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SaraEA

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About SaraEA

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  1. SaraEA

    Qualified Business Income Deduction

    In my earlier post I didn't want to detract from the main point that you can only deduct the lower of 20% of either taxable income or net profit. Taxable income for this purpose is what is shown on your tax return MINUS cap gains and qualified dividends, which already get preferential tax treatment. Even this simple step is not simple! What scares me about the complexity is that I, and I presume everyone on this board, am not comfortable entering numbers and "letting the software figure it out." Software is not perfect, and I want to be able to see that my data entry was accurate and flowed to wherever it was supposed to on the return and the result makes sense. There are so many moving parts to the QBI deduction that I'm not sure I will ever trust the numbers that the software spits out, and I sure won't have time or inclination to do them all by hand. UT had a worksheet in the projection software that showed the calculations which I think I can follow once I have more experience with it. Up until now I've had a reasonable amount of confidence that I knew what I was doing most of the time and could produce an accurate return. This coming season that confidence is diminished, and I don't like the feeling.
  2. SaraEA

    Qualified Business Income Deduction

    Anything to "clearly" explain the QBI deduction? HA HA HA! "It seems rather complex." Understatement of the century. "Simplifying" it? You jest! Clear and simple are not adjectives that will ever explain the QBI, and complex doesn't do it justice. I took a 4-hour course on it, learned more in an update seminar, and read a lot. The one clear takeaway I can offer is that almost no one will get to deduct 20% of their net profit. There is a limitation that applies to everyone: You can deduct the LOWER of 20% of your net profit or 20% of your TAXABLE income (ignoring here the other limits imposed by AGI or type of business). For taxpayers whose business is pretty much their only income, their taxable income is certain to be less than their profit. For example, you are self-employed as a tax professional and have $100k profit. You adjust that by one-half of SE tax, self-employed health insurance, and maybe contributions to a retirement plan, and then subtract your standard deduction. Your taxable income is now $50k. Your QBI deduction is limited to .2 X $50k = $10k, not the 20% $20k you were dreaming of. The only people I can imagine that will get the full 20% of net profit are those who have W2 jobs and a little side business.
  3. SaraEA

    1041 and k-1's

    I'm trying to understand this, so correct me if I'm wrong. The estate had $88k income and paid $36k tax. It did not distribute any income but paid the tax itself. The 1041 should show the $88k as taxable income and 0 income distribution deduction, which then leads to the tax bill of $36k. The following fiscal year the estate has no income and just distributes principal, no income distribution deduction (because there was no income) and nothing to report on the 1041 or K1s. Are you confusing income with distributions? The 1041 is an INCOME tax form. Try using a closing date for the estate on the date the income tax was paid. After that date there should be no income and thus no 1041 requirement. Why on earth did the executor choose for the estate to pay that obscene tax rate instead of distributing the income to the beneficiaries? Unless they were all in the 39.6 bracket?
  4. SaraEA

    Alimony

    There is still time for your client to approach the lawyer and say if the agreement is not signed in time, alimony will be reduced by whatever tax bracket applies because it will not longer be deductible. Spouse may even come out ahead if her bracket would have been higher if the alimony was declared as income so she gets to keep more of the reduced amount. Win-win?
  5. SaraEA

    State Tax Aggression

    Sorry, I was referring to the CT W-4P. You actually found a 1999 form? I can't even find current forms on their convoluted website! One thing noticeably missing from that website is any announcement that this change was being made. I am on their listserve too, and even that was silent. As usual, the calls from clients alerted us to this disaster.
  6. SaraEA

    State Tax Aggression

    To wit: This year CT, with no announcement, decided that every state resident who receives a pension will automatically have 6.99%withholding for state income tax unless they fill out a new W-4P. That rate normally applies to singles making $500+k and couples making $1m+. So now everyone who gets a $20k or $11k pension will give CT 6.99% and only get it back if they file a state return (or correctly fill out the form). We have had probably a few hundred calls from clients asking how to fill it out. I worry for those who don't make enough to file returns and have no one to call, so they throw the envelope from their pension place in the pile and soon see their small pensions diminished; they may not even know to file next year to get the confiscated funds refunded. The W-4P was also changed so that most folks can't understand it. It used to let you enter a code for the withholding table to use OR spaces to enter how much you want withheld, either a dollar amount or percentage. Now you can only enter a code (the form comes with four pages of instructions and a bunch of tables, like any nontax person can wade through that). I am convinced that the state made this move explicitly to extort funds from people who don't normally have to pay state income taxes or maybe just a little. Now the state is grabbing a lot and they will have to jump through hurdles to get it back. I am angry about all the time it took up to answer all those calls but even angrier about what they are doing to retirees, especially those who need every dollar they get just to live.
  7. SaraEA

    What would you do?

    We never buy lottery tickets, but we did buy ONE for each of the last two drawings. It was worth the six bucks because the dreaming was so much fun. Pay off the kids' mortgages, give one who's having a baby soon the option to quit work and stay home, see what the other one most wants, set one of their in-laws up for life in a continuing care community, build the other's in-laws their dream house, endow retirement and payroll plans for the staff of two local schools for children with emotional disorders so they can hire and keep the best workers, maybe build one or both a high school so they can serve older children. pay someone to clean my house every week, and of course hubby needs a car with a hemi and maybe a race car team. I cannot let down my loyal clients so will work at least one more tax season (did I just say that?) And first things first: Pay someone $50k or whatever it takes for their box seats in Boston to watch the Red Sox win!
  8. SaraEA

    Fraudulent 1040X - I'm speechless!

