Tax Attic

Useful tax tips and information from Jerry Coon of Action Tax Service.

The Tax Attic with Jerry Coon — October 22, 2009

October 22, 2009 // 0 Comments

Recent developments in tax preparation In the tax preparation business, there are always recent developments. Things change frequently. I have determined that it is how tax preparers keep their minds young and limber. We have to follow the bouncing ball, so to speak, on a daily basis because we really don’t know where it’s going to bounce to next. Let’s discuss a couple of those recent developments. First, effective for returns that we will be filing in the coming tax season, there will be a box on all individual tax returns that will allow all or part of a refund to be diverted toward the purchase of Series I U.S. Savings Bonds. The denominations available will be $50, $100, $200 and $1,000. Unlike the old Series E bonds, which were purchased at a discounted dollar amount, you pay face value for the Series I bonds. It cost $50 for a $50 Series I bond. The bonds will be mailed directly to the taxpayers. In order to determine if buying one of these bonds is a good thing, we have to look at the interest the bond will be paying. The interest paid on a Series I bond is calculated by combining a fixed rate and an inflation rate. Both of these rates are determined in May and November of each year. All bonds issued between May and November will get the rates as published in May. All bonds issued between November and May will get the rates as published in November. Interest begins to accrue as of the first of the month in which the bond is issued. Series I bonds totally mature in 30 years. The same interest rate as determined at the time of issue will apply for all 30 years, unless the rules change, of course. As we all know, our U.S. government always reserves the right to change the rules. There is a minimum holding period of 12 months, after which the bond can be redeemed for cash. However, if it’s redeemed within the first five years of issue, there is a penalty of forfeiting three months of interest. The fixed interest rate that will apply to Series I bonds purchased from May 2009 to November 2009 is 0.1%. Yes, that […]

The Tax Attic with Jerry Coon — October 15, 2009

October 15, 2009 // 0 Comments

Sub Chapter S Corporations This week, I would like to continue a discussion of the various entities that are available to taxpayers who are starting a business. In the past weeks, I have written that a Schedule C or Sole Proprietorship is one option. A second option is operating as a LLC or Limited Liability Corporation. A third option is incorporating and operating as a C Corporation. A fourth option is incorporating and operating as a Sub Chapter S Corporation. This week, we will look at that fourth option. All Sub S Corporations file a Federal Form 1120S, upon which is reported the income and expenses of the business. Each of the shareholders of the Sub S Corporation receives a K-1. On the K-1 is reported the shareholder’s share of the profit or the loss of the corporation as well as items that are separately stated to the shareholders. An example of a separately stated expense item is the expense deduction should the corporation elect to completely write off the purchase of an asset. An example of a separately stated income item is the capital gain that may result from the sale of an asset. The profit or loss of the business and the separately stated items is divided by the ownership percentage of each shareholder. When the shareholders file their personal Form 1040, each of the items on the K-1 is reported as an income or expense item. In only extreme circumstances would the Sub S itself pay any tax. The shareholders pay the tax at their personal tax rates. One of the largest differences between a C Corporation and a Sub S Corporation is that the C Corporation pays tax on its profit while the shareholders pay tax on the profit of a Sub S Corporation. A further difference is the shareholders of the Sub S are then eligible to receive distributions of their share of the profit that is taxed to them. As opposed to a partnership or a Sole Proprietorship, this profit is not subject to Social Security tax. Since they have paid tax on the profit, these distributions are not considered additional taxable income. It bears repeating that these distributions and the allocated profits are not subject to Social Security […]

