Corduroy Frog

The benefit of the QBI is elusive indeed. At first glance, it sounds really great - a 20% reduction of profits available in addition to standard/itemized deductions. However, it has hoops to jump through. First of all, if there is EVER a loss, the loss must be applied IN FULL to the current benefit. However, if a positive result is ever squelched for any reason, the amount lost is NOT carried forward. Next, the 20% is applied to the taxable profit, or taxable income, WHICHEVER IS LESS. If any benefit is lost thereupon, it is lost forever. The 20% is a great thing for taxpayers with regular profits, and regular taxable incomes.

Thank you to all who have participated in the answer. Often I am responded to with a IRS link, which I believe to be perhaps the most official answer in existence. I am admittedly lazy for not researching on my own. I ask questions because I do want an alternative to spending 45 minutes reading something. One link a couple years ago resulted in 71 printed pages. But for Kathy, Judy, and Catherine, thank you so much for responding. I have my answer.

Mortimer owes $10,000 to MegaBank, among numerous other debts, and declares bankruptcy. Through the arrangements, MegaBank agrees to accept $1500 as part of the bankrupt settlement. Question: Although MegaBank has agreed (reluctantly) to accept only $1500, can they (or should they) issue 1099-C to Mortimer for $8500?

Will you be doing another live one later this year? A long distance for me, but I remember one year you made it down to Tennessee. Will there be more than 2 CPEs?

Thank you. There are differences between S Corps and Partnerships, and I guess this is one of them. Even with a partnership, all the elements mentioned in your post should be observed. Thank you for your knowledge and expertise.

Certain conditions can give rise to a deduction for Partners' Unreimbursed Expenses which do not appear on a K-1P. What about the same counterpart for unreimbursed expenses for a shareholder in an S Corp? in other words, "SUE" ? Is this allowed?

Admittedly, I'm not the biggest fan of mutual funds to begin with. I have seen a trend this year: High income bracket taxpayers are receiving 1099-DIV statements showing an increased investment in Bond funds. Bond funds are usually high-levered, and are ALWAYS producing non-qualifying dividends. Are they so wise an investment that their return should outweigh the tax implications, as that is sometimes the case? I doubt it. The last year or two have seen interest rates rising, and that causes bond values to crash. The only explanation i have is that they are so hard for stockbrokers to sell that the commissions have created incentive for the stockbrokers. Unfortunately, for many of my clients, they simply trust their investment advisors to do what is best for them. Is this subject worthy of comment?

Never had a problem with Drake. In fact, I endorse direct debits for estimated taxes instead of relying on voucher coupons for that purpose. My experience with the coupons has been very bad due to the clients. When reviewing for the succeeding year, the conversations go something like this: Frog: "Did you mail in the payments with the coupons I sent you? What about June 15th? Client: "uh, no. Took the kids to Disney World." Frog: "What about September 15th? Client: "uh, no. Our lawnmower broke down and we had to buy a Cub Cadet." Frog: "What about January 15th? Client: "no way. Had to pay credit cards for all those Christmas presents." Frog: "Sorry to hear all that. Looks like you will have to pay (again) this year." Client: "OMG!! Don't tell me that!!! You've got to do something to help me....."

Yestidday I couldn't even spel male choovinyst - Now I are one!!!

Sara, I think so. The guys are always the smartest, and give the best advice anyhow. Wimmin folk have some nerve thinking they are smart as the min. Stay in the kitchin where you b'long. Boil us up some bacon and some beans. Throw another log on the fire...

Here we go again: Bubba: "Hey, bought a brand new pickup truck!! $100,000. All for business. I parked it outside so you can see it." Preparer (after glancing out the window and seeing two fishing rods sticking out the window). "That's great Bubba!! We'll see what we can do with your mileage log." Bubba: "Whaddya mean mileage log?? I want'chu to write off this whole thing." Preparer: "They won't let us do that. Only a limited amount of depreciation per year. Not only that, but if you take actual cost, you STILL need a mileage log." Bubba: "Only a limited amount of depreciation? I'll never get $100,000 depreciated out before the thing is ready for the junk yard. I don't need a mileage log either. It's 100% for business. I tole you that." Preparer: Mileage log?? Where do you drive? Bubba: "Everywhere in my business. Just got back from Myrtle Beach last week and my wife wants to see the Alamo in June." Preparer: "I'm sorry Bubba. I don't think I can help you." Bubba: "Well I'm sorry too. I can find someone to do what I want them to do. I'm gonna take my honkin' new truck to Slick Sam over in Yonder County and he'll fix me up." Ever happen to you??

Thanks to all. Leaving it on the web still means he could have had access to it under the doctrine of constructive receipt.

No. The website I portrayed is fictitious (to appeal to John H), and I don't want to access a real website because they will do everything imaginable to spam me. My real question is whether a participant can avoid W-2G income by leaving money in the account.

