Q & A Summary: 2022 Year-End Seminars

The classes will be updated for 2023. August 24, 2023, will be a 2 hour update class.

You can register for our unlimited package at a cost of $249.00.  Best value. It included all our one- and two-hours webinars scheduled for 2023.

See what we currently have schedule at:  https://www.cpehours.com/webinar-schedule/

More sessions will be added in the future.

The $249.00 cost does not include our Fall 8-hour seminar or the Year end 8 hour seminar.

§ 6011(e) of the Internal Revenue Code and the regulations thereunder require any person, including a corporation, partnership, estate, or trust, who files 250 or more information returns, such as Forms 1042-S, 1098, 1099-INT, 1099-DIV, 3921, 3922, 5498, 5498-ESA, W-2, etc., to file these returns electronically. 26 CFR § 301.6011-2. This 250-threshold requirement applies separately for each type of form required to be filed, and to both original and corrected forms.

Payments include those made for the purchase of farm products, such as grain, crops and milk.

The only question for us is if the Form 1099-NEC updated this position.  The IRS released guidance late last year indicating that veterinarians meet the definition of a medical provider, therefore, if the farmer pays more than $600 to any vet during the year, they should issue a form 1099 at the end of the year, even if the vet is incorporated.  If you have a vet that provides services during the year and these payments exceed $600 for the year, make sure to issue a form 1099 to them at year-end.  Instead of being listed in box 7 (non-employee compensation), these payments will be listed in box 6 (medical and health care payments). We also looked that the IRS ATG guide for Vets.  They treat Vets as medical professionals.  So, the MISC Box 6 treatment may still be appropriate.

Review the above resource.

Inside basis refers to the adjusted basis of each partnership asset, as determined from the partnership’s tax accounts.

Inside basis usually comes from partner contributions but may also come from purchases the partnership makes with partnership funds.

Outside basis represents each partner’s basis in the partnership interest. Each partner “owns” a share of the partnerships inside basis for all of its assets, and all partners should maintain a record of their respective outside bases.

754 Adjustments to Basis

As a result of operations, the basis that a partner has in his or her partnership interest will fluctuate throughout the term of the partner’s ownership. The basis of a partner’s interest in the partnership will either increase or decrease according to the following:

The basis of a partnership interest is increased by:

1. Additional contributions to the partnership or other forms of acquisition (e.g., purchases)
2. The partner’s share of partnership taxable income, tax-exempt income
3. Depletion deductions in excess of the basis of the property subject to depletion
4. An increase in the partner’s share of partnership liabilities (including partnership liabilities assumed by the partner).

A partner’s basis is decreased by:

1. Distributions of money or other property from the partnership
2. The partner’s share of partnership losses and non-deductible, non-capitalized expenditures, including the partner’s share of disallowed partnership losses if such losses reduce the basis of partnership assets without a corresponding effect on its income
3. Any reduction in a partner’s allocable share of partnership liabilities. The IRS stated that a reduction in a partner’s share of partnership debt is treated as an advance of cash to the partner and is taken into account at the end of the partnership year. This ruling formalized existing IRS policy that the decrease in basis occurs on the last day of the year and not on the mid-year date when the partner’s share of debt declines.

Services. You render services to the occupant when such services are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only. For example, with the seven-days-or-less rental, you render more than occupancy services when you clean the unit, supply clean linens, wash the dishes, and provide maid services.

If all you do is clean public entrances, exits, stairways, and lobbies; collect the trash; and so forth, you are not rendering more than occupancy services.

Net income. If the short-term rental on Schedule C produces a net income, you likely have qualified business income for the possible 20% tax deduction under new tax code § 199A.

Net loss. If the rental that’s reported on Schedule C produces a tax-deductible loss, you combine that loss with other self-employment income to find the net earnings subject to the self-employment tax.

For purposes of the passive loss rules, your property with an average rental of seven days or less is not a rental, even when it’s reported on Schedule E. With an average rental of seven days or less, the property:

·        does not qualify for the $25,000 active participation rental loss break;

·        does not produce material participation hours that you can use to become a real estate professional; and

·        stands alone under the passive loss rules (albeit possibly grouped under the general business—not the rental—grouping rules).

