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

Discussion in 'Tax' started by X, Aug 22, 2003.

  1. X

    X Guest

    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
     
    X, Aug 22, 2003
    #1
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  2. X

    D. Stussy Guest

    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.
     
    D. Stussy, Aug 25, 2003
    #2
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  3. 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
     
    Gene E. Utterback, EA, Aug 29, 2003
    #3
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