Another sign you have the wrong broker:
Posted by taxguru on June 24, 2005
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Karl Marx Would Be Proud
Posted by taxguru on June 23, 2005
It’s a sad and sickening day in the USA for those of us who believe in capitalism. To say that today’s ruling by the US Supreme Court that tax revenue is more important than private property rights is an absolute abomination would be a huge understatement. Impeachment of those five justices who voted to torch the Fifth Amendment would be in order if our Constitution were in any way respected nowadays. Unfortunately, as proven daily by the treasonous actions of the DemonRats in regard to the war on terror, and the unwillingness of the GOP to do anything about it, defense of the Constitution has been abandoned by our rulers in DC, in spite of the fact that they all took oaths to defend and uphold it. The wholesale adoption of the Communist Manifesto marches on in this country.
Scott Ott of Scrappleface has the right idea that Bush May Condemn and Seize Supreme Court.
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Posted by taxguru on June 23, 2005
IRS, Congress Aim To Curb Abuse of Popular But Unregulated Donor-Advised Charity Funds
One Investor’s Impossible Dream
Bias Questions Arise With Financial Planners
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Let’s not hold our breath waiting for this to happen.
Posted by taxguru on June 21, 2005
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Gifting Property
Posted by taxguru on June 21, 2005
Q:
Subject: Want to Gift to each of our DaughtersHi, Kerry,We want to gift real property to one daughter (so they can build a home and be close to us) and we want to do the same for the other daughter (equity in the home they occupy) our rent house next door – total value to each approx $14,000.We have read about IRS “gift sharing”, but don’t really understand it. Publication 950 & Form 709 and its instructions.Could split it into two different tax years if necessary – 2005 & 2006. We would prefer not to complicate our taxes. Can you please advise?Thanks,
A:
The current law allows each person to gift up to $11,000 to another individual per calendar year without the need for filing a gift tax return (709) or dipping into your lifetime gift and estate tax exclusion. This means that you can give $11,000 to each daughter, and so can your husband, for a total of $22,000 to each daughter. You could also gift up to $11,000 each to their spouses, effectively doubling that figure.
For jointly owned property, the gifting process is fairly straight forward. The concept of gift splitting comes into play where there is property that is owned entirely by one spouse. In those cases, you have the option of dividing the gift as if it had been made by both spouses, and thus doubling the tax free portion. For example, if one of the properties that you want to gift to your daughter is worth $20,000 and is just in your name, you can choose to report it on Form 709 as if you gave $10,000 worth and your husband gave $10,000 worth.
Gifts can be split into multiple years through a variety of methods, such as gifting certain percentages each year or by selling the property to the kids and then forgiving the carryback loan in $11,000 increments. If the properties are only worth $14,000 each, neither of those approaches seems necessary. Your and your husband’s $22,000 annual exclusion is more than enough to cover the gifts in one calendar year.
I’m not sure how familiar you are with gifting; so I will mention a few common misconceptions I hear all the time.
First, there is no deduction on your income tax returns for gifts made. This balances out with the fact that the recipients do not have to pay any income tax on gifts that they receive.
While the gift amounts are based on the fair market values of the property at the time of the gift, the basis that the recipients will have to use to determine any capital gain or loss if they ever sell the property is the same basis as you and your husband had in the property. For appreciated property, this means that you are also literally transferring your capital gain to the recipients. This isn’t necessarily a bad thing. If they are going to live in the property for at least two years, they will be able to utilize the tax free exclusion of up to $250,000 per person of gain from primary residence sales. Even if they don’t live there, they will still be able to utilize a 1031 exchange to defer the taxation on the gain if they so choose.
Documenting the carryover basis that your daughters receive in the property can be done in a number of ways. If Form 709 is filed with IRS to report the gift, the property’s basis has to be shown. If the gift is under the $11,000 threshold and you choose not to file the 709, you should provide your daughters with a statement of the property’s basis so they can have it for their records. It will come in very handy down the road when they sell the property.
