Edsel

Thanks Judy - and a great Holiday season for you. The change is from Accrual to Cash, and you've explained that this is not automatic. I'll know this without reading the 343 pages. My cohort promises there will not be a user fee. We'll see.

Medlin, the impact of this type of conversation is to point out how behind the times some people are (like probably me). I understand and appreciate that software is your living. And yes, some of us having been kicking and screaming since the '80s like Abby said. I use software to a degree probably years behind most folks. Software, like all industries, is subject to corporate indulgence at the guise of helping users. We are always pushed hard into the most recent and supposedly benign of products by software developers. A classic example is Microsoft Vista - the next "wave" of operating systems to suck up all users of previous systems. User hostile, and after a couple years of pathetic sales, Microsoft was going to pull the rug out from everyone - stop loading XP into new computers and FORCE users to buy Vista. How did this work? People simply stopped buying PCs. The general perception is Microsoft gave up on Vista, and trotted out another operating system. XP was so popular and so stable that support was only discontinued a few years ago. Add also the numerous software "upgrades" to help users run software packages more efficiently. More often than not, the users can't tell the difference except for the bombardment of advertisements from the software companies. Successful software companies often develop fantastic products - so popular that the entire market buys at every opportunity. However, when the market is saturated, these companies naturally try to improve on a product that is virtually so perfect that the public does not want to be pushed into something else. At this point the successful software company becomes a victim of its own success. Best wishes for your success, Medlin - you are a great contributor, and I wish you no bumps in the road. I am just not one to jump in to the latest siren song of just any software. "Be not the first on which the new is tried, nor the last to put the old aside."

Thanks, and I guess I might can find out. The link opens an IRS document 135 pages long, and references a 2012 Rev. Proc. for "automatic consent" items which is 343 pages long. I believe I'll let this cohort of mine go down the road and see what happens. I don't blame any reader for not answering the post, if that kind of knowledge is what's required. Thanks anyway - you are always helpful.

A cohort of mine says he can change the accounting method for one of my customers from accrual to cash. I told him to try, and he would be paid if successful. I hope he has better luck than I did last time I tried on one of my other clients. He says he can do it on a 3315 without paying a user fee. The relevant assets and liabilities for the year of 2018 calculate to net assets of $100,000. The grand total relevant assets and liabilities for all accumulated years calculate to net assets of $300,000. Question: Which of the two numbers above will have to be presented to the IRS as the effect of the change? I'm assuming the tax return for 2019 will need to be prepared under the new method because the IRS will take forever to approve or reject the change.

Lion, thanks for responding. I don't often disagree with you, but this time I believe the "Q" in "Qualified" refers to the nature of the income and not whether the deduction survives the hoops it must jump through. For example a loss doesn't qualify either but we are told we must roll it forward and offset similar income this year. Is there any recovery of "lost" QBI that can be added to 2019 QBI? "Lost" QBI could be any QBI which could not be used for any reason in 2018, such as lost because of taxable income, insufficient W-2 issuance, etc.

Wasn't much discussion about this in 2018 as it was the first year for QBI. But in CE seminars we're hearing more since there is a whole year under our belt. It appears the 2018 QBI situation can affect the 2019 QBI. It's almost like the QBI has a "basis" except negatives are allowed. Requiring ongoing calculations from year-to-year. We were told a 2018 loss on a QBI item now rolls forward into 2019 and reduces any eligible QBI for 2019. Question: Is there any recovery of "lost" QBI that can be added to 2019 QBI? "Lost" QBI could be any QBI which could not be used for any reason in 2018, such as lost because of taxable income.

Whether we like it or not, we are being drug kicking and screaming into the electronic age.

Incredible. Does this mean the Additional Medicare Tax on compensation and the Net Investment Tax are GONE?? If so, what is the effective date? From the old Hee Haw series: [(POOF!!! You were gone!)]

