Talking with TaxSpeaker: Video 50
1. We are having a debate in our office. If a rental property clearly meets all the qualifications for the Rental Safe Harbor are they required to make the election? If it is required, it will reduce other qualified business income. The rental property is about 6 years old and is not showing a profit to this point, mainly because of interest expense. Trying to decide if we would even want to make the elections based on anticipated future profits.
2. We filed a partnership extension by 3/15 for one of our clients. On 3/19 the client sent us a copy of the IRS letter for S-Corporation acceptance, effective Year ending 12/31/18. There had been no communication from the client that this was in process. Since our extension indicated entity type partnership and not S Corporation, would they be subject to penalties for not having a valid extension on file, as it would appear the IRS is expecting an 1120S to be filed, not 1065? Is there a fix for this?
3. How to handle interest expense to acquire partnership and S corp interests as it relates to QBI. Would this reduce QBI?
4. I am struggling with line 6 of Form 8606. It wants me to enter the value of ALL traditional, SEP and SIMPLE IRAs. I have a client who has a FMV in her rollover IRA account of $427k and a FMV in her traditional IRA of $352k. Out of that $352k $33k is from a non deductible IRA. Obviously if I add the rollover and the traditional together the amount that is taxable is higher than the client wants it to be. It is my belief that once you rollover into an IRA it is treated the same and I have to add them together. But to appease the client I am digging around…. Can you offer any guidance on this issue?
5. Proposed 199A vs Final 199A… The final regs were effective for tax years beginning after 02/08/2019. My understanding is we can really on the proposed regs or the final regs when preparing 2018 tax returns. The proposed regs are silent on the issue of deducting from QBI - SE Tax, SE Health Insurance and SE Pension deductions. This could be a sizable difference for some taxpayers saving them $1,000’s in taxes. What is your position on preparing a return using the proposed regulations and not reducing the QBI by these amounts? Am I missing something here or not understanding this correctly?
6. I am trying to find the election for the grouping of rentals under the safe harbor for several rentals. I have found in the 2018 Form 1040 manual, the election example to group rentals as a real estate professional. Do I just use the same format as that example? What is the IRS regulation and IRS code?
7. Bob, can you go over the details of a back door Roth IRA
8. Could you give a brief overview of the new interest limitations, especially the mechanics of how it flows on the tax return? Do the majority of our 1120S and 1065 clients who make far less than $25M, need to make an election, or are they exempt automatically? Will interest expense flow through on the K-1 as a separate line item? (I believe you use UltraTax, as I do . . .)
9. Do you have a go by form to Opt-Out of Bonus depreciation ?
10. Husband and wife are equal shareholders in an SCorp and file a joint return. The wife has limited income and her QBI deduction is limited to 20% of her AGI not 20% of the business income reported on the K!. Is this correct?
11. We are having a hard time creating an office work flow for the new Section 199A Safe Harbor statement. UltraTax doesn’t allow the return to be submitted for e-filing without the signed attachment. But in order to attach it, we have to print the completed return, send it out to the client for signatures (along with the signatures of Form 8879 which seems redundant), then it seems we must attach the form upon return and resubmit the electronic file. Or possibly not submit the electronic file with the original printing, attach and then resubmit. Either way it’s rather cumbersome and completely disrupts our workflow. Any guidance either directly or through the newsletter would be appreciated.