David

Sch C client purchased a second house which he uses to help people with addictions and other issues. He no longer rents office space but will be using the garage or some portion of his second house. Everything I read regarding the home office deduction appears to relate only to the business owner's primary residence. I can't find any regs or articles that address being able to take the home office deduction for space in a second house. Can this client take the home office deduction for space used in his second house? Or does the business need to pay the owner rent and a Sch E be prepared? Thanks for your help.

That too. That's why I thought no sales needs to be reported. But since that is non taxable income, can the estate deduct the commission paid for the estate sale?

Usually these are items that are not sold above their purchase price - furniture, cars, clothing, household items, etc. Is my thinking not correct on this?

Are sales commissions paid for selling items at an estate sale deductible on form 1041? I'm thinking they may not be since the income from the sale is not taxable or reported on form 1041. However, it is an expense for the estate. I don't see this type of commission specifically mentioned in the instructions. Thanks.

Business switched from a SMLLC to an S Corp effective 1/1/17. The client is planning to make a big profit sharing contribution later in the year. The intent was to file an extension by 3/15. I thought an extension had been filed for the new S Corp but it wasn't filed. I know it is possible to get relief for the late filing penalty but I can't find anywhere where there could be relief for paying the profit sharing after 3/15 if an extension wasn't filed. Has anyone dealt with this situation before or know knows if there is relief for the S Corp to pay the profit sharing later in the year when they intended to file an extension? Thanks.

Ok , that makes sense. I guess you can report UPE even if no K-1 is issued. Thanks for your help on this.

I don't see anything in my research tools that indicate an LLC can report the tax prep fees for preparing a final 1065 when these fees, of course, won't be paid until after the final tax return date. It appears that the LLC members are out of luck as far as deducting their portion of the fee, Is this correct? Thanks.

Thanks Judy for the link. A little scary since every company I know who uses a PEO thinks the PEO is liable. But back to my question as to how best to handle the officer's wages since no payroll reports are filed by the company - John's solution is similar to how I was planning to handle this - see my original post. Does anyone think that reporting officer's wages on line 7 of form 1120S will be a problem when there are no W-2s or employer reports filed by the company? Thanks.

An S Corp with one shareholder/officer is using a Professional Employer Organization (PEO). There are no quarterly employer reports filed by the employer since the PEO files under the PEO's tax ID. Typically the payroll expenses are reported under a category such as PEO expenses. If the expenses are reported as payroll expenses it may raise a red flag with the IRS as to why no quarterly reports are being filed. Since this is an S Corp I know it may raise a red flag if officer salaries aren't reported. I am thinking that I will still report officer salaries and then PEO expenses for the other employee wages. In the security questions section I am planning to report 1 as the number of officers with compensation, zero number of employee W-2s issued and no quarterly employer reports. How have those of you who have this situation for an S Corp handle it? Thanks.

Thanks so much for your help.

I guess I should have said that the purchasing sibling will show the purchase price (2/3 FMV paid to the 2 siblings) plus her 1/3 cost of the property distributed to her from the LLC as her cost on Schedule E. Thanks.

Ok, that makes sense. The 2 siblings will of course have to report the sale on their personal tax returns. The purchasing sibling will simply show the purchase price as their cost on Schedule E. Am I thinking clearly about this at this late hour? :-) Thanks.

This is a new client. The siblings inherited the property and put it in an LLC in 2014. They got an appraisal and the property was quit claimed from the LLC to the purchasing sibling and her husband for $10. The purchasing sibling and her husband obtained a mortgage to pay the other 2 siblings 1/3 each of the appraised value.

Thanks for all of your help. Are you saying that I need to report the sale at FMV and allocate the gain to all 3 siblings on each of their K-1s, even the sibling who purchased the property? Therefore, the sibling and her husband who purchased the property will report their cost at the FMV amount on their Schedule E? No way to report the gain to only the 2 non-purchasing siblings? Thanks.

Yes, the 3 LLC members are siblings. The property was deeded out of the LLC and to the purchasing member and her husband. So isn't this considered a sale of the rental property by the other 2 siblings and a transfer, or distribution, of the purchasing member's 1/3 adjusted cost basis? Therefore, the purchasing partner's basis will not be the old basis but will be 2/3 of the FMV paid to the other 2 siblings plus her adjusted basis (old basis)? Thanks for your help with this.

A rental property in a multi-member LLC was sold at market value to one of the LLC members. The LLC has other property so the LLC is a continuing entity. There are 3 LLC members each with 1/3 interest. There is no debt on the property.The LLC member who purchased the property will continue to rent the property and report it on her 1040. The sale price was $246K and the cost was $175K. I can't seem to find anything in my research that addresses this situation, which is odd to me. So I need to check my thinking on how to report this. Is the following correct? 1/3 of the gain from sale should be reported on each of the other 2 LLC members' K-1. The K-1 for the purchasing member will not show a gain for her 1/3 interest. Her 1/3 interest in the property will be reported as transferred to her at cost. If this is correct, how is the sale price reported on the disposition worksheet so as to not report a gain to the purchasing member? Is 2/3 of the $246K sale price plus 1/3 of the orignal cost (for the purchasing member) reported as the sale price? Therefore, a gain of $47K to be allocated to the the 2 non-purchasing members? Of course, depreciation would need to be factored in but I wanted to keep the example as simple as possible. Please let me know if this is the correct approach and if not, how this should be handled. Thank you.

