Posted by taxguru on November 28, 2004
I actually received an email this morning from the retarded tax protestor who had been leaving obscene late night messages on our answering machine. His name is Kenny Lizotte and his email address is kennylizotte@msn.com I’m sure he would love to hear from anyone wanting to discuss his take on taxation. I don’t know what part of the country he is in because he had his phone number blocked from the caller ID.
He sent me this standard crap that tax protestors have long used to try to distort the issues of legitimacy in regard to taxation:
Subject: Incometax
What code section requires the average American to pay the income tax?
What code section shows the liability of the average American for the income tax?
What code section requires Americans to keep books and records?
What code section requires Americans to make a return?
What code section requires the average American to submit to withholding?
Please just direct answers?
My reply:
Kenny:
That’s not how things work in this country. I am an independent CPA and don’t work for the government; so I have no obligation to waste my time trying to educate you on the tax laws.
It is you who have the burden of proving your case that hundreds of millions of people in this country are wrong and you are one of the few geniuses who have the true answers about taxes.
You left a number of late night drunken messages on our answering machine (your name showed on our caller ID) in which you called me obscene names and claimed that you obtained directly from IRS a book that states that nobody has to pay any taxes. If that is true, tell me the name or publication number of that book, along with the page number where you found this statement, and I will check it out. If what you are saying is true, I will write about it.
However, if you are not able to back up your claims, please stop wasting my time.
Kerry Kerstetter
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Posted by taxguru on November 27, 2004
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Posted by taxguru on November 27, 2004
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Posted by taxguru on November 26, 2004
Q:
Thank you for your helpful website.
Can you please clarify what qualifies as an “in service” date for Section 179 election and the Bonus Depreciation for 2004?
If software and hardware are delivered to a taxpayer but not installed prior to 1-1-2005, can the taxpayer still take the election for 2004?
Does the existence of a sales order qualify?
Thanks for your help
A:
Placed in service means actually being used before the end of the tax year. Just having it on hand or on order is not good enough.
From a practical perspective, you do have to wonder how such things can be verified two or three years after the fact
For software, you should be careful to expense the normal recurring purchases, such as the annual QuickBooks or MS Office upgrades in a normal operating expense account. These don’t need to be capitalized and depreciated or counted against the Section 179 election.
Big customized software or programs expected to be in service for several years do need to be capitalized and depreciated or claimed under Sec. 179.
Your personal tax advisor should be assisting you with this.
Good luck.
Kerry Kerstetter
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Posted by taxguru on November 26, 2004
Q:
If I buy a $25k SUV on december 30th, can I write it off completely? Or is it prorated based on the calendar year?
A:
The Section 179 deduction has never been pro-rated for normal calendar year taxpayers on their 1040. The only time I have encountered the need to pro-rate the maximum Sec. 179 deduction is for the first year of a corporation that is less than twelve months long.
In your situation, it is crucial not only to buy the SUV before midnight on 12/31/04; but also to use it for at least 50% for your business by then. Depending on the cost of the SUV, and its business percentage usage, you could claim as much as $25,000 in Section 179 for it on your 2004 1040.
In addition, if it’s a brand new vehicle, you could also claim the 50% bonus depreciation on the remaining business portion of the cost, after reducing it for the Sec. 179.
Good luck. I hope this helps.
Kerry Kerstetter
Q:
I am self employed, I am not incorporated. Can I still use 179?
I do have a business name and am registered with the city.
Do I have to get commercial plates or register the truck in my name?
A:
You can claim it on your Schedule C.
The vehicle doesn’t have to be in the business’s name. It can be in your personal name. All IRS cares about is how it was used, business vs. personal.
You really do need to work with a tax pro to keep you on the right path. Unfortunately, I am so far behind with work for existing clients that I can’t accept any new ones at this time.
Good luck.
Kerry Kerstetter
Posted in 179 | Comments Off on Deducting Section 179
Posted by taxguru on November 26, 2004
Q:
Any advice on the taxability of customer deposits/prepayments received by an S corp on the cash basis? Example: customer deposit received in 12/04 for a service to be performed in 1/05. Does it make any difference whether the customer’s check is placed in a drawer or deposited in a bank account?
A:
For any business operating under the cash basis of accounting, income is reported in the year in which the money is received or you in any other way have constructive receipt of it. Whether it’s actually deposited into your bank account or not isn’t relevant.
Keeping the check in your drawer isn’t the only way undeposited funds could be taxable income. Another example would be a customer down the street from you who tells you he has a check waiting for you to pick up in December. Technically, that is income for December even if you don’t actually pick it up until January because you could have taken the money, meeting the IRS’s definition of “constructive receipt.”
So, in your specific example, that money will be taxable on your 2004 1120S. What you may want to do is spend it on deductible things by midnight on 12/31/04 in order to cancel out as much of that income as possible.
Good luck. I hope this clears up this issue for you.
Kerry Kerstetter
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Posted by taxguru on November 26, 2004
When Is That Holiday Turkey Taxable?
Fake Saudi princess-model countersues American Express – She’s a real piece of work. Suing AmEx for letting her run up charges when she was obviously insane. Selling jewelry and then reporting it stolen for the insurance. Are credit card companies supposed to require a sanity clearance from a psychiatrist before issuing cards?
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Posted by taxguru on November 26, 2004
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Posted by taxguru on November 25, 2004
Another tradition this time of year is setting up the Lacerte tax return organizer for the next year’s filing season. The 2004 organizer is now ready to roll.
Any clients who have already received their 2003 individual income tax returns should notify us when they want their 2004 organizer sent out to them. If you lose the copy we send you, we will have to charge you for the time to print and mail a replacement copy; so put it in a safe place that you can remember.
For those whose 2003 individual returns haven’t been finished yet, there is no need to contact us. We will be including the 2004 organizer in the left pocket of the folder in which your 2003 returns will be located.
Another reminder that organizers are only available for individual (1040) income tax returns. All other kinds of tax returns – corporations, partnerships, LLCS, trusts – must have their data entered in QuickBooks and the data file sent to me when it’s time to prepare the appropriate tax returns.
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Posted by taxguru on November 25, 2004
I received this in response to an earlier Q & A.
Kerry,
You used 25% as the recapture tax rate. Is this the case even if the owner’s tax rate is actually lower. Would it not be taxed at the rate of the owner upon sale of the asset?
Thank you.
My response:
While 25% is the maximum Federal tax rate on most depreciation recapture, and what we use for quick and dirty calculations of possible tax effects, the actual effective rate could be lower depending on the other items of income and loss that the taxpayer has on that year’s 1040. It could even be zero if there are enough losses and deductions of other kinds to offset the recapture income.
This is why it is so important to work with your own professional tax advisor to crunch your real life numbers before undertaking a transaction that could have expensive tax ramifications.
Good luck. I hope this helps.
Kerry Kerstetter
Posted in 179 | Comments Off on Recapture of Section 179