When the average rental period is seven days or less, the property is not a rental property as defined by the tax code. Instead, the property is:

·        a commercial hotel type property that you report on Schedule C of your tax return if you provide services in connection with the rentals, or

·        a weird in-limbo property that you report on Schedule E when you don’t provide services.

If the property shows a loss, you can deduct that loss on either Schedule C or Schedule E if you can prove that you materially participate. With the seven-days-or-less-average rental, you likely have only two ways to materially participate.

The two paths to material participation are easy to understand and apply. Make sure you have a record of the hours to prove your work on the property.

If you have a profit on the rental, you likely have a § 199A deduction when you report the rental on Schedule C as a business.

Although not deemed a business by Schedule E reporting, the Schedule E rental could rise to the level of a business as defined for the § 199A deduction.

I would issue such a document to the individual that benefited from the lodging as part of their ability to meet their employment obligations.

7 different periods I mean for avg of 5 days?

Tax laws are full of exceptions, but the 14-day rule—sometimes called the “Masters exception” because of its popularity in Georgia during the annual Masters golf tournament—is the most important for anyone considering renting out a vacation home. Under this rule, you don’t report any of the rental income you earn from the short-term rental, as long as you:

• Rent the property for no more than 14 days during the year AND
• Use the vacation house yourself 14 days or more during the year

If you meet the requirements of the 14-day rule, you do not have to report the income on your taxes and you don’t deduct any expenses as a rental expense.

If you just rent out one room in your house, the 14-day rule applies in the same way as if you rent out your whole house. Fourteen days or less, you don’t even have to report the income on your taxes, but you cannot take any rental expense deductions either.

The rule is simple: you don’t have to report rental income if you stay within the 14-day rule. However, because of reporting laws, companies like Airbnb, HomeAway and VRBO may report to the IRS all income you receive from short-term rentals, even if you rent for less than two weeks. If reported, this income will likely be reflected on a Form 1099-K.

Fact situation 1

An individual taxpayer directly owns and rents, in a trade or business, a fully furnished vacation property via an online rental marketplace. The taxpayer is not a real estate dealer and does materially participate, so the activity is not a passive activity. The taxpayer provides linens, kitchen utensils, and all other items to make the vacation property fully habitable for each occupant. The taxpayer also provides daily maid services, including delivery of individual-use toiletries and other sundries; access to dedicated Wi-Fi service for the rental property; access to beach and other recreational equipment for occupant use; and prepaid vouchers for ride-share services between the rental property and the nearest business district.

Fact situation 2

An individual taxpayer directly owns and rents, in a trade or business, a fully furnished room and bathroom in a dwelling via an online rental marketplace. The taxpayer is not a real estate dealer and does materially participate, so the activity is not a passive activity. Occupants only have access to common areas of the home to enter and exit the room and bathroom and have no access to other common areas such as the kitchen and laundry room. The taxpayer cleans the room and bathroom in between each occupant’s stay.

·        Use the money to make student loan payments.

·        Liquidate the account and pay income tax and a 10% penalty on the earnings.

·        Keep the funds in the account to use for graduate school or continuing education.

·        Change the beneficiary to a qualifying family member who will use the funds for college.

·        Save the funds for a future grandchild.

Also, there is the issue of “one living parent”.  Review Pub 970.

But beware, I have had many individuals claim they are on disability from the VA when what they are receiving is a pension that is taxable. Ask a few questions.

As stated in IRS publications, veterans should not include in their income “any veterans’ benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA).” Veterans Pension is a tax-free monetary benefit payable to low-income wartime Veterans. Generally, a Veteran must have at least 90 days of active-duty service, with at least one day during a wartime period to qualify for a VA Pension.

I was thinking that there was an employer contribution and an individual contribution.

For a self-employed individual, contributions are limited to 25% of your net earnings from self-employment (not including contributions for yourself), up to $61,000 for 2022 ($58,000 for 2021; $57,000 for 2020).  There are FAQ’s on irs.gov search engine ” SEP Plan FAQs https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps

Publication 560 590A and 590 B also has information

The business will have to be valued each year so that a Form 5498 can reflect the value of the ROTH IRA account each 12/31.

