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The Internal Revenue Code limits the
deductions available for autos, trucks and vans that weigh less than 6,000
pounds. Effectively, only vehicles that cost less that $15,300 can
be depreciated in 5 years. This has caused a hardship for businesses
that require trucks and vans that cost much more, but are needed for
business reasons. The IRS has just issued a new regulation effective
July 7, 2003 that addresses this issue. Now vans and light trucks
can recover the cost up to $23,000 over 5 years. This applies only
to vans and light trucks placed in service after 2002. The amount of
depreciation allowed will be adjusted for inflation. This new
regulation will also exclude vans and light trucks from these limits
Qualified Nonpersonal Use Vehicles. "Vans and light trucks that
have been specially modified, such as by installation of permanent
shelving and painting the vehicle to display advertising or the company's
name, so that they are not likely to be used more than a de minimis amount
for personal use. These specially manufactured or modified vehicles
do not provide significant elements of personal benefit, and the taxpayer
is unlikely to purchase these vehicles unless motivated by a valid
business purpose that could not be met with a less-expensive vehicle."
These Qualified Nonpersonal Use Vehicles will be treated as if the
vehicles weighed more than 6,000 pounds. If you have a van or light
truck that you have modified and think it qualifies for this treatment, be
sure to inform us so you can maximize your deduction. If you have
any questions about this issue, please contact us and we will answer them.
Purchasing a Business
Many taxpayers find purchasing an
existing business to be easier than starting a new business from scratch.
This can be done by purchasing the stock of the business or by purchasing
the assets. If the stock is purchased, the new owner assumes all of
the tax liabilities of the seller. If the assets are purchased, in
most cases the liabilities of the seller are not transferred to the buyer.
In Ohio, Personal Property Taxes and Sales Taxes owed by the seller may
become the responsibility of the buyer. If the seller underpaid
these taxes, either intentionally or unintentionally, the state of Ohio
can require the buyer to pay them. This also includes a use tax
liabilities the seller may not have realized that he owed. The
transfer of these liabilities can be avoided by obtaining a Sales Tax
Release and a Personal Property Release from the state.
Real Estate Taxes are attached to the real estate. Any unpaid real
estate taxes an liens will become the responsibility of the new owner if
not paid by the time the property is transferred. The use of a good,
qualified escrow agent can resolve these issues. Product Liability
Lawsuits and Warrantee Liabilities may be acquired with the purchase of a
Trade Name or Trademark. Also, the sale contract should require the
seller to indemnify the purchaser for any additional liabilities.
Anyone considering the purchase of an existing business should consider
these issues when negotiating the price and terms of the contract.
Qualified accounting and legal advice is a must to avoid these potential
disasters that are just waiting to destroy the unwary purchaser.
Child Tax Credit
The IRS has started mailing out the $400
Child Tax Credit checks on July 25th and will continue mailing them for
the next two weeks to taxpayers who have already filed their returns for
2002. Taxpayers who file by October 15th will receive them as soon
as their returns are processed. All other taxpayers will have to
wait until they file their 2003 returns to get the credit. The IRS
has announced that taxpayers who receive the checks in error will not be
required to return the money. This will affect divorced taxpayers
who claim the exemption of their children in alternate years. The
parent who claimed the child last year will receive the check this year.
The parent who did not claim the child last year will be able to claim the
credit on their tax returns this year.
Now that we received our check, what
should we do with it? We can use it to purchase something. We
can save it. We can pay off debt. Here are a few ideas that
can have a longer lasting effect.
We can start a college investment
program with the check. A contribution to the Ohio Tuition Trust
will allow you to purchase college credits at today's prices for courses
that will be taken 18 years from now. This will give you a deduction
on your Ohio tax returns.
We can start an investment program in a
good mutual fund or even a tax-exempt bond fund. These funds should
grow to many times the initial amount invested.
We can use this check to fund our
retirement accounts. This will generate tax deductions and credits
and will grow to provide for a better retirement.
If we choose wisely, we can enjoy the
benefits for many years to come.
Financial Truth #5
"PURCHASING A HOME IS THE FIRST STEP TO
FINANCIAL SECURITY." Owning a home has many tax advantages, such as
the deduction for the interest payment and real estate taxes.
Renters pay the landlord rent to pay for these items, but do not receive
any tax benefits. Homeowners can sell their homes when they want and
receive money when they move. Renters just move. Homeowners
can earn up to $500,000 tax-free on the sale of their home. This is
almost impossible for any investment to duplicate. Homeowners can
borrow against their home for any purpose including starting a business.
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