Category Archives: Guest Blogger

Guest Bloggers

402webpage welcomes guest bloggers on a variety of subjects including business, tax, Internet, IT, cultural topics and more topics of interest to small businesses, organizations and the International business community.

If you are interested in becoming a guest blogger, please contact us at info@402webpage.com for details, questions and to submit a topic.

Guest Blogger: Kam Wiese, CPA: 2014 Tax Extender Bill

2014 Tax Extender Bill

Finally we have 2014’s tax rules, two weeks before the end of the year! Plenty of
time to go out and purchase some appliances or carpet, right? Note – These breaks
have only been extended through 2014; an effort to extend them through 2015 fizzled
out once the President said he’d veto a long term tax package.

Breaks that expired 12/31/13 that have been revived include:

* Itemized deduction for sales tax
* Above-the-line deduction for up to $250 of educators’ classroom supplies
* Exclusion for up to $2 million of forgiven debt on primary homes
* Qualified charitable distribution from IRA for those over age 70 ½
* 50% BONUS DEPRECIATION!!! (This allows landlords to expense up to 50% of carpeting and appliances, also ups the tax break for buying a heavy SUV.)
* Section 179 expense limitation was restored to $500,000

A new provision included in the bill is a tax-deferred ABLE savings account for
the disabled. Starting in 2015, nondeductible contributions of up to $14,000 can
be made to ABLEs for those individuals who are blind or disabled before the age
of 26. Money withdrawn from the account used for housing, transportation, education,
job training etc. are tax-free.

Please feel free to contact Kam Wiese, CPA at Kluge and Wiese LLP at (402) 332-3387 if you have additional questions.

Advice contained in this communication, including any attachments, was not intended
or written to be used, and it cannot be used, for the purpose of avoiding penalties
that may be imposed on the taxpayer by Internal Revenue Code.
Additionally the unauthorized disclosure, copying, distribution, or other use of
the contents of this message or any attachment(s) hereto, in whole or in part,
is prohibited without the expressed authorization of the originating party.

Kluge and Wiese LLP
(402) 332-3387
620 N. Highway 6
Gretna, Nebraska 68028
All rights reserved.

Guest Blogger: Kam Wiese, Tax Changes for 2012 (Not a misprint… 2012 is right)

As you may have heard by now, we are not going over the fiscal tax cliff! Below is a quick summary of the retroactive tax changes that may have an effect on any tax planning that was done in December.

2012 -These items lapsed after 2011, but have now been revived retroactively for 2012:

*Research and Development Tax Credit
*Work Opportunity Credit for Disadvantaged Workers
*15 Year Depreciation for Restaurant Renovations/Leasehold Improvements
*100% gain exclusion for investors in small reg. corp. stock
*Income tax exclusion for up to $2 million of forgiven personal mortgage debt
*Election to write off sales taxes in lieu of state income taxes
*Deductions for teachers’ class supplies, private mortgage insurance and college tuition
*American Opportunity Tax Credit
*Qualified Charitable Distributions direct transfers up to $100,000 tax from from IRA’s to charity
*Alternative Minimum Tax Exemption increased to $78,700 (had reverted back to $45,000)
*Section 179 Expensing up to $500,000 of qualified assets.

Due to these retroactive changes and increased fraud prevention measures, the IRS is expecting refunds to be delayed. There is also a fairly good chance that tax return filings could be delayed in order to allow the IRS to update their computer systems. This doesn’t mean we can’t prepare your tax return. We can still prepare the returns. It just means we may have to wait a few weeks to actually transmit the return for electronic filing.

Kam Wiese, CPA
Kluge and Wiese, LLP
620 N. Hwy 6, PO Box 500
Gretna, NE 68028-0500
All rights reserved.

Guest Blogger: Kam Wiese, CPA: Renting property back to yourself doesn’t always equal tax break

If you own the building that your business is located in and rent it back to yourself, the losses are not treated always treated as “passive.” Firms that rent property to a closely held corporation in which the owner works more than 500 hours per year triggers a special rule that treats net rental income as “non-passive.”

Why does this matter? Rental income and losses are normally treated as passive activities. If you have a number of rental losses that are carried over due to not meeting the real estate professional test or if your income is too high, the only way to claim those passive losses is by generating passive income. A case has come down from the tax court where a man set up two pass-through businesses to lease tractors and trailers to his corporation. Due to the fact his firms rented property to a closely held corporation in which he worked more than 500 hours per year, the income became non-passive. He had tried to write off the non-passive losses against his passive carry forward losses; the IRS came in and re-characterized the amounts.

This is another case where knowing the rules can help you strategize a better way to write off your losses. Since his rental properties with the passive losses were not generating revenue, maybe it would have been good for him to re-evaluate the expenses he was taking on those properties. Could it be that some of those expenses were really related to his other business instead of the passive income properties?

To meet the recently established requirements of the Internal Revenue Service as described in their circular 230, we hereby advise you that any tax advice contained in this communication was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer by Internal Revenue Code.

Kam Wiese, CPA
Kluge and Wiese, LLP
620 N. Hwy 6, PO Box 500
Gretna, NE 68028-0500
All rights reserved.

Guest Blogger: Kam Wiese, CPA: Should I use a self-directed IRA to buy rental property?

I’ve had a number of property owners call and ask if I think it’s a good idea to buy real estate in a self-directed IRA. Housing prices are down and interest rates are low – it seems many landlords are asking themselves, Why not…?

