OldJack

I wonder how many tax preparers make less than the welfare benefit in their state?

>>back to basis calculations<<

OldJack's 45 years notwithstanding, a sole proprietorship doesn't have an "outside basis" like a partnership interest, or stock or similar ownership like a corporation. Those can be sold independent of the business assets.

So she may very well have a taxable gain, and additional income if she doesn't repay the loan. But no bad debts on uncollected AR--without her QB nobody will believe she paid tax on income under accrual method.

Despite Jainen's experience and reputation he has been on occasion proved wrong. To rely only on an income and expense statement to prepare a proprietorship tax return without a balance sheet reflecting owner equity basis should be, and could be, malpractice. As in this case the loan/owner equity was not on the books and is an amount in determining outside basis until corrected on the business books. True that the inside basis and outside basis are normally the same in a proprietorship/(dba), as they are usually in a S-Corp or SMLLC, but there are always exceptions to everything. Due to tax rules it is a myth among accountants that a proprietorship is not a legal entity. Check court cases and you will find the proprietorship entity and the owner both listed in the cases.

A sole proprietorship reports its activities on whatever tax form is applicable to each component of its activity. It could be Schedule C for its ordinary income from operations, Schedule B for interest or dividends earned on investments in its name, or on Schedule 4797/D if it sells fixed assets used in the business, 6252 if business asset sold is structured as an installment sale.

The basis of a sole proprietorship is the basis in its underlying assets, and unless the purchaser assumes debt that is against an asset (for example, a loan on a fixed asset purchase) the amount of the debt is disregarded. For tax reporting when a sole proprietorship is sold, the seller is considered to be selling the assets of the business, not the business itself.

Thank you for the lesson on a sole proprietorship as I must have been doing it wrong these last 45 years. It seems a little strange that you don't think a sole proprietorship could have a long-term capital gain from the transactions involved with the sale of a proprietorship business. True that the business must recognize gain/loss from the sale of assets but that does not preclude a "individual owner basis" gain/loss from the sale and from other items like sec. 1221 assets. In the case of the example in this post it was stated that the only assets were A/R, and software development. We don't know any values but I would guess that the A/Rec were not sold as individuals usually like to keep that. It would be nice to know if allocating the sale price to software development would be a reasonable allocation amount or if the sale price should also be allocated to something else such as the value of the going business. I would remind you that a partnership is nothing more than two or more sole proprietorships and there is nothing that says an owner does not have a tax basis in a partnership or proprietorship.

>>Sec. 1221. Capital asset defined

-STATUTE-

(a) In general

For purposes of this subtitle, the term "capital asset" means

property held by the taxpayer (whether or not connected with his

trade or business), but does not include -<<

>>$22,000 was a loan. $15,000 was repaid<<

Neither the source of funds nor the disposition of sale proceeds is at issue. Are you saying there was a cancellation of debt? It sounds like the investment went to intangibles, perhaps customer lists, domain name, or goodwill. Presumably those would have been deducted or amortized. A sole proprietorship has no basis as such, the way there might be for a partnership or corporation. Gain or loss will be found only with the adjusted basis and allocated sales price of individual assets.

I disagree. A sole proprietorship has the same basic 'cost basis' in a business as any other business organization. True if the sole proprietorship is not keeping proper accounting records it is difficult to determine basis. It does not matter if the loan/capital contribution was "booked" as it was indeed an investment in the business or the business would not have had the cash to operate. It is not too late to book the investment/loan if it can be proved that it was made and not already been deducted or repaid. The transaction of repaying the loan with the sale proceeds has nothing to do with the recognizing of business operating income or loss but would effect gain/loss on disposition/liquidation of the business. Therefore, there are two issues, possible income/loss of the business on Sch-C and/or form 4797 and possible gain/loss on form 1040 sch-D.

Sounds like he has expensed/written off all investment and now selling the web page/business name which would therefore be a $15,000 capital gain for form 4797.

I disagree! Regardless of how many forums you have everyone comes to this one and posts everything that should be on the other forum. Just accept it and move on.

