Corduroy Frog

It's a classic case of "follow the money." The mechanics work somewhat like this: The estate is taxable on all income, with a very small exemption amount. And the rate accelerates rapidly, such that a surprisingly large amount of tax will be assessed against a small amount of income. The way out of a tax bill is to distribute the income. The estate will take an exemption for all amounts distributed to beneficiaries. i.e. $40,000 in estate income minus $35000 distributed to beneficiaries, means the estate will only pay tax on $5000. The beneficiaries are to receive a K-1 for any income distributed to them, and the K-1 reflects the character of income as well. The beneficiaries will pay tax on that income at their own tax rate. Hence "follow the money." It can get complicated, as the exemption applies to "income" only. For example, a $20,000 cash account that draws $750 interest means that the only income distributed is $750. The estate cannot claim an exemption for the $20,000, only the $750. The best bookkeeping should separate the "corpus" from "income". For the above example, the $20,000 is subtracted from corpus and $750 from income. When the estate is settled, the corpus will be reduced to $0, and unable to generate more income as well. The "year" for the estate is not a calendar year. The "year" begins on the date of death of decedent, and if not settled, will end on the last day of the month prior to the anniversary of date of death. I mention this because the best tax planning should occur BEFORE the end of the "year" as to how much to distribute to the beneficiaries.

Hopefully the client will bring this paperwork to the tax appointment. For $4000 - $7500 he should have enough incentive to do so... Thanks to all.

IRS can do the matching after the return is filed (assuming they have the manpower to do so). But going back to Sara, how are WE supposed to know when we are preparing the return? Will our software be pre-loaded to disallow the e-filing because they have the same database as the IRS? Maybe so, but that's asking a lot of the tax software.

From what I understand, the new credit for electric vehicles ($7500) beginning in 2023 extends even to used vehicles. Even if the vehicle has been credited on someone else's return in the past! Someone correct me if I'm wrong, because I'll be getting questions in December. The powers that be must certainly want us to buy electric vehicles really bad. This comment has evolved into another discussion entirely. Probably should have started a new thread.

Send them to Shifty-Eyed Sam across town. Get rid of them. People who make that kind of money often use their wealth to elevate their position in society, and delude themselves into thinking everyone will do what they want.

I had this come up twice in the past. Absent any agreement among the parties to deal with the difference away from the IRS coffers (which would be much easier), the IRS has a method whereby they can allocate payments. Calculate the AGI separately, using a 50-50% split on joint income such as bank interest Then calculate the tax liability separately, using Married and Separate tax rates. (The result should be higher than taxes calculated any other way). Note the percentage allocation between spouses. Apply credits which appertain to each partner. For joint credits, split them in proportion to the percentages described above. Apply "other taxes" which appertain to each partner. To be honest, I don't know how to allocate the NIIT. Using the tax liability calculated normally (Single, HH whatever), factor these tax liabilities in proportion to the separately calculated liabilities from 1-4 above. Apply payments to the source from which they came. For joint estimated payments, split them in the same proportion as discussed above. I'm not the best in putting forth things into words. Better in Math than in syntax.

Not a CPA, so I'm asking out of ignorance. A couple of CPA friends are spending time marketing their services. As if wanting to take on more and more work. How does this stack up against many of you who reflect the industry as being long hours, low pay, and pressure. I'm having a hard time reconciling this. Maybe some of you can help put this together. I do know from personal experience that an EA does have long unforgiving hours until April 15th, but plenty of spare time after that.

Try going to a Mexican restaurant that has that green stuff and ask for "Guatemala Sauce." Sorry folks. This thread did intrigue me about the South in which I live, where they try to control traffic with signs "No You-All Turns."

CBS, I'm wondering why. I'm wondering whether the prospect of becoming a CPA has lost some of its appeal for younger folks. I can't imagine that to be the case. From what i know, CPAs serve a more helpful and needed service now more than ever. The number of companies who are sound except for their financial housekeeping seem to be at an all-time high. I've heard of some professional people (doctors, attorneys, etc) regret entering their profession and would not do it again if they were younger and had the choice. I don't know any CPAs who would regret such, although they can be under pressure oftentimes. (I don't know thousands of CPAs but I do know several). The sociologists and such tell us we have left the industrial age and entered the information age. With information at a premium, I believe the demand for the services of a CPA should be at an all-time high. I am inviting discussion on the topic - please ignore that I have not posted in a while.

I'm not going to respond to this. One might review the thread and detect which party is insulted.

Probably doesn't add to the discussion, but one of my govt contractors had a contract with the Navy at Newport, RI for three years. During that time, I had occasion to speak with an assortment of different RI people. I was surprised to hear them volunteer how they detested Massachusetts, calling them "Taxachusetts" and other names which were really unmentionable. I have a friend in Boston who reported that the taxation in RI is even worse. All this to say that it appears these two neighbors don't really like each other.

