Posts Tagged ‘Stuart Bassin’

Tax Roundup, 3/29/16: How you figure S corporation stock basis. And: Cronyism!

Tuesday, March 29th, 2016 by Joe Kristan

capitol burning 10904Cronyism 95, Taxpayers 1. The bill to provide a refundable tax credit — that is, a subsidy run through tax returns — for “bio-renewable chemical production” flew through the Iowa House of Representatives yesterday. Only Bruce Hunter (D-Des Moines) voted against SF 2300 in the house. He joins three Senate Democrats (Bolkcom, Quirmbach and Dearden) as the only opposition in the General Assembly to a classic bit of central planning through the tax law.

Iowa already has 24 economic development credits, budgeted to cost taxpayers $277 million in the coming fiscal year. Apparently we needed one more.

Rep. Hunter and Sen. Quirmbach cast two of the three votes against the disastrous Film Tax Credit Program. With a $10 million cap, at least this mistake will cost less than the film fiasco.

Other coverage:

O. Kay Henderson, Biochemical tax credit gains legislative approval, headed to governor

Erin Murphy, Renewable chemical tax credit in Iowa advances closer to final approval

 

S-SidewalkBasis: the first hurdle for determining your deductible S corporation lossYesterday we outlined the unholy trinity of rules restricting losses from pass-through activities: Basis, the at-risk rules, and the passive loss rules. Today we’ll talk a little bit more about S corporation stock basis. Tomorrow will talk about how you can use loans to your S corporation to get basis for deductions, and Thursday we will talk about how the rules are a little different for partnerships.

S corporation basis changes every year.

–It starts with your initial investment in your S corporation stock.

-It is increased by your share of taxable income and deductible expenses, as reported in lines 1-12 of the 1120-S K-1.

-It is increased by tax-exempt income (like municipal bond income) and reduced bypermanently non-deductible expenses (like the 50% non-deductible portion of meals and entertainment expenses); these are reported on line 16 of the 1120S K-1.  If you have a business that generates depletion deductions, factor your “excess depletion” from 1120S K-1 line 15c.

– It is increased by capital contributions, which appear nowhere on the 1120S K-1.

– It is reduced by distributions, which are on line 16 of the 1120-S K-1.

If your losses exceed your basis, your losses are limited to your basis.   If you have multiple deduction items, you have to prorate them to fit your basis.

For example, Assume you started 2015 with $3,000 in basis in your S corporation shares.  You have a K-1 line 1 loss of 9,000, line 4 interest income of $2,000, and a charitable contribution passing through on line 12 (code A) of $1,000.

You have $5,000 in basis to deduct your $10,000 in in expenses – the opening $3,000 in basis plus the positive $2,000 interest income.  You pro-rate the $10,000 expenses — you can (potentially) deduct $4,500 of line 1 loss and $500 of charitable contributions.  The remaining deductions carry forward until you increase your basis via contributions, loans, or future income. I say “potentially” because you still have to clear the “at-risk” and “passive loss” hurdles.

Many S corporation tax prep programs generate helpful basis and deductible loss schedules. Not all preparers do this, though, and even when they do, they are only as good as their starting information.  If the preparer doesn’t know what you paid for your stock, the schedules can’t be correct. Ultimately, it’s up to taxpayers to track their own S corporation stock basis.

This is another of our irregular series of 2016 filing season tips, running through the April 18 filing deadline.

For more information on loss limitations from pass-throughs, check out Peter Reilly’s 2014 post Through The Hoops.

 

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TaxGrrrl, Walmart Gets Big Win Over Puerto Rico: No More ‘Walmart Tax’. Puerto Rico’s desperate revenue grabs are a preview of what states like California and Illinois will soon face.

Robert Wood, IRS Admits Audit Chance Is Small — And Dropping Like A Rock. They’re busy with other things.

Stuart Bassin, Sixth Circuit Requires IRS to Disclose Return Information of Non-Parties in Tea Party Exempt Organization Litigation (Procedurally Taxing). “The Government can continue fighting, but that seems to be an uphill battle and a battle which may produce further precedent that the Service will not like.”

Peter Reilly, Estate Denied Discounts For Marketable Security Family Limited Partnership. “This decision makes me nervous about getting discounts for any family limited partnership that consists solely of marketable securities.”

 

Jack TownsendGuest Blog: IRS FOIA Request Unveils Previously Undisclosed Estate Tax National Policy for Offshore Disclosures

Kay Bell, Which 2016 presidential candidate will cut your tax bill?

