JohnH

A-r-r-g-h!

I've already filed some extensions. Planning to get my own handled first of the week. Everything after March 8 will automatically go on extension unless it's an obvious slam dunk on the first pass. No exceptions.

Interesting thought. Thanks for mentioning it, Joan. Since the sale of the 6 acres took place in 2018, I have to deal with it as a stand-alone transaction right now. But if you're suggesting we could revisit it and amend the 2018 if the remainder is sold to another buyer within 2 years, that would be very useful info. At $12K in taxes, Probably not enough tax savings to drastically alter their plans, but if they were otherwise ready to sell within 2 years, it might affect their willingness to accept an offer if it could close quickly.

Great questions and ongoing discussion. Thanks for all the interest, especially at this time of year. Yes, the pond was on the 6 acres sold. They paid about $8K to have the pond developed, then about 3 years later they decided it had some problems. They then paid someone about $3K to break the dam and do some grading to level out & re-landscape the area where the pond had existed. The 6 acres has lots of road frontage and the "intent" all along was to carve it out of the total acreage and sell it at some point in the future. (at least that's the client's story and they're sticking to it) The client is very likely to sell the remaining land & home in the next 2-4 years. and will probably not exceed the $250K profit on sale of primary residence. So essentially any cost basis that does not get folded into the sale of the 6 acres evaporates in terms of tax benefit.

I think we're hitting on the part that confuses me. Does basis mean only consist of the cost of land improvements that add value, or is a cost of a "failed" improvement still a part of the basis?

Hey, I like the Solomonic approach ( except instead of 1/2 we're using 6/15ths).

It's probably silly of me to ask, but that usually doesn't stop me so here goes. Client bought 15 acres 20+ years ago. They fenced it in, built a long driveway, and built a house on the property. Last year they carved out and sold 6 acres with the right to use the driveway to an unrelated party. I'm calculating cost basis as the original proportional cost of the land, plus half the proportional cost of the fencing, plus half the cost of the driveway. Here's the odd part. They built a pond on the 6 acres at one point, but had problems with it so they eventually got rid of the pond. Can the cost of the pond and its subsequent demolition be added to the cost basis of the 6 acres they sold in 2018?

Rita: I think that's the contraction for when you charge "per petute", so you had it right..

I'd change the punctuation in your title. Clients! What, are they thinking?

Sounds like your client needs to have a sit-down with someone in authority at the bank (or else just forget about the presumed Texas withholding). I'm not seeing how this is your problem other than to inform the client.

What state issued the state ID number on the 1099-R?

If I got a bill for $-0- I might be tempted to send them a check for $-0- just to see what happened. Or if the ill is for $1, I'd send them a $1 check AND a dollar bill with a note saying if they want to keep the dollar bill, please send the check back to me. But I wouldn't advise a client to do that...

Bart: I worked in a political campaign back when I was a young college student. (We lost , which was the best thing that ever happened to me). When it comes to politicians, no matter how cynical I become, I just can't seem to keep up with reality. What I thought was a contest of ideas with the best person/plan expected to come out on top turned out to be something quite different. I even remember the big party meeting the night before the election. When they were handing out rolls of bills for "gas money" to the precinct workers lined up to drive people to the polls the next day, I was naïve enough to think the money was actually for the purpose of buying gas. (I did wonder why everyone was laughing ) Silly me.

At the risk of stoking the political fires, let me just say that congresscritters in my neck of the woods must be quite different animals than in other places. I mean, they DO hold public forums, and they DO listen to what their constituents say, and they DO profess compassion for the issues raised. They act the right way, and they say the right things, but when they get back to the seat of power their actions are motivated by a whole different set of priorities... Or, as someone so eloquently said one time: "We invited a politician to our home for dinner. The louder he proclaimed his honesty, the more diligently we counted our silverware."

Complaining to your congresscritter is probably a waste of time unless you bring along a trunk full of campaign contribution money anyhow...

Form 8919 probably won't help in this case. He will wind up reducing the self-employment tax by half, but he will be paying income tax on the $6K overstated income. Plus, it invites further scrutiny, which is the opposite of what he's looking to accomplish. You're not wrong to suggest the Form 8919, but I think he really just wants to get this behind him and move on.

From the limited amount of background info given, I'm guessing either the individual did some things while an employee that were questionable, or else the former employer believes some questionable things were done even if there's no direct evidence. In any event, the former employer wants to use the 1099 as a way to retaliate. It's wrong on a number of levels, but that's the situation the client & tax preparer must deal with. The fact that the employer is tossing this back to the accountant, who is most likely trying to run interference, means it's unlikely they will amend the 1099. Even if they send a corrected copy to the client, there' no guarantee they will follow through with correcting the original filed with IRS, which is already in the system. SO there are plenty of ways for this to get sideways, beginning about 18 months from now when everybody's memory has faded. With $2,400 to $3,000 (at most) in taxes in play, it's an exercise in futility to get things corrected at the source. The path of least resistance is to handle it on the Schedule C with some brief documentation. Paper file it and hope it slowly makes its way through the system. BTW, I'd keep the explanation very simple and short. No sense writing an epistle explaining how and why you think the former employer is being a jerk. Just give enough information to increase the probability the problem will go away. That's what I would most likely do, ASSUMING I agreed to take on this shaky situation in the first place, which is not a given. My response would be quite different if the overstatement is $60,000.

It might be practical to report the full amount of the 1099 on schedule C, back out the convention expenses as T&E, then enter an adjustment to the amount allocated to equipment as an "other" expense with an explanatory note attached. If the total overstatement is $6K, then there's a pretty good chance it will sail through with no questions asked. That way you've disclosed everything and the chances of a CP 2000 are minimized.

Thankfully, NC changed its rules to allow taxpayers who claim the standard deduction on the Federal to switch to itemized on the state if it works to their advantage. There are still some adjustments to be made on the state return, but it's worth evaluating.

While reviewing a client's return yesterday, I noticed that my software (Drake) had switched him to using the sales tax deduction, even though he had significant income withholding. It took me a while to figure this out, but I finally noticed that it was related to the fact that he had paid about $ 8,500 in property tax. His sales tax table deduction was slightly higher than the remaining space between his property taxes and the $10K SALT limitation, so Drake switched him over without any input from me. That eliminates jumping through any hoops to calculate the taxable portion of the state income tax deduction next year. I suppose most tax software would take that same approach. Nice touch.

A man finds it very easy to misunderstand something when he senses that understanding it is going to cost him money.

Ron: Good to see you back on the forum, and will be praying for a speedy resolution to your health issues.

Max: Here's an eye-opening article. It's from 2014 and some of the interesting data from IRS dates back to 2010. But a 50% failure rate should make anyone think twice. PLUS, it seems that IRS considers these arrangements low-hanging fruit because there are so many ways to blow the plan up. https://www.newsweek.com/2014/08/15/rollovers-business-startups-401k-cashing-your-401k-using-401k-start-business-262633.html

Sorry for being obtuse. If someone made a request like this, I'd tell him "I'm not touching it."

I wouldn't think twice about doing this return for him. My first thought is "I'm not touching it." So no need to keep thinking...