Also, if the small business is the individual’s small business the prohibited transaction rules must be reviewed carefully.

Inherited IRAs: Old Rules

If an original beneficiary died prior to depleting the full inherited IRA, the successor beneficiary was able to “step into the shoes” of the original beneficiary.

They could continue to take the RMD each year based on the original beneficiary’s remaining life expectancy.

You can stretch distributions over your lifetime using an IRS uniform life expectancy table to estimate your remaining lifespan based on your age.

For example, someone who is 40 years old in 2022 could expect to live another 45.7 years. So, a 40-year-old with a $1 million inherited Roth IRA would have an RMD of $21,881, which is equal to $1 million divided by 45.7.

Assume that Harry would have a total RMD of around $8,000 for his IRAs this year if he hadn’t annuitized any part of his $190,000 IRA balance. Will the $9,000 he receives from the annuity satisfy the total RMD for all of Ron’s IRAs for the year? Here is where the answer may not be clear.

There is some debate over whether or not such a distribution from an annuitized annuity can be used to satisfy RMDs for other IRAs in the year of annuitization. On one hand, once annuitized, IRA annuities generally follow defined benefit plan rules instead of the defined contribution rules. That would lead you to believe the answer is no.

On the other hand, RMDs are based on prior year-end balances. Since the annuitized annuity had a prior year-end balance and wasn’t annuitized at the time, that might lead you to believe yes (which is the view supported by most — but not all — experts in the field). Due to the lack of guidance in this area, the most conservative approach is to take the $9,000 annuity distribution from IRA A and an additional distribution from IRA B based on its prior year-end balance.

After the year of annuitization, things get much clearer. Nearly all experts agree there is no way to use the income from the annuitized annuity in IRA ABC to offset any of the RMD that must be taken from IRA XYZ. In this situation, the annuity payout will only satisfy the RMD for IRA ABC.

Taxwise would not acknowledge me applying this all to the mom and the IRS kept rejecting the return. Was I supposed to do this differently somehow?

On the 2nd form of ACA, I put the parent’s social and 100% to her and 0% to the daughter.

Was I supposed to put 3 on the ACA form for the household and not 2, and then based on what I read I was supposed to put 0 for the daughter?

Also, he started a business that had inventory.  The business did not go well, and he wrote-off the inventory.  He, however, still has the inventory.  Is there a way that he can dispose of the inventory in order to take it as a deduction? If he gives it to family and friends he can’t, but what about a charitable organization?  Or what can I possibly do with this?  The IRS agent was going to look into this.  She initially was going to deny everything, and I argued he had a business plan, and all and definitely started it to make money.

If you believe you need assistance on this matter, I would reach out and contract with another tax professional with IRS representation expertise to assist you with this matter.

Has anyone else had this issue?

That is how my program calculated it but the IRS is denying it.

Does the book have more info on taking the adoption credit?

Any credit leftover from their owed 2021 taxes can be carried forward for up to five years. Qualified expenses include Reasonable and necessary adoption fees. Court costs and legal fees.

Are they over the income limitations?

Looking at the Form 1040 after the Child Tax Credit was taken was there any tax liability left over. If not, the adoption credit would be carried forward as it is nonrefundable and would need tax liability over and above the child tax credit.

https://www.irs.gov/taxtopics/tc607 is a link to more information general we updated the inflation adjustments, but rules remain the same.

When did she file?

IRS needs time to process the return and then report to social security that can 6 months or more.

If a couple sell securities, property, or other capital assets held jointly at a loss, and the loss is not fully used in years before one spouse dies, half of the loss is allocated to the surviving spouse and can be carried over.

If just one of the spouses owned the asset that generated the capital loss carryover, any carryover is solely attributable to the spouse who owned the property and incurred the loss, and that carryover is lost if not absorbed in the joint return filed for the year of death.

In order to take the deduction, you must use the car for business more than 50% of the time, and you can only deduct the percentage that you use for work.

The vehicle must meet certain requirements, such as weighing between 6,000 and 14,000 pounds.

You cannot write off the purchase price and claim the standard mileage deduction in the same year.

You cannot deduct more than your business’s net income for the year.

