Edsel

Abnormal, thanks. I'm not really that bright, but I worked in a sawmill 30 years ago. I'm not familiar at all with western timber.

Setting a value of the timber is a sophisticated process. The board feet mentioned by cbslee are necessary because you need to measure what was available versus what was cut. Calculation of board feet as lumber is irrelevant because calculation of board feet as logs is 10-15% less because of what the sawmill figures they will lose in bark, knots, and irregularities in shape. Walnut is more expensive than most other wood species - up to 4X as valuable as pine. Today walnut is worth more than red oak, 15 years ago the reverse was true. Also, typically a landowner is paid 50% as much as what the logger can sell to a sawmill. This percentage drops as the contour of the land becomes extreme and difficult to transport the logs away. Real estate appraisers know the timber is there, but they are not necessarily qualified to assess it, so it is often ignored. Other complicating factors: over time, timber grows and creates more board feet than in younger years - but this is deceptive if the timber was mature and if so it reaches a point of maximum value and then begins to deteriorate. Timber is something that if you don't value it at the critical point in history, you lose the opportunity forever to have an accurate appraisal. Another difficulty is that timberland (forested land) is not worth more than pastureland just because it contains harvestable logs. Cattle cannot graze in forested land, nor can any row crops be raised.

I think you've put your finger on what I consider to be a threat. There are a dozen or so receivables set up when land was sold on installments. My fear is that this would be considered an operating business instead of investments resulting in interest and capital gains. This could be recharacterized as a Sch C business, and not only subject it to SE tax, but also loss of capital gain treatment.

Some people should never create an LLC. My client has just created one at the urging of lawyers (of course). Electing to report as a proprietorship will subject the taxpayer to SE tax, but: The only activity within the LLC is the existence of Receivables on Installment sales. Income is: (i) Interest on Loans and (ii) Installment Sale Capital Gains. Neither of these activities without other circumstances are subject to SE tax. Reporting as a proprietorship, Sch C, is not tailored to report this kind of income, but is tailored to create SE tax. Can the LLC be reported in some manner other than a Sch C? (Assume the LLC is defaulted to report as a proprietorship).

The "acid test" (in my mind) as to whether to complicate the transaction by reporting income and recording a fixed asset: If an auditor discovered this, would he take the time to write it up and recalculate a tax return? In my experience, only a neophyte auditor would take the time and trouble. Even if taxpayer does not elect s.179 the difference would not be worth his trouble.

Real world answer. RFassett is correct in everything said. But I might suggest a solution which is harmless. Leave the $500 expensed as rent for the prior year. Do not enter revenue or set up a fixed asset for $2700. As far as the current year, do not record anything. For $3200, this is not worth the scrutiny even if detected by the IRS. My solution would be different if the asset had a value of $20,000. Understand this is not a "pure" suggestion, and this post could be met with criticism.

Thanks to all. I think the information in the link is definitive and clear. The situation calls for charging a timecard and billing as a consultant for the exact same duties. I advise against.

Federal contracting regulations (in general) require that consultants cannot exceed more than 49% of the work for any given contract. This is to keep contractors from outsourcing their work and bailing out of problems that come with employees. One situation I have proposes 51% of the work to be performed by an employee, and 49% of the work to be performed by a consultant. Sounds good from the outset, but the employee and the consultant are the same person. In other words (fictitious numbers), $51,000 goes on a W-2, and $49,000 goes on a 1099 to his consulting company for the same work. For this person, $100,000 in total revenue and the 1099 portion is allowed full above-the-line business deductions. I'm not sure what the IRS thinks of a W-2 and 1099 going to the same person, especially for the exact same work. Is there a cite that definitively addresses the problem? Whady'allthink?

Thanks, Illmas. Question only involved a "privilege" tax - capital gains not involved.

for Illinois members - (Illigitimas are you out there?) Is there a statewide privilege tax (in addition to a local tax) assessed on corporations doing business in Illinois?

