JOHN B. KENNEDY         TAX CONSULTANT          CORPORATE FINANCE 

(816) 942-6190​​​
312 E. Woodbridge Lane
Kansas City, Mo.  64145

​EMAIL:  jbkennedy@sbcglobal.net       WEBSITE:    jbkennedytaxconsultant.com
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THE FEDERAL TAX CODE-A CONSTANT WORK IN PROGRESS

Since forming my tax practice in the 1980s, most statutes of our tax code have been written and re written.  Why is this so?
 Here is the reason.  The tax code is the tool that our government uses to dictate our behavior.  When our leaders want to achieve anything regarding your financial life,  they grab the tax code and start the tinkering process. 

 My favorite example of this is laws regarding deductibility of IRA contributions.  When IRA laws were first written, they were simple and straight forward.  The rule was that if you had earned income, you could deduct up to $2000 in IRA contributions.  There were no strings attached.  There were  no income rules.  There were no varying types of IRA accounts.    This was a great law as it was first written.  It was easy to understand and it promoted savings. 

Today, the IRA contribution laws are a jumbled mess. 
 In this monthly writing, I attempt   to be informative, entertaining, and save you tax dollars in the current year and in the future.  This issue focuses on the proposed sales tax on real estate transactions and on tax saving ideas for individuals and businesses.  Please call me with any comment or question that you may have regarding any item.   I have ample time for new clients. 

                                                                                    CAN YOU BELIEVE THIS?

In an effort to raise more tax revenue for the federal government, there is a proposal before Congress to create a federal sales tax on all real estate sales.  The tax would be 4% of be price of sale of the real estate.  It would be collected at the time of the sale and would be submitted by the closing company.

 A home sale of $200,000 would have a sales tax of $8,000.  So, if the seller had a gain of $20,000, that gain would be almost cut in half.  In effect, this legislation would devalue real estate by 4% directly.  It would also have an effect on the attractiveness of real estate as an investment which would have a further devaluing effect. 

 This was proven in 1986, when a bill was signed by President Reagan which cut the allowable accelerated depreciation on real estate used for profit purposes.  The effect of that legislation was a long slide in the value of all types of real estate.  At this time, the last thing the American taxpayer needs is such a sales tax.  The family home is the last great tax deduction for the working American. 

 BUSINESS TAX PLANNING-THE BASICS

 If you own a business, please read this section. 
 The end of the calendar year gives every business a tax saving opportunity.  Planning is the key!

 Since most taxpayers are on the cash basis, the year in which you collect and spend revenue of your business is an aspect of the tax law that gives you control. 

 *Accelerate deductions in the higher income year.  If you know that 2014 will be a better year for your business than 2015, consider paying January bills in December, 2014.
 *Accelerate income in the lower income year.  The year income is booked is partially up to you.  If you wish to defer income from 2014 to 2015, consider depositing December income in January.  That will postpone the income until 2015. 

 EMPLOYEE  BUSINESS EXPENSES – SOMETIMES UNUSUAL AND FORGOTTEN

 Because they are so seldom used to reduce a tax liability,  I sometimes wonder why employee business expenses are part of the tax law.  I feel that because of the unusual nature of these deductions, they are seldom used.  However, keeping these laws in mind can occasionally create a tax savings. 

 Generally speaking, employee business expenses are deductible when they exceed the floor of 2% of adjusted gross income.  If your adjusted gross income is $100,000, employee business expenses must exceed $2,000 to create a deduction.  If your adjusted gross income is $50,000, employee business expenses must exceed $1,000 to create a deduction. 

 One example which may sometimes be forgotten is the purchase of a computer.  Tax courts have ruled that if you use your computer for your job, a first year expensing deduction is allowed.  Expenses for cell phones which are used for your job are also deductible.  Since most workers have a cell  phone and a computer, keep your employee business expenses in mind when preparing you tax information.
 
 The most common tax savings for employees which I have observed is in the situation where an outside sales person has a great deal  of mileage for which he is not reimbursed.  Because  the mileage rate is now 57 cents per mile, mileage can quickly  create a deduction in this category. 

 Here is a partial list of employee business expenses which can be deductible:
Books used on your job                                 Job related travel
Magazines related to your job                      Job related entertainment
Job related education                                     Certain membership dues
Job related mileage                                         Safety helmets and shoes
Mileage between jobs                                    Tools used on the job
Union dues                                                      Conventions and Seminars
Cost of cleaning work uniforms                   Malpractice Insurance
Job related medical examinations                Job related meals

 Please call me with any question on this material.  I am anxious to speak with you!