Edsel

More logistics. On Sch K-1, there is a calculation of basis in Section L. For the above, should the calculation show going into the negative by $6000? (This can only happen upon dissolution) Or should the distributions be lowered such that the basis does not go below zero? Either way, the taxpayer still has to report a capital gain.

At first glance, you say this "can't happen", as any losses below zero must be suspended until such time as basis can be restored to allow a loss. However, what if a partnership is dissolved, and a partner receives more cash than his basis. Example: Basis is $11,000 and Cash Received upon Dissolution is $17,000. I believe there is a $6000 capital gain, but I don't know the logistics of how to report it. 8949? Sch D? Proceeds of $17,000 and basis of $11,000???

Do you detect nearly the aggressive posture by the IRS against the taxpayers who violate HOH, EIC, false dependency as you detect this "due diligence" aggressive posture which claims they are not making auditors out of tax preparers? If the IRS would actually get off their butt and audit only 2-3 taxpayers in our county, that would be enough to scare the other perpetrators from selling their children's social security numbers on the black market.

Prior to the new tax law, "exemptions" referred to a taxpayer and spouse, whereas "dependents" referred to others, primarily children. The distinction had no difference in the math. Last year each was worth $4050 deduction toward taxable income. Now we are told neither of these are a deduction toward taxable income, but there are still "credits." Dependents who qualify get a child tax credit, increased to $2000, and a huge bump in phaseouts. Other "dependents" not eligible are entitled to a non-refundable credit of $500. My question: does the "non-eligible" dependents include the formerly-called "exemptions?" Example: Husband and Wife have two children who qualify under CTC. Are husband and wife classified as "non-eligible" dependents?

Bulldog Tom, and others in heavy taxed-to-death states. How many of your clients are going to get suckered in to this siren song of making "contributions" in lieu of taxes? I'm told a few states have been getting away with this in the last few years, and the IRS has not complained. The benefit to the taxpayer in prior years? I believe making contributions in lieu of taxes helped to avoid the tax add-back to the AMT. The above is a tiny trickle of water compared to the dam-break that is going to happen this year. California seems to have the idea that they can nullify whatever the federal govt decides to do. The plan in CA appears to fail on merit because a deductible contribution can only be allowed to the extent that no offsetting benefit is received. If the IRS enforces this, and millions of taxpayers do it, they are going to be busy. And need more resources. If it takes them multiple 60-day letters before cleaning up their mess, they will never be able to stop this. Remember the TurboTax crowd, already exempt from the ever-increasing audit form 8867, will not hesitate to deduct anything that resembles a charitable deduction. Gives engineers and computer geeks yet another reason to use TurboTax instead of using a competent preparer. Also these know-it-all people will not hesitate to deduct the full amount of interest on a 1098 instead of having to examine any non-deductible portion. The new law would have been better off not allowing itemized deductions at all.

I've had clients over the years owe money, and then smile and say "I don't let the govt use my money interest free!!". This statement is supposed to convince the listener that the client is some kind of investment genius and savvy economist. But if you put the tax return of this "genius" under a microscope you find out more. First I haven't had a single one of these geniuses report more than $10 in interest income, so they're obviously not bankrolling the tax they should have been paying. Secondly, they owe so much money on April 15th that it's obvious they should have been paying estimated payments. Thirdly, in most cases they can't seem to have enough cash to pay what they owe on April 15th and beg for an installment loan. I think those who claim to not let the govt use "my" money are indeed not interested in financial management, but instead invest in honking new trucks and Carribean vacations.

The amazing thing is the women that talked to you on the phone talked in a manner that this forlorn procedure was normal and commonplace. As if this is "business as usual" for the IRS. Tom, I can confirm that I've had similar experiences recently where it looks like things have crossed in the mail, and the client receives the second mailing instead of what should have been the first mailing. Doesn't match your situation exactly, but has resulted in continued demands for money already paid, prior to a later correspondence that the money has been received. Classic: I had to backfile a 2016 return last month because the IRS claimed they were holding off on the 2017 return because the taxpayer had never filed a 2016 return. My client found a letter almost a year ago acknowledging receipt of her 2016 return. Go figure...

Section 199A is a factor to be considered in the subject conversion. I need to ask, because the 20% reduction is passed through from an S corporation to the personal return just before the arrival at taxable income. So I will have to ask about the Section 199A for a C Corp because I simply don't know. Does a C Corp have the potential 20% reduction as well?

