What is the Section 179 expense?

Q: What is the Section 179 expense?

A: The deduction contained in the Internal Revenue Code Section 179 allows for expanded deduction of equipment purchased for the year of 2008. During the year 2008, the maximum allowable deduction is $250,000. Bonus depreciation has also been reintroduced. To qualify for bonus depreciation, the equipment must be purchased brand new and be used within a trade or business.

Are there nontax reasons for why I might want to buy a hybrid vehicle?

Q: Are there nontax reasons for why I might want to buy a hybrid vehicle?

A: Absolutely. Hybrid vehicles have such good gas mileage, the fuel savings alone can be significant enough to affect cash flow for a small business. Even though Honda and Toyota are in their phase out sessions, these hybrids tend to carry their values well as of yet and can offer significant trade in value when the time comes.

If I purchase and use a hybrid vehicle for business purposes in my business, am I still eligible to use Section 179 accelerated expenses?

Q: If I purchase and use a hybrid vehicle for business purposes in my business, am I still eligible to use Section 179 accelerated expenses?

A: Yes, even though a hybrid car purchase can qualify for a credit, Section 179 expenses, bonus depreciation, and ordinary depreciation can still be used by the buyer.

I have recently had my business valued. The value between what I believe the value should be and what is calculated are completely different. Why is this?

Q: I have recently had my business valued. The value between what I believe the value should be and what is calculated are completely different. Why is this?

A: There could be any number of reasons for this dilemma. Valuations are based upon assumptions, figures provided, and calculations based upon them. The numbers, assumptions, and calculations may not necessarily reflect the value of the business to an owner. There are methods and procedures available to improve the value of a business to a willing buyer. It is with these improvements, a business’ value can be augmented.

As part of my parent’s business succession plan, I will inherit property. Will I have to pay taxes upon the receipt of the property?

Q: As part of my parent’s business succession plan, I will inherit property. Will I have to pay taxes upon the receipt of the property?

A: Generally inheritances come to an individual tax free. It is the estate that must deal with the tax consequences in most cases. When an item is received by an heir, its basis is either determined by the fair market value upon the date of death or based upon the alternative date 6 months later.

Does personal goodwill have any other uses other than for reducing taxes?

Q: Does personal goodwill have any other uses other than for reducing taxes? 

A: Yes, personal goodwill has use in other areas. Personal goodwill is used in divorce proceedings where the business owner has built a business during the course of a marriage. Upon dissolution, courts will examine how much of the “goodwill” contained in a business is attributable to the owner based upon personal relationships of the owner and other factors. Conventional goodwill of the company is generally a marital asset subject to division per the discretion of the court or statute. The personal goodwill, on the other hand, is generally not a marital asset and that can play into the favor of the business person/divorcee who holds the personal goodwill.

A search of the Internal Revenue Code reveals that the term “personal goodwill” is not mentioned anywhere in the code. Is personal goodwill a legitimate way to reduce taxes from the sale of a C Corporation?

Q: A search of the Internal Revenue Code reveals that the term “personal goodwill” is not mentioned anywhere in the code. Is personal goodwill a legitimate way to reduce taxes from the sale of a C Corporation? 

A: Absolutely. The Internal Revenue Code does not contain terms such as “personal goodwill”, “Solo 401(K)”, and many other terms that are commonly used as devices to reduce taxes for taxpayers. The term “personal goodwill” is a term that grew out of case law starting with The Martin Ice Cream Case. Since this case, personal goodwill contracts have become a commonly used vehicle to avoid unnecessary taxes. 

When determining a value for a company, is it permissible to use a multiple instead of a long, formal valuation?

Q: When determining a value for a company, is it permissible to use a multiple instead of a long, formal valuation?

A: Merely using a multiple is not a practice that is allowed by the IRS or other valuation professionals. An arbitrary multiple (such as 3, 4or even 7) used against an arbitrary number such as tax profits or financial profits will yield another arbitrary and useless number. To get a good, solid value, a business owner must rely on trained professionals to get a value that is acceptable and defensible.

Why are valuation discounts for minority shareholder interests illegal in some states?

Q: Why are valuation discounts for minority shareholder interests illegal in some states?

A: In most states, laws exist for the purpose of protecting minority shareholders against the majority interest shareholders. A sweep of corporate case law plainly reveals that many situations have occurred where the minority shareholder has been taken advantage of by the majority shareholders. State laws, including those not allowing minority shareholder discounts, have been written to help prevent squeeze outs, freeze outs, and shake outs. When valuing a company in these states, it is important for the appraiser to be aware of the laws and plan and create the valuation accordingly.

Where is the best place to store estate plan documents?

Q: Where is the best place to store estate plan documents?

A: The best place to store estate plan documents is in a secure location that others know of and that is easily accessible. Storing the documents in a safe deposit box that a friend knows of can be a good place as long as that friend knows where to get the keys. Hiding documents in a book or in a safe that no one has the combination forrenders the documents useless to both you and those that are trying to help you.

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