Dollar Limits – The total amount you can take as § 179 deductions for most property (including vehicles) placed in service in a specific year cannot be more than $1,080,000.

In other words, all § 179 deductions for all business property for a year cannot be greater than $1,080,000 for the 2022 tax year. The dollar amount is adjusted each year for inflation. There is also a “phase-out” limit of $2,700,000.

In addition to the general dollar limits, the maximum § 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2022 is $27,000.

After all of the discussion the bottom line for 2022 is the vehicles with a gross weight above 6K but no more than 14K qualified for a deduction under IRC §179 if $27,000.

The §179 limitation imposed on sport utility vehicles (SUV’s) has an expense limit of $28,900 for tax year 2023!

For new and pre-owned (used) vehicles, the maximum write-off for the first year is $10,200, plus an additional $8,000 in bonus depreciation. For SUVs with weights over 6,000 lbs., but no heavier than 14,000 lbs., the full 100% of cost can be depreciated.

It does not pop up.  Any suggestions how to get an EFIN summary so I can give EFIN summary to my software company so I can e file 941?

First have you updated your e-file profile that allows you to send corporate tax returns.  I assume you have.  If not you will need to call the e-services help line or go into eservices and check a box that allows 1120’s to be e-filed.  866-255-0654

If this is not the issue, then how did the entity apply for an federal identification number, did they state they were an 1120 entity and elect to be an S Corporation by filing the Form 2553.

When an EIN number is assigned, it is based on the application and the record is updated to the entity selected, i.e. Corporation.

If the computer mod stated it was assigned as a partnership 1065 filing, it will reject.

Finally, what did the reject acknowledgement state?

I can address further with more information from you. Pose your question at: [email protected] and I will try and address.

Call 855-545-5640 to make an appointment. The client must have an appointment.

I would have them make an appointment at their local IRS office.

Call 855-545-5640 to make an appointment. The client must have an appointment.

Generally, if the refund amount is out of statute the refund is barred and lost.

Here a quick comment from research – The seller of the home providing the owner financing is required to report the amount received as income on their taxes. They must also send you a Form 1098, Mortgage Interest Statement, by Jan. 31 for any interest paid to them on the loan for the previous year if it was more than $600.

However, the IRS website also provides “Who Must File” – File this form if you are engaged in a trade or business and, in the course of such trade or business, you receive from an individual $600 or more of mortgage interest (or $600 or more of MIP, if section 163(h)(3)(E) applies for the reporting year) on any one mortgage during the calendar year. See the instructions for box 5, later, for MIP reporting requirements.

You are not required to file this form if the interest is not received in the course of your trade or business. For example, you hold the mortgage on your former personal residence. The buyer makes mortgage payments to you. You are not required to file Form 1098.  NOTE THAT THE KEY POINT IS “YOU ARE ENGAGED IN A TRADE OR BUSINESS”

Sorry for “beating this horse to dead”, but this discussion is appropriate for your question –

Not in the lending business. If you receive mortgage interest of $600 or more in the course of your trade or business, you are subject to the requirement to file Form 1098, even if you are not in the business of lending money.

For example, if you are a real estate developer and you provide financing to an individual to buy a home in your subdivision, and that home is security for the financing, you are subject to this reporting requirement. However, if you are a physician not engaged in any other business and you lend money to an individual to buy your home, you are not subject to this reporting requirement because you did not receive the interest in the course of your trade or business as a physician.

Generally, the answer is no, as they filed a joint return, but to avoid any conflict of interest it is best to work through the attorneys and supply the information to them upon an official request.  If that is the case, you would need permission to provide the file to the attorneys from each spouse.

To qualify under this administrative general welfare exclusion, the payments must:

(1) be made to individuals;

(2) come from a governmental fund;

(3) promote the general welfare based on individual or family need; and

(4) not represent compensation for services.

Follow up answer on the deductibility side – If the mortgage assistance payments are made by the Department of Housing and Urban Development (HUD) under § 235 of the National Housing Act, the taxpayer-mortgagor cannot take an interest deduction. IRS regulations bar any interest deduction with respect to a taxpayer’s indebtedness due to HUD assistance payments under Sec. 235 of the National Housing Act (Reg § 1.163-1(d)).