Website gambling on sports has exploded in last couple years. One advantage, is they are able to track losses more accurately than anything available in the past. I'm wondering how they will issue W-2G information statements. Assume for the calendar year, John H wins $5000 in one lick. And then has $4300 in accumulated losses during the year. All the money is kept on deposit except $250, meaning he has taken out $450, leaving the rest. GetRickQuickonBeachVolleyball.com is the website. How do they issue the W-2G? a. $5000 Gross Winnings b. $ 700 Winnings after Losses c. $ 450 Winnings taken out of account. d. ?????

I got hung up on RDP, never heard of it. Apparently stands for Registered Domestic Provider. Still never heard of it. Your post is clear and provides specific direction as to how to proceed. MFJ for Federal equates to MFJ for California. Thank you much - Ron

One of my TN clients has unusual but moderate California wages, and I haven't done a CA return in years. Depending on the 2023 Instructions, there is no information for Line 3, filing status. The 540NR line 3 accommodates the filing status as "Married RDP Filing Separately." Nothing in the instructions help with Line 3. It could be that if a married couple files joint, CA will not allow the 540NR to be filed joint. The other spouse makes significant money, so CA would benefit if this is the case. Sorry for my ignorance, and appreciate any help.

Lucky indeed Joan. Since you have sold out in Sacramento and moved to Nevada, I've got a good friend who did exactly the same thing. If you live in Reno, you may know CPA Richard Schively. He couldn't stand Sacramento and now lives on the Truckee River. Schively was partner at Arthur Anderson before the disaster. Arthur Anderson was huge at the time, and lots of good people ended up on the outs, not just the guilty ones. I did note that you were in NV, maybe Reno, Carson City, or Vegas.

Great Post Mr. Pencil. and very much on the topic.

Cry me a Wabash? All of your statements are true, but missing the point. Anything slowing down real estate hurts those in much lower tax brackets, slows down construction jobs, slows down the economy.

Good question Joan. Obviously, they cannot be DIRECTLY affected by the NIIT on their tax return. Where they get affected is in the slowdown of real estate movement because taxes are too high. In my career, I've been through two political movements to do away with capital gains because only the wealthy could benefit. Once they did away with LTCG altogether. Before the year was out, they brought LTCG back to rescue a sick real estate market. The current rates for LTCG are 15%, plus another 5% for the big income people, plus 3.8% NIIT. Total 23.8%. I do have a few landowners who ask me to calculate tax on sale of their farmland. Farmers are not used to paying these bodacious taxes, and most of them simply tell me they will just hold on until someone meets a price sufficient to pay taxes.

Good one Lion. Another is the dreaded Obamacare tax, especially the 3.8% NIT on investments. The problem with taxing investments affects the sale of real estate, which depresses jobs for those who work but do not earn enough to pay the tax. This has been a point of contention with capital gains for decades.

Many elements are not adjusted for inflation. Which is the worst, i.e. needs adjustment more than any other? My vote is for Child Care Credit. The $3000 and $6000 limit has been around forever. The increased percentage?? Forget about it - if the couple gets more than 20% they can't afford to pay babysitting nowadays. To make matters worse, employers have gone absolutely ga-ga over a new benefit - up to $10,000 tax deferral for babysitting. Some employees are going after this like a pig after slop. But it only works if it negates the Child Care Credit in its entirety. And if the spouse doesn't work or have earned income, ALL of it is taxable. My clients find out about it too late, and drop it after one year of misery. Yes, my vote is for the Child Care Credit - dubious benefit, and nowhere NEAR the hyper-inflated cost of paying a babysitting service.

I always take the word of the client, unless there is a suspicious reason not to. It is the job of the IRS to audit them, not mine. One concern is that these assets were purchased prior to the formation of the partnership, and were contributed as capital investment - i.e. "hot" assets. They will have to be tracked if that is the case for five years. Also, my experience is that the partnership will not last long, unless they are bound together like family members. I don't know how many of these partners love each other to start with, and after six months they are ready to go their separate ways. Running a business is not the same as painting.

JohnH, sorry I couldn't resist! I remember the Pablo restaurant on Polk Place years ago....

Self-Rental is subject to Self-Employment Tax. One common thing businesses are doing: Create an LLC with their building or real estate - pay at least FMV rent to the building, and take a deduction for rent against their self-employment tax. And then the LLC reports rental income not subject to self-employment tax. If the building is rented to no other party, how does this strategy stack up to the self-rental doctrine? JohnH has a tax-preparation and consulting business in North Carolina, which makes $100,000 per year. He and his wife own a building and decide to open up an LLC filing as a partnership. He pays enough rent such that the LLC makes $20,000 profit, and the LLC reports its income on Form 8825 meaning there is no self-employment tax. The LLC has no other customers paying rent. Eureka!!! JohnH still makes $100,000 per year, but pays self-employment tax on only $80,000. But has he violated the "Self-Rental" doctrine??