I couldn't agree more. The situation mentioned by Sara is typical of governments whose legislators are unaccountable for their titanic sloppiness, and enforce the fallout on citizenry while suffering no consequences themselves. However, history is loaded with infractions of ex post facto in tax law, especially on the Federal side. How many times in our own careers are retroactive provisions enacted by congress which date back to the first of the year? In particular are the 11th hour sessions around Christmastime which retroactively address the almost-expired current year back to January 1?? Fortunately, most of these 11th hour changes are benevolent to taxpayers. A Tax attorney once told me the IRS is able to use some device to escape the effectiveness of ex post facto, but he didn't elaborate and I didn't listen well.

It is common for military contractors to have taxability in every state where they have an active contract. I have a client operating in 14 states, who is a S corporation. The corporation has zero income tax liability because the taxable income is passed on to the shareholders. And the shareholders have to file in every state, unless the S Corp chooses to make composite payments at the highest possible rate to the various states. Given that SALT and other factors limit the deductibility of state income taxes paid by the shareholders, is this yet another reason to bail out of Subchapter S status and file as a C Corp? Given the low C Corp rate, and 15% usual limit on domestic dividends, the combined rate can now be less than 30% even if dividends are paid. In some cases this can be less than ordinary income taxation on individuals.

They all walk to work? What a co-incidence, right? It's a miracle!! Yes rule is utterly stupid, but it already is basking in the bright sunlight of day. In particular, non-religious people have been banging on tax-exempt status for 40 years in order to raise property taxes on churches. The same crowd is not as anxious to tax hospitals, schools, etc. I hope the constituency wakes up and bangs on congress to rescind this sneaky provision. I agree with others - apparently it was intentionally put in.

Good client owns rental property. FMV $130,000 Original Cost $80,000 with $35,000 depreciation. "Book" value thus $45,000. Wants to work out a 1031 exchange with the realtor for another property. It is important to state that he still owes $53,000 on the first property. Both properties will be rental properties. New property will be "purchased" (if you wish to call it that) with a FMV of $250,000, and he plans to borrow $150,000 on the new property. He believes: He will not have to pay $53,000 as boot on the first property because he is replacing that mortgage with a mortgage of greater amount. He is possibly concerned about $35,000 depreciation recapture. I don't believe he is correct. I believe the $53,000 is taxable as boot regardless of what he does with any future debt. Don't know about depreciation recapture in light of the new law. What is the latest on this proposed 1031 exchange?

Whereas I believe the govt is discriminating against states with high taxes, I really like the "cause and effect" argument posed by SaraEA. The harm HAS COME from the state governments themselves. The federal tax law is simply picking and choosing which states to subsidize. Over the weekend I listened to a radio show featuring an EA who had attended the IRS blowout in Las Vegas. [Funny how they dislike business travel deductions to tourist resorts such as Myrtle Beach, Orlando, Niagara Falls, etc. when it comes to themselves they really love to go to Vegas] Apparently there has been a lot of noise from constituents getting hit hard because of job expenses and the loss of the 2% category, and the general feeling is further tax relief is to come for this group. Every group of "lobbyists who come out in force" to champion a favorite deduction also increases the deficit.

No clue from me Mr. Yardley. Can't imagine any scenario where Medicare wages would be less than taxable wages. I believe it to be a mistake. W-2 probably was issued from the gov't office in Indianapolis. Wouldn't be the first mistake.

Not with my esteemed colleagues Jack and Catherine this time. I would agree that the very states involved are those with ridiculously high taxes with fat governments, but that is the very core of the issue. I would be happier if the new law denied the deduction for any taxes whatsoever than to ostensibly single out some states. Constitutional law notwithstanding, I'm sure nothing in the constitution allowed for picking and choosing which states to favor or disfavor with regard to treatment. I ought to be happy as a pig in slop. My state has no income tax. And I dislike governments in those states who delight in high taxes and fat governments determined to live off the public largesse. But fair is fair. Socially speaking, the even bigger losers in the new law are charities. One thing I've noticed consistently during my career: The govt has declared war on itemized deductions for 30+ years. The standard deduction has moved upward with the cost of living, and numerous times the standard deduction has been legislated upward by leaps and bounds. Add that to the number of deductions that have been disallowed (personal interest and ALL taxes prior to 1987, plus the fact that the 2% haircut was unheard of before 1986 code). I would estimate in 1980 that 85% of all taxpayers itemized, and the latest projections for 2018 indicate only 8% of taxpayers will itemize. And the future of itemized deductions? I am told by some that the $24,000 std deduction will NOT increase with inflation, and that after 2023 the std deduction will revert back to 2017 levels. I'm sure the writers of this law had a certainly that between now and then, congress will not leave the situation alone. And they won't.

