cientax

An Accountant from a small suburb came to my office today and asked me to help him with preparing the 1040 of a partner. I have always refused to prepare returns of partners with a K-1 but went ahead and accepted it anyway. This guy also has never dealt with a partnership K-1 but he took a crack shot at preparing their 1040, ( it has not been filed yet).

He used the Sch-E for the ordinary income and entered it on page one of the Sch-E then deducted some expenses that the partner incurred while working for the partnership and deducted these expenses on the Sch-E page one reducing the ordinary income. I know that the ordinary income does not go on the front of the Sch-E and he also didn't enter anywhere on the return Guaranteed Payments. I know that these incomes are subject to SE tax and he calculated the SE tax on the NET of the ordinary income from the Sch-E.

My question is not whether the income is subject to SE tax but my question concerns the expenses that the partner incurred working for the partnership. He told me that the partnership did not deduct these expenses on the 1065.

Are these expenses such as auto, advertising, cleaning/maintenance,insurance, management fees, repairs, supplies, cell phone that the partner incurred outside the partnership deducted on the Sch-A? Or was the partner required to report these expenses to the partnership?

Same client as in earlier post, (house flipper; buys, improves, builds and sells). He has a line of credit with the bank that he uses for purchasing materials for the houses. Is this considered investment interest and deducted using Form 4952 then to Sch-A or is it Sch-C deduction or is it to be included in COGS with materials? We have NOL and not sure if it is to be included on line 6 of the NOL worksheet "Nonbusiness Deductions".

Please advise on where to include this, For now we have it on Form 4952 and Sch-A as itemized deduction which will then be disallowed for the NOL. We really don't want a larger NOL. He is very productive in his business but with the economic slump and not many buyers, he has a loss for 2007. His inventory is actually what gives him a loss otherwise he would have a good gain.

Have a client that is house flipper, buys houses remodels them and sells them. He also builds houses and sells them. Some he will sell on installments and he carries the nots. This is his profession and we report the sales on Sch-C and carry inventory. We do not report these sales on Form 6252 since this is his business activity. My question is, is part of the payments that he receives monthly considered as interest income and reported as such or not? And if it is, is it reported on Sch-B or

Sch-C?

Client has IRS after him since he has not filed 2002. He has cancellation of debt in 2002 for $97,000 on 1099C. He has 1099A with FMV of $125,000. Doing the worksheet in the publication, it comes out that he has no taxable income from cancellation of debt, but the only worksheet I have is in the 2007 publication. Does anyone have the pub for 2002 with the worksheet. I know there is a new law for mortgage debt relief but it only applies to 2007, 2008, and 2009.

I have never written checks from my computer for payroll for any of my customers in the past but I have a new customer that wants me to print his payroll checks for his employees. I use Quick Books but I don't use the payroll option.

Any ideas what software might be good to use for printing payroll checks that is inexpensive. This employer only has about 10 employees.

I found a free download that I that is compatible with Quicken, QB, and MSMoney but I don't know that I trust it.

I have a client that lives in New Mexico, moved there from Texas early last year. She has investments such as stocks but nothing else and reinvests. investments are with a firm based in CA but Schwab issues the 1099B also located in CA. The firm she used for her 2006 tax return prepared and filed the California 540 NR along with her federal 1040. She did not live in CA for any part of 2006 or 2007. Is she required to file the California tax return? She does not own any property there and does not have any other transactions there other than the investments of stocks.

I'd strongly recommend that you consider getting XP Pro -- it's still available, you just have to ask for it. There are some serious compatibility problems with Vista, both in terms of old software (QB, for example, won't run pre-2007 versions on Vista, I've been told) and in terms of printer drivers and other peripherals.

So far as "downloading" QB to CD's -- for what purpose? Updates? Archive files? Transfer to other machines? Need to understand your query better before we can answer. Sometimes what one wants to do is so clear _internally_ that one doesn't notice that the question could be read about five different ways.... (Ask me how I know this! )

Catherine

Yes, I want to download to CD so that I can transfer to new computer. Or do I have to download to CD to make the transfer. I am illiterate when it comes to doing something this complicated. I plan on buying new computer either today or tomorrow because this one is about to die on me or I'm going to kill it but I need to move QB and all years 1999 - 2007 of ATX files over without losing any data.

Is it possible to download ALL files at once from QB to CD without having to download each file sepatately? Can someone guide me through this if it's possible? I need help ASAP

Also, are all ATX programs compatible with VISTA? I will be getting new computer in next few days and will be moving or trying to move all ATX progams from 1999 - 2007 to the new computer. Anyone have any advice on this issue because it would be greatly appreaciated. I think this computer is about to DIE or be killed.