I'm sure some of you have cosmetologists as clients. I'm thinking of getting rid of mine. Some 7-8 of them. They take checks and mostly cash, which there's no way to know how honest their reporting. And booth rent is worse. How many of them actually give out 1099-MISC for booth rent? Is it necessary if this is equipment rent instead of space rent? Come to think of it -- which is it? Space rent or equipment rent? By the way, this has ramifications for the recipient of the rent, since if it is rent for personal property, the rental income is subject to self-employment tax. Too messy for me. Comments??

Thanks to both of you for your comments. The customer is specialized in Federal contracts, and yes this causes higher prices. I've been to your part of the country, but not extensively.

For Abnormal, Judy, or anyone else who lives in MD, DE, PA: I have a customer who is bidding some Army work at Aberdeen Proving Grounds. We did geographical salary surveys and used salary information for Washington DC - the DC area and suburbs in Virginia and Maryland have some of the highest salaries in the country. Our initial survey tells us we are not competitive, and I'm wondering if the salaries at Aberdeen are substantially less than DC. Aberdeen is not exactly remote - only 60+ miles from DC and probably even less from Wilmington/Philadelphia. For any of you who may know - are salaries precipitously less for NE Maryland compared to DC? I would expect them to be a little less, but not tremendously so as to make us non-competitive... Not a tax question - but thanks if you have information to share...

Thanks to both of you. I have to file returns for the past 8 years for someone.

Thanks Judy. That calls for a need to find 2010 EIC tables. I'm sure it's on irs.gov somewhere. But that's the problem in putting gazillions of information on a huge website and thinking users can easily find something.

Does a W-2 for 3rd party sick pay qualify as earned income for purposes of EIC? A broader question might be "Does W2 income not subject to SocialSecurity/Medicare Qualify with respect to EIC?"

I'll be the next to chime in. Callie and I left before the pictures were taken, but maybe Catherine has more that she will share. Not that you're missing much with a shot of me. There were big 'uns and little 'uns. Smart 'uns and .... If anyone wonders what tax people are like, they should have been there. All of us reasonably engrained in the profession, all of us kinda kooky, and wonderfully human. It was great to meet everyone and put faces and voices with the membership. All of us love Rita - but I will take a minute of readers' time to reflect on something special. We had the pleasure of meeting her children. Two sons and a daughter. Tall, good-looking, cordial, and helpful. And appreciated here in the south is their God-fearing disposition. This should speak extra volumes about Rita. Women are amazing creatures - having to multi-task between professional duties, domestic duties, family duties. Additionally, most of us know something how difficult it is to raise children - raising great kids just doesn't "happen" all by itself. And in Rita's case, there is the small matter of tending to the "back 40." This doesn't happen by itself either. Unforgettable gathering, folks. Those of us in attendance feel closer to each other. If it happens again somewhere else, I highly recommend it.

The 3 brackets phase in at $1000 (single) and $2000 (married) - the final one phases in at $3000 single and $6000 married. These are so low that anyone who is a warm body will exceed and be at the 5% level. All govt pensions (regardless of what govt) are exempt, and over 2000 commercial pensions are exempt. The standard deduction is so low that almost anyone can itemize - and the Sch A is much more generous than Federal with the exception of state income taxes. And to make the scheme even more regressive - the federal income tax liability is deductible. That means high income people with heavy FIT liabilities have an incremental rate of much less than 5%. Robin Hood in reverse. The "flat tax" of 5% is the maximum incremental tax anyone can possibly pay. The wealthy pay much less.

