G2R

Taxpayer reached out to the guy that gave her the money and today he replied, "I should have given you a 1099-NEC, but I didn't. You owe the SE tax." Now I'm wondering if I have an argument for filing it on a Sch C, and claiming QBID.

Well she lives in NY sooo.... her taxes are worse than VA. :( I've explained her options and she's decided on the conservative route, she's filing as if she got a 1099-NEC. Thanks everyone for the input.

WOW!!!

I agree, I think it's a big red flag. I have documented my own discussions with my client and asked she forward all written communication she had with the guy to detail the history of the payment and also detail her timeline of assistance for him. All points you've made are spot on. It's why I'm struggling so much with the reporting. I doubt a gift return was filed. I struggle with my client being liable for all FICA when she didn't have a profit seeking motive or business structure of any kind. Clearly the guy did something wrong, but what is her obligation to correct it at her own expense (paying both ER & EE FICA)?

I joke that 1/3 of my clients could walk by on the street and I'd have no clue. Aside from copies of their Driver's Licenses for some state return filers, I have no idea what they look like. I haven't actually seen a client in my office in 2 years. Covid protocols nixed those couple old-schoolers than liked to come in person so now I'm totally remote.

I set up a question on my tax organizer that asks how much they got for EIP1 in April/May of 2020 & EIP2 in Dec2020/Jan 2021. Having the dates there as a reference seemed to help most remember to go back and check their bank statements for the amounts.

Given the abundance of "we forgive you, you don't have to pay back the error" approaches Congress continues to pass in our tax code, does anyone think that the CTC advance payments will likely be forgiven anyway come 2022 tax season? I mean it's like a carbon copy of the APTC, and I've got a number of clients who are getting away with murder in that area. Just my Saturday morning thoughts...

Weird situation (what else is new these days.) Client worked for a company. Covid hits and the company goes under. She is laid off. The company hires another company to wind down the company's affairs and collect whatever outstanding invoices they could from customers. My client offers to help in the collections. There is no discussion of pay, no employment or contractor agreement at all. She'd worked for company a long time and just wanted to help where she could after a sad ending to the company. She never expected to be paid anything. (Hand to God, she's a good, honest person. There's nothing nefarious going on.) After three months of helping, the guy in charge says, thank you so much for everything you did, we couldn't have done it without you. As a thank you, here's $50k! Fast forward to this tax season, as she's collecting her tax stuff, she calls the guy and asks if he's suppose to issue her a 1099. He says, "I'm not filing one, don't worry about it." So, what do I do? She sort of worked for him, but sort of didn't. Gift? Other income? NEC subject to SE tax?

Just finished watching Compass Tax Educators Webinar - American Rescue Plan Act of 2021. It was an EXCELLENT breakdown of the many complicated changes and tax strategies we can employ for 2020 & 2021 tax planning. I HIGHLY recommend it. In particular the MFJ vs MFS details in the webinar go against so many staples in tax prep thought but, it is what it is in today's wild times. I find their FB group quite valuable too. Just thought I'd review it for those looking for a good overview of many of the changes. If there are other webinars or newsletters you frequent for great info on today's tax discussions, I'd love to know.

I assume you mean this one.... If so, this yes I had read that already. Your IRS FAQs you posted match the above approach. Still looking to see if others preparers that file 1120S are handling this on their returns the same way.

Wow, this tax season feel like college. I have to learn something new every week! 1120S, 2 owners. Both on payroll, no other employees. They filed for the ERC in Q3 for $5000. I just want to confirm I'm reporting this credit accurately. 1120S, pg 1, line 7: Reduced the owner wages by $5k. Sch K, line 13g, code P: $5,000 (which prompts form 5884-A to open) Form 5884-A, line 3: $5,000 Does this look right? What I really hate about this approach is that the 1120S wages won't match the W-3. But I guess that's what the 5884 reconciles out. Also, if the IRS uses line 7 as a trigger for unreasonable compensation, this might trip it.

me too.

Thanks to both of you!

Thanks Lion EA! One more quick question. Their other kid has $2k in capital losses. Would you file a return for that kid just to keep the carryforward?

Client's kid has $250 dividends, $200 capital gain distributions, and $1300 in capital gains. So I'm in that over $1100, but under $2200 spot for the kiddie tax rules. Can someone please confirm: The fact that the child had capital gains means I cannot put the income on the parent's return. (Not that I want to, I think the tax is zero, but I just want to confirm this anyway.) If I'm calculating this right, the child still owes ZERO in taxes because everything except the capital gains is below $1100 and the capital gains that bumped them over $1100 are still taxed at 0 because they are capital gains. If all the above is true, and the tax is still zero, am I still required to file the return for the child? TIA!

