Tax Guru – Ker$tetter Letter

Mansfield, Ohio mom jailed for paltry 96 cents income tax bill – Thanks to Ben Cunningham for this story of where one town places its crime stopping priorities.  That town must have the lowest crime rate in the country if they have time and resources to toss a woman in jail over 96 cents.

The real lesson in this story is one I have been telling for decades.  Even if you don’t owe any taxes, it is a very prudent self defense measure to file an income tax return proving that fact. When you don’t file a tax return, the tax agencies’ imaginations go wild, and they proceed to pursue you as if you owed millions of dollars in taxes.   

Greenspan Touts Idea of a Consumption Tax

“A simpler tax code would reduce the considerable resources devoted to complying with current tax laws, and the freed up resources could be used for more productive purposes,” Greenspan said.

 

IRS Interest Rates Rise for the Second Quarter of 2005 – To six percent as of 4/1/05, from the five percent rate it’s been since 10/01/04.  I have updated that info on my Quick Reference page.

Q:

Subject: can we change to a c corp now

We are an s corp and made money this year but took a very small salary.

We are using the Intuit tax preparation program. It asks if we are an s corp or c corp. Can we decide not to be an s corp and just prepare our taxes with the c corp forms?

The 1120S forms that are due by June 30 of this year: Are they establishing that we are an s corp for the last tax year (2004) or this tax year (2005)?  thanks for any input you have.

A:

If you have a corporation, you really should be working with a tax pro to handle easy issues such as this.  In fact, you should have been working with one before you chose to become an S corp.

If IRS has accepted your election to be an S corp, you need to file S corp returns (1120S) for every year until you formally revoke the S election.  You can’t just arbitrarily change the status from S to C year by year.  When you filed the S election form, you obligated yourselves to reporting all corp income on your 1040.

The 1120S for 2004 is due 3/15/05.  You can get an automatic six month extension (to 9/15/05) by filing Form 7004 by that date.  I have no idea where you are getting a June 30 due date.  All tax return due dates are on the 15th of the month.

Good luck.

Kerry Kerstetter

Former communist countries lead the way in adopting flat tax rates – This seems to be a healthy repudiation of the “progressive” tax rate structure that  is part of Karl Marx’s Communist Manifesto.  It’s too bad we can’t seem to get rid of it here in the USA.

Due Diligence Is Essential With Latest Loan Pitches – Check that fine print because a lot of dastardly lenders will sneak all kinds of expensive traps in there.

IRS Announces the 2005 Dirty Dozen Tax Scams – For the benefit of morons such as Adam, who continues to write me insisting I am wrong and Irwin Schiff is a tax genius, here is number two from the IRS’s list:

Frivolous Arguments. Promoters have been known to make the following outlandish claims: that the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; that wages are not income; that filing a return and paying taxes are merely voluntary; and that being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. Such arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.