I understand from your response that the IRS will allow the loss but only if it is carried back. Used to be 3 years, but I believe for 2014 the only option was for 2 years. NOL is not large enough for there to be any remaining after rolling back to 2012. Furthermore, this was a SMLLC filing as a proprietorship, so the tax reduction in 2012 will apply to income tax only, and not to self-employment tax. Thanks for your response.

Filing returns for eight years prior taxes on a volatile income person. All returns older than 3 years will result in IRS disallowing refunds. After incomes in the six figures for 2010, 2011, and 2012, taxpayer ran into problems for a couple years, as creditors began to act on his overextended debt. In 2014 there was a net operating loss, and in 2015 his income was restored when he went out of business and went to work as an employee, again making in the six figures. My question: Can the 2014 loss roll into 2015? At the time, the loss could roll "back" into 2012 and 2013. His 2014 return has not yet been filed. Since the IRS can disallow a refund on a return that old, can they disallow the entire return? If so, they can disallow the NOL entirely. Thanks in advance - Edsel

I believe in this conversation, "personal property" attaches to business property which is not real property. Local tax authorities are very much interested in "personal" property and collect "personal property taxes" on business property as a separate billing from real estate taxes. Indeed, if it is personal non-business property is being sold (e.g. snowmobile), it should not even be reported on 4797, but if there is a gain (sale of snowmobile exceeds cost), I believe IRS wants profit reported on a Sch D. I haven't had any such reporting in a long time, but this can happen on an automobile.

Can't really answer the question as to what they allowed or why. Apparently it is Sch F. As I didn't prepare the return, my information can only come from their response to the 4506-T. The farm persisted for a couple more years that I will have to file, so I would like to deduct something if I can. There is book value left in undepreciated assets, and if the depreciation cannot be allowed, I'm wondering about a 4797 loss when the equipment is disposed. Thanks for your responses DANRVAN.

Drake assigns "unrecaptured s.1250 gain" to Schedule D and a ceiling of 25% There can be recapture of depreciation on certain items (such as personal property) which does become ordinary income.

The remainder of the post by jklcpa is very helpful, and ratifies per IRS pronouncements, the deductibility of various plans as SEHI.

The rock-ribbed, inpenetrable official interpretation would be the insurance policy has to be purchased in the name of the business itself. What's worse, I think they want it to be deducted as an "adjustment" rather than a business expense - the effect being the client has to pay self-employment tax rather than deducting as a business expense. Software companies have allowed a great deal of leeway on the official interpretation. Drake allows medicare deducted from SS checks to be designated as SEHI. Clearly, medicare is not "purchased" in the "name of the business." In fact, it is not purchased at all. I have been advised that Cobra qualifies, although it is not in the name of the business, but in the name of the prior employer. Simply put, I allow practically any kind of medical insurance to be deducted as SEHI, unless it is a second policy. As usual, I may hear howls of disagreement from purists, but I would need to be given clear-cut examples of disallowance from the IRS to stop. Sorry, Elrod, no pictures...

I'm new to the conversation, but depreciation recapture under section 1250 may need definition. It is my understanding that the only depreciation "recapture" for s. 1250 property is the depreciation that exceeds straight line. This is practically impossible unless there is the old ACRS depreciation which was in effect before 1988. The notion of "recapture" for s. 1250 should be replaced by some other nomenclature - perhaps "Unrecaptured section 1250 gain" or some such. Selling a building for $300,000 - Original Cost $200,000 - Depreciation $75,000, $5000 of which (somehow) is in excess of SL means: Capital Gain $100,000 eligible for Installment treatment Depreciation Recapture $5000 - ordinary income per 4797 and not eligible for installment treatment. Unrecaptured section 1250 gain $70,000 subject to capital gains (ceiling of 25%) and eligible for Installment treatment. This is my perception. Someone please correct me if I'm wrong.

I have posted before about a huge farm loss disallowed as a hobby. I don't have any heartburn about the disallowance. For some reason the IRS left a little bit of the huge loss (some $15K) as allowed, and I don't know why as I didn't prepare the return. However, in the year following the disallowance, there would have been $21K in depreciation. Is there anything that can be done with the depreciation or the assets to which it applies? The assets were not disposed for another 3 years.