I just started using it this year. It's the first online tax portal I've ever used so I cannot compare to others. I like that they are constantly adding upgrades and seeking requests on ways to improve. My clients seem quite happy with it and getting their accounts activated has been very easy. I love how much more organized managing each client has been for me this year. No more One Drive expiring links, fishing for documents in various cloud portals, etc. I feel much more secure in my communications to clients and as they become more comfortable with this way of communicating, I think my days of SS# riddled documents in my email will be minimal. It took me quite a bit of time to understand how to use it and I'm still learning. I don't think I've even scratched the surface of what it can do. If you've already used a online tax portal the learning curve might be shorter. Also, keep in mind the unlimited signatures is true, but if you want KBA signature, it's $1 extra per signature request. I think as I learn to use it, I'll find it better and better. I haven't utilized the workflow feature at all yet. Mostly client communications, doc exchange, signature request and tasks communications. I look forward to post tax season learning about the workflow and pipeline features.

I've spent every free moment of the last few days researching this thread's info. I come from a family of accountants and we always maintain books on a tax basis. Our clients are small mom and pop businesses and reporting books that mirror the tax return just makes explaining things so much easier. Quite honestly, I never knew S-corp bookkeeping to be any other way. In fact, my father adamantly followed the rule, "1120S Sch L R/E MUST = Schedule M-2." I now know better thanks to the knowledgeable members of this forum and countless tax articles & publications I've read since. For anyone reading this thread in the future with similar questions to the ones I had, there's another great ATX thread that I found extremely helpful in better understanding this concept and hope it helps you too. Thanks again ATX forum. I'm humbled as usual. _________________________________ Testing my updated Sub-S books to tax understanding... Using only the above details and pretending the profit was all kept in the bank. Books Balance Sheet: Bank Asset: $1,000 Loan Liability: $56,000 R/E: -$55,000 Tax Return: Sch L R/E: -$55,000 M-2 AAA: 0 K-1: Box 1: $1,000 Box 16, Code $56,000 Basis monitoring is done at the shareholder level so it's the responsibility of the SH to report a $1k profit on the schedule E, page 2 and a $55k capital gain for overdrawing their basis on Sch D. SH current basis in the corp: $0 Going forward, there will now be a permanent difference between R/E & AAA. Correct? (fingers crossed)

Tracy Lee, you might find this thread helpful.

The above order of operations is exactly how I close books. The only difference is I have always changed the name "Retained Earnings" to AAA in Sub-S client's Quickbooks as I found it easier to discuss AAA & basis monitoring with this change. Given I've never had a client overdraw their basis, I wondered how others handled the bookkeeping of that negative balance. jklcpa, Thank you for your time and considerate replies.

Thank you! I constantly remind and borderline harass my clients about keeping their personal and business finances separate. In the follow year, assuming it's profitable, do I net it against the negative R/E first? Then once all the negative R/E is exhausted, proceed as usual with the AAA?

Client is a new single owner S-corp. Profit was $1k this year. Company took out a $56k loan from the bank. Then proceeded to issue a stockholder draw to the owner for $56k. Aside from simply reclassifying the $56k draw as a loan to the shareholder, lets say that isn't done. Then owner has overdrawn their basis by $55k and he's got a $55k LTCG on his personal return. But how is the $56k draw account closed out for the year? I usually close out all draws to AAA, but since AAA can't go negative by distributions, only losses, what is it closed to? Meaning, in my YE closing entries: DEBIT: AAA $1,000 DEBIT: ???? $55,000 CREDIT: Stockholder Draws $56,000

This worked! Thank you very much for your advice!

Just had a 2019 South Carolina efiled return bounce. EFC Reject says "Wrong Submission Year" "Year in Submission ID is incorrect: 2020, should be 2021." I'm in ATX 2019 so just curious if maybe SC doesn't accept past years being efiled. Can any SC tax preparers please confirm? TIA!

My apologies. Her TAXABLE INCOME is negative. MFS because her husband lived in RI all year and she's the only owner of the VA property. He made a good amount of money and so their Federal and RI is MFJ. She mentioned filing the VA return anyway for school/residency purposes? But if I'm reading the VA tax rules correctly, she's only allowed to claim one of their two dependents AND only if she herself had provided at least HALF of the earnings. Correct?

Lastly, when assessing only HER income, her AGI is negative. So, if filing even still required?