Max W

I just thought I would try to clear up some misconceptions about the way the IRS works.

Yes, I agree, just needed confirmation.

Client is questioning whether or not the IPO lock up period has any effect on LTCG. My thought is that the one year period begins on the day client receives stock, whether able to dispose of it or not.

2016 was the last year the taxpayer filed and that return is not available. Actually the deal was on a handshake in 2016, he was being paid rent prior to that. The contract is dated Jan 1, 2017, so I am starting with that.

Thanks, Judy.

"Reliance on a tax pro, ignorance of the law, " That will work if the client is a truck driver, but not for a client that is an attorney.

That's a future CPA!

Thanks for the suggestion, Lion, but the contract doesn't help. I did a little googling and a seller financed sale is a Land Contract. A land contract gives equitable title to the buyer, which means the buyer can enjoy the use of the property. So, I would conclude that it is an installment sale and not a rental. I have never had this come up on a tax return before, but I remember that in the late 70's when interest rates were so high, it was about the only way to sell property.

Client owns a house in NC purchased in 2011. He rented it for a while, but had moved to CA and wanted to get rid of it. He made a deal, in 2015, with a RE company who offered to pay the mortgage and taxes for him and maintain the property. Client retains title until mortgage is paid and mortgage is still under his name. Whatever the RE Company pays each month I know is reportable income to the client. Would you handle it as an installment sale (no interest) or treat the payments as rental income and depreciate?

Of course I am logged in now, but I had a heck of a time doing it. I was unable to reach the login page but kept getting a web page and click a button and I would be sent an email from which I could confirm my email address, but after about 12 times, I never received the promised email that was to be sent to me. I had to delete all the cookies and then was able to reach the log in page. If I tried to log in as MAX W, I got the web page about the email confirmation. The Next time, I logged in as MAXW under NEW and that worked, but had to use a different email address. I would like to reset the old user name, if possible. TY

These are the main operative rules for late S-corp election. (from IRS website) The entity has reasonable cause for its failure to make the election timely; The entity and all shareholders reported their income consistent with an S corporation election in effect for the year the election should have been made and all subsequent years; and Less than 3 years and 75 days have passed since the effective date of the election The entity timely filed all required federal tax returns consistent with its requested classification as an S corporation. I wonder if the IRS will even process 2014 and 2015 returns as the IRS only looks back 6 years. We had a client 10 years ago that wanted to file 4 late s-corps. We went ahead and the IRS allowed the last 2 years. The two older years were not allowed and the IRS reassessed those years as C-corps.

It looks like train of thought notes you made to yourself and transcribed them here. If they have already filed the LLC , why are you even asking these questions? I will make one comment here, LLC's are extremely overrated for providing protection and even more so SMLLC's. The veil of protection can be easily pierced. A small LLC will have to provide personal guarantees to get loans and a lot of vendors will also require personal guarantees. The best protection for a small business is good umbrella insurance.

Before anyone switches to a different software, they should get the trial version (can not print) which would be the prior years software. Would you buy a new car without test driving it? In the last 6 years, besides Drake, I have used Lacerte 3 times, Pro Series twice, Pro-System fx once. They all have their different ways of handling things such as depreciation and stock sales. Drake has it all over the others in these categories, although Lacerte is close. For Sch C, there are lnks right on the worksheet that take you to 8829, Depreciation, auto expenses One thing that hasn't been mentioned is that Drake has a forms option similar to ATX. Their price includes all types of tax returns and all states. There is nothing additional to buy. I think right now they have $400 off of their regular price of $1600 if it us purchased by May 31. For me the frosting on the cake is their customer service which is the fastest, not only for taxes, but for any other you might use. Most of the time the phone doesn't even ring when someone picks up the phone. You don't have to leave a message, or send an email and wait until you get an answer. You will get it right away.

Thanks, Lynn. I will look into it again.

hanks for the suggestion, but I can't justify the membership expense of NAEA and the California CSEA as well. The total of the two runs to $520/yr plus the local membership fee. As I said in the previous post, I use Encyro which has not only a secure upload link not requiring a password, but also provides for KBA esignatures for $120/yr. Once the client finishes signing and dating the form, Encyro automatically sends me an email advising me that the documents have been signed along with a link to access it.

I have Encyro and I didn't think it would take a long overseas phone number, but it will. I'm putting it on extension anyway, just incase it doesn't work.

I know the obvious answer is to have him sign 8879's and then email, fax, USPS to her. She signs and sends it back. Is there any other way? Could he sign in her absence.?

Maybe it was his barber. Which reminds of something that happened a long time ago. My Dad was an expert at handicapping horse races. He was so good that word got around and a wealthy customer of the company Dad worked for paid to have him wire (telegram) him picks whenever he had something good. This went on for several months and one day the customer's barber also gave him a tip. The man said to himself, that's curious that's the same tip my dad had sent him. What a coincidence! The next time he went for a haircut the same thing happened. He got another tip, same as the one my dad had sent. So, he asks the barber, where did you get the tip and the barber said, "Oh, the telegraph operator is a great horse picker. He's been giving out winning tips for two months now."

I am no s-corp guru, either, but the partner will be taxed on the earnings. If he doesn't want to take a distribution, it can be left in the company as retained/accumulated earnings.

I think the plan is to have the proceeds from the annuity used to pay for the insurance & LTC payments. Since an annuity only pays 4 or 5 %, the client would have to withdraw part of the principle and for that there would be a penalty, usually starting at 8 or 9% the first year and declining 1% each year after. I don't see how the insurance premiums could be funded for 10 years. Annuities are usually sold by insurance companies, so in this case not only is the sales person getting a commission for the annuity, they are getting commissions on the sale of the insurance policies. Anyone selling annuities has to be a licensed insurance agent. I certainly would not give out any advice on the purchase of the annuity and insurance, but you can point out possible red flags to lookout for and to do due diligence. I always preface my remarks with a caveat by saying that I do not give out insurance, or legal advice. However, I would give out advice on any tax aspects of the plan.

There is no free lunch. The tax was deferred on the contributions to the IRA and when the money us withdrawn, it becomes taxable. Also, annuities come with a lot of downsides, high commissions, early withdrawal penalty, no beneficiaries. The client should do some due diligence and not listen to an annuity sales persons, some of whom probably rank right up there with used car sellers.

It was incorrect returns. The K-1's, both as LLC and last year taxed as S-corp, all had losses assigned to her on the k-1's Box 1. Shouldn't the company been evaluated and her equity assigned in dollars? Then from what I understand that equity is taxable. The main problem in trying to get this corrected is that the person doing the books is a 10% owner.

Going back and looking at everything I found that the LLC made an election to file as an S-corp in 2020. I looked at the prior two years and found negative basis there, as well. The client started as an employee and then she was made a partner with a 10% share of profits and the following year 45%. So, it looks like she is a member/partner that shares in the profits (none so far) and has no investment in it. So, I would think that she just has a zero basis.

Let's take this one step further. Client used Turbotax and somehow he took both expenses AND mileage. Now he has been audited and the auditor says he elected to take expenses and depreciation. I am looking for a loophole that probably doesn't exist. But one never knows.

I guess that it explains it. I was concerned seeing the negative $55K. Drake software won't take a negative beginning balance, so I will have to attach the client's worksheet. A bit more of a hassle using Drake.