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Sara EA

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  1. Am I the only one who has clients who have Roths and never think to tell us? A client took a $92k Roth distribution this year. All I knew about the account is that there was a big conversion amount in 2019. This year I finally saw my first 5498, which showed a balance twice as high as the conversion so I worked with the FA and discovered that the account existed since 2004! The FA could only give me the last 10 years of contributions and one other conversion. I did a ton of historical research on AGI and contribution limits. For most of those years AGI was way too high to contribute to a Roth. There were no annual backdoor Roths. How did this client with seven-figure incomes some years get away with this? I know IRS pays attention to the 5498s because clients have gotten letters saying they didn't contribute to an IRA when their tax return said they did. ("Gee, I thought I did.") Do they not check those same 5498s for excess contribs to Roths??? Anyone ever had a client get caught doing this?
  2. Is the attorney confusing an LLC with a corp? An LLC is a Limited Liability Company, not a corp, and limits the individual owner's responsibility but doesn't eliminate it. A corp is a different animal altogether, and if your client ever sells the property it can become a tax nightmare to sell real estate within a corp. I agree, buy an umbrella policy.
  3. You originally stated that the businesses were reported on Sch C and Sch F. The trust and estate now own the businesses and report them on their separate 1041s. There was never an S corp or any corp and there isn't one now. QSST doesn't come into play here. That election is usually made when a shareholder in an S corp dies and that ownership transfers to a trust, which S corps can't have as owners. You may have over-researched this, but look at all you've learned that you never knew existed! I do that all the time and finally realize I have to drag myself away from the big, big picture and focus on the small piece in front of me.
  4. Good decision, cbslee, because starting in 2020 IRS requires tax basis reporting. If you can't prove it, basis is zero. I had a partner once who always took out more than his share of income, got his basis down to zero, and had to pay tax on excess distributions every year. He thought he was getting away with something by submitting receipts for golf club memberships, family cell and internet plans, etc, to the partnership, which reimbursed him. Other partners were not happy to realize he was taking out more than his share. Could that be the case with your client Darlene?
  5. Maybe annualization works for those in highly seasonal businesses, but I have never had it work out for a client. Even clients who took a huge distribution in say the third or forth quarter saw little benefit, especially at the state level. Anyone else noticed this? This is a lot of work, so the hour or two it takes can't be billed against the $10 savings. I rarely do them anymore.
  6. You can only have one entity type. You have an estate and a trust, each of which files Form 1041. Just because the businesses didn't have income doesn't mean they didn't have expenses. Also, both the trust and the estate may have other income that necessitates filing. When the businesses are distributed by the trust and estate, the new individual owners can choose S corp status at that time, but not now.
  7. If you took straight line, there is no depreciation recapture. Instead, basis is reduced by the amount of depreciation allowed/allowable, increasing capital gain. Accelerated depreciation is recaptured and gain taxed as ordinary income, but that's not the case with your client. And yes, part of the gain will be taxed each year. At this point I wouldn't worry about the land. If the entire property was depreciated, too much depreciation was taken so gain in increased. If you went back and figured proper depreciation, land basis wouldn't change so the end result should be similar.
  8. Same thing happened to one of my clients. It is unacceptable that people get a notice, freak out because they think their identity has been compromised, and then can't reach anyone. I had one last week that gave the option of faxing the info (all income and withholding docs). Have they changed their approach, or were these returns being held up for different reasons? We will never know I guess.
