Edsel

I would discuss creating a payroll situation going forward into 2020, and let 2019 go as it is. Trying to shoe-horn another W-2 into already-filed 2019 invites a train wreck. Why does he want a W-2 for 2019? Does he want "earned income" so he can contribute to an IRA or SEP? If so, consider issuing a late 1099 for non-employee compensation.

Kansas Karla - Your mind is trying to run everything together...like Judy says, Sit back and concentrate on these transactions one by one. The Uncle is not a related party, according to IRS definition. That is fortunate as it avoids other problems. Simply record a Notes Payable to the partnership for $100,000. At the time of this transaction, the amortization is irrelevant. So each partner then walks away with $50,000 each? Set up a "Loans to Partners" account (preferably 2 accts, one for each partner) for $50,000 each. At this point, neither partner has to pay tax because it is a loan. Going down the road, it becomes more complicated if these partners think the loan can sit on the books forever and them NEVER pay tax. This phenomenon is common and has consequences. There is a matter of imputed interest which affects the partners, and there can always be the IRS waiting in the wings to reclassify the loan as income if there are no characteristics that qualify as a loan. A loan has to be paid back, and if the borrower doesn't pay it back there are consequences. If you really want problems, just think of what happens if one partner pays back the loan and the other doesn't? Will this "uncle" stay uninvolved? If they can't pay the loan back, what makes anyone think they will be able to pay uncle back? There are personal problems with this whether there are problems in the books or not. Are you a preparer, or a bookkeeper, or just a friend trying to "help out"?

How do we really feel about turns and twists from Congress messing with tax preparation? Especially those which are retroactive to returns already filed months ago? CBSLee, one of our more knowledgeable members, is often the quickest to display the latest pronouncements. He has an aggressive view of these twists as the more of them that occur, the more service time and revenue is available to the tax prep industry. I don't think anyone can disagree, and I have to give credit for this positive viewpoint. What about the rest of us? Just in the last year we have seen all manner of special devices hammered thru the IRS - Stimulus payments, PPP loans, Payroll Tax Credits, Deferrals, etc. How do you feel when pmi is disallowed and then during March, Congress re-instates it?? After you have already filed a dozen returns that could have deducted it? What about suddenly allowing people to bail out of their RMDs after they've already received them this year? These are just a couple examples of retroactive changes - and actually these retroactive changes are just the tip of the iceberg. What about PPP loan forgiveness when tax laws disallow deductions paid from exempt income?? Not to mention the phone ringing off the hook from people who want you to apply for this & that benefit? The phone ringing off the hook from people who didn't receive their stimulus, even though you cannot really make the IRS issue them a check? This is 2020, and if you think 2021 will be "back to normal" - maybe we had best think again. Presidents and/or Congress (irrespective of party) will be tampering with the IRS and taxes now that it is known that the IRS and our industry can be jerked around. Not just this year - every year. If "back to normal" means a return to stability, my feeling is that you can watch that ship sail into the sunset. In particular, the appeal to politicians in an election year to tamper with the economy will not be something they will want to resist. Am I the only one who feels jerked around? Or am I too engrained in conservatism, so I can depend on a stable tax law for planning and preparation?

Thanks to Lion and Catherine - the link worked like a charm. I get so sick of Google trying to sell you products and misguiding your searches. I wonder if there is another reliable search engine.

Good question Catherine. The answer is she hasn't started payroll yet. And why my obvious crazy question? SS-4 application is not working. There is "instant" grant of a number supposedly, but this is only with the commercial pirates who want to charge a fee. Not even going to try to call IRS as long as this COVID gives them reason to stay home and still be paid. I may be hard-headed but when I do something online, the "pay-for-play" robbers are listed first for something that should be free and I will go to great lengths to avoid them.

Can an individual file a W-2 and a W-3 for an employee with simply a SS# instead of a Federal ID#??

Thank you Roberts for your response. I'm certain the trust instrument does not cover this, but I will ask to see nevertheless. Whatever total distribution is allocated will be a combination of income and return of capital (lowering of basis).

The best way to ask a question is to form an example. Addressing the example will tell me all I need to know. A trust receives $12,000 in cash, $5,000 of which is LTCG. The trust distributes $8000 to the beneficiaries, leaving $4000 in the trust. Which of the following would be correct (if any)? Trust reports $5,000 as LTCG income, and $8000 as a pass through deduction to the beneficiaries. The K-1s show $5000 in LTCG for the beneficiares. Trust reports $5,000 as LTCG income but only 2/3 of the proceeds were distributed. $3667 is reported as a beneficiary deduction, but the beneficiaries have only $3667 on their K-1s as LTCG (some 2/3 of the gain). The remaining $1333 is taxable to the trust as current LTCG income. Trust reports $5,000 as LTCG income and $1000 is reported as a beneficiary deduction. The trust kept $4000 of the money, so the K-1s for the beneficiaries report only $1000 LTCG and the trust is taxed on $4000 as current LTCG income. The entirety of this line of questioning depends on the ordering of beneficiary income - FIFO, LIFO, or (moving) average... Thanks in advance for your consideration and comments.

I've been told lawyers advise corporations to incorporate in Delaware. I've often wondered why. I don't see any tax advantages. Are there legal reasons??

Thanks for keeping us updated, CBS. But I'm weary of this whole circus. Wish the whole mess would just go away, or at the very least be settled and done with. Wish the virus would go away too.