Any suggestions on what operating system to use that would be compatible with the above mentioned programs would also be helpful and I am also thinking of dual monitors.

It appears to me that any tax that should have been paid for 2006 has now been paid. The shareholder paid income tax and SE tax on his 2006 return. The State of Texas received a franchise tax for 2006 for the non-active corporation.

If it were my client, I would document all of this information and make sure that the memo went into the permanent file. I would document how the client received bad advice from their prior professionals, that all the tax has been paid, and all income/expense has been reported, albeit on an incorrect form. I would review this information with the client, discuss with the client what could happen in the future regarding the mis-filings, and then I would put it all to bed.

I would then get my client into compliance for 2007, file the correct returns and move on.

This is what I would do.

Maribeth

Maribeth,

You made it sound so simple and logical and why I never looked at it the way you did I don't know, but it sounds good to me. Thanks.

On filling out the long form, line 15 wants Wages & Cash compensation. Does this include payments made to independent contractors which required a 1099? I know it doesn't include payments made to undocumented workers who are always paid in cash and are issued a 1099 in most cases.

Are there any takers that can help on this issue thi instructions aren't clear.

Just guessing, but were both children under 17? Was her total tax paid less than $600? If her tax was $453, and she got $300 each for the children, that would add up to $1053. I really have not studied stimulus payments and their interaction with EIC, etc enough to be sure of an answer to your question. You might try the IRS rebate calculator and FAQs for information.

You are exactly right, her tax was $453 and her twins Yuk and Puke are under 17. I didn't take time to get into the stimulus payment thing because most of my clients don't qualify and I didn't have many of those that qualify under the other rules for qualifying such as SS benefits, veterans pay etc that have no filing requirements. Thanks for your help.

Have a client that called me friday about her stimulus payment. She is single (divorced) with two dependents and we filed HOH for 2007. She owes no prior taxes or any other state or federal debts and she received her entire refund of about $7000 from the 2007 return. Her only income for 2007 was about $22,500 wages and no other income and does not itemized. The stimulus payment she received was an odd number. She received $1053 payment. How can the payment be calculated based on the above facts? Any one had this happen?

Okay . . . . if they were advised to continue on as a sole prorietorship for 2006 and they reported any income/expenses for 2006 on their Schedule C, then I would probably file an 1120 now for 2006, showing NO ACTIVITY on the face of page 1. Then start your books for 2007, showing the assets that are transferred in from the incorporators and recording your common stock. Your beginning balance sheet would be blank; your ending balance sheet would have your end of the year numbers.

Now, if they did issue stock for some consideration in 2006, then you would have those numbers on your beginning balance sheet.

Maribeth

I was actually going to assert that they were operating as sole prop for 2006 since they were told to report on sch-C for 2006 but, they filed the state franchise report in 2007 which is supposed to be based on the figures for 2006. The report was due May 30 2007 but wasn't filed until Sept 3 2007 but they could have had an extension for the report. Any suggestions as to how to proceed. Thanks.

The balances carryover from the C to the S. Remember that the balance sheet is based on accounting principles, not on tax principles. The only thing you have changed is the method of taxation for the corporation.

Maribeth

Actually I just found out a minute ago that the previous preparer did not file an 1120 for 2006 ant that they were told to continue to operate as sole prop during the entire year of 2006 even though they incorporated in march of 2006 and also found out they didn't keep any books. So does that mean I just start with zero begining balances on the balance sheet on the return? Their gross receipts were less than $10M so no M-3 is required. Please advise.

Have a new client that was C-Corp and changed to S-Corp last year. Question, do the balances from the 1120 balance sheet at end of 2006 carry to the begining balance on 1120S for 2007?

How can 2 separate entities file a sales tax report on the same form? Sounds like the so called partnership was just an extension of his first restaurant which is a sole proprietorship. Like everyone else has said, I wouldn't do ANYTHING until I saw the court papers.

This has really gotten to where it has p$$d me off with this client. Not only did I advise him not to do this, but just because he never calls in advance of coming in and never makes appointments and just shows up some times. I usually just work on an appointment schedule. But that they just brought in the receipts and invoices for the expenses for this second restaurant which I am considering of filing 1065 and not only because I think It should be reported on 1065 but the losses would to too large for the Sch-C if we were to report it there. I don't like showing losses on businesses because it makes ME look bad. I usually turn away new business clients that say that have losses before the paperwork is done. I don't know how the state comptrollers office allowed this to happen other than they just wanted the $500 bond. I'm not doing anything until he brings in the court docuements and any other revelent information. That's why I came here again to see if I could get some good advice from others which have helped tremdously. Thank you all for your input and please continue advising on this issue and thread.

