Posted by taxguru on May 25, 2007
Whistleblower Law Scores Early Success – Rewarding tax cheat informants 15% to 30% of the amount recovered is a powerful motivator. Use Form 211 to turn in your exes (friends, spouses, employers, etc.).
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Be careful when choosing 1031 service
Posted by taxguru on May 25, 2007
I can’t help using the old cliche – Penny Wise, Pound Foolish – to describe how so many supposedly intelligent people can risk literally millions of dollars in order to save a few hundred.
It’s no secret that my wife owns and operates a company to handle Section 1031 like kind exchanges for real estate investors. She frequently mentions that potential clients try to get her to lower her fees based on lower rates being charged by newbies who don’t know what they are doing. Of course, she is just like I am and refuses to participate in such a “whore’s market” and doesn’t work with anyone who doesn’t understand that quality comes with a price.
As these articles covered by Paul Caron indicate, cutting corners on a 1031 fee can end up costing much more in the long run, as several 1031 facilitators have filed bankruptcy while holding 151 million dollars of investor funds. I wonder how many of those investors chose to use those companies based on lower fees than what reputable firms charged. They are each now looking at the very likely prospect of losing hundreds of thousands of dollars because they wanted to save a few hundred dollars.
This reminds me of a similar situation when I owned an exchange company back in the Bay Area. We were losing a lot of exchange business to a new company that wasn’t charging anything for its services, supposedly as a means of getting a foot-hold in the area’s real estate market. The fact that they were operating out of a motel room should have been a dead tip-off to the end result. The slime-balls amassed a few million dollars of investor funds and then skipped town.
I hate to sound cruel, but anyone who is willing to entrust his/her real estate equity with a stranger rather than someone who has been successfully handling 1031 exchanges for decades, just to save a few hundred dollars on the service fees, doesn’t have much chance of being considered a “sophisticated investor.” Short-sighted fool would be the more appropriate description of such a person.
1031 Tax Group files for Chapter 11
Posted in 1031 | Comments Off on Be careful when choosing 1031 service
Posted by taxguru on May 21, 2007
DEMS’ BIG TAX LIE – Not extending the soon to expire Bush tax cuts is exactly the same as enacting a humongous tax increase.
Capital Gains Taxes Aren’t for the ‘Kiddies’ – Interesting look at shifting tax burden to kids, who are probably in a lower tax bracket than the parents. Also includes a reminder of the one year zero capital gains tax rate for small profits in 2008, a topic that has been coming up quite often in my discussions with clients contemplating sales of properties.
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Incorporating increases IRS suspicion?
Posted by taxguru on May 18, 2007
Q:
Subject: S Corp. question
Hello:
I know you are not in California. However, I was wondering if you could shed some light on a question.
I am an independent contractor (personal trainer), I have been filing a schedule C and paying city tax as well for the last 8 years. I have grown my clientel where I personally earn +$150,000. I think if I form an S Corp. I may be able to limit some of my tax liability. For example, if I draw a $60,000 income, I can same on SS Tax, be only taxed (income wise) on the $60,000 and only pay a corporate profit tax on the remaining $90,000.Does that seem correct to you?I am just worried that the IRS will come back and say, “Hey, last year you made +$150,000 and now you’re claiming $60,000. Where’s the rest?” And I am afraid they won’t see the extra $90,000 as profit.Any thoughts would be greatly appreciated.Thanks,
A:
As long as you handle and report the corp and personal income and expenses properly, IRS shouldn’t have any problem with the fact that your business has gone through the normal transition from a Schedule C sole proprietorship to a corp. I have worked with thousands of such businesses and I can’t recall one incident where IRS audited a tax return just because the taxpayer moved his/her business to a corp entity. While there are obviously huge tax savings opportunities by using a corp, there are also other important reasons to do so, so IRS doesn’t automatically suspect a business owner of anything wrong just because s/he chooses to make that change.
Generally, in the first year or two, there is some overlap with ID numbers used on 1099s and other documents that could cause an IRS matching problem. An experienced tax professional will know how to report these items in such a way as to avoid any actual problem with IRS and/or the State tax agency.
In regard to what particular steps you should be taking, there are far too many options to consider and possible scenarios that can be used to achieve your goals for me to even begin giving you specific advice via this medium.
You will need to work directly with an experienced tax pro who can analyze your unique circumstances. I wish I could help; but I already have too many clients to take care of properly; so we are still trimming back on the difficult clients and are not accepting any new ones at this time.
Unfortunately, we don’t have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country.
If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you.
I wish I could be of more assistance; and I wish you the best of luck.Kerry Kerstetter
Posted in corp | Comments Off on Incorporating increases IRS suspicion?
Park Donations
Posted by taxguru on May 18, 2007
Q:
Subject: Botanical Garden Sec. 179
May I ask you 2 questions?
Would a person, or cooperation I’m soliciting for donations in order to transform a parkway into a Botanical Garden be eligible for Sec. 179? If not is there another tax deduction for donations that I can remind them of in my sales letter to them?
Thanks,
A:
Section 179 is not in any way applicable here. That is only for companies that actually purchase business equipment that they own and use in their business activities.
In your case, if the group doing the rehab work is a qualified charity, the donors would be ale to claim payments as charitable contributions.
If the donors are going to be listed or publicized somewhere, a better way for them to claim their payments for this project would be as advertising and premonition expense. That normally works out to provide a better tax savings than charitable donations do.
Good luck. I hope this helps.
Kerry Kerstetter
Posted in 179, Deductions | Comments Off on Park Donations
Profiting from tax returns?
Posted by taxguru on May 18, 2007
Q:
Subject: a tax refund isn’t a profit
Hi Kerry,
In regards to the cartoon with the subtitle “A tax refund isn’t a profit…”, couldn’t it be argued that a tax refund is in fact a profit for those who qualify for the EIC?
Keep up the great work on the site!
Thanks,
A:
That is an excellent point. While I was obviously echoing the cartoonist’s point that recovering taxes you had paid in during the previous year isn’t a net profit; the EIC welfare program does allow many people to receive thousands of dollars more than they originally paid in.
Referring to the EIC as a profit from a tax return is actually a valid description, as anyone will understand who has finessed Schedule C expenses. Often, going light on expenses results in a much higher net refund on the 1040 because of the ridiculous way by which EIC is calculated.
Thanks for writing and pointing that out.
Kerry
Posted in EIC | Comments Off on Profiting from tax returns?
Tax Guru - Ker$tetter Letter 