David

Restaurant client recently told me they (H & W S Corp shareholders) went with another safe harbor 401K plan provider and that they are the administrators. I advised that they shouldn't be the administrators since it requires that they understand all the laws and rules related to the 401K plan. However, they made the change to save money. Now they are asking if employee tip income should be considered in the matching contribution amount. They also switched payroll companies and the old payroll company included tip income in the employee deferral amount and the employer's matching amount. The new payroll company says that tip income is not included in 401K income deferral and matching. I can't find anything in my tax research that specifically addresses tip income as it relates to 401K plans. Shouldn't their plan documents address tip income since this is a 401K plan for a restaurant? Does anyone know if tip income is considered in 401K contributions or does anyone know any cites that specifically addresses this? Thanks.

Thanks for your help.

She lives in a different state.

Daughter is a co-singer on her father's mortgage. Her name is not on the deed to her father's house. She paid all mortgage payments and her name and her father's name are listed on Form 1098. However, only the father's SSN is listed on Form 1098. I am trying to determine whether the daughter can claim the mortgage interest shown on the 1098 since she paid all the mortgage payments. It appears that since she isn't an owner of the house that she can't deduct the interest even though she paid all the mortgage payments. However, I am finding conflicting information in my research. Some research information says that since she is a co-signer that she gets to deduct any interest she paid. Others state that she has to also be listed on the deed to the property. Can anyone give me a clear cite regarding whether the daughter can deduct the interest? Thanks.

I really appreciate your help with this. I read through the whole page. Sorry to be a pain but... Is this the section you refer to that addresses this issue? I bolded the part that appears to apply to my client's situation: (a)In general. The excess of an individual's elective deferrals for any taxable year over the applicable limit for the year may not be excluded from gross income under sections 402(a)(8), 402(h)(1)(B), 403(b), 408(k)(6), or 501(c)(18). Thus, an individual's elective deferrals in excess of the applicable limit for a taxable year (that is, the individual's excess deferrals for the year) must be included in gross income for the year, except to the extent the excess deferrals are comprised of designated Roth contributions, and thus, are already includible in gross income. A designated Roth contribution is treated as an excess deferral only to the extent that the total amount of designated Roth contributions for an individual exceeds the applicable limit for the taxable year or the designated Roth contributions are identified as excess deferrals and the individual receives a distribution of the excess deferrals and allocable income under paragraph (e)(2) or (e)(3) of this section. So it appears that the excess deferrals can all be designated as Roth contributions to both employer plans since the combined Roth contributions of $23,267 exceed the excess deferral amount of $22,534. Therefore, no additional income is reported as wages on the TP's 1040. Am I interpreting this correctly or am I off base? I don't want the IRS to come back at a later time and assess the full $22,534 excess deferral as current year income. I didn't see any section of the link that specifically addressed whether the excess deferral has to be allocated first to the pretax contribution before allocating any to the Roth contribution as the articles in my search indicated. The authors of those articles sounded so sure of this, however, I could never find anything in the tax regs that supported treating all excess deferrals as pretax contributions and then treating any remaining excess deferrals as Roth contributions. Thanks for bearing with me on this.

Thanks for your help. I did read that link and it doesn't address allocating the excess contributions between traditional and Roth contributions. You would think this scenario would be addressed somewhere. I hate to hit the taxpayer with additional taxes if there is an option to allocate the excess to his Roth contributions. Thanks.

OK, after further looking at this issue it appears that no 1099-R will be issued since it is past the curing deadline of 4/15. Before I report the $22,534 excess 401(k) contributions as additional income on the wages line of the TP's 1040, I want to make sure I'm doing the right thing. Since his pretax 401(k) contributions are less than the $24,500 max allowed and since his Roth 401(k) contributions are less than the max allowed, but combined he has a total $22,534 excess contribution amount, can I choose to allocate the $22,534 excess contributions as Roth contributions so the TP doesn't owe tax on the excess amount? I can't find any IRS cites that address how to treat the excess contributions when both traditional and Roth 401(k) contributions are made. No information regarding whether the TP can choose to report the excess as all Roth. Articles from my search say that when a TP has excess contributions all of the excess is reported as pretax contributions and any remaining excess is reported as Roth contributions. However, none of the articles state any IRS cites. Does anyone know of any IRS cites that address how to treat the excess contributions when both traditional and Roth contributions were made? Thanks for your help.

TP, over age 50, worked for two employers and had the following traditional 401K contribution deductions and Roth 401K contribution deductions: Employer 1 - $11,267 pretax traditional 401K deductions; $11,267 after tax Roth 401K deductions. Employer 2 - $12,500 pretax traditional 401K deductions; $12,000 after tax Roth 401K deductions. Total elective deferrals are $23,767 and total Roth contrib. to 401(k) plans are $23,267. The excess contributions are $22,534. I want to make sure I am reporting this correctly. It appears that I need to report the excess contributions as additional income on the Wages line of the 1040. Also, the total excess is considered to all be from the elective deferrals. Therefore, the additional income will be reported as $22,534 excess salary deferrals. The TP also needs to have both employers withdraw from the plan a total of $22,534 pretax traditional 401K deductions. There are no penalties reported for this issue in 2018. A 1099-R will be issued to the TP for the $22,534 which results in the TP being taxed twice on the excess 401K contributions. Is my understanding correct regarding this? Thanks for your help.

Yes, CB I read your post and that was my initial understanding (see my original post). That strategy results in no net interest deduction since the S Corp interest deduction is offset by my client's interest income reported on his 1040. I was trying to sum up what everyone said hoping that there was a strategy that others know about that I don't know. I guess there is no way a net interest deduction can be taken for this scenario. Thanks.

