caTalking with TaxSpeaker: Video 71
1. Is there a procedure to revoke an S-Corporation election back to the inception date that was inadvertently elected?
I am not aware of anything allowing a retroactive termination of an S election other than a PLR. A prospective termination may be made at any time, but not retroactive except for the 1st 2 and ½ months of the year.
2. I have a married couple that owns 100% of a partnership (A). The partnership (A) invests in various real estate partnerships. How am I supposed to report partnership (A)’s business expenses against the K-1 income? Most of the passthrough income is reported on the 1065 form 8825 with almost no income going to page 1 of the 1065.
Are you filing a 1065 for partnership ? If so the expenses should be allocated to the 8825 in any reasonable manner. If no 1065 then deduct as UPE on 1040
3. If an S corporation that owns several restaurants sells one of the locations and then uses the gain portion of the proceeds to purchase a new restaurant located in an opportunity zone, does that make the sale tax free?
It makes the gain deferred, not free but only if the new activity is inside a qualified opportunity zone fund established to do investments in the zone, with the entity newly established after the Ozone date.
4. HI my question is company a partnership has 3 members 50% A member, 25% b member, and 25% c member. Member B and C are in a divorce and B is paying C for the 25% $400,000 how can I show this as a divorce settlement and not be taxable to C?
See IRC Sec. 1041. In most cases this is a tax free payment incident to a divorce and is not taxable to C, nor even reportable by C. C had a choice of cash or assets (pship interest) and chose cash. Partner B’s basis however only increases by C’s basis, not by the 400k. (Treated as a gift by C to B). To get this treatment the transfer must occur within 1 year of the divorce.
5. I helped a client that lives in New Zealand for his 2015 tax return reporting earnings from the United States. He has not had any income from the US since then and he has been a permanent resident of New Zealand since then. He does not intend on leaving there for residency in the future. He is a dual citizen but wants to travel back to the US and does not know if not filing a tax return in the US will stop him from being able to do that. According to the research I have done, if he is a resident of New Zealand and does not have any income from the United States, he is not required to file a US return. Can you address this for me with an answer to what you would believe is necessary or direct me to a source where I can get definite verification?
I have no experience with dual citizenship and don’t even know where an answer would be, so would suggest a national CPA firm.
6. With regard to QBI calculations, I understand that IRC 1231 net gains are generally treated as long term capital gains at the individual level and accordingly are not then available for the QBI deduction. I was wondering whether 2018 IRC 1231 gains that are effectively treated as ordinary income in 2018 (because of the presence of unrecaptured 1231 losses coming into 2018) should be available for the QBI deduction.
The final regulations remove the specific reference to section 1231 and provide that any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss, including any item treated as one of such items under any other provision of the Code, is not taken into account as a qualified item of income, gain, deduction, or loss. To the extent an item is not treated as an item of capital gain or capital loss under any other provision of the Code, it is taken into account as a qualified item of income, gain, deduction, or loss unless otherwise excluded by section 199A or these regulations. So yes, ordinary income 1231 gains qualify for QBI
7. I have an employee who has in the past worked full time for me, she qualified this year for Widow’s benefits through Social Security. We made sure we paid her her tax bonus and vacation pay in June before she started drawing Social Security in July of 2019, (before her FRA). Since she can’t make more than $1,470 a month, we cut her hours so that her gross income less her half of her group health insurance that we take out of her paycheck on a pre-taxed basis would be less than $1,470 each month which she was told when she applied for Social Security. Now a different employee at social security says her group health insurance is NOT deducted prior to calculating the max monthly earnings, which means her income is higher by $550 each month and she would have to pay $225 a month back. Our question is, Should it be included in the formula of Earned Income or should it be excluded? Our confusion is that employer health insurance deduction is not reported anywhere on her W-2 so how would Social Security ever know this amount is included? Going forward for her annual income of $17,640, if they get their information only from the information that we submit to Social Security on her W-2.
Your question concerns me so I went to my Social Security handbook as well as deep research on SSA.gov and I find absolutely nothing supporting the claim of the 2nd SSA employee. Every source and citation I find uses taxable wages plus pension deferrals only. Thus I do not agree with the 2nd employee.
8. I have a client who is building a pavilion in HI. The total cost will be in excess of $400K. It doesn’t have permanent walls (except the one behind the stage) but will have temporary ones that can be used in inclement weather. It does have a stage area and this will be used for seminars. I have searched everywhere I can think of to find out if this would be considered nonresidential real estate for tax purposes and, thus, needs to be depreciated over 39 years, or since it doesn’t have permanent walls, can it be depreciated over 15 years and, thus, qualify for bonus depreciation. Thanks for any advice you can give, plus any supporting evidence (in case of audit)…I guess I can always say, “because Bob said so!” 😊
Oooh, tough one and reference to me will only hurt! Canopies and awnings of a temporary nature are 5 year assets and their foundations are 15 year land improvements-I would go with the 15 year.
9. Does Bob have a recommendation for a good Quality Control guide. Highest level of service is compilation without disclosure.
We have always used the free AICPA QC Document. Go to https://www.aicpa.org/content/aicpa/interestareas/frc/enhancingauditqualitypracticeaid.html
10. I have a client who received a letter from Social Security. It stated that because they were unaware of the taxpayer’s earnings (W-2 of $51,635), Social Security paid excess benefits of $11,715. The taxpayer has not reached FRA; she is only 63. In an attached statement SSA states the corrected monthly amounts for 2018 are $0. In addition, the taxpayer’s SSA-1099 has benefits paid of $10,714. Can you shed some light on this issue?
For every $2 of earned income above the roughly $17,000 earnings limit when working and drawing before FRA the client must repay $1. Soshe made 51635-17000=34635 excess/2=17318.. Not sure where the difference is but they will take it out of next years monthly payments
• I have a 1040 client, Husband and Wife, with 10 residential rental properties
• The wife meets the tests and is considered a Real Estate Professional
• For tax years prior to 2018, wife would provide us with mileage information for each property and we would claim the standard mileage allowance against the respective Schedule E’s
• During 2018 wife purchases a pick-up truck that is used in the ordinary course of business, taking care of the rental properties
11. Since we file 10 separate Schedule E’s, how would you suggest I reflect the vehicle, the related depreciation deduction and the related expenses.
I allocate the expense in any reasonable manner as an overhead item, generally divided equally. I would not take 179 but would consider (or elect out of) bonus.
12. I have an individual client who is the beneficiary of a trust created under the will of a deceased person. The trust is treated as a Complex Trust. Starting in January of 2018, the trust started to pay for the Long Term Care Expenses of my client, the sole beneficiary of the trust. My client received a K-1 from the Trust reporting the income that carried out as a result of the distributions made. Are the Long Term Care Expenses paid by the trust, allowable Medical Expenses on my clients individual income tax return?
Ok I researched, called a friend and came to this conclusion: No one knows! But they advised to take the deduction on the 1040 as medical under the argument that technically it was use of interest, dviidends and cap gains attributable to the taxpayer.