SaraEA

I did one of these today. Spouse is a US citizen and husband lives in another country. Return was MFS, and I just marked the box that he was a nonresident alien. No problem with efile. UT has this box, and I'll bet the other softwares do too, you just have to look for it.

This must be a trust because I have the same issue in UT. The trustee must provide an EIN or SS# to efile. This is a requirement in some states but not the IRS, yet the software won't let you file without it. (Similar to how our state does not require ID like a driver license but we either have to provide it or mark the box that no ID was provided.) I have seen suggestions to use the trust EIN reported to look like a SS#, e.g., instead of 06-1234567, use 061-23-4567. Or paper file and let the trustee wait and wait and wait. Be sure to attach Form 8948 and lay the blame on him or her.

I would think that since the business closed in 2016 and your client retained the assets, they are now his or her personal assets. Sch D. No losses allowed, but gains will be taxed (of course).

The brokerage 1099s where all the person had was interest or dividends have been out for a while. Today I saw my first consolidated 1099s, which include stock sales etc. I noticed that adviser fees are not reported on all of them, likely because they are no longer deductible. Bet the advisors are happy about that.

The estate paid the expenses in 2018 so will deduct them in 2018. (Just like if you didn't pay the house taxes for two years and then paid them all at once, you would deduct them in the year paid, not the year incurred.) Taxes and legal fees and the like are deducted from estate income. Things like maintenance and utilities are also deducted from income, subject to the 2% AGI limitation (yes, estates still get that as far as I know). If the estate had no income, the whole thing is moot. When the estate closes it passes on "excess deductions on termination" (expenses it couldn't take because it had no income) to the beneficiaries, who can no longer use them on their Sch A misc deductions.

Client appointments are as usual, or maybe a bit lighter. Drop offs are down somewhat. I think one culprit is the brokerages. I have not seen a single consolidated 1099 from Wells Fargo, Schwab, TD, Fidelity, etc yet. I thought they had to mail them by Feb 15, but some got extensions until the end of Feb. Did they all get extra time this year?

Lynn is correct. When the estate return is marked final, the entire loss flows through to the beneficiaries. They can use it to offset cap gains on their personal returns and then up to $3k per year until used. What is lost with the TCJA is their ability to use estate expenses (attorney, probate, notice, tax prep fees etc). These used to flow through on the K1 and the beneficiaries could add them to their Sch A Misc 2% deductions. That category is now gone.

Anyone notice how the lines on the schedules correspond to the ole 1040? Like Lines 1-9 "reserved" and line 10 on Sch 1 is the same as the previous 1040. It makes me think the IRS doesn't believe the new rendition will last either, so they kept the former line numbers so they don't have to rewrite all the instructions when it reverts back.

It sounds like these might be capital expenses. If the estate sold the home, it will add them to basis, thereby decreasing the cap gain or increasing the cap loss passed through to the beneficiaries. The expenses are not lost.

When the TCJA was first drafted, the idea was to do away with most deductions and decrease the tax rates for everyone. This is what was done in the last major revision of the tax code in the 1980s. (Some folks still think they can deduct interest on credit cards.) In 2017, however, there was haste to get the thing done before the holidays to give the taxpayers "a great big Christmas present." The lobbyists came out in force and demanded that their particular favorite deduction be restored. Policymakers just put most deductions back in without going through the usual process of having each item analyzed for cost. Hence tax rates went down for many and the national deficit is skyrocketing. We all know the 2% misc category was rife with abuse (work clothing that is street wear, cell phones that are personal, gym memberships, you know them all). Yet there are some taxpayers who had legit expenses and got a big benefit--sales people whose employers give them 15 cents a mile, truckers, people with large financial advisor fees, etc. These groups did not have the highly paid lobbyists so they lost. If their prized deductions get restored, tax rates will have to go back up or the deficit will explode. I have advised my clients who do sales to implore their employers for raises. The employers likely got big tax breaks so might as well share them. What started out as a way to simplify the tax code has turned into a code so complex even we pros can't get our heads around it.

