy decisions in the face of the “soak the evil rich” mob mentality that is so pervasive.

Kerry

 

Permanent AMT Fix Poses Difficult Choices – Same MO for our rulers as with the Social Security fiasco.  They prefer to just keep their heads in the sand and do nothing while millions more people are reamed by this insane tax.  Both parties are being completely irresponsible by ignoring this long festering issue.

Q:

Subject: Children with special needs

Kerry –

 

We have a 3 year old daughter with special needs. Our out of pocket cost of care is approximately $45,000 per year. My wife is self employed and our CPA suggested we incorporate and run all of my daughters health costs through the corporation. He stated we can deduct that cost as a medical benefit. I have a couple questions.

 

1. Does this advice sound reasonable? Basically, our CPA says that we may have no deductions for medical costs in 2005 because of AMT??? He also says we can stagger income with the corporation which was just confusing.

2. Are there other options? or do we trust this advice.

 

I would love to see expanded coverage on these issues as developmental delays now impact 1 out of every 100 births and cost of care can be staggering. There is very little coverage out their yet the average family with a special needs child has over $20k in out of pocket health care costs.

 

Thanks for your response.

A:

It sounds as if you have a well versed and creative thinking CPA on your team and that you are on the right track. 

The ability to have unlimited medical reimbursement plans is just one of the big tax benefits of using a C corporation, as I discuss on my website and blog.

Good luck.

Kerry Kerstetter

Follow-Up:

Any comments on the AMT issue? Thank you for such a rapid response and validation of the idea. Seemed to good to be true:-).

My Reply:

The insane AMT is hitting more people each year because our incompetent rulers in DC have refused to adjust the thresholds for inflation.

Under AMT, fewer personal Schedule A deductions are allowed.  With medical expenses, the regular tax allows everything over 7.5% of AGI, while AMT only allows what’s above 10% of AGI.

If used properly, having your C corp pay all medical costs should allow you to receive a tax deduction for all of them.  If you don’t have a corp, your AGI will be higher, making less medical costs deductible because of the 7.5% and 10% disallowances that are built into the 1040.

Your CPA should be able to show you more realistic figures for your particular situation.

Good luck.

Kerry Kerstetter

 

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Q:

Subject: One question on out-of-state business

 

Hi,

TaxGuru.org has wealth of information.  However, I could not find information on one of my question.  Can you please provide an answer to this following question?

I am Single-Member LLC incorporated in Florida and have the approval of IRS for treating as S-Corporation. Income for my S-Corporation for this year 2005 is fully sourced from Pennsylvania. For Pennsylvania, basically, my business is out-of-state S-Corporation.  My S-Corp gets 1099 from a company in PA.

Assuming that S-Corporation receives 1099 income of $150,000 from PA and me as an employee of S-Corporation receiving a salary of $100,000, I would like to know the tax implications. Let us also assume another 10,000 towards qualified business expenses.

Am I supposed to pay Pennsylvania state tax for my W2 income of $100,000 and business income of 40,000? Can we treat $100,000 salary as Florida Income because it is paid by LLC/S-Corp in Florida and I am also resident of Florida?  In this case, I need to pay PA State tax only on $40,000 income.

Thanks,

A:

You really should be discussing this with your own personal tax advisor.  If you are trying to operate an LLC or S corp without a professional tax advisor, you are asking for big trouble.  This is even more critical when operating in more than one state because the rules for reporting and taxation by each state are different.

Just from the sketchy details you provided, it is apparent that you will have to file an S corp return in PA, as well as a nonresident individual return to report and pay tax on the S corp income passed through to you on the K-1.  How much, if any, of the $100,000 W-2 income is taxable to PA will most likely depend on how much time you spent working inside PA.  There will also be the issue of PA payroll taxes if it is determined that any of your W-2 pay was earned there.

A good tax pro should be able to help you stay in proper compliance with the PA tax authorities.

Good luck.

Kerry Kerstetter

 
Follow-Up:

Kerry,

 

Thank you very much for your response.  I do have a CPA, but he is not familiar with PA taxes.  Looks like I have to check up with some one in PA who are familiar with PA Taxes.

Your input is vary valuable and thanks again for replying me.

Regards,

 
My Reply:

Nobody knows everything about all of the states’ tax laws.  However, a good tax advisor will know how to research the rules for any one particular state so that you don’t have to hire a different tax pro for each one.  The fundamental concept of income-sourcing is fairly consistent in most states; so that only the finer details usually need to be determined for a particular state.

The best place to start is from the SisterStates.com website to take you and your professional advisor to the state’s official website.  QuickFinders and Tax Materials, Inc. both have very fine reference books covering the various states’ tax issues.  These are what I use when one of my clients either moves to a new state or becomes in other ways required to file tax returns with a new state.

Good luck.

Kerry Kerstetter