OldJack

@jainen : Maybe I'm wrong but I don't see the word "original" regarding a "timely filed return". Isn't a timely amended return timely filed. And the code below says "Any taxpayer". Are you saying a 1040 taxpayer is different than a C-corp on carryback time? IRC Sec. 172 ( b ) (3) Election to waive carryback Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for such taxable year.

>>COGS is $150<< I would bet that first year sales was more than the cost of supplies used or she would not have sold the jewelry. Her supplies are inventory and should not be deducted until used. She has a tax gain in the first year and no income in the second year. Hobby status is only if there is a loss. An old saying "A bird in the hand is worth two in the bush". Why declare a hobby if it was a profit year and the preparer does not have a Cristal Ball?

sure! But why in the world would you not want a refund from prior years? Those are taxes you can recover when you will never have another chance to save.

>>C Corporation had a loss in 2011 of $10K<< >>It seems that I can amend 2012 before Oct 15 and attach the election<< The 2011 tax year loss had to have a carryover election on the original or amended 2011 tax return for carryover to 2012 and future years to apply.

You must carry back as no election was made in 2011 to carry forward.

>>The 3 out of 5 year opinion is a common belief but it is no hard and fast rule.<< Its not just a common belief. I think USC code sec. 183 (quoted above) makes it a law which is better than a hard fast rule!

@jainen >> Not to mention that for $150 you might rather not attract a closer look<< @original post >> She can't itemized for 2011, but might for 2012<< This taxpayer at income level and deduction level is a very unlikely candidate for an audit. It should not matter if it is $150 or $1500 the tax return should be prepared correctly for the facts and document the business transactions that took place.

@jainen >>The law presumes it is NOT for profit unless it satisfies 3 out of 5, but no presumption otherwise.<< According to IRC sec. 183: >>(d) Presumption If the gross income derived from an activity for 3 or more of the taxable years in the period of 5 consecutive taxable years which ends with the taxable year exceeds the deductions attributable to such activity (determined without regard to whether or not such activity is engaged in for profit), then, unless the Secretary establishes to the contrary, such activity shall be presumed for purposes of this chapter for such taxable year to be an activity engaged in for profit. In the case of an activity which consists in major part of the breeding, training, showing, or racing of horses, the preceding sentence shall be applied by substituting "2" for "3" and "7" for "5". (e) Special rule (1) In general A determination as to whether the presumption provided by subsection (d) applies with respect to any activity shall, if the taxpayer so elects, not be made before the close of the fourth taxable year (sixth taxable year, in the case of an activity described in the last sentence of such subsection) following the taxable year in which the taxpayer first engages in the activity. For purposes of the preceding sentence, a taxpayer shall be treated as not having engaged in an activity during any taxable year beginning before January 1, 1970.<<

>>She has a "real job"<< Other employment is irrelevant to if this is a business or hobby. She has a substantial investment in materials and was intending to make a profit and probable did make a profit on each item sold. A business has 3-5 years before the IRS can question if it is a hobby. Then it only has to show a profit in 3 years out of 5 years to prove it is not a hobby. Even if it fails the 3 of 5 test there can be other reason for continued losses if there is a plan that should result in future profit. I expect you have convinced you client it is a hobby when it may not need have that awful status. Remember who you work for.

If it looks like a duck, calls itself a duck, and talks like a duck, it should be treated as a duck for tax purposes.

>>but so is a 1065 which is more expensive.<< Form 1065 is much easier than splitting individual items on 2 Sch-C's (which is also incorrect reporting).

>> She started selling a few pieces in October 2011. << Did the taxpayer declare this was a hobby or did you?

I have to agree with Jainen. The church can call it what they want, but it is still an entry fee and an ordinary and necessary business expense for the payer. The amount is irrelevant and the preparer should never consider the amount as a decision factor.

Wrong! Yes you are missing everything. In the tax year he had the fire, he files a casualty loss, tax form 4684, reporting his insurance proceeds and tax cost basis to determine if there is taxable income or a loss deduction.

A housing allowance is a benefit that is in addition to any taxable salary. Obviously the lawyer should stick to law work and not tax work. Housing allowance can be significant to a minister especially if he is buying his home for retirement.

It is a 1099 misc, box 7, nonemployee compensation.

The purpose of the LLC is for liability protection and filing as a partnership better indicates it is a business to protect.

You should file federal form 1065 and income is not subject to SE tax.

S-corp "dividends" are only if the S-corp had retained earnings from being a C-corp and those would be reported on a 1099-Div, not on the k1. S-corp distributions are reported on the 1120S-K1 on line 16d as property distributions.

You need to fill out page 2 sch B.

Probably typical contract "percentage of completion" accounting for financial statement and "completed contract" accounting for tax.

>>What to do???<< Nothing to do if he reported his 1065-W2 income plus his 1065-k1 income.

I have to disagree on no salary to a partner. There are cases where salary is clearly appropriate such as the court cases of a partner that is also a professional (such as a doctor, lawyer, etc) and providing professional services to the partnership. Although IRS publications indicate no salary I don't believe there is any law against a partner taking salary and the partnership deducting any related payroll tax.

I have no hispanic clients nor any that play the race card! The TRUTH is not tasteless or racial. If you have a problem with such, you need to get help and get over it.

I just received my tax return for 2011 back from the IRS. It puzzles me!!! They are questioning how many dependents I claimed. I guess it was because of my response to the question: "List all dependents?" I replied: 12 million illegal immigrants; 3 million crack heads; 42 million unemployed people on food stamps, 2 million people in over 243 prisons; Half of Mexico; and 535 persons in the U.S. House and Senate." Evidently, this was NOT an acceptable answer. I KEEP ASKING MYSELF, WHOM DID I MISS?