David

OK. Thanks for your help.

Yes, the TP also had wages from employment before she started her LLC business. Judy, yes it appears all of the input is correct and complete. This is a H&W LLC and they both have enough basis to absorb the full sec 179 deduction. The LLC is their only business. So even though the TP wages on their 1040 and the profit from the business are more than the amount of the sec 179 deduction are they still limited to the profit from the business and that is why they aren't able to take the full sec 179 deduction? In other words, the first hurdle is the business profit and if the profit isn't enough to cover the sec 179 deduction the deduction is limited to the profit and it doesn't matter that the TP has W-2 wages. Is my understanding correct on this? Or should the W-2 wages also be considered when applying the sec 179 limitation? Thanks.

Multi-member LLC has $80K sec 179 deductions and only $20K profit allocated to a member. The TP has over $80K wages on his 1040. However, the program is limiting the sec 179 to the LLC's profit and isn't considering the TP's wages. I must have misunderstood the limitations for partners/LLC members. Is the sec 179 deduction fro the TP limited to the LLC's profit? If so, why do the instructions always say the partner's earnings are considered when applying the sec 179 deduction on form 1040? Thanks.

No, it wasn't a franchise. Thanks for confirming my thinking on this.

Client used a ROBS to start his C Corp. The company has NOLs most years of operation. The owner is considering dissolving the corporation. Of course the company stock in the 401K account has no value. It appears from my research that when the corporation is dissolved there are no tax ramifications for use of the the 401K funds used to start the business - the owner was able to use 401K funds tax free. Is my understanding correct regarding this or am I missing something. Thanks.

Rich, Even though the only income is rental real estate income on line 2 of the K-1?

Thanks so much for your help Judy. I just wanted to make sure I was handling this correctly since nothing I did would subject it to SE tax like the 2015 tax return did.

Thanks Rita and Judy, The K-1 for the one amount that was subjected to the SE tax indicated that he is a general partner or LLC manager. This is probably why the CPA subjected it to SE tax on the 2015 tax return. My program isn't subjecting it to SE tax, even with the LLC manager box marked. So that is correct since he is a real estate professional? Thanks for your help.

New client has several K-1s from rental activites. A few of the K-1 rental income amounts are subject to the SE tax on his 2015 tax return. Others aren't. The K-1s listed as real estate professional aren't subject to the SE tax. The properties listed as not passive are subject to the SE tax. The client is a real estate professional and I'm not sure why some K-1 income is subject to SE tax and others aren't. Aren't real estate professionals subject to the SE tax? I thought that was one of the draw backs to electing real estate professional. Thanks for your help.

Thanks for taking the time to respond. I know you're slammed like I am.

I have two retirees who received a W-2 with an amount only in box 12a with code DD. No other boxes have amounts. Of course, this is for health insurance benefits they received. I am getting an error message saying that the return can't be e-filed because there is no amount in box 1 or other W-2 information. I am thinking that I don't really need to include the W-2 in the client's tax return and then I can e-file. Has anyone ran into this situation and do you see a problem if I leave out the W-2? Thanks.

Thanks so much for taking the time to help.

The client received a letter from the insurance department stating that her disability payments would begin 9/1/14 and what the amount she would receive in 2016 would be, including the 2014 and 2015 payments. I can easily divide by 28 months to determine what amount is paid for each year. However, I don't see anything that allows me to recalculate the tax based on the amounts received for prior years. There is an option to do this if it is social security payments. The amounts per year are stated on the SSA-1099 in those cases. Since the amounts per year aren't stated on the W-2, I thought that my understanding was correct that there is no adjustment available. Please let me know if there is a cite somewhere that allows the tax for the W-2 income to be recalculated based on the amounts per prior years and how I would report that. Thanks.

Client received a 2016 W-2 from an insurance party for third party sick pay from September 2014 - December 2016. The information doesn't indicate how much is related to each year. I can't find any cites that allow a lump sum treatment by spreading the amounts to the appropriate years and adjusting the related tax such as would be allowed when social security disability payments are paid in this manner. Before I treat all of the W-2 income as 2016 income, I wanted to check and see if anyone knows of a cite that would allow the income to be spread across the appropriate years for tax purposes. If so, how and where is this adjustment made? Thanks.