Hi Taxmann - just to add clarification, Series LLCs are not allowed in every state, so many of the readers may not know what it is. A "Series LLC" (first called the "Delaware Series LLC" after the first state to adopt) allows multiple LLCs for purposes of liability but one LLC for reporting purposes. Don't know about Illinois, but the intent from Delaware is to allow a single reporting entity, so the various individual LLCs would not have to file returns for each LLC. The most understandable application of a "Series LLC" would be an owner with 10 buildings. If an LLC were created for each building, the liability for each would be limited to the asset recoverable value of only that building, without exposing the other buildings to that liability. You can do this in Illinois (I think) and about 20 other states. Can't do that in Tennessee (at least not yet). I think Federal allows a consolidated return but I don't know that it becomes feasible in states where consolidated reporting is not allowed. I think the answer to the Taxmann dilemma is to simply paper allocate payroll and payroll taxes to the individual LLCs, and report payroll only under the Master LLC.

I've been hearing about this "fair tax" ad infinitum. It's hero is Neal Boortz, and the wealthy people love it because they can stash away everything over the cost-of-living into wealth tax-free. A family earning $300,000 per year would NOT spend 6X as much as a family earning $50,000, contrary to what proponents would have us believe. For all practical purposes, Alabama has a "flat tax" of 5%. Folks down there hate the AL tax code just as much as people anywhere else. And with this "flat tax" the only way to cut your taxes is to spend less. Won't that be great for the economy? Abnormal, I'm in your corner on this one.

Thank you PacMan.

What will you do in November? Drain the swamp in CT? Amazing that the voters are the people who can REALLY drain the swamp. If everyone wants it drained why do the incumbents always win? Careful, this could lead to a partisan political thread. Let's leave the parties out of it. They both do their best to hoodwink the public. Delete if necessary. I appreciate the fact that this should not become a partisan political discussion on this forum, but it's hard to talk about taxation and leave the politicians totally out of it.

I'm told the VAT (Value Added Tax) eliminates the underground (unreported) economy. Don't know how, except it is applied at every level and the final sale takes credit for all VATs previously paid. I want my clientele to have the lowest possible taxes. But I am vociferously opposed to not reporting income.

I've missed the boat somewhere. Replacing the exemptions for 2018 is "enhanced credits". My current perception is the Child Tax Credit is increased to $1500, with phaseout threshold raised to $400,000. PLUS - $300 for each dependent, whether they qualify for Child Tax Credit or not. Soooooo...most children under age 17 get $1500 for CTC plus $300 for being a dependent? I think I'm wrong. Someone please tell me where... I was on top of this until they started messing with it shortly before it passed. Thanks, Edsel

Back in the days when the Tennessee Vols were a national power, we had an announcer who would start the broadcast: "It's FOOTBALL TIME in TENNESSEE!!!" Tennessee is not anywhere close to a national power, and the announcer has retired. But fear not, for "It's ELECTION TIME in TENNESSEE!!" Indeed it is. In front of our courthouse in Manchester there are no less than 300 signs. Government jobs are obviously immensely popular. In days of yore, virtually no one wanted to work for the govt. Low pay, boring jobs, sketchy benefits. If you wanted to run for a state or county office position you could easily be unopposed. 30 years later, everyone wants a govt job. People who own businesses are even shutting down so they can run for office. The industrial base now offers leased employees, no benefits, layoffs, plant shutdowns, etc. And a husband and wife must both work at WalMart in order to deliver a 40-hour week at wages only a dollar or so above minimum wage. Govt jobs? Very typical is one of my customers who has a clerical job with a $29,000 W-2 and $19,000 coded as "DD" in box 12. If she works only a few years she will get a retirement which increases every year. (Commercial retirements normally don't increase, ever) No overtime, cushy work, ultimate job security and medical insurance practically 100% paid for. And state governments claim they are broke?? I wonder how many states have the state government as its largest employer? For example, in 1980 Fortune 500 company "Minnesota Mining and Manufacturing (3M)" was the largest employer in Minnesota. Today the largest employer in Minnesota is....you guessed it...the State govt of Minnesota itself. Mercifully, in August this charade/beautycontest will be over. I think Alabama has this going on and Kentucky as well. I don't know that this post goes anywhere or has a theme, or conclusion. Just a sign of the times.