Edsel

I would discuss creating a payroll situation going forward into 2020, and let 2019 go as it is. Trying to shoe-horn another W-2 into already-filed 2019 invites a train wreck. Why does he want a W-2 for 2019? Does he want "earned income" so he can contribute to an IRA or SEP? If so, consider issuing a late 1099 for non-employee compensation.

Kansas Karla - Your mind is trying to run everything together...like Judy says, Sit back and concentrate on these transactions one by one. The Uncle is not a related party, according to IRS definition. That is fortunate as it avoids other problems. Simply record a Notes Payable to the partnership for $100,000. At the time of this transaction, the amortization is irrelevant. So each partner then walks away with $50,000 each? Set up a "Loans to Partners" account (preferably 2 accts, one for each partner) for $50,000 each. At this point, neither partner has to pay tax because it is a loan. Going down the road, it becomes more complicated if these partners think the loan can sit on the books forever and them NEVER pay tax. This phenomenon is common and has consequences. There is a matter of imputed interest which affects the partners, and there can always be the IRS waiting in the wings to reclassify the loan as income if there are no characteristics that qualify as a loan. A loan has to be paid back, and if the borrower doesn't pay it back there are consequences. If you really want problems, just think of what happens if one partner pays back the loan and the other doesn't? Will this "uncle" stay uninvolved? If they can't pay the loan back, what makes anyone think they will be able to pay uncle back? There are personal problems with this whether there are problems in the books or not. Are you a preparer, or a bookkeeper, or just a friend trying to "help out"?

How do we really feel about turns and twists from Congress messing with tax preparation? Especially those which are retroactive to returns already filed months ago? CBSLee, one of our more knowledgeable members, is often the quickest to display the latest pronouncements. He has an aggressive view of these twists as the more of them that occur, the more service time and revenue is available to the tax prep industry. I don't think anyone can disagree, and I have to give credit for this positive viewpoint. What about the rest of us? Just in the last year we have seen all manner of special devices hammered thru the IRS - Stimulus payments, PPP loans, Payroll Tax Credits, Deferrals, etc. How do you feel when pmi is disallowed and then during March, Congress re-instates it?? After you have already filed a dozen returns that could have deducted it? What about suddenly allowing people to bail out of their RMDs after they've already received them this year? These are just a couple examples of retroactive changes - and actually these retroactive changes are just the tip of the iceberg. What about PPP loan forgiveness when tax laws disallow deductions paid from exempt income?? Not to mention the phone ringing off the hook from people who want you to apply for this & that benefit? The phone ringing off the hook from people who didn't receive their stimulus, even though you cannot really make the IRS issue them a check? This is 2020, and if you think 2021 will be "back to normal" - maybe we had best think again. Presidents and/or Congress (irrespective of party) will be tampering with the IRS and taxes now that it is known that the IRS and our industry can be jerked around. Not just this year - every year. If "back to normal" means a return to stability, my feeling is that you can watch that ship sail into the sunset. In particular, the appeal to politicians in an election year to tamper with the economy will not be something they will want to resist. Am I the only one who feels jerked around? Or am I too engrained in conservatism, so I can depend on a stable tax law for planning and preparation?

Thanks to Lion and Catherine - the link worked like a charm. I get so sick of Google trying to sell you products and misguiding your searches. I wonder if there is another reliable search engine.

Good question Catherine. The answer is she hasn't started payroll yet. And why my obvious crazy question? SS-4 application is not working. There is "instant" grant of a number supposedly, but this is only with the commercial pirates who want to charge a fee. Not even going to try to call IRS as long as this COVID gives them reason to stay home and still be paid. I may be hard-headed but when I do something online, the "pay-for-play" robbers are listed first for something that should be free and I will go to great lengths to avoid them.

Can an individual file a W-2 and a W-3 for an employee with simply a SS# instead of a Federal ID#??

Thank you Roberts for your response. I'm certain the trust instrument does not cover this, but I will ask to see nevertheless. Whatever total distribution is allocated will be a combination of income and return of capital (lowering of basis).

The best way to ask a question is to form an example. Addressing the example will tell me all I need to know. A trust receives $12,000 in cash, $5,000 of which is LTCG. The trust distributes $8000 to the beneficiaries, leaving $4000 in the trust. Which of the following would be correct (if any)? Trust reports $5,000 as LTCG income, and $8000 as a pass through deduction to the beneficiaries. The K-1s show $5000 in LTCG for the beneficiares. Trust reports $5,000 as LTCG income but only 2/3 of the proceeds were distributed. $3667 is reported as a beneficiary deduction, but the beneficiaries have only $3667 on their K-1s as LTCG (some 2/3 of the gain). The remaining $1333 is taxable to the trust as current LTCG income. Trust reports $5,000 as LTCG income and $1000 is reported as a beneficiary deduction. The trust kept $4000 of the money, so the K-1s for the beneficiaries report only $1000 LTCG and the trust is taxed on $4000 as current LTCG income. The entirety of this line of questioning depends on the ordering of beneficiary income - FIFO, LIFO, or (moving) average... Thanks in advance for your consideration and comments.

I've been told lawyers advise corporations to incorporate in Delaware. I've often wondered why. I don't see any tax advantages. Are there legal reasons??

Thanks for keeping us updated, CBS. But I'm weary of this whole circus. Wish the whole mess would just go away, or at the very least be settled and done with. Wish the virus would go away too.

Darlene - we've followed you on the forum from time to time and perceive you to be an excellent lady, and that has an enormous passdown from your mother. Take whatever time you need to help her through this portal. This will not be the same as losing friends and acquaintances - you will not get up after the friends have gone and get back to business-as-normal living. You never get over losing someone this close - the only ease comes with learning to live with it. One thing that makes this easier to accept is it follows the natural order of life - the way God intended it. Members here really care for each other. I'll think of you this fall when I travel to Superior WI.

Thanks Lion - I believe after thinking this through that you are quite correct. No taxable event, but basis is changed.

Thanks to MaxW and CBS for taking time to address this, but What circumstances (other than cash basis accounting) can force "constructive receipt?"

Looks like the passage from Christian above does in fact sink the ship. In the cases for self-employed individuals, NOL reduces the taxable income for the succeeding year, but not for the purposes of self-employment tax. For some self-employed taxpayers, their SE tax is greater than their income tax, especially if they have children. SE people often don't understand why their taxes are not reduced with an NOL.

A father-son partnership. Father transfers part-ownership of the entity to his son, and for the sake of simplicity, assume the amount is less than the gift tax threshold, maybe $14,000 would be a good amount for purposes of this discussion. Transfer is apparently tax-free for tax purposes. But how about basis? Rules for basis include additions for non-taxable "income" and subtractions for non-deductible "expenses". This is clear from the rules for basis. However, does the above calculation qualify to be included in the basis for both father and son?