Client received a 1098-T with $1,791 reported as scholarships (GI Bill) in box 5 and $1,818 in box 6 adjustment to scholarships for a prior year. The client did not receive any scholarships (GI Bill) in 2016. Both the box 5 and box 6 amounts relate to 2014. Shouldn't the school have netted both amounts in box 6 since both relate to 2014? The school told the client they will not send a corrected 1098-T. I can't find where to correct this so that the client gets the credit for the $1,791. The client is eligible for the Lifetime Learning Credit. All instructions for the education recapture credit address only additional tax to be reported on line 44 of Form 1040. Nothing addresses how to recapture an additional credit. Pub 970 doesn't address this either. I don't think I can report zero in box 5 and net the original box 5 and box 6 numbers in box 6 since the IRS expects the tax return to match the 1098-T. The only thing I can think of is to increase the actual box 2 amount paid by $1,791. The result will be that the 1098-T input on the tax return will match the 1098-T filed with the IRS and the client will get the full benefit for the education expenses paid in 2016. Has anyone who has dealt with this issue found a better way to handle this? Thanks.

Thanks to both of you for your help.

I have several small business clients who we already filed their 1099s by the January 31st deadline. They have told us that they received additional W-9s from service providers and need 1099s processed for those vendors. I use the ATX W-2 Payroll program. Do I simply add these additional 1099s to the file I already e-filed for them? Or do I need to create a new file with only the additional 1099s? I also have a client that needs to report a correction to the amount reported on 1099-DIVs previously e-filed. I know I should report a correct 1099-DIV in the same file that was already e-filed for this situation. The penalties for incorrect 1099s and late filing seem to be stricter this year. I couldn't tell from my research if not receiving the W-9s qualifies for reasonable cause and exempts the clients from late filing penalties. I want to make sure I give the clients correct information regarding any potential penalties. The dollar amount change on the 1099-DIV is a couple of hundred dollars each for 2 1099s. The reason the change was discovered after the 1099s were e-filed, is because the tax return was prepared and adjusting entries impacted the amount of the shareholder dividends paid. It appears that there is a penalty for an incorrect amount previously reported. Is there any exemption available for this client for this situation? I couldn't see any exemptions that would apply unless no willful intent qualifies for an exemption. Thanks for your help.

So is this considered a related party transaction?

Thanks, Judy, for your help with this. I think I'm clear on the 1244 stock - I just need to hear back from the TP as to whether he was the original owner of the shares. My question now (posted above) is whether giving the shares back to the family owned S Corp and not receiving payment for those shares, is considered transfer of shares to a related party. Since the shares are going back to the S Corp and not to a family member shareholder I would think this is deemed as a fully taxable transaction and not a transfer of shares to a related party. Is my thinking correct on this? Thanks.

If he just gets out of the business, doesn't receive any payment for his shares and the S Corp transfers them to treasury shares will he be able to claim the loss? Or is this considered a transfer of shares to a related party since the other S Corp shareholders are brothers and sisters? I would think this is not considered a transfer to a related party since the shares are going back into an S Corp. If it is deemed as a transfer of shares to a related party then he won't be able to claim the loss or the take the passive loss carry forward amount. Thanks for your help.

TP is checking. He thinks his father was the sole proprietor of the business and his mother inherited the business after the father's death. The mother and kids set up the S Corp at that time, with the mother gifting shares to each child.

It appears that is is Sec. 1244 stock. However, I haven't seen the legal documents related to the issuance of the original shares. Do I need to see the paperwork related to the original issuance and does the paperwork have to say the stock is issued under Sec. 1244?

The company isn't doing well and he says the family (company) wouldn't be able to pay him for his basis. He just wants out.

Taxpayer is a 25% shareholder in a family owned business. He did not materially participate in the buisness and has a $20K passive loss carryforward. His basis is $40K and he is departing without receiving anything for his shares. Therefore, he will show a $40K loss on schedule D. He also sold a second home with a $150K gain. Will he be able to recognize the $20K passive loss carryforward? Won't this be netted against the net $110K LT capital gain? Thanks.

Thanks, Judy for your help.