Q:

Subject: Nickel Creek “Taxman”

 Hello Sir,

   Though I have never met you I have a tiny favor to ask of you. My dad saw an episode of “Austin City Limits” where Nickel Creek covered the song Taxman, and he loved it. That was back in 2002 and he has searched for a copy of it ever since, only to find nothing. However, I recently stumbled into your post and actually gasped in amazement, after five years of searching I finally found a copy. It couldn’t have come at a better time since my dad’s birthday is coming up. So I ask of you sir, please, please, please could you send me a copy of that song?

Thank you for your time,

   ( I am only 14 so please disregard any non formal mistakes in my letter. )

A:

That blog post includes a link to download the mp3 file of the song.

If you do search on my blog, you will find dozens of other versions of the TaxMan song by several other artists, with links for downloading.

I hope this helps you prepare for your dad’s birthday.

Kerry Kerstetter

Q:

Subject: Suggestion

Hi there,

 

I have a site suggestion for your tax blog.  I’m currently promoting my “AMT” article. If you’d like to exchange links I’ll be happy to add your link to my resource page.   I’m sure this will prove beneficial for both of us considering traffic, etc.

 

Thank you much,

Robert Valentine

A:

Robert:

Thanks for sharing your article on the AMT.  If you’ve read my blog, you should know that this insane tax is one of my top pet peeves and I appreciate any effort such as yours to further educate people on its stupidity.  The fact that its thresholds aren’t adjusted annually for inflation like most other tax items, is just one indication of how far removed it is from reality and how incompetent our rulers in DC are at addressing this problem. 

I will be posting this on my blog, which should generate more visits to your site.

Thanks again for writing.

Kerry Kerstetter

Follow-Up:

Thanks, Kerry. I couldn’t agree more…If you’d like to write back with your linking info i.e. desired title, description and linking URL. I’ll be more than happy to link to your great resource. Hopefully I can give you some traffic as well.

 

Thanks again,

Rob

Q:

Subject: Money for Car

 

Kerry, We have a grandson turning 16 next month and we want to help him get a car. Is there any way to give his Dad the money we want to spend and get a tax deduction? We do not want any ownership in the car but we have committed to help our son with the purchase of this car. We plan to give $12,000.00 as a gift to make this happen. I believe you told me at one time the limit was $10,000.00. If I have my facts correct we would have to make two gifts, one to our son and the other to his wife. If I have made myself clear please reply if not maybe we should talk.

Thanks for your help,

A:

It must have been a while since we last discussed the tax rules regarding gifting because the annual tax free limit hasn’t been $10,000 for several years now.  It was increased to $11,000 a number of years ago, and is now at $12,000.

I have some basic info on Gift Taxes on my website.  

Basically, you and your wife can each gift your son, grandson, or anyone, up to $12,000 during each calendar year without having to file any gift tax returns or use up any of your one million dollar per person lifetime gifting exclusion. 

However, the way gifts work for income tax purposes is that they are not considered taxable income to the recipient, nor are they deductible by the giver on his/her income tax return.  In taxes, there has to be a sort of balance between deductions and income.  In other words, the only way for you to claim an income tax deduction would be for your grandson to claim the same amount as taxable income.  If the recipient isn’t willing to pick it up as taxable income, the giver can’t claim an income tax deduction.

The Gift Tax is actually part of the Estate (aka Inheritance, aka Death) Tax system because one of its main benefits is to reduce the size of a person’s estate, ideally bringing it down below the tax free threshold.

One other clarification of a common misconception surrounding gifts of this nature.  They can only come from humans and be given to humans. Corporations and other artificial entities are not subject to estate or gift taxes, so they can’t make the kind of large gifts you are contemplating.  Thus, any gifts would have to be made from your personal accounts and not out of your corporation.

I hope this isn’t too confusing.  Let us know if you would like to set up a phone appointment to discuss this in more detail or explore other options.

Kerry

(Click on image for full size)

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DemonRats Bringing Back ‘Death Tax’ – That headline says it all.

Q:

Subject: Regarding your article

 

Mr. Kerstetter,

 

I realize you must be extremely busy, and I hope to take as little of your time as possible.  Thank you in advance for whatever small amount of time you may have to share with me.

 

Regarding your article (http://taxguru.org/corps/scorp.htm), I wonder if you might point me to more information on the following section:

“Double Taxation

The biggest fear of c-corporations has to do with double taxation, where after-tax earnings are distributed to shareholders as non-deductible dividends. This is rarely a problem with small corporations because there are plenty of ways to pull money out of the corp in a manner that is deductible, and thus only taxed once.

    Compensation – wages or consulting income
    Interest Payments
    Lease Payments
    Royalty Payments
    Contributions to Retirement Accounts”

Specifically, I’m looking for background on the following questions:

1)     What size corporation is a “small” one?

2)     Are wages and consulting income treated differently?

3)     Are there interest, lease, and/or royalty payments that may be payable to the owners of a corporation so as to avoid the double taxation?

Any information/direction you can provide in these areas will be greatly appreciated; I’m willing to do the research, but I don’t know where to look.

Thanks once again for your time!

A:

You can find a lot of info on these subjects in the QuickFinder books, as well as The TaxBook from TMI.

I have also been impressed with the coverage of these topics in the TaxCoach Software reports.

Good luck.  I hope this helps.

Kerry Kerstetter

Don’t try to deduct lottery ticket purchases as contributions to an IRA or SEP, even if it’s true that the lottery has a better chance of paying out than does Social Security.

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‘Structured Sales’ Aim to Ease Tax Bite, but Returns Are Slim – Similar to installment sales for spreading the tax bite out over several years.

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