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By month:July 2006

How Depreciation on Your Business or Rental Property Works

How you depreciate property has significant effects on your after-tax cash realization. Further, the punitive effects of depreciation recapture taxes make the Section 1031 exchange possibilities more and more appealing. That’s why it is important to remember the eight financial planning principles about depreciation.

Making Mold Removal a Repair and Not a Capital Expenditure

The difference between a deductible repair and a capital expenditure in today’s tax law is huge. The time value of money is one part of the added benefit for the repair. But the biggest deal is that you have no recapture tax with a repair. Thus, when removing mold from a building, you want the tax law to treat that removal as a repair. There are specific steps you can follow that help ensure mold removal classification as a tax-favored repair.

Heavy SUVs Still Tax Favored

Tax law continues to favor the heavy SUV over the typical passenger automobile. The heavy SUV qualifies for additional first-year expensing of up to $25,000 and it’s exempt from the gas guzzler tax.

Tax Breaks When You Total Your Vehicle

Tax law calls the wreckage and totaling of your vehicle both an involuntary conversion and a casualty. Special rules allow you to treat the involuntary conversion as either a sale or a trade-in. Thus, your first step in this process is to find your gain or loss and then decide how you want to claim your tax benefits.

New Law’s $70 Billion in Tax Cuts Requires Little Planning

For most self-employed taxpayers, Public Law 109-222 requires no major shifts in tax planning for their businesses. This new law extended tax breaks, such as the lower rates for capital gains. The increase in the kiddie tax age group is probably the biggest impact of this new law on the one-owner and husband-and-wife owned business—and that age expansion has little or nothing to do with most business deductions.

IRS Says Protect Your Tax Records—It’s Hurricane Time

Today’s computer and Internet technology give you a variety of new safeguards that you can use to protect your tax records. When thinking about your records, keep this one overriding rule in mind: no records, no deductions.

IRS Revokes Letter Ruling

It is highly unusual for the IRS to revoke a private letter ruling. You can protect yourself from a revocation by making a proposed transaction the subject matter for the ruling.

Any Personal Use Destroys the Business Rooms at a Bed and Breakfast

Tax benefits for the bed and breakfast require adherence to the transient, vacation home, and hotel rules. Under these rules, personal use can destroy deductions. Further, the length of transient stays determines the types of services you need to provide, if any, to qualify the bed and breakfast for tax-favored hotel benefits.

Woe to the Taxpayer with Bad Records

Bad records can cost you just about every tax deduction. You can testify as to your deductions, but without the records that turns out worthless. When it comes to your taxes, paper talks.

IRS Employs Bank Deposits Method to Tax Income

If you don’t have the tax records or if you are just not cooperative, you could enable the IRS to use the bank deposits method to determine your taxable income. This is a bad thing. When the IRS uses the bank deposits method to determine your tax liability, you generally pay a whole lot more tax.

W-2 for Section 105 Plan

The W-2 reporting requirements exempt the Section 105 medical plan reimbursements from entries on the W-2.

Long-Term Capital Gains Trigger AMT

The AMT can trigger additional taxes on your capital gains despite the fact that the capital gains tax rate for both regular and AMT purposes is identical. Your status as single or married and the amount and nature of your income determine the extra AMT hit. In general, the middle income can suffer the worst AMT impact.

Will the S Corporation That Owns Rental Property Terminate with Too Much Passive Income?

At a meeting of landlords, the guest lawyer stated that the S corporation terminates with too much passive income. Many attendees heard this comment incorrectly. The too much passive income termination problem applies to S corporations which were previously C corporations.

Filing Returns for Past Years

Not filing your tax returns on time because you lost or misplaced your tax records is going to make your tax life miserable. The trouble is so bad that you need to consider an “offer in compromise.”

Business Airplane

Tax law classifies the business airplane in the listed property category. This means the law requires a log of business and personal use. You deduct your business percentage. To obtain and then retain maximum benefits, you need your business use at greater than 50 percent. Further, the airplane is personal property and that makes it eligible for Section 179 expensing.


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