Courtesy of  the geniuses at FreakingNews:

Two Danville, California Doctors Arrested For Tax Evasion – The fact that I spent the first 21 years of my life in that town made this headline stand out for me.  I never knew these father and son doctors who used a scheme with phony invoices and offshore accounts to defraud the income tax collectors; but they are going to pay a steep price for not using the many legitimate methods available for reducing their taxes. 

Virginia Return Preparer Used the Bogus “Claim of Right” Doctrine – And now the Feds have busted him, and his retarded clients will be looking at some huge tax and penalty bills.

The Swamp Known as Tax Reform – A good time to remind everyone what tax reform efforts always result in.

The president’s tax-reform panel may propose reducing the mortgage interest deduction and capital-gains exemption – If anything would cause the real estate bubble to burst, this would do it big-time.  Reducing the acquisition debt ceiling from one million dollars to $350,000 would put a huge brake on home values.  Let’s hope there are enough forward thinking rulers in DC to recognize this before they pass such an irresponsible reduction.

When `Harvesting’ Tax Losses, How Little We Glean – When looking at large capital gains, a review of potential losses that can be claimed is a wise move.

Discount Real-Estate Brokers Spark a War Over Commissions

Home Sellers Use Blogs To Market Their Properties – I passed this along to my dad, who may want to try it to sell his home in Rogers, Arkansas.

Toil in the Soil: Running A Garden-Related Biz – Excellent tax saving opportunities, as well as a perfect thing to do from a place like ours. 

High-Deductible Health Plans Join the Mix – Another look at HSAs.

Big Car, Big Tax Credit – New rates for buying hybrids.

I have written a lot about the continuing trend for tax preparation offices to farm out the actual work to less expensive firms in India.

Ohio CPA Dana Stahl, who told me he explicitly notifies his clients that all of their tax work is done in his offices here in the USA,  recently sent me this:

Subject: Myths of Outsourcing-FYI

Mr Guru – another viewpoint on outsourcing.  Haven’t changed my own prospective, but interesting nonetheless. 

DS, CPA

My Reply:

Dana:

That’s not exactly an unbiased source on outsourcing, considering that his company has been aggressively soliciting business to have their Indian staff prepare tax returns for USA accounting firms.  I still think it’s a stupid idea in regard to properly serving clients.

Kerry

It’s not just tax preparation work that is being outsourced to India, according to this post from TaxProf Paul Caron.  For just $15 an hour, this company in India will perform USA Federal tax and other legal research.  They have been soliciting work from law professors, and I’m sure will soon be making similar pitches to us in the private practitioner community.  

Q:

Subject: LLC and SECA

Kerry:

 

What I’ve always told my clients is that an LLC is a disregarded entity for tax purposes.  Therefore, a single-member LLC is taxed as a sole proprietorship (SECA-liable), and a multiple member LLC is taxed as a partnership (SECA-liable on net profits from business). 

 

The only way that an LLC can avoid SECA is to do an entity election change and be treated as a corporation or an S-corporation.  Even there, the “reasonable salary” (with FICA) requirements of the S-corp tangle you up.  On the C-corp side, you have the issue of dual-entity (LLC and individual) taxation.

 

As far as I know, this is mainstream tax advice.  Anything I’m missing?

A:

It isn’t as open and closed as you may think.  For LLCs that are reported on 1065s, there has long been a dispute as to whether or not the K-1 income is subject to SE tax. 

I don’t have time to list the full history of this issue; but I will give a short summary.  If you have the 2004 Small Business QuickFinder Handbook, there is a very good recap of the historical development of this controversy on page F-3.

Basically, there are some people who believe LLC members should be taxed the same as general partners of a regular partnership; with the net income subject to SE tax.  Other folks believe that LLC members should be treated like limited partners in a normal partnership; with no SE tax on the net K-1income.

IRS issued a proposed regulation in 1997 requiring SE tax for any member who was active in the LLC business for more than 500 hours during the year.  This has never been made official, which has given us the current status of having SE tax optional on LLC members.

There are currently some practitioners who are taking the approach of subjecting net income to SE tax for those members who actively participate in the business, while exempting the net income from SE tax for those members who are merely investors and not actively involved in the business’s day to day operations. This approach is also voluntary and not enforceable by law.

I hope this helps you better understand the environment we currently have in regard to this issue.

Thanks for writing.

Kerry Kerstetter

 

Users Blast Intuit’s Upgrade Fees – Some people aren’t happy that QuickBooks programs are orphaned after three years as a means of forcing them to buy newer versions.  Wait until users discover that the Basic version of the program (and the one I most often recommend people buy) has been dropped for 2006 and they have to pay twice as much for the Pro version.