An S corporation operates a "pass-through" entity, meaning all corporate income and deduction items pass through to shareholders, who then report those amounts on their personal returns. Result: You owe personal income tax on your share of S corp profits.
Small Business Tax
Section 179 vehicles should be a key part of your small business tax deduction strategies. Can Section 179 property fit in with your business tax strategies?
Let Business Management Daily help you get each and every rental property depreciation credit and business tax deduction you’re entitled to.
Q: You wrote a story that said any mortgage interest for periods of "personal use" of a rental property is deemed personal interest and therefore nondeductible. (See 10/6/03 issue.) But couldn't that personal portion be treated as "second residence" mortgage interest and therefore be deducted? J.W., via e-mail
The IRS turns a skeptical eye toward what it deems "unreasonable compensation" paid to C corp owner-executives. The taxman can decide your salary is too large and label part of it as a nondeductible dividend.
Tax-free is always better than tax deferred. So if you stashed your retirement funds in a Roth IRA account, you can collect tax-free cash while enjoying your retirement.
Q: My C corporation sold a long-term gain property this past summer. The gain amounted to $24,000 (rounded off). Do we benefit from the reduction in capital gains rates? O.T., Cincinnati, Ohio
Q: My son just started a new job where he's required to wear a suit and tie. Since he had to buy several new suits for this position, can he deduct the cost. G.R., Islip, N.Y.
Say your parents or in-laws are semiretired and still earning a bit of income, but you're helping them financially. They also watch your young children while you and your spouse work.
You probably can't claim a dependency exemption for your parents because their income surpasses a certain level.
Q: I have Series EE Savings Bonds worth close to $100,000. I don't want to leave them in my estate where they will be hit with income and estate taxes. Can I avoid the untaxed appreciation in value by transferring the bonds to a charitable trust? R.B., Houston, Texas
Seven years ago, my parents gave their house in upstate New York to the children and their spouses. (There are five of us; four are married.) My parents paid $150,000 for the house, and now it's worth more than $500,000. Now that both parents have passed away, we're thinking of selling the home. But we're not sure if that's a good idea from a tax perspective and whether we'd qualify for the home-sale exclusion. What do you think?
Q: In a recent Mail Call, you correctly answered a reader by saying that a tax refund would not be reduced by a Roth IRA contribution. (8/11/03 issue) But in stating that Roth IRA contributions don't affect current tax liability, aren't you omitting the use of the retirement tax credit? M.A.C., Union Beach, N.J.