Thanks to all - I will cease on the subject. Roberts, they should not be subject to SE tax - this is the very thing I seek to avoid.

Hi Jack - good to hear from you. I understand most of the posts, but none of them have pointed me to the logistic answer: "How do I file?" "The person, in this scenario, will file as a sole proprietor." That implies Sch C and self-employment tax. The LLC does not exist, thus allow the individual to use 6252, Sch B, and Sch D. Nowhere to enter the LLC or federal ID#. Since the LLC was assigned a Federal ID#, will not the IRS be expecting some sort of return?

I do not position myself against those who choose to go to the extra lengths to report correctly. For Gail and Pacun, this is every bit as admirable as it deserves. I simply open the door to expediency as an alternative when the difference is harmless. I can't tell you how many times I've been different by two cents when balancing a spreadsheet, and forced the difference into a nonessential line item to save time. The key word is "nonessential" since some line items cannot be compromised. Especially when I'm billing the customer for my time.

A customer showed me a letter from the IRS telling her that they were not going to assess a penalty for failure to deposit correctly because the rules for 941 deposits have changed in 2018. Has anyone else received such a letter?? The customer had seven payrolls in the first quarter of 2018. The tax deposits were made on the same days as the payroll was dispensed to the employees. Reading from the Pub 15, the client has three business days to make their deposit unless the liability is over $100,000. Clients' typical liability is between $4000-$5000. How did we mess up the 941 deposit? Is the IRS just plain wrong? (Won't be the first time).

There seems to be a consensus that an LLC does not necessarily invoke a Sch C, and I can understand that the design of a Sch E can easily accommodate reporting. However, the logistics of the current situation fall into confusion, as neither Sch C nor Sch E accommodate an LLC with no other income than installment sales (capital gains) and interest on loans. It is easy to apply the consensus and say that the reporting can be done on Form 6252, Sch D, and Sch B. I would love to do this and be done with it. However the LLC has a Federal ID #, and the gubbermint is expecting some kind of tax return to be identified. Reporting on Sch B and 6252 does not identify the LLC as anything. Judy was headed to a perilous revelation: namely that an LLC should be some sort of business, and if the IRS were to wrap its arm around the situation, they could determine that the practice of making loans is an operational pursuit and not an investment. If this happens, [poof!!] there goes preferential capital gain treatment down the toilet, and all such income becomes SE taxable. For the record, there is no question that these loans are an investment, because both spouses are employed full-time, and the portfolio of loans has been slowly building over several years.

Thanks to all. Found a browser that worked. Edsel (Quality automobiles from 1957 to 1959).

Bulldog Tom - great to meet you at Rita's gath'rin. You have been conspicuously absent. Did you quietly end up in the wildflowers on Rita's back 40 with the other huggies?

Thanks Lion. But this form does not "fill in."

Every time the IRS redesigns its website, I have a problem finding stuff. Today I'm looking for a fill-in version of the 941. I'm assuming it is a fillable .pdf format as it has been in the past. Can anyone tell me where to find a fill-in 941 and other fill-in forms? Thanks in advance - Edsel

The worst thing about the W-4 is yet to come next spring when taxpayers discover they have been underwithheld for 2018. We will be flooded with questions from clients who will expect us to solve their tax problems by asking us to fill out this new monstrosity W-4 for them. And then once we do that, the clients will blame us if the thing backfires. The new W-4 is a typical government solution which doesn't solve anything but adds layers of confusion. My solution to withholding is the same as it has been for the last several years. Figure out how much shortage has been incurred, leave marital status & exemptions alone, and simply add the shortage (divided by periodicity of payroll) to the line that says "Additional withholding per pay period." Some few of my clients have already tapped into the problem and have approached me. For the time being, I have asked them to restore their pre-reduction withholding by using the "additional" line.