Corduroy Frog

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.

This is a 1041 Estate Income question, and not a 706 Estate Tax Question. I also don't know how to frame the question, so I will present with an example. Mortimer dies on March 15, 2021. I believe this to mean the Estate has a fiscal year beginning on March 15, 2021 and ending on February 28, 2022. By February 28, 2022, all the money has been distributed to beneficiaries and the estate can be closed. During this time, Mortimer's estate disburses $540,000 in corpus to its beneficiaries, plus another $40,000 in income earned during the duration of the estate. However, $30,000 in income was distributed in 2021 and the final $10,000 in income distributed in 2022. I don't believe the corpus distribution in the respective years is relevant. Which of the following is true? The estate issues a K-1 to its beneficiaries for $40,000 in income, with an effective date of 02/28/2022. The estate issues a K-1 to its beneficiaries for $30,000 with an effective date of 12/31/2021, and another K-1 for $10,000 with an effective date of 02/28/2022. If there is no K-1 for 2021, the beneficiaries are still required to report $30,000 on their personal return(s). The beneficiaries are required to report $40,000 on their personal return(s) for 2022, and are not required to report any income for 2021. No K-1 is required for 2021, however the estate should issue nominee statements to beneficiaries for 1099-DIV, 1099-B, and 1099-INT. Obviously, all the above deal with whether or not there is a requirement for the estate to issue information returns to the beneficiaries for 2021. Thank you for reading thru this. If you care to provide a link that addresses these requirements, I will read it.

Margaret, I remember meeting you at Rita's. If you are 75, you are a very lovely 75.

Great responses and articles. Thank you very much.

20 years ago Paul purchased Land for $100,000. In 2021, he sold land to his brother for $150,000. However, the FMV appraised at $190,000. If it has any bearing on the transaction, Paul has NOT made a gift to his brother in 2021 of $15,000 or any other amount. Neither Paul nor his brother are married. Question: 1. How much long-term capital gain must Paul report from this transaction? 2. What is the basis in the land for his brother after the transaction?

Great question. Some time ago I had learned that this gave rise to an miscellaneous itemized deduction. This could have changed in the 2018 overhaul.

When I have customers who run into endless logjams, especially when threatened with liens and levies from the collection dept for money they really don't owe, I have had success referring them to their congressman. IRS obviously listens to congress when they won't listen to anyone else, and it might improve the situation with congress well if they start receiving many referrals from their constituents.

Thank you Mr. Lee - you did answer the question. And FWIW, there is usually a real client, but never with big round numbers that are used for a contrived example.

Assume a company follows the "equity method" for accounting for investments - i.e. adjusting the balance sheet investment account for profits and losses of companies for which they own 20% or more. Does this create a book-to-tax difference? Example: Company A owns 30% of Company Z. It's initial investment in Company Z is $100,000, and is carried on the balance sheet of company A as such. After one year, Company Z profits are $50,000. I am told the "equity method" requires Company A to increase it's investment account by $15,000 (30% of $50K), and report the $15,000 as "investment income" for P&L purposes. As far as I can tell, Company A's basis in Company Z is still only $100,000, and the $15,000 profit is recognized but not realized. My question: Is the $15,000 a book-to-tax difference?

A strategy I use for amended returns (dunno whether it is smart or not): If the amended return results in a refund, apply the refund to 2021 estimated taxes. That way the IRS must wait on itself to validate payments, and has to deal with the amended return to get closure on taxpayer's liability or refund. Serves them right.

Thank you. The link is complicated reading, and the distinction has more to do with NOLs than suspended losses, although they are addressed as well. I don't mind research so long as I don't have to get into regs and their circular language. I was able to find enough to apply to my situation.

The losses are strictly the result of rental losses over a 10-year period where the taxpayer made too much money to deduct the losses. There is no risk problem, and there is active participation. No other reason for accumulated losses than what is stated above. Thanks for your responses.

For suspended losses due to at-risk or passive, the software is calling for a distinction between all such suspended losses and the losses suspended prior to 2018. What impact does this have? Thanks in advance -

Thanks Judy - strictly non-recourse.

Loans guaranteed by partners can add to the basis of partnership. A stark difference between this and S corps. Is this true of the loan is from a related party? Thanks in advance

With the advent of so many LLCs in the last 30 years, the March 15th deadline is far worse than April 15th. We can weed out the April 15th crowd by not taking any appointments, but the LLC crowd represents some of our better clients and those most worthy of our assistance. For most LLCs, according to their election, a balance sheet is required if sufficient assets are in force, but I have always taken the position that a decent preparation should include a balance sheet and M-1 and M-2. There seems to be different strategies in dealing with the deadline. Many firms simply file an extension to give them more time, and drag out the returns (and owner's returns) until Sept 15th. I would prefer to attack the LLC preparation as soon as December bank statements are available, and before we get into the W-2 crowd at the end of January. Comments?

So much of what may be relevant for 2021 could be easily tied up in pending legislation, so I am intentionally waiting to ask questions until the verdicts come. But I understand the EIC base is already in place. Specifically, the calculation for EIC, I'm told, will be based on the greater of: 2021 EIC, as calculated. 2020 EIC, as calculated. However, my question: What if 2020 EIC was based on 2019? as was the case with many last year? In other words, Taxpayer A has EIC based on 2021 circumstances based on 2020 circumstances, but the actual EIC was based on 2019. based on 2019 circumstances. i.e. the greater of three years, instead of two.

Good discussion from all parties - thanks. Judy, good to see you posting again. Those of us who often need help should be thankful.

Please let me ramble, and when I post something that is wrong, jump on me... S Corporations operating in every state effectively create a liability for the owners in the various states. This liability can be absolved by the corporation making a "composite" payment on behalf of the owners. The rates are usually at a maximum, but the objective is to pay off the state so the owners don't have to file a non-resident return. Owners are happy, and the states are happy to get maximum $$ without processing a return. The composite payment constitutes a dividend/distribution on the books of the S corp, and is thus not deductible expense for the S Corp. As being charged as dividends, the owners should be able to deduct the composite payment somewhere. However, state income taxes are a Schedule A deduction, and the benefit may be lost because the standard deduction is so large, or lost because of the SALT. If the S Corp cannot deduct the payment, and the owners cannot deduct the payment, then how can it be deducted? Seems like it should be deductible somewhere...

Already have some, with increased activity showing up this past week. When I prepared taxes for 2020, I had to inquire from each client the amount of stimulus payments received to determine whether a credit would be forthcoming. Most of them were unprepared to answer - many of them had to review their bank accounts, and some of them tried to answer off the top of their heads. I would think the IRS (being the paying agent) should have records that are infinitely more accurate than taxpayers, but I think I'm giving them too much credit. I have a couple families that are being "corrected" when I can remember reviewing their bank statements with them in a sit-down session. I'm also throwing this out to ask the forum for possible remedies. No one wants to go to Tax Court, or any court for that matter.