I wouldn't do anything because the IRS is pretty good of keeping track of what a taxpayer paid in. On my own return I have forgotten to enter an estimate or extension payment, and within a month or so after filing I have gotten a check in the mail. Same with clients who didn't remember if they paid their estimates. The check will come well before the X is processed (12-16 weeks in recent years!). If you must amend, don't do so until the original is processed as Terry suggested. The missed withholding amount likely won't come with the original refund but will soon be issued in a separate check.

We are used to blaming the US congress when they change the tax law in late December and IRS and the software programmers have to revamp everything. This time blame the state legislatures. They have been trying to assess how the new code will impact their revenues (an impossible task that those of us trying to assess how it will impact our own clients can't even get a handle on, and we're dealing with individuals, not a whole state population). Some states are decoupling with this or that provision, some are still hemming and hawing (see another thread about VA still figuring it out). Once each state passes their own law the programmers have to try to make the software follow it, and bear in mind that there are over 40 states they have to re-program. This time I wouldn't be so quick to blame the software companies. Tell your clients to call their state reps. The federal law was passed in Dec 2017 and they took this long to decide what to do.

There is no penalty on the taxable earnings portion of the withdrawal if you had some of the money count toward the AOC. In other words, you can't use $4k for the AOC AND have the earnings on that $4k be tax-free if the funds came from the 529. However, since there is a 10% penalty on withdrawals not used for qualified education expenses, you can waive the penalty if the only reason the withdrawal was more than the remaining expenses is that you had to deduct $4k to use for the AOC. In your client's case, $10,754 qualified ed expenses - $4k for the AOC, leaves the earnings on $6754 eligible for tax-free treatment. That's 63% of the earnings will be tax-free. The rest will be subject to tax, but no penalty will apply. Of course, you can add books and room and board costs to the $6754 and increase that percentage.

If the child is a full-time student under the age of 24 and does not provide more than half of his support, he cannot claim himself, only the parents can. What you might be thinking of is a way to use education credits if the parents are over income. If they do not claim the child, he still can't claim himself but he can take the AOC (not the refundable part). Of course, then the parents miss out on the $500, and all he gets is to reduce his tax liability to zero. In this case, his tax liability is already zero (standard deduction is $4800 + 350, unless he has investment income), so there is no benefit to nobody claiming him.

There is another thread that covered this recently. The IRS has clarified that the businesses that depend on a person's reputation mean only famous people, like Oprah advertising Weight Watchers or Michael Jordan Nikes. This from KITCES: According to the proposed regulations, a business is only considered an SSTB by virtue of the “reputation or skill” provision if, and only if, it generates fees, compensation, or other income via one or more of the following: Endorsements of products or services; Use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbol associated with the individual’s identity; Appearances on radio, television, or other media. As a result of the IRS’s extremely narrow interpretation of the “reputation or skill” provision in the 199A regulations, the provision has gone from potentially being one of the primary culprits of classifying a business as an SSTB, to being fairly benign, and applicable only to an extremely limited number of “businesses” that are truly built around “celebrity” endorsements, appearances, and the like.

I have clients who had a fake return filed under their SS#s one year, got IP PINs the next year, and that return rejected because one had already been filed. Apparently that year this happened fairly often not because of a hack, but because the thieves knew enough about the taxpayers to answer the questions and get a new number. They must have been getting credit reports on the victims and therefore knew prior addresses, what bank had their mortgage, etc. The IRS temporarily shut down the online IP PIN website after enough of these events happened, so I'm wondering what is different now. That said, refund ID theft has diminished a lot thanks to the security summit, which shares info quickly, multiple arrests, and some of the secret data transmitted along with the efile like time spent on preparation. Ever leave a return open when you went home? I guess if it took 10 hours it won't sound any alarms.

Great explanations Eric. In other words, when Oprah endorses Weight Watchers or Michael Jordan trots out a new line of Nikes, they are being paid because they are Oprah and Jordan and thus are a specified service business. No one is going to pay you or me to do endorsements because we're not famous enough (although by the end of this tax season we may be infamous to our clients).

