Estates of Pain – People are dying to get out of Connecticut and escape its estate tax of up to 16%.  

Reforming the Tax Code

IRS’s Tougher Stance Faces Resistance – Good look at the current status of IRS enforcement actions.

Q:

Subject: Exchange Question

My wife’s mother wants to sell her bare land (non-adjacent) resulting in a large capital gain.  She wants to use the $ to pay off her current loan on her primary residence so she can quit her job and retire.  Can she do a tax free exchange from the bare land to pay off the property she already owes?

Sincerely,

 A:

The answer is a very big NO.

She would have to use the money to acquire new real estate.  Paying off loans on previously acquired property is not like kind and would not save her any tax on the land sale.

She should consult with her personal tax advisor about other options; such as selling the land on the installment basis, where she carries back a large portion of the sales price.  That way, the capital gains taxes would be spread out over the next several years, and she would be receiving monthly payments and earning a much higher interest rate than she would from bank account savings accounts.

There are plenty of other possible scenarios, depending on your mother-in-law’s goals and circumstances.

Kerry Kerstetter

 

Q:

Subject: country club

Kerry- I asked my accountant whether a Country Club membership and/or dues could be partially deductible if used for business purposes. He gave me a definite “no”. I figured I better get a second opinion and since you are “The Guru” and seem to know your stuff, I though I might pose the same question to you. I figure a lot of politicians in Washington probably belong to clubs and they like to look out for their own. Thanks for a great site and you informative opinions.

A:

The dues for country clubs are specifically not allowed to be deducted. 

However, the direct costs of meals and green fees incurred at the country club while entertaining someone else can be deducted, as long as they meet the normal tests for deductibility.

Regarding politicians, it has been my experience that most of them allow their campaign contributors and lobbyists to pay for their country club dues and related expenses.  Some people would consider such payments to be forms of bribes; but that is how our rulers do business.

Those other parties then bury those costs among other expense categories on their books, so that they end up getting to deduct their full costs.

Kerry Kerstetter 

 

Q:

Subject: s corporation

I have a big question. My husband and I have a business as S corporation. I have filed for divorced . How will this effect the corporation? My husband and I are the only shareholders. When I get my pay off any suggestions on what to do to save on Taxes?

A:

It sounds like you are in for a lot of negotiating. 

The corporation will technically go on the same regardless of your marital status. 

I’m assuming you are each 50% shareholders.  What you and he need to work out is if that will continue after the divorce or if one of you will buy out the other.  If one of you buys out the other before the end of the year, there will be even more negotiating as to how to divvy up the year’s net income or loss between your K-1 and his.  There are all kinds of ways in which to do this allocation.

The other issue with a buy-out will involve whether or not the selling spouse will want to recognize any gain.  The tax law does allow the transfer of assets between spouses incident to a divorce to be a tax free event, with the acquiring spouse taking over the cost basis from the departing spouse.  What this generally means is that the spouse who keeps the assets is also accepting responsibility for all future capital gains taxes; while the departing spouse is released from that potential liability.  I have worked on several cases over the years where we calculate the avoided taxes for the departing spouse, and adjust the buy-out price downward accordingly.  But, that is also completely negotiable between the parties involved.

You and your husband will need to work with your own personal tax advisors to work on a mutually acceptable plan. 

Good luck.

Kerry Kerstetter

 

Whether they are the same as lottery tickets or not, there is no dispute that they are a gamble in so many ways.

Saving The Farm From Death And Taxes, Part 2 – Gail Buckner discusses the use of Family Limited Partnerships, a popular estate planning tool.