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G2R

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Posts posted by G2R

  1. 1120S Corporate return for 2021 showed a loss $20k. They didn't have the basis to take the full loss in 2021 so $15k was CF to 2022.  In 2022, they show a profit of $20k so the CF loss is fully used in 2022.

    Then they file and receive the ERC for 2021 and receive $12k.  ugh. Amending the 2021 1120S to include the ERC, doesn't change the SH personal return at all because the basis still limits the recognizable loss to $5k.  However, it does change their 2022 personal return because there was less CF loss to absorb the 20k profit.  

    image.png.d71e0dba407512df2c0080cfb985aa46.png

    I assume I have to

    • amend the 2021 1120S to reflect the ERC.
    • amend their 2022 personal return to reflect the CF loss adjustment. 

    Is there any need to amend the 2021 personal return to reflect the change in the 7203 CF info?

  2.  

    52 minutes ago, DANRVAN said:

    Those two statements do not line up.  

    6 minutes ago, cbslee said:

    Earlier you implied that the owner has been funding losses for decades. If so how would they be able to repay the $25,000?

    The first statement was referencing debt from shareholder that had supposedly grown through 2021, but no formal loan docs had ever been made.  Owner didn't know it was necessary. So, as of Jan 1 2022, all previous loans from shareholders to the company would be reclassified as APIC. 

    For 2022 books, the second statement referenced the possibility of open account debt as of Dec 31, 2022, that stays within the $25k limit.  2023 is looking rather profitable thus far so, he could pay off that debt by year end, not have the formal loan docs requirement and the reimbursements to him wouldn't be considered return of capital.  

     Just throwing the idea out there for opinions.  

  3. Thank you everyone for the advice and professional experience.  I really appreciate it.

    Curious thought.  The amount listed as loans from shareholders is way over the $25k open account limit. Is there any value in reclassifying all of the loan to shareholder to APIC except for $25k?  It will be paid off by end of this year.

  4. 50 minutes ago, Abby Normal said:

    Does the entity even have books? If not, I'd send them packing. Not worth the trouble.

    I've made it clear what I expect of them moving forward. They are more than willing to obliged it seems, they have just never had an accountant educate them on what is truly needed to have proper records. They want to do it right so I'm doing my best to get them on the right course. 

    • Like 5
  5. Same accountant for the last 20 years who didn't seem to mind all the comingling that was going on.  No more comingling going forward.

    The 7203 on last year's personal return shows shows zero beginning balance, a $50k contribution (client's know nothing about this so I think this was just plugged in there), and a small positive ending value so the IRS has an ending basis in their records already if they are actually tracking the 7203. Nothing listed in the Debt Basis even if the loan from shareholders was accurate. Not sure how to correct this either.  But based on the K-1s I have and all the comingling, they have been personally funding the losses for decades.   

    1 hour ago, jklcpa said:

    Have you seen the title, registration document, or insurance bill listing the vehicle?  Perhaps the prior accountant was creative and booked the vehicle and "loan from shareholder" was the balancing entry of the trade-in value of the personal vehicle and/or new vehicle's loan payments being paid personally.

    I confirmed, title of the car, insurance and license are definitely in the owner's name, not the business.  I do think your suggestion is exactly what happened.  Along with ALL the other expenses the owner paid for the business with personal funds. 

    1 hour ago, cbslee said:

    Can the client provide any financial statements or a trial balance for any of the years? What information did the client provide every year to whomever prepared the tax returns? Can the client go back to the prior tax preparer and obtain complete tax returns?

    No trial balance was ever done that I can find. Client provided a P&L only, that's what accountant used to prep the returns all 20 years. I have all 20 years of tax returns.  The M-2s match the balance sheet R/E for each year. The previous accountant is deceased.

    To move forward:

    • can/should I recategorize the loans to capital?  
    • how can I properly remove the vehicle from the books?  It's not even 100% used for business, though they only took the generic 50% usage and depreciation deduction in the years since purchase.   
  6. New client, 20 years in business as an S-corp. 

    • 2021 ending M-2 shows a large loss.
    • The one and only balance sheet I could find was the 2020 1120S which had a very large balance in "Loans from Shareholders."  Client knows nothing about any loans outstanding, so no loan documents.
    • They actually had all past K-1s. K-1s only list the income/losses each year.  No distributions were reported. Losses were all taken on the personal return each year.
    • No basis history was provided so I have to rebuild it as best I can.

    For me to get 2022 on the right path, would you simply reclassify the loan from shareholder to capital?  

    Also, there's a truck on the books that the company doesn't own, yet was depreciated the last two years. Do I get it off the books as if it was converted to personal use in 2022?  It was definitely used for the business, but no mileage logs were kept.   