Now if only I could get some help on the New Mexico Issue! Cause I'm lost there.

I'm still trying to figure out if a partnership ever existed (even an informal one), based on the info you've presented. I'm wondering of the other two parties actually loaned money to a sole proprietor, rather than having made an investment in a partnership.

I suggest that partly because you imply that a judge made some sort of decision against your client. It would seem to me that most courts would tell a partner that they just made a bad investment and aren't entitled to restitution unless they've been wronged i some manner, whereas they might be entitled to repayment of a loan.

Meanwhile, I'm sticking to my original suggestion that you do nothing until you see the documents. If there was a written agreement at the outset, you need to see it. If there was a court proceeding, you need to see what the judge decided and what was the basis for the decision. And after all is said & done, even the court decision might be right on the law but wrong with respect to the tax treatment.

Why is your client so reluctant to give you documentation that clearly exists? DOn;t mean to be critical of your client, but your experience with them thus far is beginning to explain why they had trouble with their "partners", "lenders", "employees" (or whatever the relationship with the other people was). If you try to do something from a tax standpoint before getting that info, you're just creating paper snowflakes.

One of my problems is having to go back and look at the sales tax reports that were filed with sales reported from both locations on the same form. The sales from both locations was reported on the same report for each month because the state allowed this to happen. I didn't agree with this, but this is the way the state wanted it reported for sales tax purposes even though this could have been considered a partnership instead of sole proprietorship. He operates his first location as sole prop because it's only he and his wife that operate the first location. My client still hasn't showed up with the court documents. I always tell him to call in advance of coming in but he never does. Once he called me when he showed up at my office only to find that I was on vacation in FLORIDA and I told him I wouldn't be in for another ten days, then he asked if could be at the office within 30 minutes and he'd wait for me. I live in TEXAS!

Have two clients in New Mexico that moved there from Texas last year in May.They each received trust income from Texas. According to the form insturctions PIT-B allocation and apportionment, it appears that all of the pass-through is taxable in New Mexico. The instructions read as follows:

"All income a pass-through entity or a trust allocates or apportions to New Mexico is taxable in New Mexico. Income from pass-through entities and trusts must be allocated or apportioned under the Uniform Division of Income for Tax Purposes Act. If the Pass-through entity or trust does not provide the necessary New Mexico apportionment percentages or infomration that allows calculation of a percentage, New Mexico presumes all distributive amounts from the pass-through entity or trust to be New Mexico-source income".

If it is all taxable in New Mexico, this means that my clients will owe a hell of a lot of state income tax. Probably just as much as Federal income tax. Guess they didn't consider state income tax when they moved there. They told me they moved once they got settle in there. They ignore my estimated tax payments and just pay at time returns are filed and don't worry about P&I.

Can someone from NM help me with this or shed some light on the issue Please. I'm from Texas and never come across this issue.

I tend to agree with KC, that you most likely have a partnership. Note that you do not need a partnership agreement to create a partnership. Uniform Partnership Act, which has been adopted by every State in some form or another becomes their partnership agreement and governing rules if they do not or choose not to draft one.

From what you have indicated in your fact pattern, they fall under this act and therefore must file a 1065. You should look at the agreement they wrotethough as it may change the fact pattern. I never trust clients to tell me what is in a document as they generally don't have a clue. Also agree that you need to see the Court Order, so you can see what theory they recovered under.

At this point it odes not look like you really have enough facts to make a decision.

I talked to my client yesterday and now he tells me there is no written agreement but says he has the court docuements and is bringing them in today, I hope. They had no employees at this site because the other couple were supposedly the waiter and waitress but did put in their 50% contributions in cash to start up. They did use the tax ID numbers from my client which the state allowed for sales tax purposes but he had to put up a $500 bond to do this. We now have to apply for a new EIN for partnership in order to file the 1065 which is no problem.

I just wanted some input on this because this is what I was thinking I had to do, file the 1065 instead reporting it all on Sch-C. Another question I had was, can my client deduct the attorney fees they paid in this situation? The attorney fees were very minimal. Also, if they abondoned the restaurant equipment that they bought, can they stilll deduct them? We're not looking a revengement here, just want to do what's right.

Clearly they did have a partnership, since the other couple was able to recover in court. That judgment must have been based on the partnership relationship. So I think you have to do a 1065, and the other couple's payments would properly be shown as GP from the partnership. Which may help your clients balance their losses a bit.

I think you need to see the court decision, as that should help you determine the relationship, as ruled on by the court. Which is a good basis for determining the 'partnership agreement', if it was not in writing. Which it did not have to be, to be valid and legal.

