Gifts to charity/buying a house- to offset capital gains tax


X

X

I sold my Michigan (USA) LLC business this year. I lost
money three out of five years for a net loss of around
$12,000.00. I sold my share of the company to my partners
for $32,000.00. I then bought a house for $48,000.00. I have
left over merchandise from the store that I am having
trouble selling. Could I donate the items to local schools
and other charities as a tax deduction? Will the donations
help offset taxes on the capital gains from selling the
business? Can I claim any expenses from buying, fixing up
the house, and will that help offset paying the capital
gains? I never drew a paycheck from my store, and side line
jobs amounted to around $8,000 per year. This year I'll make
about $8,000.00 also. Any idea on how much the capital gains
taxes will be? Ballpark estimate...

Thanks,

Steve
 
D

D. Stussy

X said:
I sold my Michigan (USA) LLC business this year. I lost
money three out of five years for a net loss of around
$12,000.00. I sold my share of the company to my partners
for $32,000.00. I then bought a house for $48,000.00. I have
left over merchandise from the store that I am having
trouble selling. Could I donate the items to local schools
and other charities as a tax deduction? Will the donations
help offset taxes on the capital gains from selling the
business? Can I claim any expenses from buying, fixing up
the house, and will that help offset paying the capital
gains? I never drew a paycheck from my store, and side line
jobs amounted to around $8,000 per year. This year I'll make
about $8,000.00 also. Any idea on how much the capital gains
taxes will be? Ballpark estimate...
Q: If you sold your share, then why do you have left over
inventory? It doesn't belong to you but to the company, so
if you were allowed to take it with you, did you factor that
into your capital transaction?

If not, you don't have a charitable deduction because it's
not your property -i.e. you're not the donor; the company
you sold out of is.

A house purchase will not offset the above transactions in
any way.
 
G

Gene E. Utterback, EA

I did that already, and after paying $180.00 for her to do
my 2001 taxes, I never got a straight answer. It's a simple
question. Will charitable contributions help lower the
amount of taxes that I'll owe from selling my business in
January of this year?
Based on the information you have given us here, the ONLY
thing I am sure of is that while this may be a simple
question, there is most definately NOT a simple answer. You
could very well have IRC Section 751 Hot Asset Issues
depending on exactly how you got out of the business and how
the business was being taxed. The inventory you got may or
may not have any basis available for you to use to claim a
deduction on and it might be possible for you to have
ordinary income and not capital gains from the receipt of
the inventory you got when you left the business - we don't
know and can't tell without seeing ALL of the appropriate
paperwork and getting a LOT more info.

Your ability to deduct any expenses related to fixing up the
house is predicated on your use of the house. If it is your
home all you do is add these costs to your basis. If it is
a rental property these costs will either add to the basis
which will increase your depreciation OR if the property was
rented when the work was done and the work qualifies, you
MIGHT be able to claim some of it as repairs - AGAIN, we
don't know and can't tell without seeing ALL of the
appropriate paperwork and getting a LOT more info.

The sideline jobs you speak of could be wages or self
employment income, which could result in self employment
taxes EVEN if you don't pay any income tax. One More Time -
we don't know and can't tell without seeing ALL of the
appropriate paperwork and getting a LOT more info.

FYI - in our offices, the 1040 for a member in an LLC would
START at around $400 and could easily go up from there
depending on how you got out and the impact of IRC 751.
$180 for that tax return is cheap IMHO.

Also, my billing rate for research work ranges from $100 to
$150 per hour -So depending on the intricacies of your
particular situation, I would tell you that, if you came to
me, you would need to be prepared to spend at least $500 for
me to review all of your documents and answer your question
definatively - and it could be more depending on your
particular facts and circumstances.

Please understand, I am not trying to slam you - really, I'm
not. Almost every day I speak to, or read about, or hear
about, a taxpayer who swears they just have a SIMPLE
question and doesn't understand why there is no simple and
low cost answer. Unfortunately, that usually is not the
case. Generally, this is evidenced by the fact that they
can't come up with an anwer on their own. Honestly, the
simple anwers don't require professional help, they can be
garnered from the plethora of material that is available
from the IRS.

The first clue that you don't have a simple question should
be when a taxpayer (as opposed to a tax-professional) can't
find a quick answer in the material AND/OR seems to be
getting answer that they don't consider "straight."

Good luck,
Gene E. Utterback, EA
 

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