BulldogTom

Payment is never an issue. He had me start preparing taxes for him my second year in business. I give him a generous discount every year for his loyalty. Tom Newark, CA

Longtime client client of mine is doing very well in his profession. Manager for a small company that is doing very well. His income has gone from 70K to 170K over the last 10 years. Wife is a teacher making approx 60K per year. 2 children. His major deductions are CA taxes 17K, Mortgage Interest on home 11K, Charitable Contributions 12K, and Employee Expenses on 2106 - 12K limited to 7500 2% haircut. Has a rental that is throwing suspended losses for the last 3 years. Could not sell when the market tanked and will not give back to the bank (his quote - I signed up for the loan and I will pay it back). Loan is still underwater and home value still 100K less than purchase price. Steady tenants in rental, but cash flow is not positive. TP is in AMT and is losing the benefit of CA tax deduction and Employee Business Expenses. Obviously, they get no child tax credits. Has a 401K but not fully contributing. Spouse is maxing out her 403b. They were maximizing Roth contributions but went over the limit and can't make those contributions anymore. Besides taking the previous Roth contributions and moving them to 401K contributions to max out to limit, are there any other strategies they can use to reduce tax hit? Thanks Tom Newark, CA

Thanks Jack. Tom Newark, CA

I think he has to pay the penalty. When I go to CoveredCA, the lowest priced plan less the PTC is $0 because he should have signed up for Medicaid. So 8% of household income is still less than $0 and I can't think of another exemption. He has to file because his income is too high, so he loses on that exemption as well. TP is single, 22 and made 13K. Medicaid expanded in CA and the limit is $16,105 to qualify for coverage. It kinda makes sense that if the TP did not get insurance, he should have a penalty. And I know they are poor, but these are the people who are supposed to get coverage, and it was free to him, so since he did not get off his butt and sign up, he has to pay. Do I have this correct? Thanks Tom Newark, CA

Good, because unlawful discrimination gets my client an above the line deduction for the legal fees. As it is, after taxes and legal fees, she will get about 42% of the award and still be in AMT. If she had to put the legal fees on Sch. A, it would be worse. Thanks for confirming my thoughts. Tom Newark, CA

I echo all the thoughts above. be careful where you tread. In my neck of the woods, a typical valuation of a contractor would be something like 5 times annual cash flow. That is a very general rule. There would be adjustments to cash flow for owner payments, and other situations unique to the individual business. Assets are almost entirely ignored for contractor valuations, unless there is a very readily available market for the assets (think heavy equipment for highway construction, large land movers, tractor trailers, etc). For roofers, I would assume that they are holding a bunch of beat up equipment and some rolling stock. The balance sheet approach would be useless in valuing them. You would pound the balance sheet so hard that what would be left is cash on hand, discounted receivables and liabilities. Hope this helps. Tom Newark, CA

There was also a case for a professional bowler. Tried for several years to make it on the bowling circuits. KEPT METICULOUS RECORDS. Changed coaches, went to different leagues and circuits to try to make a profit. Gave up after several years. One of the biggest factors the court took into consideration was that she quit after exploring all options, and before the IRS audited her. I don't have the cite on that one, it was part of an update seminar I attended several years ago and I never forgot it. I love it when the taxpayer wins. Tom Newark, CA

I picked up a client about 4 years ago. Had an installment agreement in place that was being paid on regularly. GM% was clearly indicated on the prior returns and I asked about it when I got the client. They said it was correct. Fast forward to this year. Note holder paid off the loan in full early and the taxes are coming due. TP is adamant that the amount of gain is too high. I explained that we have been keeping the same GP% since the beginning. After digging around in their files from 2000, it appears that the GP% is in fact too high and the the TP is correct. All prior years, the amount was so small that it did not make much of a difference because the interest was the biggest part of the calculation. They have collected about 1/3 of the total principal in the last 14 years. How do you correct an installment agreement that was started in 2000? Any advice appreciated. Tom Newark, CA

TP is settling a lawsuit with employer claiming unlawful discrimination. Employer is settling without admitting wrongdoing. Because they are not admitting they discriminated, does this change the above the line deduction treatment for the settlement proceeds? I am pretty sure that the treatment does not change. Tom Newark, CA

I generally include that form on my HOH clients. I feel like I can do it now, or I can wait until they (hopefully) call me in the summer to do it, or I can hear them cry next year when they are too late to get the problem fixed. It is a PITA to fill it out, but it is easier than having a client claim I did their tax return wrong. Tom Newark, CA

Actually, I believe your client could have applied for the exchange before the open period because of a life change situation. Losing existing coverage is one of the situations that let you go onto the exchange outside the open enrollment period. I think your client should have done this and the exception for short coverage gap does not apply. Tom Newark, CA

I get invited every year by our Insurance Broker to go skeet shooting. I have not been able to make it yet due to scheduling, but I intend to do it sometime. It is a major promotional event for our broker. I don't do their taxes, but I would have no issue classifying this event as a promotion expense. To them, it is no different than inviting clients to a Christmas party. Tom Newark, CA

Please ship it to the Sierra Nevada Mountains in CA. We will take it all, gladly. Our farmers will get no water from the Federal Government again this year and only 15% of their allotment from the State. If you will send us snow, we will send back cheap fruits and vegetables this spring and summer. If we don't get some water, you will be paying a metric $h1t ton more for your fruits and veggies this year, if they are available at all. Tom Newark, CA

You are in the wrong business Rita. That is a lot of tax returns right there. Didn't Haley Berry wear skin tight leather and carry a whip in Batman? Just saying - she made a lot of money for that too! Seems like leather and "pain toys" are more profitable than anything I can do to earn a living. Not my thing, but definitely a money maker. Tom Newark, CA

I think you have that backwards. It is for the BUSINESS use of a PERSONAL auto. Sounds right to me, if there is a mileage log to back it up. I would have put it in auto expenses or travel costs rather than compensation. Tom Newark, CA

With the "equipment" he listed, I would hope he is not bartering, but to each their own. Tom Newark, CA

I think it is a good idea to include even if not required. Keeps the balances in your tax software so you have the beginning balances so you can hunt down those "mysterious changes" to the balance sheet the next year. Tom Newark, CA

Thanks for the confirmation Judy. Tom Newark, CA

I don't. I see 36K of income and28K of losses. Taxpayer's standard deduction cannot create an NOL. there would have to be a schedule A with business deduction on it to make it part on the NOL. What am I missing that makes you think there is an NOL? Tom Newark, CA

Taxpayer sold business to child in 2000, long before I got them as a client. Child and husband still operate the business. The sale was recorded on taxpayer's return as an installment agreement. Payments have been made and recorded every year on the 6252. When I picked them up in 2011, I took the information as it was and continued on with the same gain percentage. This year, taxpayers gift to child and spouse maximum amount (56K) to relieve most of the remaining debt on the note. In 2015, they have gifted the remaining balance. My take: these are payments on the installment agreement and need to be recorded as such on the 6252. In 2015, the 6252 will be marked as final and all deferred taxes will have been paid. Am I correct or is there something else that I am missing? Thanks. Tom Newark, CA

Filing the 8606 does not create basis, making a contribution and not taking a deduction for it does. Filing the 8606 only tells the IRS what you have done. But the transaction still stands on its substance. If you can determine the amounts of the non-deductible contributions, that is the basis. Think of it this way, if the taxpayer was selling his home and had made significant improvements to the home, would you allow him to add them to basis? Sure you would, if you could figure out how much it was that he spent on the improvements. Can you figure out and document the contributions in the intervening years? If so, that is what you should use. You should be able to get the brokerage to give you the amounts added every year. They should have that record. Then pull a transcript for the years you can from the IRS and see what he deducted. Not easy, but doable. I would not even consider a 3115. Tom Newark, CA

You should treat this as a purchase and capitalize and depreciate. As well, I would create an amortization schedule for all the payments, busting out the interest from the purchase price of the equipment. The contractor should know what the purchase price is of the equipment and it should be easy to take the "rent" payments and get to the principal and interest on the amort schedule. The interest should be currently deductible and the rest depreciated. I have done many of these in my position in the construction industry. Tom Newark, CA

Second cbslee. Make sure you know if it was refinanced and what the refinance funds were for. Other than knowing that information, I agree with the other posters. Tom Newark, CA

I used to think that someday, I would like to have the problems that you all have with being backed up. Until this year, I never had returns laying on my desk that were not waiting for more information or just signature pages from the client. Everything that came in got started that day and was done within a day if the information was all there. This year is different. For a lot of personal reasons and a lot of client personal reasons, I have a stack of returns waiting for client information, and 3 returns that I have not even started on my desk. I was going to get 3 of them done last night, but only got 1 Scorp almost done when I ran into a little bug in the software. I usually can get caught up on the weekend, but last weekend and this weekend, I have family in town and I just feel like I am sinking. I need 2 quite days to get my returns caught up so I feel inferior in the size of my practice to all of you again. Tom Newark, CA

Any CA preparers found a way to get the R&TC number into the Sch B,C Part II tab? The software is not allowing an override, it is not flowing from the override on the main form like it did last year, and I can't find a place to enter it anywhere in the form or the Fixed Assets. Return will not e-file without the number in the field. HELP! Anyone have a workaround or know how this is supposed to work? Tom Newark, CA