Correct Old Jack 1250 property....but is 1250 property not a sub-type of 1231 property?

No not really with regards to reporting! Sec. 1250 is specifically about possible recapture of depreciation on "realty" property according to year and method of depreciation. Certain depreciation is recaptured and other depreciation is not. Sec. 1231 is about all different types of business property.

Catherine is correct that sec 1250 property sold at a loss is reported on the 4797 on page one.

Sec. 1250 property is first entered on page 2 of form 4797.

Edit: Page 2 if only a gain! However, you need to calculate according to page 2 to see if you really have a loss.

Its not sec. 1231 property, it is sec. 1250 (depr property) reported on page 2 of the form 4797.

Its time to abolish the IRS and replace with something new!

>>Much of our chatter here is technical stuff about filling out the forms and somehow getting paid for it.<<

Chatter on tech stuff is great, political opinion is not what I visit the forum to see. Some members here act like they are on facebook telling everyone about their personal life and social opinions. Its getting to be a bit much.

Until recent years I had never seen liberals discussing tax on this forum. Its a sad day when tax preparers have no common sense like our tax code.

Sounds like the original agreement and purchase created a non-related party partnership of real estate holding. Since the only asset was real estate no partnership return was required if each owner reports their own 1040 income and expenses according to the agreement. It appears the quick claim deed transfers ownership without sale proceeds, gain or loss, so no sale required to report by Jill, however, Jack may need a Form 4797 (zero sale loss) to report any tax basis in the real estate. Jack having zero income and expense has no need to continue reporting on Sch-E. Jill will now have rental income and expense to report on 1040 Sch-E and nothing more until sale of the property.

_{Sounds like the client might want to file form 966 for liquidation and pay no more payroll.}

Since you do only paper filing, will the purchaser keep paper filing your clients?

That's up to the client, after all it is their tax return!! I doubt that many want e-file.

Check this out hrblock.com/retire

The area developer keeps on calling me and sending letters with a promise of large upfront cash payment!

Phone # 877-556-2209

I have already made arrangements with another CPA friend. Thanks anyway.

Its going to be you John as I am going to retire now.

And/Or you can follow the Rev Proc 2011-25, 2011-17 IRB 725 and have the taxpayer sign and you keep the following statement on file:

>>My tax return preparer [iNSERT PREPARER’S

NAME] has informed me

that [iNSERT s/he] may be required to

electronically file my [iNSERT TAX

YEAR] individual income tax return

[iNSERT TYPE OF RETURN: Form

1040, Form 1040A, Form 1040EZ,

Form 1041, Form 990–T] if [iNSERT

s/he] files it with the IRS on my behalf

(e.g., submits it by mail to the IRS). I

understand that electronic filing may

provide a number of benefits to taxpayers,

including an acknowledgement that

the IRS received the returns, a reduced

chance of errors in processing the returns,

and faster refunds. I do not want

to have my return electronically filed,

and I choose to file my return on paper

forms. I will mail or otherwise submit

my paper return to the IRS myself. My

preparer will not file or otherwise mail

or submit my paper return to the IRS.<<

Signed by taxpayer.

I have never e-filed and don't intend to ever e-file. Its not my responsibility to file a clients tax return, its the clients! I don't work for the IRS unless they would be willing to pay me.

Most employers who offer HI require a waiver form to be signed by the employee if they do not want to participate in the employer sponsored plan.

But the obamacare says nothing about a waiver to meet any requirements! I don't see it as a real problem as the IRS has its own problems right now.

>>Can she (the student) refuse her medical coverage through her employer<< ??

No it doesn't answer the question!!

When a client tells you how they want their taxes done its time to tell them to find another tax preparer!

No, but I would like to visit that region. The point is a simpler lifestyle leads to less stress.

If you are concerned about stress, you are in the wrong business!

....Or, the estate can pay the income tax [or request a refund] with the 1041 and then distribute the remainder to the beneficiaries tax free and no need to amend 1040s.