So the K-1 finally showed up from my partnership or S corporation investment. Now what?
Remember that the K-1 represents your share of the income and expenses of the partnership/S corporation/trust (henceforth “thing”) that issued it. Different pieces of income and expense are treated differently on your tax return, and the K-1 tells you where your pieces go. Sort of. Before you get started plugging in your numbers, you should answer some questions for yourself.
- Do I “materially participate” in this thing? Your level of participation determines the forms you start with in preparing your returns, whether you can deduct losses, and whether your income from the thing is is subject to the Obamacare 3.8% Net Investment Income Tax. If you spent more than 500 hours working in the thing, that usually means you materially participate; a more complete discussion of material participation is found here.
- Did the thing lose money? If it lost money, then you have to clear three hurdles to deduct the losses:
1. You have to have basis. This starts with your investment in the thing. If you loaned money directly to the thing, you will get basis for the loan. If you have a partnership, you will get basis for your share of the partnership debt, shown in part L of your K-1. S corporation shareholders don’t get basis for their share of the corporation’s debt, even if it is guaranteed by hte shareholder. Your basis is increased for your share of the thing’s income, and it is reduced for losses and distributions. If you have no basis, you can’t take losses.
2. Your basis has to be “at-risk.” This normally means that you are out-of-pocket for the investment. If your basis comes from borrowed funds, you have to be personally on the hook for the debt — but if you borrowed from somebody with an interest in your thing, you might not be “at-risk” even if you will have to pay up if thing defaults.
If your basis comes from a share of the partnership debt, you are normally considered “at-risk” for debt shown on the “Recourse” and “Qualified Nonrecourse financing” lines on part K of your partnership K-1. Your at-risk amount is computed on Form 6198,
3. You have to materially participate (see above), or have “passive” income from other activities. If you don’t materially participate, you need to go to Form 8582 to figure how much, if any, of your loss is deductible this year.
Got that? Tomorrow we’ll look at what you have to do after you answer these questions. Come back every day through April 15 for more 2014 filing season tips!
At issue is the fact that Houser, a Republican from Carson in southwest Iowa, hasn’t resigned. He has simply stopped coming to the Statehouse, saying he isn’t needed as a minority caucus member and doesn’t have a role in any legislation. He says it’s more important for him to spend time on his family’s farm, where he is expanding the livestock facilities.
Houser was not present in the Senate chamber again on Monday.
Secretary of the Senate Michael Marshall said Monday that Houser is still receiving his annual salary of $25,000.
The coverage implies that Sen. Houser is doing a bad thing. Considering the dubious accomplishments of the ones that do show up, I can’t agree. We’d be better off if they all went home. The legislators should get all of their pay on Day 1 of the session, and they should get docked if it goes past a month.
Of course they do. Iowa House panel OKs $2 million tax break for Knoxville Raceway. (Des Moines Register)
Queen of IRS tax fraud needs a break. Rashia Wilson, who famously held up big wads of cash on her Facebook page and taunted the feds to come and get her, is less liquid nowadays, according to a report by tampabay.com:
Busted down to a federal prison in Aliceville, Ala., she earns just $5.25 a month, she declares in newly filed court papers. That’s a problem because Wilson, 28, was ordered to pay a token $25 per calendar quarter toward the $3.1 million in restitution that she owes the IRS for filing false tax returns using stolen identities. She needs money to buy vitamins and hygiene items, too, she says. So she’s asking U.S. District Judge James S. Moody Jr. to suspend restitution payments until after her release date: Jan. 5, 2031.
Then she’ll really get after it, I’m sure.
Peter Reilly, No Money For April 15 1040 Balance Due? Don’t Panic!
Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me. ”I used to work in radio. I was the news director at KNOD radio station in Harlan, over in the western part of Iowa.”
I had a brief stint as an unpaid intern for KHAK, a country station in Cedar Rapids, in 1980. I learned that I have a face for radio and a voice for print.
Roger McEowen and Kristine Tidgren, Understand That Easement Agreement Before You Sign It
TaxGrrrl, New IRS Commissioner Talks Tax, Scandal and Congress. She gives him more credit than I do.
Andrew Lundeen, Kyle Pomerleau, Americans Pay More in Taxes than on Food, Clothing, and Housing Combined (Tax Policy Blog)
Renu Zaretsky, Ethics and Fairness, Growth and the Environment, Retirement and Tax Shelters. The TaxVox headline roundup ponders, among other things, whether we should subsidize wind turbines forever.
TaxProf, The IRS Scandal, Day 334
News you can use. How to Cheat on Your Taxes. (David Cay Johnston, via The Taxprof)
News from the Profession. According to Research, You Are Fat Because Busy Season (Going Concern)