jainen

>>those are two different numbers<< One might expect a basic term like "taxable income" would have a specific meaning on the tax return, but in fact it depends on the context. For example, the IRS has a whole book called Publication 525 Taxable and Nontaxable Income. That's not a reference to Form 1040 Line 43. It means that all income is subject to tax unless exempted by law. So I think what Form 3439 needs is indeed Adjusted Gross Income. Of course that is not defined consistently either. Muni bond interest is nontaxable but counts for whether Social Security is taxable. Capital gain is taxable even when the tax rate is zero, but nontaxable when a capital loss is carried forward from a prior year. While business income is still taxable when a loss is carried forward, but nontaxable when the loss occurs in the same year. Then there's those odd "adjustments" that reduce AGI. Some taxpayers can deduct insurance premiums there, and others can't. Good luck!

>>so are you saying when a construction worker goes out of town job for 6 months and lives in a RV there is no deductible expenses related to that?<< I am not saying that because I don't see anything about that in the original post. The question is whether a corporation can deduct housing provided to an owner/employee.

>>"for production of taxable income" which this IRA definitely IS<< No it isn't. The IRA is simply an inherited asset like any other bank account. Future distributions from the IRA may be taxable, but that's not what the legal fees were for. By the way, were the legal fees even itemized?

>>whether the RV is even depreciable because they are living in it<< It's personal use; he can't deduct it. If he fusses, tell him the corporation will have to show taxable fringe benefits on the W-2.

>>I'm wondering if I can help him<< I think you should lend the poor guy $300 so he can open a bank account.

>>IRS will not deposit a refund in a foreign account.<< According to the Instructions for Form 1040 Line 74, it's only "in the United States." I think you need a routing transit number and foreign banks aren't in the Federal Reserve System. Your local bank could arrange a transfer.

>>are all of her expenses really business expenses?<< Looks to me like NONE of her expenses are business expenses because there isn't any business activity. Just a sadly dwindling social life (probably reflecting her efforts to push overpriced gunk on her friends).

>>SHE wants to stick it to him and file as single/HOH and claim the kids because doing so would get her a large refund (EIC)<< By the way, HE has a perfect right to claim the qualifying children himself. That will force an audit, which he will lose under the tiebreaker rules. But it will also expose her fraudulent HoH filing which might trigger a 10-year EIC sanction! And using the kids for tax fraud can be an issue in determining custody.

>>What I need to explain to her is that even IF she was able to file as single, she might get a small EIC based on her income ($9,000), but would not get dependency exemptions and HOH because he (with $85,000 income and living with kids until October) would have provided more than 1/2 of the support for kids and keeping up the home which is in his name. I was hoping is to avoid the above conversation entirely<< Avoid the above conversation entirely. For one thing, it is irrelevant because she CAN'T file as single or HoH so she can't get EIC. (She could claim the exemptions since the children lived with her longer,) As soon as she said she wants to stick it to him, you should have ended the engagement with her. Or him, if you prefer. If the lawyers negotiate for a joint return, fine. Otherwise pick your side because you can't do both. And if he is your client you can NOT tell her how much his income is, or anything else. On the other hand, if she is your client it may NOT be in her best interest to be taxed at 25% with no additional deductions, compared to 10% with at least some deductions. So let the lawyers do the heavy lifting. My guess is (now that she knows the six month rule) she will go to a different preparer anyway.

>>they obtained a legal separation. The was not finalized until later in 2013<< This is an inconsistent and unlikely scenario. Legal separation is rare because no-fault divorce is so easy these days. Generally courts only order separate maintenance when divorce is prohibited by religious beliefs. It sounds to me like they had a normal trial separation under an interlocutory decree. Easy enough to determine one way or the other, though--what does the court order actually say?

>>she says it is to try to get more parties and sales<< That may be a business GOAL, but it is not a business PLAN. Even as a goal, it totally lacks a profit motive. Stop using the misleading term "hobby" and show her what Pub 535 says about the subject. Also assure her that continuing to claim losses is more likely to attract IRS scrutiny than not continuing to claim losses.