I hope this clarifies the gifting process for you. Let us now if you want to set up a phone appointment to discuss any of this in more detail.
Kerry
Follow-Up:
Appreciate your response, Kerry. Thank you. We will deed one acre, value of $14,000, to our daughter & son-in-law this week.Have a great week!
Reply:
I’m glad to see that the info was useful to you.
In addition to the deed, be sure to give your daughter & son-in-law the cost basis of the property so they will have that available if they ever sell it.
Kerry
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Posted by taxguru on June 18, 2005
Q:
Subject: larger Corps??I’ve read your article with interest especially the double taxation paragraph.
I’m nearing the company formation filing time and, with help from many sources, am looking mostly at the LLC. I started to draw away from the C early on because of the large taxes….I must state that the company with be in the 10’s of millions in a year….
I (we) are certainly not interested in giving a dollar more to Sam than we are forced to but do wish to keep ownership and operations private and simple….where is the trade off?
What happens in a C to the larger amounts of profits? And, I mean large…
All the best,
A:
There are far too many variables involved for me to be able to advise the best entity and jurisdiction to use for your particular situation via this medium.
To work out the best solution for your particular circumstances, you really need to work with a tax pro who can help you set up a strategy that will work for you. If you are truly looking at millions of dollars of income, you would be nuts not to pay the bucks for a good professional tax advisor.
Good luck.
Kerry Kerstetter
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How To Count S Corp Stock
Posted by taxguru on June 18, 2005
Q 1:
Subject: S corporation ShareholdersKerry, My question regards whether a S Corporation can have Inactive (authorized but not issued) shares. A S corporation had 3 originals Shareholders but 2 of the Shareholders were bought out by the Corporation thereby leaving the remaining Shareholder with 100% Ownership and Control. However, that shareholder has taken the Position that she is only a 45% owner (her original share percentage) and the remaining 55% are owned by the “Corporation”. I believe this position is in conflict with IRS rules regarding individuals reporting all income/losses thru their Personal Tax Returns. Can you recommend any references that might clear this up. I live in Louisiana but do not believe the Community Property Laws impact the question. Any help will be GREATLY appreciated.
A 1:
It is quite natural to have more authorized shares than are actually issued to owners. In fact, I have long recommended that, when setting up a corporation, a much larger number of shares be requested so that there will always be some in reserve without the need to file additional papers with the Secretary of State’s office.
For S corp purposes, only the outstanding shares count. The unissued and treasury (bought-back) shares are completely irrelevant. Thus, you are correct that the remaining shareholder now has a 100% share. It is impossible for an S corporation to be its own shareholder. In fact, corporations of any kind are legally barred from being owners of an S corp, or else the S corp election is automatically terminated.
This is such a basic matter that it points out the true underlying malady here – trying to run a business without the assistance of a professional tax advisor. Your friend needs to hire the services of a competent tax advisor ASAP before she puts herself in serious tax and legal jeopardy.
Kerry Kerstetter
Q 2:
Thanks Kerry , Do you know of any Court Cases that deal with this issue?
A 2:
I don’t know of any such cases. In fact, I doubt if any exist because your friend’s interpretation of ownership allocation is so wacky that I seriously doubt if anyone would take it all the way to court.
The concept of basing S corp allocations on shares issued and outstanding is so cut and dried that no tax professional would be crazy enough to pursue your friend’s theory and be laughed out of the court.
The purpose of S corps is to pass through 100% of their net income or loss to the shareholders. It makes no sense by any stretch of logic to think that 55% of the corp’s income would stay with the corp itself and not be passed through just because that stock has been retired or repurchased by the corp. The remaining shareholder now has an effective ownership of 100% of the corp and is required to report 100% of the corp’s income on her 1040. If the ownership change took place mid-year, there are a variety of methods by which to allocate the corp’s net income between the old shareholders and the remaining one.
As I said earlier, this is why matters of tax law are not suitable for amateurs.
Kerry Kerstetter
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