Before you make that purchase in your IRA, please carefully consider all the potential disadvantages that can be involved.

  • No Depreciation – One main advantage to owning rental real estate is the ability to take a deduction for depreciation of an asset that is in essence going up or staying about the same in value.
  • No basis step-up – If you pass away with real estate in an IRA, your beneficiaries would not get a step-up in basis. Outside the IRA, if you purchased the property for $100K, and when you died it was worth $250K, the gain would not be taxable. If it were inside a traditional IRA, the entire gain would be taxable.
  • Valuations – Once you reach age 70.5, you are required to take required minimum distributions from your IRA. To determine the RMDs, an appraisal would need to be done every year as of December 31. The costs of the appraisal every year would need to be factored in. Liquidity is also an issue. If you don’t have enough cash to distribute the RMD’s – the property would have to be sold to meet those requirements.
  • Expenses to fix up the Property – If you run into an issue where it’s going to take a large sum of money to fix a problem with the property and there is limited cash available within the IRA, you are limited to the IRA contribution limits on a per year, per individual basis. If you have to replace a roof that costs $10K, and have no cash available within the IRA to pay for that repair, you are limited to $5,000 per year without incurring an excise tax and penalty for excess contributions (or worse, your IRA may be disqualified).
  • Unrelated Business Taxable Income (UBTI) – If you purchase real estate subject to a mortgage, you many incur UBTI, which would require you to file a separate tax return and pay tax on the income. These tax rates are graduated much higher than if you would have paid it individually.
  • Higher Tax Rates – If you sell real estate outside your IRA, you are subject to depreciation recapture and capital gains tax rates. If you sell real estate within your IRA, you are subject to ordinary income tax rates. Capital gains/depreciation recapture rates are generally more favorable than the ordinary income tax rates.
  • Personal Use Limitations – Within the IRA, you cannot use your property at any time for personal use, even if it’s a timeshare. You also cannot rent it to any lineal descendants.
  • Higher IRA Custodial Fees – You will need to find a custodian that allows real estate in IRAs, and you will generally pay higher fees to have this privilege.
  • Diversification Limitations – If you currently have real estate outside your IRA and then purchase real estate within your IRA, you are putting yourself at the mercy of the real estate market. Without the ability to diversify your assets, there is the potential for higher risk.
  • Watch out for prohibited transactions between the owner and the IRA – If an IRA owner or beneficiary commits a prohibited transaction, the account ceases to be an IRA, and there is a deemed distribution for the Fair Market Value of all the assets. The deemed distribution would then be taxable at ordinary income tax rates and possibly subject to a 10% penalty.
  • Cannot Pledge the Equity in the IRA rental property to buy another property outside the IRA – If an IRA is used as collateral for a loan, it then becomes a deemed distribution. If you have equity in a real estate holding inside the IRA, that equity cannot be used as a down payment for another property without making the entire IRA taxable.

Although it’s possible to hold real estate in your IRA, you need to make sure you tread carefully. As noted above one fluke or misstep can disqualify your IRA, causing a huge tax bill — and maybe a headache!

To meet the recently established requirements of the Internal Revenue Service as described in their circular 230, we hereby advise you that any tax advice contained in this communication was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer by Internal Revenue Code.

Kam Wiese, CPA
Kluge and Wiese, LLP
620 N. Hwy 6, PO Box 500
Gretna, NE 68028-0500
All rights reserved.

Guest Blogger: Kam Wiese, CPA: IRS Announces 2012 Standard Mileage Rates

Beginning on January 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55.5 cents per mile for business miles driven
23 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Please feel free to contact Kam Wiese, CPA at Kluge and Wiese LLP (402) 332-3387 or email kamwiesecpa@gmail.com if you have additional questions.

To meet the recently established requirements of the Internal Revenue Service as described in their circular 230, we hereby advise you that any tax advice contained in this communication was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer by Internal Revenue Code.

Kam Wiese, CPA
Kluge and Wiese, LLP
620 N. Hwy 6, PO Box 500
Gretna, NE 68028-0500
All rights reserved.

Guest Blogger: Kam Wiese, CPA: Cancelled Debt Anyone?

Cancelled Debt Anyone…

What is Form 1099-C?

A Form 1099-C is used to report cancellation of debt of an individual or business from a taxpayer’s rental property, business debt, personal debt or personal residence. A financial institution is required to issue a taxpayer a 1099-C if it forgives or writes off more than $600 of the debt’s principal.

To give you an example of when this form would be issued: Say you had credit card debt of $10,000, you call the credit card company and settle to pay $6,000. The credit card company will then issue you a 1099-C for $4,000.

Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

  • Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. To figure out if you are able to report an exclusion – Form 982 must be completed.
  • Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
  • Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

If I have a tenant who doesn’t pay rent, can I issue them a 1099-C?

Technically, no; a 1099-C is only to be issued by lenders or financial institutions.

Please feel free to contact Kam Wiese, CPA at Kluge and Wiese LLP (402) 332-3387 or email kamwiesecpa@gmail.com if you have additional questions.

To meet the recently established requirements of the Internal Revenue Service as described in their circular 230, we hereby advise you that any tax advice contained in this communication was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer by Internal Revenue Code.

Kam Wiese, CPA
Kluge and Wiese, LLP
620 N. Hwy 6, PO Box 500
Gretna, NE 68028-0500
All rights reserved.