Christian, mark the 1041 both first and final return. If an estate has been open for more than two years, you have to attach an explanation. Here's your chance to explain why no prior returns were filed (below filing requirement and real estate took time to sell). What confuses me is that the estate sold the home but it was transferred to the sons? They should have sold it, but all the IRS knows is that the estate EIN has income so a 1041 is expected. It makes no difference since inherited basis is the same for sons and estate. If repairs/improvements were made, the costs add to the basis of whomever paid them. cbslee, an estate never gets a Sect 121 exclusion since an estate could not have lived in the house. Even the sons can't get it if they lived there because they didn't own it for 2 of the last 5 years. Or did they?

The land portion goes on Part I.

I have no faith that congress will agree on anything in the near future, so I'd go ahead and file. However, keep a list of clients who lose out on perks that might someday be retroactively extended (PMI, energy credits, tuition and fees adjustment etc). That way you'll know who to amend this summer. I wish we did that last year when sometime in Feb congress passed the extenders. We don't have an early season clientele and had only done 70-80 1040 returns, but we had to go back and look at every one to see if they were affected. Of course there were those who got corrected 1098s from their banks. Are the banks this year putting PMI on the 1098 just in case? Congress does just not realize or care about all the extra work they make for banks, IRS, and preparers when they can't get their act together before tax season.

Pacun, I read those statistics differently. Returns filed by paid preparers have stayed at around 60% for years. Long ago when I was at HRB they said it was about 64 or 65%, so not that much has been lost as TT and similar DIY software have grown. Those who turned to software were mainly former paper filers who did their own returns by hand, not people leaving their preparers to do it themselves. Now there are phone apps for tax prep, which might attract more younger people. That seems worse than sitting behind a shower curtain at Walmart. Do the apps come with "fat finger" warnings? Or warnings that Facebook and other media may be snooping on your phone?

Agree that young people may choose the DIY route, but I'm not that worried about the profession going extinct. For one, people are strapped for time so they are used to paying for a lot of services they could do themselves, like car washes and mowing the lawn. A lot of people fear the IRS and what will happen if they make a mistake, so they would never risk doing it themselves. More people are entering the gig economy or becoming consultants and will get lost in the rules. Way back when I worked for HRB, they said that big tax changes usually drove crowds in the door and they were right. Maybe after this year when people realize they will no longer itemize, some will shift to DIY. On the other hand, small business owners will come in flocks because they will never understand QBI and will trust that we do. (Please don't let on that we are just as confused as they are!) These people will stay too, and that is exactly the type of client we want. I do see estate work diminishing because of the higher exemptions, but many states still have Probate filings. Trusts will be around as long as the "free dinner" folk spread fear. Tax advice should be in hot demand too, particularly when new businesses choose an entity type. And when the new law sunsets, we'll start all over again. In our practice we are not concerned about losing clients because we do a lot of small businesses as well as professionals with complex situations. If some of the Sch A folks eventually leave, this is who will replace them. Maybe we all should plan on fewer clients but higher fees, which isn't so bad.

But you can use 3- 5- and 7-year assets that are fully depreciated for 10 years from the date of acquisition. Those of us who like to clean up our asset lists from time to time will wish we hadn't.

After the regs that were issued last Friday, it looks like many of us who took courses on 1099A will have to take them again. In addition to clarification of whether rentals qualify (covered in other threads), there is a big change in how we calculate QBID. Before we thought the deduction was the lower of 20% taxable income or 20% of net profit. Now net profit for this purpose is profit less adjustments calculated on the basis of profits (1/2 SE tax, SE health insurance, retirement contributions). For those who are single with no other income, there probably is no difference since the adjustments affected taxable income anyway. For those who have W2 wages or spouses with W2s, it may make a big difference.

Remember when the IRS used to do lifestyle audits? They could look at your income and see if it supported the kind of house you live in, the car you drive, the schools your children attend. These were stopped when it was determined that they were essentially invasions of privacy. Now they can do them only when they have reason to suspect a mismatch between income and expenses, e.g., you make $28k and have $20k in mortgage interest, or drive to the audit in a $90k car on your $28k income. If you are under audit they can always subpoena your bank and cc records, but not before you are placed under audit. This article suggests they will now pre-audit everyone. I would like to say I doubt it, or that a similar ruling that put the kibosh on the lifestyle audit will come around, but the explosion in AI makes me no so sure.