Thanks everyone for your help on this. I can't find cites and the only thing I can find are retirement FAQs on the IRS website. You're correct that any profit sharing Roth contributions have to be made to a pre-tax account. That makes sense and eases my concern stated above. And there is no requirement that a plan participant makes contributions through payroll deductions in order for the company to make profit sharing contributions. So I guess they can continue to only have profit sharing contributions made to their accounts. Please let me know if anyone has any information that contradicts this. Thanks.

S Corp officer is the sole SH of his S Corp. His wife is an employee. There are no other employees.They switched their 401K plan to AmeriTrade and it appears they didn't have much guidance. They wanted to reduce 401K fees and it appears that everything is handled online. In the past they both made 401K contributions (he to a traditional 401K and she to a Roth 401K) and the company made 401K matches. The wife said they were told that they no longer need to make 401K contributions through payroll deductions but that the company can make a profit sharing contribution of 25% of their pay to the S Corp officer's traditional 401K and to the wife's Roth 401K plan. I know the company can make a 25% 401K profit sharing contribution for each employee, including the S Corp officer. However, something appears a little fishy in that, form now on, neither will make any payroll contributions and the only contributions will be the 25% profit sharing paid by the company. Of course the company gets to write off the deduction. I can't find anything in the regs that say the 401K participants have to contribute in order for the company to pay a profit sharing amount to each employee's 401K. So this may be fine and won't raise IRS eyebrows. However, it appears that the 401K profit sharing to the wife's Roth 401K plan is a little suspect since the company gets the deduction and the wife will never be taxed on this amount. Maybe I'm overthinking this.... :-) Has anyone seen this arrangement before and is it in compliance with the regs? If anyone has any cites, I would welcome them. Thanks for your help.

In my reading and research of the 2018 tax law change regarding mortgage interest I keep reading that HELOCS will no longer be deductible. I also see that home equity indebtedness will no longer be deductible. However, other information says HELOCS used for improving a taxpayer's house are deductible. But these are various author's interpretations of the new tax law. Which is it? I don't see anything in the actual bill that makes this clear. The bill just refers to "home equity indebtedness". Does the term "home equity indebtedness" mean HELOCS not used to improve a house? Therefore, HELOCS that are used for home improvements are considered acquisition debt and included in the $750,000 limit? Or does the term "home equity indebtedness" mean HELOCS regardless of the use? Thanks for clarifying this.

OK. Thanks for your help, Judy.

Good point, Judy. In order for this to be reported correctly, the amount paid by the TP has to be deposited to the LLC's bank account and reported as a gain on disposal. I'm sure there is a way to allocate the gain 100% to the other LLC member, isn't there? Thanks for your help.

Thanks, Judy. So the S Corp would pick up the asset at zero basis? And the distribution is made at zero value to the LLC member who is transferring the asset to his S Corp? I know the TP wants to make the other LLC member whole by paying him something. However, isn't the other member made whole in that he was able to take 50% of the 179 deduction and won't have to pay a gain when the vehicle is sold at a later date? Thanks for your help with this.

Thanks everyone for your help with this. There is no debt for the vehicle. The LLC is reporting as a partnership. I thought assets could be transferred out of an LLC with no deemed taxable event. Is the issue that it is a transfer from a 2 member LLC into a 1 shareholder S Corp owned by one of the LLC members? The TP who wants to transfer the vehicle to his S Corp is willing to pay the other LLC member for half the value of the food truck. However, since the LLC owns the vehicle, the payment would have to be to the LLC and not the LLC member wouldn't it? I understand that the cleanest way to report this is for the S Corp to purchase the vehicle. However, I thought there was a way to transfer the vehicle and not have a taxable event for either LLC member. Yes, I am planning to give the TP options which will include the S Corp leasing the vehicle from the LLC. Thanks for giving options. If there are other options for this type of situation I would appreciate any input. Thanks.

Hi ownership percentage is 50%.

TP has a restaurant in a two member LLC. He also owns other restaurants in S Corps where he is the only shareholder. The LLC purchased a food truck in 2015 and deducted sec 179 for the full value. Therefore, the truck is fully depreciated. The TP wants to transfer the food truck from the LLC to one of his S Corps that has catering activities. I can't seem to find any cites that address how this transaction should be reported and the tax implications of the transfer. What is the best way to handle this so the other LLC member is made whole on this situation? Thanks.