Thanks, everyone for your help with this. I understand the Schedule E scenario. However, I wasn't sure about the S Corp scenario. So if the loan proceeds are deposited into the S Corp bank account and the loan payments are paid by the S Corp, and interest is deducted by the S Corp, no problem? I thought it would be a problem for the S Corp to make the loan payments since the loan is in the shareholder's name. Thanks.

Client owns several S Corp businesses. He plans to get a HELOC against his house and use the proceeds for a build out for one of his businesses. He wants the business to pay the HELOC payments each month. I can't find anything in my research that would allow the business to deduct the interest on this HELOC. It wouldn't help if he was to "loan" the business the proceeds from his HELOC since the business would deduct interest expense but he would also report interest income on his personal return. Any ideas? Thanks.

S Corp manufacturing business is planning to add solar panels and take the energy tax credit. They heard that they will also be able to include the cost of replacing the roof as long as it is part of the solar panel installation. I can't find anything definite regarding this in my tax research or on the IRS site. Can anyone enlighten me before I get back to the client? Thanks.

Thanks for confirming, Rita.

Thanks for your help trying to figure this out. In the link you provided it appears that the higher income only comes into play if the parents can't agree. Following is an excerpt from the link: If the person(s) can’t agree on who claims the child as a qualifying child, and more than one person claims tax benefits using the same child, the tiebreaker rule explained below applies. So it still seems to me that the tax rule allows the unmarried parents, who both live with the child, to decide which one will claim the child as well as the other benefits, including the EITC. Am I misreading this? Thanks.

Child and unmarried parents live in same house. The parents have been taking turns claiming the child as a dependent. I prepare the mother's tax return and it is her year to claim the child. She qualifies for the EITC based on her income. I thought if her AGI was lower than the other parent's AGI then she would not be able to claim the EITC. However, I ran across the following on the IRS website regarding unmarried parents: Answer: If they otherwise meet all of the requirements to claim the earned income tax credit (EITC), unmarried parents with a qualifying child may choose which parent will claim the credit. If there are two qualifying children, each parent may claim the credit based on one child. One parent may claim the credit based on both children. If both parents claim the same qualifying child for the EITC, but don't file a joint return together, the IRS will apply tie-breaker rules and treat the child as the qualifying child of the parent with whom the child lives for the longer amount of time in the tax year. If the child lives with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who has the higher adjusted gross income (AGI) for the tax year. If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who has the highest AGI for the tax year. If a parent can claim the child as a qualifying child but neither parent claims the child, the child is treated as the qualifying child of the person who has the highest AGI, but only if that person's AGI is higher than the AGI of any of the child's parents who can claim the child as a qualifying child. It appears that if one of the unmarried parent qualifies for the EITC then they can choose to have that parent claim the credit. It seems as though they can choose the parent with the lower AGI since the parent with the higher AIG may not qualify. This seems like cheating to me. Also, it appears that the IRS will only apply the highest AGI rule if both parents try to claim the EITC for the same child. It seems as though there is no problem for the parent with the lower AIG to claim the EITC as long as the other parent doesn't also try to claim it for the same child. Am I understanding this correctly? Thanks.

TP covered her whole family through the exchange and received a 1095-A with her name and SSN in Part I. Her S Corp W-2 showed 100% of the premiums as taxable income in box 1. She and her spouse were divorced during 2018. She filed an extension for her 1040 and advised me that her ex reported 50% of the information on Form 1095-A. There was no advance payment of premium tax credit shown on the 1095-A. However, the family qualifies for a premium tax credit. She is claiming both children on her 1040. She only wants to report 50% of the premiums reported on the 1095-A because she doesn't want any red flags with the IRS. I advised her that she will not get the full SE Insurance deduction to offset the amount reported as income in her W-2. She is fine with that. Has anyone dealt with this issue before? Won't the IRS match the 1095-A information to her 1040 since she is the one listed in Part I? Or is it OK for them to split the 1095-A information? I guess I could report the other half of premiums reported on her W-2 as additional amounts paid for health insurance coverage on the SE Health Insurance Worksheet. At least then she will be able to take the full deduction less the PTC. Does anyone see a problem with reporting this way? Thanks.

Thanks everyone for your great input.

Thanks, John. That puts things in perspective for sure.

Wow! How are you guys able to file extensions as you like. I think the same way as you all - extensions are a good way to relieve stress and pressure and extend the work season. A lot of my clients get nervous and don't want extensions. We try to explain to them that they are still in compliance and that's why the IRS allows extensions. When I explain that if they owe they should pay with their extension, they say they don't know if they will owe. Then I have to do an estimate which then takes up more time. I need to know your secret. Thanks.

TP isn't able to get the EIN for the selling business for form 8594. Can't e-file without it. Is the only option to paper file and leave that line blank? Any other ideas? Thanks.

Thanks for your help.

A client bought a 2018 Infiniti QX30 with the engine auto stop start feature and thinks there is a tax credit available for that model. I can't find anything in my tax research, google or the IRS site that lists models available for any vehicle credits. Does anyone know the best way to find this information? Thanks.

Thanks for helping with this.

Whoops! In the previous post I meant to ask where does the offsetting debit get recorded on the books and in the tax return? Thanks.

Yes, the departing member will report a capital gain on his 1040. I need to zero out the departing member's $12K negative capital account by crediting the member's account on the books. Where does the offsetting credit get recorded on the books and in the tax return? Thanks.