Sara EA

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

The penalty is indeed based on the number of partners, not the tax liability (partnerships usually pay no federal income tax). It can be waived using the first-time penalty abatement. Be sure it's a first timer. I had a partner once who was chronically late, got hit with a penalty, and to appease him I wrote a letter asking for the first-time abatement. I knew he wouldn't get it, and he didn't. After that year he got his docs to me well before Oct 16 (now that would have to be Sept 15)! Be aware that no penalty if they file an extension, but if they miss the Sept 15 deadline the penalty is assessed back to March.

What a relief that must be Donna--no more worrying about if there's enough paper or light bulbs or if the client paid or not. Don't expect UT to be user-friendly. A really big help is that you can toggle between the input and form views. If you know where something is supposed to go on the return but can't find where in UT to input it, go to the form view and put your cursor where the data goes, then switch to input and there you are (doesn't always put you in the right place for some of the esoteric entries). You can also be in a field and click on help for usually good info on what to do there (for example, how to mark a qualified charitable distribution or Covid-related distribution). It's a powerful program and can do most everything. Kiddie tax is a breeze--go into the child's return, pick tools, and mark off 8615 and the parent and sibling files--all that info imports instantly and the return is done. Instantly optimize MFS or education credits too. Excellent diagnostics. The tax projection component isn't perfect, but maybe where you work has sprung for the separate better module.

This has got to stop, and regulation of cryptocurrencies has to happen. If the hackers don't have anonymity with payments they will have to go back to meeting victims in dark alleys with suitcases full of cash. Since most of them are in a few far-away countries that look the other way (and likely demand some of the loot), they'll have to find a new line of work. There is so much pressure to do everything in the cloud. NO! I won't even bank on my phone. I'm seriously beginning to think that most of us will have to have a separate computer in our offices that connects to the internet and that is where we will do research, email, etc. All the others will be off-line. It will be a nuisance but hopefully it will be safe. My son works in IT and has told me that if I knew what he knows about the internet, I'd never use it. If only that were possible in today's world....

Agree with Abby, make the client call IRS. I've been doing this more and more because I can't charge for two hours waiting on hold. I have had a few clients with bank accounts who wanted paper checks because "some people I know" have access to the account.

Danrvan is correct, the value of the gift is no longer included in the estate except under certain circumstances. (Under the old rules it was--I've been doing this too long!) So there are two things to consider. First is who pays the IRS? The decedent had the money and chose to give it to people instead of paying the taxes on it. The executor is responsible for paying the decedent's taxes but since there was nothing in the estate to pay with, it might make sense to ask a tax attorney. However, since you said the amount due isn't all that much, it might be cheaper for the heirs just to pay it, which they may have to do anyway. A gift tax return must be filed if any one person got more than $15k. No, paying the decedent's taxes doesn't lower the amount of the gift because the donees are assuming responsibility for the decedent's taxes whether they pay from her money or their own. Medicaid in most if not all states has a five-year look-back period. Any money gifted in that time period can be clawed back from whomever received it. I was using an average nursing home stay at $12k a month, with the decedent paying $2k and Medicaid the rest. Say she was in a really low cost home, say, $5k a month (does such a place exist?), she paid $2k, so the donees are responsible for $3k a month. Unless she had a lot of Soc Sec and pension to contribute, they will likely owe more than a few hundred to Medicaid.

Not much to pay back? That could be $10k a month! I am totally with you that it's just not right for people to give away all their money to family so we, the taxpayers who have less than they do, will pay for their care. The look-back rule has helped somewhat. Yet I have seen what you are seeing--staff in senior care facilities and even attorneys advising people to get rid of their money. Often that person is old and frail and likely to need care within months, so it's totally inappropriate advice coming way too late. I know you don't care if the attorney gets paid or not, but the way laws are written (by attorneys, of course) I believe their fees are priority debts. Just hope the heirs didn't spend everything yet. You won't need to file a 1041 unless the estate had more than $600 in income. You might want to wait to file the decedent's final return until you learn how much will be paid back to Medicaid. Say it is $30k. That amount can then be deducted as medical expenses on the decedent's final return, which may lower the tax bill. (There is an election to claim the decedent's medical expenses paid after death on the final 1040.)

