[StBernard] taxes

[Westley Annis]

My dear ddk
Under your example, take the FREE $20,000 pay the $5,000 tax.  You net 
$15,000 FREE.  That beats having to pay the $20,000 back to SBA PLUS 2.687% 
interest.

Dan


Dan Johnson
Certified Public Accountant
257 W Causeway Approach
Mandeville, LA  70448
985-626-1102  Voice
985-727-0834  Fax


----- Original Message ----- 

> Having read the article in the TP about federal taxes, I suspect we will

> soon be reading

> stories like this;

>

> A couple who has EARNED income and paid taxes all their lives, manages to

> get a casualty

> deduction from the IRS for their 2005 federal income taxes. Let's say they

> get a refund check of $15,000. So that's an extra $15k to put back into

> repair/replace their damaged home.

>

> Now SBA deems them eligible for the low interest, 30 year loan. Let's say

> it's $50, 000. So, on top of their flood insurance they have $15k (tax

> refund) plus another $50k (loan) which is a total of $65k more than the

> flood insurance, which most likely was not enough anyway.

>

> And if they aren't low-balled on the house's pre Katrina value such that

> when insurance is

> deducted, let's pretend that the LRA actually grants them $20k (free money

> with some strings attached), then they'll have a grand total of $85k above

> the flood insurance proceeds to use on the house.

>

> BUT SBA, unless our congressmen get the Stafford Act changed, has to take

> that $20k in LRA money to pay off some of the SBA loan. So now the 

> couple's

> $85k pot of money is back down to $65k, and they still owe the monthly SBA

> note, but now it's a $30k loan.

>

> BUT IT'S NOT OVER YET. IRS steps in and wants the couple to consider that

> LRA $20k as taxable gains in the year it is received or offset that $15k 

> tax

> refund they got in 2005. So the couple has to pay more taxes in 2007,

> assuming that's when they get the $ 20k LRA check. Depending on their tax

> bracket, this could be a hefty portion of the $20k, but remember they 

> don't

> have the $20k anymore, they had to give it to SBA!  So they have to take a

> nice chunk of their remaining $65k to pay the taxes on the LRA money that

> they never got to use because it went directly to SBA. Let's say they have

> to pay 25 percent tax on that $20k LRA money, so now their kitty is down 

> to

> $60k.

>

> SO MY QUESTION TO THE CPAs OUT THERE IS THIS- DEAL OR NO DEAL?

>

> The couple has two choices

> a) don't take the LRA $20k. Keep the 2005 tax refund and the SBA money 

> which

> equals $65k. Pay the IRS nothing more than usual income taxes in 2007.

> or

> b) take the LRA $20k. The math is $15k (refund) + $50k (SBA loan) + $20k

> (LRA grant)-$20k (give LRA money to SBA)-$5k (IRS tax on the LRA money 

> that

> went to SBA) equals $60k.

>

> It seems there is a break even point somewhere that the extra tax paid to

> IRS on taking the LRA money has to be worth it because of the interest not

> paid to SBA on the full, original loan amount.  The SBA loans are at 2.687

> percent.

>

> Any advice from those well versed in taxes and how we can figure out ahead

> of time which is the better deal?

>

> ddk (if this sounds complicated, it's because they made it complicated)