>>all other things being equal, motive would be my deciding factor<< But those other things are NOT equal. They are more important, because Reg Section 1.183-2(b ) says so. If you want to drill down to one simple question, it would be whether there is a bona fide business plan, updated annually. Motive is pretty much irrelevant in terms of the law, especially compared to what she actually does.

>>no will .. just surviving spouse inheriting all property<< That could only happen with property held in joint tenancy or tenancy by the entirety. Therefore only half the property gets a stepped-up basis.

>>I am thinking that she inherited the "business"<< Yes, but why do you think that? Her name was not on the "property," but do you know she was not a partner or joint owner anyway? Was her name, for example, on the land? Was it an LLC? If not, what made her the heir? A will or probate? A trust? Did she at least tell you she had inherited it? Like, you know, facts.

>>I am thinking she inherited the farm<< Why are you thinking that?

>>Anyone who prices the same services I provide for less money prove that they know what their services are worth.<< Price is not the same as profit. Small tax offices can be horribly inefficient. For example, many of the discussions on this forum suggest that the tax preparer is doing everything including efiling and billing. But hey, seasonal clerical workers are cheap! One or two might allow an office to double its volume, which in turn would make more powerful software and hardware affordable. (Of course, there's an opposite risk in getting too big supporting a corporate administration.) Anyway, don't deceive yourself that a lower price means inferior service.

>>expense of purchase of truck on line 36<< I don't think he can deduct acquisition costs on line 36. Insurance, license and legal fees, repairs--costs related to producing taxable income go there. Since it is not used in business, the only way to recover his basis is when sold.

>>not sure if she can sign for his 1040 return as trustee<< See Pub 559 for how to handle the final return. She can still sign if otherwise qualified, but you have to reprint the return first.

>>Yes, there was AMT<< Okay, then! I guess that answers the original question--he took itemized deductions because those were the only deductions he could take. (And he's not worried about creditors anymore because he left town and even his accountant doesn't know where!)

>>she "knows" that she can write off her mileage<< Then she knows about keeping a mileage log, right? And, of course, she'll want to show you her tip log as well!

>>Is there something I am overlooking<< Apparently. Did you read the instructions? It says state tax, and Pub 17 explains that further. "You may want to do this if, for example, the tax benefit of itemizing your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction." Another obvious possibility with $300,000 income is that AMT takes away the standard deduction anyway. There may be non-tax reasons as well, such as qualifying for loans or grants in some way, or estate planning. It seems this couple is going through a financial upheaval, and the IRS is a nice solid place to stash a few thousand dollars; they can amend later after the creditors are gone. By the way, why are they switching accountants?

>>Is there ever any reason why it would be better to take a lower amount from schedule A instead of the standard?<< Must be--it's an election you can make right on Schedule A. See the instructions for line 30.

>>one software that hopefully i can keep for a very long time<< Lacerte, then. I wouldn't give anything else 25% chance of surviving more than five years. (Well, maybe Drake--they don't seem to care whether they make money or not.)

>>the IRA Plan advisor told him they had plenty taken out from the traditional and not to worry about [the inherited IRA].<< Quickfinder points to an IRS Q&A in Reg 1.408-8. "Only amounts in IRAs that an individual holds as the IRA owner may be aggregated. However, amounts in IRAs that an individual holds as a beneficiary of the same decedent and which are being distributed under the life expectancy rule in section 401(a)(9)(B )(iii) or (iv) may be aggregated, but such amounts may not be aggregated with amounts held in IRAs that the individual holds as the IRA owner or as the beneficiary of another decedent." I would tell the client that I am uncomfortable with the concept of "plenty." Ask the financial advisor to provide the specific dollar amounts that support his conclusion. So far I can only follow the count on the inherited distribution up to zero, but at least that's a concept I do understand.

>>her half of itemized deductions<< Not sure what this means--please explain.