Tax Guru – Ker$tetter Letter

Know the Real Price Of New Mortgages – Low monthly payments aren’t always a good thing, especially if there is negative amortization, with the loan balance increasing every money.

IRS Sees $300 Billion Gap – Since the media continue to accept these kinds of statements from IRS as absolute fact, I will once again remind everyone that these highly publicized tax gap figures are nothing more than WAGs (wild ass guesses).  I have done my own research with IRS personnel as to their source of the unreported income and its tax.  They have admitted to me that such measurements are impossible to make with any definitive accuracy.  They claim that their made up numbers are as accurate as anyone else’s because there is no way to dispute them.  It’s just the standard IRS scare tactic for tax season. 

Again, as I’ve said for decades, the premise that everyone is a tax cheat is bogus.  I have reviewed thousands of tax returns prepared by taxpayers and other tax pros and can unequivocally state that people pay too much in taxes through a combination of ignorance and incompetence in filling out the tax forms.  I have seen plenty of people who even intentionally overpay their taxes as a way of trying to keep IRS off of their backs. In the private market organized crime world (as opposed to the government sponsored one), this is usually referred to as “protection” money. 

So, I feel extremely confident in declaring that the tax gap in this country is not anywhere close to a negative $300 billion; but is quite possibly a positive figure, with people paying too much.  My numbers can’t be verified or disputed with any scientific accuracy; but at least I’m honest about that fact. Not like the IRS and their lackeys in the media who will use their imaginary figure to justify more money and power for taxpayer harassment.   

There is no end in sight of the people who are quick to set up corporations and LLCs, without the foggiest idea of what those entail, just because someone told them that was the cool thing to do.

Q:

Subject: Poor me

Hi,

Great tax info.  Now my request for the free advice.

I set -up a C-Corp March 23, March 2004.  We have approx. $30,000.00 in deductions (or at least I thought so).  However, since we were just starting the biz, we have not sold anything…or made a profit.

Our tax person says we are out of luck as far as the deductions go (since we are not an S Corp) and we must pay the $800.00 annual fee regardless. We have not made any sales, since we are still forming.

Anything good you can suggest or advise?

 

Thanks,

A:

 If any of this surprises you, it means that you and your tax advisor didn’t adequately discuss the details of owning a corporation in the PRC before you set it up. 

From the moment your corp is chartered, until all of the proper papers have been filed to dissolve it, it is required to pay the $800 per year minimum tax, whether any actual business is conducted or not.  That is the way it has always been.

The $30,000 of deductions in your C corp aren’t lost; so there’s no real reason to be upset . It’s true that you can’t deduct them on your 1040.  However, they will create an NOL (net operating loss) that can be carried over into future years, offsetting the corporation’s income from those years.

If there won’t be any corp income for a few more years, you may want to consider setting up a Schedule C on your 1040 and paying the expenses with your personal money so that you can obtain some tax benefit from them sooner.

I’m not sure what you are looking for from me; but it sounds like you need to work more closely with your tax advisor.

Good luck.

Kerry Kerstetter

Accounting is back in vogue – “Financial CSI” is an interesting way to look at what we do.

IRS May Tax Your eBay Sales – This is nothing new.  If you sell something for more than it cost you, the gain is taxable.  It has always been that way.

If you have a lot of money coming in and don’t show it on your tax return, IRS will assume everything you sold was free and assess taxes on the full amount received. As I’ve always said, over-documenting things on tax returns, such as eBay sales that had losses or break-even, is a good self defense measure.  If you don’t formally declare that there is no taxable net profit, IRS can and often does assume that every penny received is pure taxable profit.