Gail, thanks for confirming what I felt to be the case. If they cannot be business deductions, then they are personal. Tennessee sales taxes are on everything except certain things that lobbyists have been successful in exempting. Certainly not farmers except freight companies have been successful exempting fuel taxes on farm produce. The sacred exemptions include things like prescription drugs, newspapers, etc. I have hundreds of invoices that I can calculate sales tax on. Large purchases, so lots of money to justify the work.

This applies to returns prior to 2018. We all have older year returns, whether we like them or not. This guy is high income ($300,000 salary, for purposes of illustration). Goes out and buys a farm, takes s.179 on expensive farm equipment, then claims a loss of $250,000. His only revenue for selling cattle was $900. (By the way, I didn't prepare this suicide return, some other idiot did) You can guess what happened. Yes, a couple years later, IRS disallowed the farm loss as a hobby. So the next year, he had farm expenses but did not claim a farm loss. NOW THE QUESTION: For the year he did NOT claim the farm loss, he still had significant expenses. Can he claim the sales tax on these expenses as a Sch A deduction? My feeling as I write this is, Yes he can. Thanks in advance for responses.

I calculate my overhead costs (yes they are available because I have to do a Sch C on myself), and I measure how much they go up. Then I raise my rates by 2/3 of the percentage increase in overhead. Example: if they go up 6%, I'll raise by 4%. This may sound like I'm losing money, but so much of my overhead is fixed cost, so I will come out. One thing I added a few years ago was a flat fee of an additional $25 (over and above the cost of prep) for an EIC. This is cheap because the EIC usually results in many many $ if they qualify. But now I add $25 for ANY requirement to fill out an 8867. They keep expanding the reasons to file the 8867 so I may add even more. I've got a bad attitude about the 8867 format, because by any sane definition, it is an audit document.

Great responses, all. Thank you.

I will soon be engaged in a prior year tax return for a year that included bankruptcy. The general rule is debts cancelled under bankruptcy are not taxable. However, there are a few 1099-Cs issued by credit card companies, which under normal circumstances will result in the reporting of taxable income. Which, if any, are true: The govt will expect reporting of the debt cancellation as income even though taxpayer is bankrupt. The credit card companies can issue a 1099-C for that year if the specific debt is not listed with the debts covered with bankruptcy. Tax preparer should simply ignore the 1099-Cs I'm aware that even reportable as taxable, the taxpayer can always resort to Form 982 and claim insolvency. I just need to know how many hoops I'm going to have to jump through. Thanks in advance - Edsel

Thanks for responding Jeff, and welcome to our forum. I tend to agree with you, however, the economic reality still exists and falls upon the shareholders. But like yourself, there appear to be no logistics to report either on the flow-through or on the K-1s. I have noted that this topic received almost 100 views before you responded. Could have been several reasons - many have no answer as to how to report, or they may believe no reporting is proper (as yourself). There may have been a reluctance to enter GAAP discussions, but if we do our job correctly we must come to grips with some GAAP. As tax preparers we don't have to know as much GAAP as a CPA, but there are reporting requirements such as reporting balance sheets and M-1s, and our customers certainly can't be expected to do these things without us. There are people very much willing to help on our forum, as well as some great tax minds. I am not one of them.

At the risk of being much more ignorant than the sources of the previous two posts, I might suggest something that could be easy. If the harvest was sold in the same year as the year of death: Report farm income and expenses on a joint return as if the decedent were still alive. Easy. Yes, I know technically an estate was created but even the IRS would appreciate not having to fool with creating a pass-through entity which does nothing for revenue or taxes.

Can't think of a single reason why they wouldn't be income just as if they were Nonemployee Compensation. Lynn - sorry but I can't give you a straight answer. Financials are all messed up. For example, some 1099s have joint recipients.