Would I say someone could withdraw from a 401k and receive SS benefits? Absolutely, and do so without incurring the penalty. But my client is telling me he has talked to SS and they told him he could work all he wanted to and avoid the penalty. I don't know how that can be true, since he has had SS taxable earnings on his W-2 for at least 25 years or so.

Thank you Kathy. He has had SS taxable earnings all his career, so this is not the case. I simply believe he is misinforming me, and would be misinformed himself. From what I know, he could tap into his huge 457(b) for any amount of $$, and it would not incur a SS penalty because it is not earned income. I congratulate you for your knowledge of various types of employment not subject to SS tax.

Due the reversal of the Supreme Court decision on interstate taxation, Amazon finally gave up and had to begin charging sales tax. Since then, states have made every ridiculous effort to waste getting consumers to report sales tax due. Alabama, for example, requires a sworn statement from taxpayers before a practitioner can electronically file. And still, very much like Sara, the vast majority of taxable incidents is not reported. It seems to me that the states would do much, much better going after E-bay, PayPal, and other electronic commerce making it taxable in similar fashion to Amazon. They wouldn't be able to collect from all online sellers, but they could get the vast majority of it with E-bay, PayPal, and Facebook whatever. Much more effective than trying to beat up on their residents and getting practitioners to twist their arms.

Sounds like a good deal if the earned income is on a W-2. Not a whole lot of effort if it is SE income unless the taxpayer wants to pay in more to the SS System.

I was told at a recent seminar that the EITC for taxpayers with no children has been increased to $1300 (at optimum level). This could result in people not filing to consider filing this year. I suppose that there must be some earned income to qualify. And with earned income comes SE tax. Will the "optional" SE tax calculation result in more SE tax than the credit will absorb? I'm sure after the optimum EITC level has reached, the calculation reaches a point of diminishing return such that income/SE tax is so high that filing requirements are met. A lot of babbling above, but there is a question imbedded thither. Will the "optional" SE tax calculation result in more SE tax than the credit will absorb? I'm sure the answer is contingent on some sort of "sliding scale."

One of my customers is turning 62 in 2022 and chomping at the bit to retire. He is working for a public job, as a manager for a city dump/recycling center. He has a ton of money in a 457(b), but I'm not sure whether that is relevant. He is asking me about Social Security benefits, and customarily I just refuse to go there. Whatever he is told by the Social Security office is going to prevail anyway. He has already talked to them, and they (supposedly) told him that if he were a public employee, he could earn unlimited amounts of earned income annually without having to pay back 1/2 of the excess as a social security "penalty." I'm not going to answer such questions, and if this is true, then so be it. But I am curious. Has anyone else on the forum heard anything like this?

Thank you Lion, and a Merry Christmas to all.

Lion, thank you for your sincere attempt to help. If one were prepare a Cash Flow statement, by accounting for Depreciation, changes in Accts Receivable, Accts Payable, Accrued Payroll, and other balance sheet accounts, in conjunction with profit, would not Cash be increased by an increase in Loans Payable? This perspective may not change the answer to my question, but it may reflect that the question wasn't nearly as stupid as it appears to others.

Lion, borrowing money has no effect for a company reporting on conventional accrual basis. Even I am aware of that. The question revolves around cash basis reporting. If a loan is considered "cash and equivalent" then there would be no effect. Cash? Profits plus/minus changes in all balance sheet accounts affect cash accounts. That is the reason for the question.

I will be happy to do so, but I need a name and address. If you don't wish to post it on the forum, please send me a message.

It is a serious question CBS. What appears to be an idiotic strategy which results in higher taxation is actually a compliance effort promulgated by SBA requirements for a govt contractor. The effect is that compliance with SBA is worth the extra tax money. Falling out of favor with SBA can be disastrous compared to the payment of extra taxes.

Customers for 20 years - I know more about the decedent and beneficiaries than anyone else. Danrvan - you are extremely knowledgeable and I appreciate you taking the time to respond. You are one of the better sources on this forum, and I can deal with your candor. Asking questions without basic research - probably a bad habit, especially in the situation described above. The basic research, however, often results in extensive interpretation of code and regs. Links usually help, if they are succinct and address the topic. Bringing a topic to this forum can often save half a day in reading and interpreting stilted language. I believe others who post find this to be true as well.

A cash basis company wishes to increase its taxation for 2021. If they borrow $100,000 from a line-of-credit on December 30th, and don't spend it, will this result in higher taxation?

Thanks for responses. Apparently there is a choice between ending the year on December 31, or choosing a fiscal year less than 12 months from death. Not asking out of curiosity, but after the responses, I consulted the instructions for Form 1041 and found these posts to be correct. The decedent's estate will have a combination of Interest, Dividends, Capital Gains, and I suppose I was pre-occupied with getting the banks, custodians, etc. to cut off properly. Many decedent's don't have enough income to generate the need for a 1041, but the beneficiaries and I will have quite a session dealing with the cut-off.