  7. 13 minutes ago, BulldogTom said:

    It appears the prior preparer and you have a different number for the parent's taxable income.   I think the kid should be paying at 15% since his mom was in the 22% bracket (assuming she was HOH) and that would make the Cap Gains taxed at 15%.   I am pretty sure that is how that works.

    Tom
    Longview, TX

    The prior CPA filed both the mom and the kid's return last year.  I took the numbers I quoted above from the tax return he filed for mom.  Just trying to see if I'm missing something, or if it's an error on his part. I have to complete an 8615 for the kid this year and the previous CPAs 8615 has me second-guessing myself.  So here I am, asking the pros. 

  8. I'm trying to figure out what the previous CPA did.  17 year old son has unearned income, no wages and is claimed by mom.  Her taxable income last year was $80k.  Tax she owed was $5500.  Here's what the previous CPA's 8615 looks like. 

    Shouldn't the highlighted areas have the above amounts listed?  

    image.thumb.png.979ff0efb9f4b334de34b0828a2ad95e.png

     

  9. Family owns a rental property (2 brothers and sister) and transferred their rental property into an LLC, taxed as a partnership, mid year.  A few questions:

    1. Does the LLC basically steps into the shoes the partners wore prior and continue on the same depreciation schedule? If so, I'm struggling to make this work in ATX without overriding because the LLC transfer occurred mid-year.  The 1065 return wants to give them full year depreciation, but it should only show 1/2 year.  I'm tempted to just let it ride and take zero depreciation on the Sch E for the 1st 6 months before it became an LLC, assuming my assumption on procedure is right. 
    2. Are their any tax implications on the personal return?  They didn't sell the property.  It's all the same owners.  So I don't see why there would be but I just want to confirm.  Should I note the transfer somewhere on the return and/or in ATX so the IRS doesn't just see this large asset vanish without explanation?  
    3. When I build the balance sheet of the 1065, do I list the property and improvements at their original cost and accumulated depreciation taken thus far?  If yes, then I assume the capital accounts of the partners are the depreciated basis of the property right?  

    TIAFYH!

  10. 10 hours ago, Lion EA said:

    So, HI in Box 1 does NOT help an employee/shareholder meet RC, because no SS/Medicare is being paid on HI.

    It doesn't seem that there are specific regulations that state this one way or another, none that I have found at least. 

    As @cbslee stated, court cases have focused on the payment and/or avoidance of employment taxes so I wouldn't avoid the employment taxes entirely.  I'd expect many of these cases were primarily about compensation being too low and not about HI not being applicable to RC calculations. And as @mircpastated, having Medicare wages be at least equal to the SEHI to get the benefit of the deduction makes logical sense. 

    The way I see it, if you had solid proof that reasonable comp was say $80k for the industry and $10k of it was HI, it would be in the IRS's hands to prove their regs say the HI isn't includable in the RC calculation.  JMHO.

  11. 39 minutes ago, Lion EA said:

    Does the IRS compare RC to Box 1? Or, Box 5?

    I have clients that RC would compare well to Box 1 (HI) and wouldn't have to have any Box 3-5 income at all if it won't reflect poorly on their RC. They could take all the rest they need to live on as distributions.

    32 minutes ago, cbslee said:

    My understanding is that only wages subject to employment taxes are "reasonable compensation"

    I've always assumed it was box 1. Is there some place you've read that box 3-5 are the determining factor for reasonable comp? 

    The thread made me dig for more research and though I couldn't find anything that outright gave the answer, this article by the AICPA discusses it ambiguously, but admittedly, it's not a slam dunk.   

    The Wage Compensation for S Corporation Officers fact sheet from the IRS discusses reasonable salary and then mentions >2% Shareholder HI in the same sheet so it seems like they might be alluding to it being included, but if I've read too much into that, I'd definitely want to know. 

     

    image.thumb.png.f8827fa6582aa7d77e7bd1d8bbf142f7.png

     

  12. On 2/16/2023 at 1:56 PM, Lion EA said:

    However, the S-corp HI is pretty much a wash anyway. You add it to wages on W-2 and S-corp deducts, but shareholder/employee subtracts it above the line on the 1040 and doesn't have to use Sch A. (Was that law written when the % was less than 100% or something?) It always seems like going around in circles for no extra benefit to either!

    One benefit to including the health insurance amounts in the wages (as you're suppose to do anyways) is that is helps fulfil the reasonable compensation requirement.  With health insurance as high as it is, it's a nice chunk of the reasonable comp being covered and it's not subject to FICA.  WIN-WIN. 

