Posted by taxguru on March 20, 2005
There is still no shortage of confusion over the differences between C and S corporations, as I’ve been trying to explain for so many years now. Some typical examples:
Q:
Kerry,
I saw your article on C Corp vs. S Corp on your website. I am a CPA with a handful of small business clients. I have a real estate broker client wanting to incorporate. My gut reaction was to recommend S Corp due to double taxation but after reading your article, I am second guessing myself.
I’m tempted to recommend C Corp so that she can deduct her health insurance and other out of pocket medical expenses thru corp. I assume we could take care of the double taxation issue at year end by bringing the profit down by either additional wages or retirement plan contributions. Any advice would be appreciated.
A:
We have dozens of Realtor clients who are saving huge amounts of taxes for all of the reasons that I spell out in that piece contrasting C & S corps, not just the health insurance.
Kerry Kerstetter
Q:
Hi Kerry,
I’m in North Carolina my CPA advised me to start an S-Corp and I did
so. I’m a recruiter and have little overhead and have billed around $36K
my first qtr. What are your thoughts on this? Should I have started a
C-Corp instead?
A:
I really don’t have enough information to be second guessing your CPA.
However, I do frequently find people jumping into S corps without properly thinking things through. If your CPA didn’t take into consideration the various points I covered on my web page comparing S & C corps, he may have steered you wrong.
More often than not, a profitable business can save huge amounts of taxes by using a C corp instead of an S.
Good luck.
Kerry Kerstetter
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Posted by taxguru on March 20, 2005
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Posted by taxguru on March 19, 2005
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Posted by taxguru on March 19, 2005
Q:
Subject: Sec. 179 question
A “Sec. 179” Google search got me to your website and since you’re the Tax Guru I was wondering if you might answer a (hopefully) quick question. I’ve read that the 50% Sec. 168 deduction is optional and that sometimes it is favorable to take it at 30% and other times not take it at all. I take it 168 deductions can not be carried forward like 179 deductions so taking it in a loss year would be like throwing it away? Can you affirm or clarify this issue for me? Also, is it ever unfavorable to take the entire allowable 179 deduction. Why would it be if one can carry forward the deduction?
Okay, I know, that’s two questions. Any feedback would be appreciated.
Thx,
A:
You don’t lose anything if you opt not to claim any or all of the Section 179 or first year bonus depreciation. That just leaves more cost basis to be claimed in future years either as depreciation or as cost basis when the asset is sold. I frequently choose not to claim any of those extra first year deductions if we already have plenty of other deductions. This saves more for future deductions.
I hope this helps you understand. Any good tax pro should be able to help you fine-tune the depreciation & Sec. 179 deductions you claim in order to give you the overall best tax savings.
Good luck.
Kerry Kerstetter
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Posted by taxguru on March 18, 2005
Tax Software vs. Tax Preparer – Is There a Clear Winner? – As I’ve said many times, there is no better example of GIGO (garbage in, garbage out) than with tax software.
File Your Taxes: There Are NO Good Excuses! – Gail Buckner looks at the idiotic arguments used by tax protestors.
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Posted by taxguru on March 18, 2005
Q:
Subject: 1031 Exchange Question
Kerry
You have been recommended to me as someone who might have a definitive answer to a 1031 question.
Here is the situation: In March of 2004 an LLC of which I am the single member purchased the Rivercliff Golf Course in Bull Shoals for $925,000. I am in the process of selling a piece of rental property in California for $1.4 M that is in my name as an individual.
Is there any way I can use the purchase of the golf course as part of a 1031 exchange involving the property in California.
If you think there is a way I could do this please contact me and we can make the necessary arrangements. If you don’t think this can be done I would appreciate a short reply letting me know that.
A:
What you are proposing is not possible. You would have to replace the California property with new property, not something that you acquired more than a year earlier.
Kerry Kerstetter
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Posted by taxguru on March 18, 2005
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Posted by taxguru on March 17, 2005
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Posted by taxguru on March 17, 2005
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Posted by taxguru on March 17, 2005
Auditors Find IRS Workers Prone to Hackers – This doesn’t give us much confidence in the confidentiality of our records.
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