However, if the taxpayer-mortgagor actually paid a portion of the mortgage payment, participated in an HFA Hardest Hit Fund program in which program payments could be used to pay mortgage interest, and meets the rules to deduct all of the mortgage interest on the loan, all of the mortgage insurance premiums, and all of the real property taxes on his or her main home, he or she would be entitled to a safe harbor deduction of the lesser of:

a. The amounts actually paid during the year to the mortgage servicer, HUD, or the State HFA on the home mortgage, or

b. The sum of the amounts shown on Form 1098 as interest, real property tax, and deductible mortgage insurance premiums.

Is there an issue in the IRS databases and how do we go about keeping the proper address after the multiple address change letters?

This prevents scammers from changing addresses to get IRS correspondence and using information to create a fake identity.

This can also happen if you are using different addresses on lets say the 1120 but filing under a different address for the Form 941.  There needs to be consistency.

IRS needs to confirm the correct address.

Note: Payments that are for the permanent retirement of cropland base and allotment history are not includible in net income from self-employment subject to self-employment tax because they are for the sale of section 1231 property or a capital asset. It appears that the CRP received in March when the taxpayer was not on social security would not be able exclude from SE tax. 

This item discusses that case and how a back-to-back loan is a viable option for shareholders who want to increase their debt basis in an S corporation. However, care must be taken to ensure that a loan to an S corporation is treated as a back-to-back loan from the shareholder.

https://www.thetaxadviser.com/issues/2018/nov/loan-guarantee-not-increase-s-corp-shareholder-debt-basis.html

There is a new guide out:

https://www.irs.gov/pub/taxpros/fs-2022-40.pdf

Can you use the Geothermal Tax Credit more than once?

Yes, you can use the tax credit multiple times if you install geothermal in more than one home. There is no limit to the number of times or a maximum amount you can claim for the tax credit.  Check state issues, some states also allow the credit.  Just another question I would ask the client, since it was a lemon did, they get the cost back from the company?

New guidance has been issues

https://www.irs.gov/pub/taxpros/fs-2022-40.pdf

New guidance has been issued: https://www.irs.gov/pub/taxpros/fs-2022-42.pdf

Was the insurance money used in 2023 to repair the home and what type of repairs were done? Bottom line you cannot double dip, if the insurance paid for the repairs no credit.

It is not a rental.  Residence took MAJOR damage in storm and the family decided to tear down and build entire new house instead of trying to repair.

Or reconstructed structure by the taxpayer begins.” So presumably that’s correct. I just always worry when it’s a new credit and we don’t have as much IRS guidance as we’d like.

Even if dividends from a foreign company, held by Edward Jones or some other broker, with foreign taxes withheld, will require a K2/K3? Are you serious? There is no foreign ownership involved, except shares of a foreign company.  Remember, as the owner of the shares, I do not prepare the K-1; this foreign tax is shown on a 1099-Div – no K1 is issued. 1 the shareholder received the letter or email and 2.  you know whether or not they are requesting the K2 or K3 rather than just wait until the due date that they have not responded.   DO NOT understand what this person wants or is just complaining. Hence, no answer provided.

Often the information flows from the K-1 and self populates the forms.  But if foreign tax and 1116 is required to be filed, K-2 and K-3 apply

Rather, it can be issued as late as the date the Schedules K-1 are provided to the partners and even provided as an attachment to the Schedule K-1”

Then is says “The 1-month date, for both the domestic filing exception and the Form
1116 exception, will now be one month before the Form 1065 is filed, so
as late as August 15, 2023, for a calendar year partnership return placed

on extension.”

1.  The shareholder received the letter or email and 2.  You know whether or not they are requesting the K2 or K3 rather than just wait until the due date that they have not responded.

So, file an extension and give yourself more time but file return so they can get personal taxes in time?

You must meet the 4 criteria as laid out in the Final 1065 & 1120S instructions. See instructions for criteria on Domestic Filing Exception

They are the ones that my need the K-3 information for their returns even though the entity meet the filing exception for K2 K3.

For partnerships and LLC (that generate SE income; an S corporation will not create SE income at this time) will reduce the amount of income subject to SE tax.

The reduced income flows through to the taxpayer.