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Looking For Deductions
Q:
My Mother is wondering if she buys things for our farm or pays bills for our farm are there ways she can get tax breaks. The money that she has from when my grandmother passed away...I don't know alot about it. I just know Momma said the only reason she didn't have to pay taxes this year was because my grandmother had paid ahead. She is wanting to help us some but she needs the breaks.Also, when we incorporate is there a way she can benefit from that?
A:
These are the kinds of things she really needs to be discussing with her own personal professional tax advisor.
Most kinds of inheritances are tax free for the heirs. Investment income earned on those assets after she owns them are taxable.
Basically, tax deductions are only allowed if there is a profit motive behind them. She can't just pay for your expenses and deduct them unless there is some expectation of income from that operation. One possible scenario that could allow deductions would be if she were to buy some pieces of farm equipment and lease them to you. She could potentially deduct up to $108,000 of the cost in the first year; but there would have to be some lease income showing on her 1040 to justify it. Her tax advisor can give her more specifics.
In regard to working with your corporation, there aren't as many tax savings for a non-owner as for the owners. However, if you were to set her up as an employee of your corp, and have a corp medical reimbursement plan available for all employees, the corp could pay for all of her medical costs and she wouldn't have to report any of that as income. Again, her personal tax advisor can give her more specific advice, including whether it would be even better for her to set up her own corporation.
Good luck. I hope this helps.
Kerry
Follow-Up:
Thanks and I am sorry to keep bugging you with questions. She doesn't have a tax advisor and that is the problem!!! I am encouraging her to do something.
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 5/30/2006 07:43:00 PM Send this post:
