BulldogTom

Rich, The client recieved 10K in grants because she is an orphan. But she only had about 4K in tuition, books, fees and related education expenses. Was at a community college for first half of 2013 and then at a State college for the rest of the year. Full time student. Used the rest of the grants for living expenses. I don't think your reference applies as the excess was not used in any way for education. Am I not understanding what you are referencing correctly? Thanks. Tom Hollister, CA

"...why do you want the excess to be taxed?" Pub 970 says if you receive more in grants than you have in eligible expenses, the difference is taxable and goes to line 7 on the 1040. Tom Hollister, CA

So I have a client who got approx. 10K in grants for the school year and her expenses were about 4K. I filled out the 1040 Ed Expense worksheet and it is giving her a refundable AOC credit and not adding the 6K to line 7. Help with the mechanics of making this flow to Line 7 on the 1040 please. Thanks Tom Hollister, CA

Michael, those are all good points. Tom Hollister, CA

Number 2 may be the result of number one? Not sayin' nothin', just sayin'....... Sorry, just could not resist. Tom Hollister, CA

Thanks, I knew about the related party rules. I learned something new today. Tom Hollister, CA

I was on a conference call with the corporate CPA today and he mentioned two things I did not know or hear about. Looking for some help finding out if these items are true, partially true, or "it depends" items. 1. If you are self dealing with your rents (own the building that your corporation rents from you), the income from that activity is NOT subject to the Net Investment Tax. 2. If you accrue bonuses at the end of the year an pay them within the 2 1/2 month window, but your policy is not to pay employees that leave the company before the payment date, none of the accrued bonuses can be deducted. Any of you heard these things? Thanks. Tom Hollister, CA

And when all the girls were wearing Ditto jeans. Loved the way they looked on them cowgirls. Tom Hollister, CA

Love that song. Love that band. Back to the 80's. Tom Hollister, CA

It really should not matter. If the inventory is being correctly accounted for (FIFO LCM) then the beginning inventory plus purchases minus ending inventory will give you COGS. The insurance proceeds (whether insurance paid on value or cost) go in on the revenue side. Should come out correct regardless of the amount of insurance received. I purposely assumed that MAS was going to believe his client, so I did not go into the red flags on this scenario. I just tried to assume that the client's version of the story is the truth and the tax return mechanics was what we were dealing with. Tom Hollister, CA

Going off on a sidebar here, are any of you being asked to prepare a return for a Marijuana facility? The same concept applies as it is a controlled substance on the federal register and the activity is illegal for federal purposes. I think CA and CO are allowing deductions against income for these activities, but so far I have not heard that the feds are allowing any deductions, not for COGS, not for wages paid to employees, not rents, nothing. Would you take on one of these businesses? If you got in on the ground floor, you might be able to specialize and get a lot of business. On the other hand, you might lose your license to practice. Just an interesting practice item, not making or taking any political stance. Tom Hollister, CA

All of this is business property? Are any of the items on the fixed asset schedules? Assuming this is all business property. The fixed assets would be "sold" for the net recovered insurance payments on the 4797. It will flow from there. The inventory will be "sold" at the net insurance recovery amount as well. This will flow through the inventory lines on the return. He was not "paid" the deductible. He only received what they paid him. Lottery tickets, cash and "fine" for terminating contract should be listed as business expenses - something like "stolen merchandise and cash not reimbursed by insurance" on the tax return. Same thing with the unauthorized withdrawal from the bank. Document and get ready to show the police reports, pictures of the damages, insurance reports, bank refusal to pay the unauthorized withdrawal, and other supporting documents in a year or two to the auditor. Charge accordingly. Tom Hollister, CA

Just an editorial. I will try to keep it as non-political as possible: The reason we are in this situation in CA goes back to the 70's and 80's. The state of CA passed a lot of laws for environmental protection and worker protection that some business owners saw as anti-business. The state got a reputation as a high tax, high regulation state and many companies moved to other states, expecially those with no income tax (ie Nevada). However, they kept a presence in the state. CA saw that they were getting a triple whammy to their tax revenues; they were losing the income tax from the company, they were no longer collecting the sales tax for the products being sold, and they were not getting the income taxes from the high earners in the company that were claiming to be domiciled in the other state. So they got aggressive on the concept of nexus. They have been very aggressive in pursuing companies that are accessing "their" market of consumers, but paying no taxes to do so. Famously, they have gone after high wealth individuals who move out of state just before selling their companies for huge profits. They have also gone after a lot of companies who they can attach any kind of nexus to the state so they can get some taxes out of them. The dot com bust, followed by the housing implosion in the state decimated the budget for the state, bringing the typical response from the state of becoming more agressive on collections from companies and individuals with higher incomes. They have also been at the forefront of trying to tax internet sales and attaching nexus to companies who sell in the state via the internet. See the agreements they made with Amazon to now collect and remit sale taxes in the state. As they have gotten the bigger companies to comply with their demands, they have started working on the smaller companies. That is why you are seeing the aggressive steps to go after companies for sales taxes. If they can get a company to register for sales taxes, they can audit the sales, and from those sales records, find out if they can attach nexus for income taxes. Very sophisicated approach the state of CA is using to get revenues from companies and individuals who don't vote. Tom Hollister, CA

Catherine, Welcome to our wonderful state full of greedy ba$t@rds who think that any connection with CA subjects you to a tax. The customer is wrong. There is no nexus (based on your statements above), as it stands right now. Future court decisions might change that. I would tell the client to call the customer, tell them there is no income tax liability, and if they insist, then stop selling to them. It appears from your comments that this is a customer, and your client is not on the FTB radar. That is good. Try to keep them that way. Tom Hollister, CA

RDNKCPA, I am sorry if it sounded offensive. I think of disability as something that keeps you from being able to work. I was only commenting that being a cop and being a soldier are both very physically demanding jobs. From just the information that he was on disability from his cop job, but serving as a soldier, I was a little perplexed as to how that could happen. I meant absolutely no offense, and I definately appreciate his service to our country. Tom Hollister, CA

I have always done it this way. It works for me. I have an issue with going back and redoing work, so I like to get the return done in one sitting. Most of my clients have learned to bring me everything they need. The first year is a learning experience for them. Complete interview, every line on the return gone over and explained. Future issues addressed. Why you don't take a deduction for 5K of donations when you get 12,200 in std deduction. We go over everything that first year. Every year after that is money in the bank. They know to call me during the year for big items, they know what to bring to their appointment, and we get it all done in one shot. No trying to remember what we went over. Besides, the client does not want to come in more than once as well. We are both motivated to do it all in one shot and get on with life. That being said, I have noticed that I used to schedule 1 hour for most clients and it would take me 45 minutes for a returning client. I am now taking about 55 minutes to complete, and there is very little room for scheduling errors. All the damn foreign bank account questions, questions about the quality of the $600 in donations to goodwill, etc, etc. Tom Hollister, CA

That was my thought too? How can someone be physically unable to work as a cop, but fight as a soldier? Tom Hollister, CA

Julie, When it is a new client, it has to be entered. It goes on the form that is associated with the passive activity. There is a tab on the ATX Sch. E form for entering prior year passive losses. I did the over ride thing a few years ago on worksheet 1 before I figured this out. The next year, it was all screwed up because the overrides did not carry to the new year. Then I found out how to do it the right way in the software. Tom Hollister, CA

Sorry, I should have seen that you were trying to bring those carried losses onto the 8582. Yes, you enter it on the Schedule E. it is on the "loss limitations" tab. Last tab on the form. Tom Hollister, CA

Income over 150K nullifies the rental real estate exception for deducting passive losses. They will be suspended until the income falls below 150K or the passive activity is disposed of. Tom Hollister, CA

Look at you KC. Trying to get out of helping Joan out. You know if you set foot in her office, she is going to put you to work. You are getting lazy in your retirement. Tom Hollister, CA

Sharks are killers too, and they like to swim as well......hmmmmmm I'm not saying nothin'....I'm just saying. Tom Hollister, CA

I am getting in a canoe and paddling for the islands right now. Tom Hollister, CA

I am so sorry to hear of your losses. I am in Hollister. Work my day job in Gilroy. My wife Patty is a CTEC preparer as well. She may have 1-2 days a week to work for you if that could help. She is in our Lodi office Tues and Wed. We travel to Lodi and Fresno on Saturday's. But we may be able to give you enough help to get you through this tough time. Distance is very managable for us. Let me know if you want to go to lunch and discuss. I work right off Leavesly Road in Gilroy. We could meet at Black Bear Diner, Denny's or Chevy's. Send me an e-mail or PM me if you are in need. Thomas R. Carlson, MST, EA [email protected] (831) 635-9414

I think you are brilliant as well...scary as hell...but brilliant too. So glad the Mississippi river, Rocky mountains, and Sierra Nevada mountains are between us, cause if you were pissed at me, I might be able to get to Hawaii before you got to me in Hollister. Love ya girl. Scared too. Tom Hollister, CA