KC,

I have never filaed a 1065 or other return without a taxpayer identification number. There is no communication between the two couples and I'm certain that my client won't be able to acquire their ssn. What or how is the K-1 to be filed and issued in this case? Have never been in this situation!

Have a client that has had only one restaurant for past four years (husband and wife). They opened a second restaurant with another couple (husband & wife) without them telling me before going into business with them. Only after they started operating did they tell me. They did have some sort of written agreement but I never saw it. Once they told me that they opened their second restaurant and explained to me how they were operating, I told that that it was not going to work out. They didn't believe and continued on. Guess what, they were only open about four months then had to close. About two months into this second venture the other couple quit and demanded payments from the sales. Before they opened they had to buy all the equipment for the restaurant but when the restaurant closed they left all the equipment in the building since they had no place else to take and didn't try to sell it to recover some of the expense.

After the other couple quit they demanded payments from the sales. This was supposedly in the agreement. Again, I never saw the agreement. My client refused to pay them and they were then sued and they hired an attorney. They had to borrow the money to pay the other couple and are having to repay the loan (without interest). This all happened between August and November 2007. I just got MOST of the receipts and invoices for all of the expenses at the second restaurant yesterday. But still no agreement. This would have been reported on a 1065 but!!!!!

How and where would I deduct any of these expenses if deductible? Sch-C?

How much income is going to be reported? How much were his "draws"? Can he take the tax hit by showing no salary, and including the dividend "draws" into income?

When did he begin his business? Is it possible he did not start really begin the business in Fla until later in the year and can go with a fiscal year? If so, he could then make a payroll check out and pay back the loans from the corporation.

Is it possible that he can have a corp in FL and a sole proprietorship in Texas and report them separately and the corp loaned some money to the proprietor? There could be some notes executed that would include the interest that is to be paid as a balloon at the end of the 18-24 month term of the note.

Way to many questions, not enough info to really get a good answer. There are possibilities to minimize the taxes. It just takes a little working through.

Tom

Lodi, CA

He incorpateted in January 2007 and received payments in May and Auugst from the same contactor for work perform but never receiced a 1099MISC from this contractor, only a printout from their quicbooks progrm showing the payments made to him in 2007. The other company issued a 1099MISC with the corp name. We could probably use the income from the contactor that did not issue a 1099 as sole proprietor on Sch-C Form 1040 but his expenses would be minimal.

If we show it as losn to shareholder, where would we then show is repayments if there were none, and no contract to show that the corp loaned the sole prop the money?

I think I'll just crunch some numbers with both 1040 and 1120 and see what we can come up with to better suit the tax situation.

Thanks for the info.

If he was a sole proprietor before the Florida incorporation, you might consider ignoring the corporation for 2007 and file as a Schedule C. Then, with your expert advice, have him start using the corporation in 2008, paying a salary and filing payroll tax returns.

We told him to continue using his copr name and number for 2008 but he has 1099's from 2007 being reported on 1099's to the C-Corp and IRS. We also plan to file the 2553 for S-Corp election once this year is completed and filed if he comes back.

I have a Frikkin big raccoon in my attic and he/she is poopin all over and making a LOT of noise at night...I put a frikkin banana in the trap, but he just picked up the trap (instead of going inside it) and dumped out the frikkin banana and ate it.

I would send Lila the Giant Dog after it, but Lila The Giant Dog is a pacifist and does not do conflict.

Looks like I need to call a frikkin trapper

Either have your wife sit outside with hair rollers on her head to attract the coons outside then shoot them, (cause they love hair rollers, I know, we had one as a pet, but then you might become single againin prison unless you are a good shot), or inside the trap in a bowl give them minnows & crawdads, or build a chicken coop with real chickens that lay real eggs, or just burn down the house if nothing else works! Tax deduction for "Casualty"!!!!!

Have a potential client that is sole owner of small C-Corp roofing contractor. He incorporated because someone in Florida told him he should incorporate and he did while he was there temporarily. No one advised him of what all was involved with incorporating and never paid himself salary or wages, just took draws. He incorporated in January 2007 in Florida but lives in Texas (no issue there). The problem is that he never paid wages or salary and no employment taxes withheld or paid, and question is, where do we include his income from the C-Corp to the Form 1040? Would we show it as wages and have him pay employment taxes late, do we show it as dividends on 1040 and file 1099DIV with no employment taxes, or line for Other Income on 1040? He filled out the Form 2553 to elect S-Corp but never filed it with IRS, (we already checked with IRS).

On the Form 1120, I except to report the profits as Compensation of Officers on line 12 and Sch-E Form 1120 line 4.

This is is my second potential client in the same week with the same issue. Any help or suggestions please!!!!!

This won't happen again in the future as long as he is incorporated and meeting with someone with at least some knowledge.