I wouldn't bother. With PTPs, losses can only be taken against income from the same PTP. If no losses are deductible, they won't affect federal or state income in states that start with federal AGI. It will only make a difference when the shares are sold, and the worksheet the PTP provides at that time should show the state amounts. Does anyone ever pay attention to that long list of state amounts on the K-1s? There are not enough days in the year to do that. I figure if the states actually notice they'll tell us.

Jerry W is absolutely correct. No money is to be distributed from the estate until all the bills are paid. If the beneficiaries took the cash before the creditors, they are indeed liable for the bills. Don't even think OIC, the law is pretty clear. In this case, it may be that the money was distributed before the taxpayer died? If so, were gift tax returns filed? Gifts made within three years of death are included in the estate, so the heirs can't claim it only has $1k. Its bank account may only have $1k, but the rest is sitting in their bank accounts.

Excellent advice. I assume you already agreed on a price for the business based on percentage of invoices of retained clients. In that case, your question is how much should you be paid as an employee of the new owner. Do you really want to be paid on commission? That tactic is used by HRB and others to ensure that employees actually work instead of play on their phones all day. You are a professional and unlikely to do that, so you either need an hourly rate or salary. With your credentials and experience, and being in VA Beach, I would think $40+ an hour. I think commission-based pay can be detrimental in the tax business. People will decline to do returns they know will require research, or slack on the research. They may cut off clients who need help with say W4s or an IRS notice. No one is going to want to do an amendment on a return a former employee of the company messed up. Face it, a lot of what we do as a service to our clients is unpaid but is excellent client service, which is what keeps them coming back. On the other hand, if I was paid on commission I would never take another phone call about the stimulus payment or advance CTC!

Yesterday I decided to learn more about the new CTC, advance, repayment etc. I ended up more confused than when I began. The advance phases out after AGI of $150k MSJ, $112k HOH, and &75k all others. The phase out is $50 for every $1k over. I didn't do the math to see where it ends. The normal $2k credit begins to phase out at $400k MFS and $200k everyone else. Repayment has a couple of safe harbors but I couldn't figure out how they intertwine--something like no repayment for AGI $120k, $100k, $80k, and full forgiveness up to $2k if IRS claimed the advance on too many kids for AGIs less than $60k, $50k, $40k. I might have the above all mixed up, but notice how every calculation has a different AGI starting/ending point? Who came up with this confusing/complex/no rhyme or reason perplexity??? I think we're all going to have to do something we hate to do--blindly rely on the software. Or maybe we should all demand that any politician who wants our vote have to submit the answer to the CTC for, say, a couple with three kids making $190k, and show proof of work done by hand!

We recently had a client who had rented an office building to a nonprofit and eventually donated it to them. He got the certified appraisal (40 pages worth) that I told him he needed. However, the appraiser refused to sign Part IV of the 8283, claiming he didn't appraise it for IRS purposes or something like that. I believe the two of them are battling it out now about why the client paid for an appraisal to certify FMV and now the appraiser won't attest to it. Have your client hire an appraiser very carefully!

I had this happen to three taxpayers with the exact same error message one year. I contacted the IRS liaison for our region (they deal with systemic problems), he looked into it and found it was a programming error so it got fixed. My error messages occurred during filing season, so maybe after a certain date Soc Sec cuts off those numbers? Maybe the bug is back? You can notify your liaison, but at this point you have no choice but to paper file.

Don't want to sound like a snob or know-it-all, but most of the IRS freebies I've taken have been way too basic. Nothing there you can't learn from the pubs. I took one on due diligence this year just to find out what documentation is acceptable to prove a child lives with the taxpayer, etc. The presenter said you don't have to list any if the responses to the questions seemed "correct, complete, and consistent," but our software doesn't know that and won't pass a return through diagnostics unless something is listed there. I didn't lose any money, but that's an hour of my life I won't get back.

All this to opt out? I would think it would be necessary if someone was updating info like bank account, address, child added to return, in case any of those changes are fraudulent, but you have to prove who you are to say you don't want the advance? I have a client whom I advised to opt out because income will go way up this year, and she didn't complain of any problems. Are they asking everyone to do this?