The Tax Attic with Jerry Coon – October 8, 2009

October 8, 2009 // 0 Comments

Advantages of partnerships, C corporations There are a few things I would like to do before I ride off into the sunset—my bucket list of sorts. One of them is to drive a winged sprint car. I joke about that one maybe having to wait until my next life. But since I’m of the Reformed Church religious persuasion and we don’t fundamentally believe in reincarnation, the “next life” thing probably isn’t going to work. I don’t anticipate that my minister, Rick Tigchon, is going to preach a sermon on reincarnation being an option any time soon, either. It’s going to be done in this life or it won’t be done. The reason I bring this up is Berlin Raceway held its annual Open Wheel Night on Sept. 26. A number of classes, including midgets and late models, raced. But the main attraction for me was the winged sprint cars. I love watching those guys race. You can tell the fast ones from their motor sound. Once they hit wide open, which is about one second after they stomp on the pedal, the fast ones never let off all the way around the track. They use their brakes and the bank of the track to slow the car in the corners, but you can tell from the motor sound that the foot is in fuel injectors all of the time. One of the racers, Hank Lower, gives me hope that I will fulfill my dream of driving one of the sprint cars. Hank is an Indiana guy and he is 72 years old. Granted, he has been driving these cars most of his life, he is still competitively driving at age 72. He finished in the top ten in the feature event, which means he beat most of the kids in the race. Since I’m a whole lot younger than 72, there is plenty of time to get me strapped into a sprint car. I think I will go online tonight and see what’s available in the sprint car driving school arena. Maybe Hank gives lessons. I want to continue with my series on the various business entities available to a person who is starting a business. Multi-member LLCs file a Form 1065, Partnership Tax Return. […]

The Tax Attic with Jerry Coon – October 1, 2009

October 1, 2009 // 0 Comments

Two business entities available when starting a business   I believe it’s important to write an article or two about the various business entities that are available to a person starting a business. With the economy remaining in the doldrums, good and experienced employees are still losing jobs. Some of these people will start or buy a business, predominantly due to the fact that there are no available employee-type jobs. Some information about the various business entities available might be of use. The simplest form of business entity is called a sole proprietorship. A sole proprietor reports all of the income and expenses of the sole proprietorship on a Schedule C. This Schedule C becomes a part of the taxpayer’s Federal Form 1040. “Jerry’s Landscaping and Income Tax” would be an example of a sole proprietorship. This business registers its name at the county level and thereby protects that name. If Jerry’s Landscaping and Income Tax goes downtown Grand Rapids and registers that business name with the Kent County Clerk’s office, no one else would be able to confuse the public by operating a business in Kent County under that name. That doesn’t stop someone from operating a business in another county using that name, so the safe thing to do might be to also register the name in the surrounding counties. It doesn’t happen often, but it does happen, and those situations sometimes end up in the courts. The next less simple type of business entity is called a Limited Liability Corporation (LLC). As the name implies, an LLC can potentially remove liability issues from the taxpayer level and encapsulate those liability issues within the LCC. If done properly, potentially only the assets within the LLC are subject to liability claims. I say “potentially” because I’m not an attorney, but my conversations with attorneys have led me in that direction. LLC registration occurs at the State of Michigan level by filing an Articles of Organization form. This gives the taxpayer the right to re-name his business to Jerry’s Landscaping and Income Tax LLC. It also protects this name at the entire state level. No one in Michigan would be able to operate under that name. It wouldn’t stop someone in another state from using […]

The Tax Attic with Jerry Coon – September 24, 2009

September 24, 2009 // 0 Comments

How are tax bills formed? As I said last week, I’m not really a superstitious person. However, when it comes to sporting venues, I do have one or two rituals that I do observe. For example, I have played either fast-pitch softball or slow-pitch softball most of my adult life. I have a set manner of getting ready to bat that has served me quite well for almost 40 years now. When it’s my turn to bat, I make sure time is called and acknowledge and engage the umpire and the catcher with some small talk. The pitcher patiently waits while I go through my routine because he sees I’m talking to the umpire and his catcher. I then smooth out the batter’s box so I’m able to efficiently get out of the box when I hit the ball. Next, I survey the fielders to see where they are playing me. As the old saying goes, “Hitting is the science of hitting it where the fielders ain’t,” but in order to do that you have to know where they are. I have already watched the pitcher as he warmed up or pitched to the batter in front of me, so I have a good feeling of how and where he is trying to put the ball. Now I’m ready to bat. If I don’t go through that sequence, I don’t feel like I’m ready to bat and the odds of me hitting the ball hard and hitting it where I want it to go are slim. I have given the pitcher an advantage over me. If something interrupts me, I try to start over. Did you ever see Tiger Woods set up and then stop as he was ready to swing and then start his sequence over? It’s no different than me. Except, of course, he is playing for millions and I’m playing for fun. Congress also observes rituals when it comes to making tax law. They have an exact sequence they follow when creating a law. Unfortunately, they know that sequence all too well. Just exactly how does a law like the American Recovery and Reinvestment Act of 2009 come into existence? Initially, the Senate or the House survey the field or political landscape […]

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