  9. I disagree with denying the IRS the power to regulate preparers, but first let me disagree with Tom. The IRS did not release those numbers of wealthy people. If I'm wrong please direct me to your source. Statistics are released on national tax filings, and the identities of some of the people at the top may be guessed because there aren't many who make $55 billion or whatever a year. That tax info can also can be gleaned from public records (like when companies bid on projects and have to disclose tax records of officers, etc). The focus on conservative nonprofits was in my opinion entirely justified and part of the required legal process of vetting nonprofits to make sure they fill the bill. Many of the groups that lost nonprofit status had no public benefit purpose but operated mainly in the politics arena. Some legit organizations that really do some public good got caught in the net, but that didn't justify letting pseudo-nonprofits off the hook, which is what happened and continues. As for Frog believing IRS will just shut tax prep offices down at will, I really don't think so. Until recent years, the IRS has treated tax pros as stakeholders and often said it couldn't carry out the tax laws without them. The new commissioner and Sect of Treasury seem to voice the same. I have attended seminars given by the Office of Professional Responsibility, and they always assured the audience that they don't go after people for a mistake here and there but look for patterns. Like when the normal audit selection process pulls five of your EITC clients and every one of them says they don't have a business and don't know how that Sch C got on their return, then they pull maybe 100 more; If the majority of them have the same issue, a case against the tax pro is opened. OPR is an office by itself and not necessarily affected by understaffing and overwork in other parts of IRS. I firmly believe that licensing will improve accurate filings. Right now taxpayers have to trust that the person doing their taxes knows more about the law than they do. At least the license will weed out those who don't necessarily cheat but just don't know what they're doing. If you know of a preparer who's been cheating for decades, too bad IRS audit rates are down so much because of lack of money and staff. We had a couple of CPAs in our area who did the same thing for years and are now out of business thanks to IRS auditors. And I have read many times that the accuracy rate of returns in states that license preparers is higher than elsewhere. Sure there may be a few outliers like the one near cbslee, but perhaps that firm was taking on clients that were beyond their level of expertise? I have had several clients who came to me because their prior preparer said their return was getting too complicated for their knowledge level. Some preparers just won't admit it, which is what you saw. Licensing at least proves a minimal level of competency, which is more than taxpayers have now.
  10. NAEA membership is expensive, but their education is less costly than NATP. Here is VA the local chapter of NAEA has had a few really good seminars for free. These appear to be live luncheon courses where those who attend have to pay (they get lunch included). They've opened these up to members to attend online at no cost. Makes it interesting for the speaker, who's juggling a live audience with an online one, but the ones I've experienced have been very informative and you can't beat the price.
  11. I love their periodicals. Tax Pro Monthly covers recent events like tax law changes, court cases, etc. and picks some topic and shows how to do it, e.g., foreign earned income exclusion, forms and all. The quarterly journal is full of interesting and helpful articles. I find their education overpriced and many of the seminars were a bit too basic for me but probably just right for others depending on what types of return you do. I find membership well worth the price.
  12. This is what happens when the IRS is given more and more to do, facing sudden tax law changes and pressure to "get the money out there," using antiquated computer systems and not having enough staff. If any one of us was facing this at our jobs, we'd quit. IRS can't do that but can't do all that congress demands of it without the resources. I agree with the Taxpayer Advocate who for years has beseeched congress to adequately fund the agency.
  13. CT started this practice, and its history tells you to beware! The entity must pay 6.99% for each partner/shareholder (the state's top tax rate that usually applies to people who make $1 million or so). Initially only 93% of that got passed through to the individuals. Made sense--the entity deducted 7% from its income and the individuals got 93% of the payment because the income passed through has already been reduced. Now, however, the individuals only get 87.5%, so the state is keeping the difference (a disguised entity tax?) Also, entities must pay quarterly and electronically--no excuse if they don't have any money like some small entities (like a partnership that has to pay say $3k quarterly but only has $2k in the bank at the time--what to do?) While it sounds like the state is trying to help folks overcome the SALT limit, it's a money grab. Some states only require the tax on nonresident partners whom they might not otherwise hear from.
  14. IRS has been unhappy with the back door approach for years but congress won't change it. Who knows, maybe most of them take advantage of it? Heed Danrvan's advice if the client already has a traditional IRA. Say you're over AGI and contribute $6k to your traditional that's nondeductible. You can't just pull that $6k out and convert it to a Roth. If your IRA balance was $100k and you convert the $6k, only .06 percent will be treated as basis and the rest will be taxable. Also be aware that before this year, people 70 1/2 or older couldn't contribute to a traditional at all, so the back door was closed.
  15. I do a partnership and the individual returns for the partners. All of them have their personal tax liabilities direct debited from the same partnership account, which is in the name of the partnership and doesn't have any of their names on it. Money comes out on time, every time.
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