    I don't think IRS does direct deposit for amended returns. In fact, there isn't even a space to put bank information on the X. An ID thief would be looking for a refund of course, and an amended return won't get them one so stop worrying about ID theft. Perhaps a real person amended his/her return and wrote sloppy or mixed up their own SS number, and the IRS sent the letter to the person and address on record with that number (your client). A few years ago I efiled an extension and it went through just fine but when I filed the real return it rejected because one had already been filed. That one puzzled me. Do scammers really file after the deadline?
  9. SaraEA

    PTIN RENEWAL

    I think that H&R Block worked with IRS to establish the PTIN system. Many of their preparers, especially those in shady neighborhoods, were uncomfortable putting their SS#s on returns for all the world to see (and this was in the days before identity theft was as common as shoplifting). So don't feel bad if your number isn't ultra low--Block preparers probably got to register first. I did work at Block back then, and mine starts with 000, then a 4.
  10. SaraEA

    NT Storage

    Try electronic filing, it's wonderful! We use UltraTax for tax filings and store the returns, original tax docs, signatures etc in their electronic "file cabinet." We can also send what we prepare in ATX like 1099s and W2s to there, as well as correspondence, sales tax returns, notes, IRS letters, you name it. You can achieve the same thing by saving files prepared in the tax program to specific client files you create and scanning signature docs or whatever and saving them to there as well. It is so easy to sit at your desk and pull up the client files while they are on the phone. They need copies of their W2s for the last two years? Right there. You don't even have to print them, just fax or email right from your desk. And you don't have to dig out paper files, find what you want, and they put the files back in the right place in the physical file cabinet (we were never good at that part). The only paper files we keep now are Forms 2848 with original signatures. I also keep tax docs for estates because they are often reported for a calendar year and since most of my estate tax filings are for fiscal years, it is just easier to have the paperwork where I broke down what belongs to the decedent and what goes to the estate, and which fiscal year gets what. I highly recommend that you purchase or create some kind of electronic filing system that will work for you. This summer, hire a high school or college student to scan and file. Then call Shred It to come get the whole pile. PS. We will not be switching to ATX for tax this coming season as we had planned. There are so many changes in the tax code that it will overwhelm us and staff to learn a new program and the new law simultaneously. Also, there is a little more confidence that UT will be at least a little better at getting the new programming right. It better for the $18k it costs.
  11. SaraEA

    PTIN RENEWAL

    I am devastated that I wasn't considered special enough to get an invite to renew early! I passed the EA exam in one shot, renew my PTIN and license faithfully, take all the required CPEs and then some (including 2+ friggin' hours of ethics every friggin' year), have never gotten a letter that the returns I prepare are suspicious, am nice to IRS auditors, even defend the agency when clients blame them for everything (blame Congress, I say). In fact, I got my PTIN the very first year they were offered. I am a model, exemplary, legacy PTIN holder and tax professional, so why was I so unfairly overlooked? Daddy likes you more than he likes me! PS. I used to renew in Dec because I didn't want to pay early. I still do, so I would have deleted their early invite anyway. Sour grapes?
  12. SaraEA

    Land cost percentage

    The really late season filers are the most disorganized and are still feeding you missing info up to the last second. April 15 wasn't good enough, so if you tell them they have until Oct 15 they will wait until then. If you give them five more days, that's how long it will take them. They are the same people shopping on Christmas Eve I'm sure. You have to draw a line somewhere, and I would never ever allow them five more days. I have places to go and things to do, thank you. Like Abby, I had a client whose return was finished on Tuesday who told me today to reduce some of those business expenses (must have had a guilty conscience). As far as land-building values, I have found that the percentages the towns use don't change. If you have an assessment from 2010, it's likely the land and improvements have retained the same ratio. The accountant who used to own our practice used to use 20% for land--obviously a random number like Abby said. I guess it was the common practice 30 years ago. Things sure have changed when people will buy a home for $1m just to knock it down and build what they want on it. Guess you could say the land was worth $1m to them.
  13. SaraEA

    CA Question - filing requirement?

    When I get one of those prior preparer low-ball bills, I tell the client up front that my work will cost A LOT more than that. Most understand they were getting a really good deal but the party's over. I even have clients who did their own returns and never paid more than $70 for TT. When they ran into some messes and came to us, they didn't flinch at our $1000+ bills. In fact they were relieved and all have been loyal clients ever since. Do I have the BEST clients or what?
  14. SaraEA

    Conundrum (HOH/EIC)

    ILLMAS, are you saying the client told you your help was no longer needed and then returned because she changed her mind? You can ask the IRS for a reconsideration (they will give you a special address to use). On the other hand, are you sure there is no hanky panky going on here? EIC/HOH are areas ripe for fraud, and something made the IRS pull the return and deny the benefits. I think the landlord can give a letter that the mother and children lived in the apartment during 2015 if that is really the case. I wouldn't mess with this for anything and agree with the others that maybe the Taxpayer Advocate should take over.
  15. SaraEA

    Estate transfers rental Property to LLC

    The distribution of property does not affect the 1041. It's an accounting matter, while the 1041 covers income and expenses, not assets. The LLC will receive the original basis from the estate + any improvements the estate paid for - depreciation.
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