    • Like 4
  13. Grantor trust sold rental property.  There's approx. $40k in unrecaptured 1250 gains.  I cannot figure out how to get ATX to push this gain to the 1041 Grantor Trust information.  Not sure if it has something to do with it, but ATX says I must delete the Sch D before I can efile.

    Since this is an information only return, should I just add the gain on the notes section of the 1041 Grantor Trust information sheet?

  14. Hello,

    I have to file a simple DC return this year for my one client that lives & works in DC. I've inputted the W-2 info into ATX and I notice the wages pushed to the D-40 is the federal wage amount, not the DC wages listed at the bottom of the W-2.  The instructions say to do this as well, I'm just curious how the DC wages on the W-2 were even calculated?  

    Also, ATX is saying I have to attached a copy of the federal return. I assume this is only for a paper, and that I don't have to separately attach a PDF of the federal return for the e-file.  Please confirm. 

    Thanks!

  15. 1 hour ago, MlauberCPA said:

    Form 7203 doesn’t have any input fields or am I not looking in the right place. ATX has the form but earlier in the year I had to complete it externally and upload a PDF. Is it now a functional form?  Need to know ASAP for 10/17 filing. Thanks 😊

    Input field is at the bottom of the K-1 input under the Basis Limitation section. It still needs to be attached as a PDF before efiling. 

  16. On 3/28/2019 at 7:23 PM, Abby Normal said:

    You will need more than one bulk sale because you can't mix 1245 and 1250 assets, and land has to be sold separately, so you'll need to allocate sales proceeds and selling costs.

    I'm reporting a sale like this now and just want to confirm my method.  I have created a spreadsheet that breaks down the 1250 vs. 1245 vs Land, further breaking them down into Long-Term and Short-Term assets. I then did bulk sales for each of these sub-asset accounts in ATX.

    I divvied out the Sale price and selling expenses based on the cost basis percentage.  ie if land cost was $20k and the building were $80k, land would get 20% of the sale price and selling expenses.  Building would get 80%. 

    Lastly the unamortized Refi Costs are immediately deducted on the Sch E current year activity.

    Here's what the 4797 look like:

    image.thumb.png.b1d08f283d0f26c980dc2c0b7080f97e.png

    image.png.604bf3cac1402b6120a8bf3954092280.png

    I think I've got this right, but ATX is a bit daunting it how it requires this data entry so I just want to double check my work.  Is this how ATX data entry should be done in this situation? 

  17. 19 hours ago, Catherine said:

    And this underscores how important it is to read the actual trust documents, because what we are told is often only loosely related to the truth. 

    I completely agree.  I apologize for leaving it out, but honestly, didn't even know what power of appointment was till it the lawyer explained it to me.

    13 hours ago, Sara EA said:

    The trust doc provided more info than the original post--lesson learned that we must see it!  Still confusing though.  If the wife had power of appointment, she could do whatever she wanted with the assets, yet the trust doc said she could only withdraw up to 7% principal each year.  

    I too found this confusing and contradictory.  I asked the lawyer about this and he said, during her lifetime, the 7% clause was in effect, however the power of appointment language in the trust says that upon her death, she can will the properties to whomever she wanted.  This language effectively transfers the ownership of the properties (for estate purposes) to her.  Meaning it's includable in her estate and qualifies for stepped up basis because she is legal owner, not the husband's trust.   

    It's an interesting situation that I learned a great deal from. 

    Again, thank you everyone for your comments.  I hope this thread helps others in the future.  

    • Like 3
  18. 14 hours ago, Sara EA said:

    Are you actually filing a 706?  The wife would have to have $12 million in assets to necessitate one.

    Luckily no. 

    14 hours ago, Sara EA said:

    None of this goes in the wife's estate because she did not own the assets, the trust did. This is an irrevocable trust that gives her the right to income (I think, not clear from the info given) and a limited amount of principal. 

    Here's an update for anyone that comes across this in the future. Spoke to the lawyer, they pointed me to the section of the trust that showed the wife had power of appointment for the properties.  For estate tax purposes, this means she is the owner of the properties so they must be included in her estate regardless of the deed because at any point in time, she had the power to transfer the properties into her name.     

    14 hours ago, Sara EA said:

    The 1041 will have three beneficiaries--the wife's share of income received before death and the two children's share of income each received after her death.

    The lawyer confirmed this as well. Thank you @Sara EA!

    So in conclusion:

    • For tax filing purposes, the deed in the husband's trust name meant a 1041 for the husband's trust was required each year.  If the properties had been transferred to the wife's name, the trust would be dissolved.
    • For estate tax purposes, the properties are includable in the wife's estate because of the power of appointment clause in the husband's trust. 

    Thank you everyone for all your help and insight.  I really, really appreciate it!

    • Like 2
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