Darlene - we've followed you on the forum from time to time and perceive you to be an excellent lady, and that has an enormous passdown from your mother. Take whatever time you need to help her through this portal. This will not be the same as losing friends and acquaintances - you will not get up after the friends have gone and get back to business-as-normal living. You never get over losing someone this close - the only ease comes with learning to live with it. One thing that makes this easier to accept is it follows the natural order of life - the way God intended it. Members here really care for each other. I'll think of you this fall when I travel to Superior WI.

Thanks Lion - I believe after thinking this through that you are quite correct. No taxable event, but basis is changed.

Thanks to MaxW and CBS for taking time to address this, but What circumstances (other than cash basis accounting) can force "constructive receipt?"

Looks like the passage from Christian above does in fact sink the ship. In the cases for self-employed individuals, NOL reduces the taxable income for the succeeding year, but not for the purposes of self-employment tax. For some self-employed taxpayers, their SE tax is greater than their income tax, especially if they have children. SE people often don't understand why their taxes are not reduced with an NOL.

A father-son partnership. Father transfers part-ownership of the entity to his son, and for the sake of simplicity, assume the amount is less than the gift tax threshold, maybe $14,000 would be a good amount for purposes of this discussion. Transfer is apparently tax-free for tax purposes. But how about basis? Rules for basis include additions for non-taxable "income" and subtractions for non-deductible "expenses". This is clear from the rules for basis. However, does the above calculation qualify to be included in the basis for both father and son?

I occasionally encounter "deferred revenue" from someone's balance sheet when trying to prepare their taxes. I understand the IRS has a convention called "constructive receipt" which can change this from a balance sheet to actual taxable revenue. What circumstances (other than cash basis accounting) can force "constructive receipt?"

Hi Burke, I can only confirm that FRV in the area they live is $54K, as utilities are included. They moved there 7-8 years ago, and housing prices have tripled. Unless you lived close to a metropolitan area as explosive as Nashville, you would find this hard to believe. A relative of mine sold a house in Nashville 8 years ago for $139,000, and the same house sold six months ago for $400,000. And this was not in an exclusive area like the minister above, this was middle-income neighborhood. Nashville is now the largest city in the state, and I never thought I would live long enough to see it overtake Memphis. If "actual" is entered for less, the difference becomes taxable wages, with no break on the SE tax, since the church has not withheld any FICA.

Thanks for all responses. To my friend Margaret in OH, this "children minister" is married to a high income earner. And their FMV rental value where they live is triple what was only 7-8 years ago. I have chosen not to include the OIH, in part because of the responses on this forum. Practically speaking, very few of the OIH deductions I have seen actually meet all four of the criteria listed in the discussion. Meeting customers becomes eligible only with stretches of the imagination. I generally shut off the OIH if the taxpayer has an office somewhere else, or else is simply not realistic. Should this W-2 have been issued in this manner? I wouldn't have, had the church retained me to do it.

A minister has a W-2 for $53,000, all of which is designated as housing allowance. (FMV of rent in exclusive area of Nashville now approaches $5000 per month, and they live smack in the middle-of-it). There are zeroes in all the wage and withholding section, minister pays own self-employment tax. The church, with knowledgeable CPA members, has issued the W-2 without influence from the preparer (me). A paltry amount of Sch C revenue exists, as this is a children's minister. Expenses far outstrip revenue on Sch C. For SE purposes, this expenses are considerably prorated downward. Minister has a dedicated office-in-home for classroom preparation and library. Can the expenses of the OIH be applied as a deduction for SE tax? It cannot be a deduction for Sch C since it would create a loss...

Illegitimas, I'm wondering about this. Would this apply to corporations who are an entity to themselves? What about a sole proprietorship or an SMLLC where there is nobody but the owner?

CBSlee you raise an interesting question. For many companies, they have intended to maintain FTEs throughout the 8 week period. Does your comment mean they will now have to maintain FTEs through the 24-week period??

I believe the passage of 24-week recovery will not help many companies. The very mention seduces the imagination to think that the amount of forgiveness is tripled. Not so. If a company borrows $200,000 and during the first 8 weeks incurs expenses which will qualify for $175,000 in forgiveness. There is only $25,000 left, and at the rate of spending, it will be used up in another couple weeks. The only companies which will be helped by an extension to 24 weeks are those companies who will need the extra time to accumulate enough expenses to forgive their total loan.

I am using Loans Payable as a credit, but will debit a "contra" account to Loans Payable with a debit balance when PPP loan forgiveness is applied. When forgiveness comes, I don't believe this should be "revenue". Too many reporting issues depend on revenue being reported without the clutter. I believe it should be a reduction in expenses. That leaves yet another unanswered question - "which" expense? I don't have a good answer, but I will be allocating the forgiveness amongst all the costs that give rise to the forgiveness. Forgiveness will turn the P&L for most companies from a loss to a profit. I haven't heard whether this "profit" will be taxable or not. You would think it would be taxable, but the personal stimulus payments are NOT.

Not loan forgiveness, but directly related. We are now closer to July, and the filing of 941s. Asked this before and members were hesitant to answer because the landscape was continually changing. The credit is 50% of "qualified" wages. What do they mean by "qualified" wages?? It is even now more important because I am told a PPP loan no longer disqualifies you from the 941 credit.

Thanks to all for the discussion. I finally chose one this morning and paid for it. It was one of those suggested by the collective members of this forum. Regards, Edsel.