 

Scott Drenkard, A Very Short Primer on Tax Nexus, Apportionment, and Throwback Rule (Tax Policy Blog). “The best run down of these concepts can be found in our 2015 edition of Location Matters: The State Tax Costs of Doing Business.”

Stuart Gibson, Information Exchange: Bonanza for Tax Administrators, Temptation for Hackers (Tax Analysts Blog). “While many countries outside the U.S. first reacted negatively to this massive information grab, some soon began to realize the value of coordinated information exchange. They realized, as the old saying goes, ‘if you can’t beat ‘em, join ‘em.'”

Renu Zaretsky, Tax Day is around the corner, and the IRS can take your call! Today’s TaxVox headline roundup covers the eternal IRS complaints of underfunding, the DOA Obama budget tax proposals, and the subsidies Michigan paid for “Batman v. Superman,” because Michigan has solved all of its problems.

 

TaxProf, The IRS Scandal, Day 1055.

News from the Profession. AICPA and CIMA Putting This New Thing to Members for a Vote (Caleb Newquist, Going Concern).

 

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Tax Roundup, 2/12/16: I want my K-1. I want it now, Daddy!

Friday, February 12th, 2016 by Joe Kristan

Accounting Today visitors, click here for the post on password hygiene.

20160212-1No, your K-1 isn’t late. As even late 1099s are arriving, more and more taxpayers are ready to file their 2015 1040s. So why is that stupid partnership or S corporation taking so long to get me that 1099? Isn’t there a penalty for not getting that to me by the end of January?

No, there isn’t. First, it’s not a 1099, it’s a K-1. The earliest any K-1s are due is March 15, and that’s only for “electing large partnerships”  — typically publicly-traded ones (and if you own a bunch of these, expect a dirty look from your tax preparer, as they are time-consuming and therefore bill-increasing).

K-1s for S corporations are due March 15 for calendar-year corporations. Unlike with 1099s, though, the S corporation can get an automatic extension of the filing deadline until September 15. This is often needed because preparing a business return is a more complicated project than computing someone’s wages or interest income. It can be more complex still if the S corporation itself has to wait on…

Partnership K-1s. For 2015, these have an April 15 deadline that can be extended to September 15 (except for the publicly-traded partnerships due March 15). Preparing partnership returns can be devilishly complex, especially when partners come and go. The deadline becomes March 15 next tax season, but that just means more extensions will be filed.

Trust K-1s are also due April 15. Most bank trust departments can get their trust returns and K-1s filed in January and February, as they have all of the information at hand. If the trust has business or rental property, or is waiting on K-1s of its own, though, expect delays.

Remember, almost all pass-throughs are calendar year taxpayers. That means everybody is trying to get their returns done at once. We preparers do our best, but the pipe is only so wide.

Tax is hard. If you think preparing your 1040 is painful, it’s minor compared to doing a return for an operating business.  Look at the IRS publications for partnerships or S corporations if you don’t believe me. If you have to wait on your K-1, it’s not because the partnership, S corporation or tax preparer is indolent or incompetent. It just takes time to get it right — and when you have a bunch of 1040s that will be thrown off if you goof, you really want to get it right.

This is another in our irregular series of 2016 filing season tips

 

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Taxable Talk, Phishers Target Tax Professionals:

Tax professionals, be wary. There are phishing emails supposedly from the IRS targeting tax professionals. Now, we have supposed new clients emailing tax professionals. My mantra, if it sounds too good to be true it probably is, holds for tax professionals, too. Do not click on links that you do not know for certain are valid.

Read the whole thing for more good advice on protecting yourself.

 

William Perez, 3 States are Delaying Tax Refunds

Kay Bell, Full, permanent Internet access tax ban approved

Stuart BassinDistrict Court Certifies Class Action in Tea Party Challenge to IRS (Procedurally Taxing).

Robert Wood, IRS And Justice Department Push Tax Prosecutions

TaxGrrrl, Ask The Taxgirl: Solar Panels & Tax Credits

Kristine Tidgren, Iowa Court Denies Private Condemnation of Right of Way (AgDocket). “Iowa Code § 6A.4(2) confers the right to take private property for public use ‘upon the owner or lessee of lands, which have no public or private way to the lands, for the purpose of providing a public way which will connect with an existing public road.'”

 

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Howard Gleckman, Rubio’s Ambitious Consumption Tax Would Reduce Revenue by $6.8 Trillion, Give Most Benefits to the Highest-Income Households (TaxVox):

Senator Marco Rubio would convert the income tax into a progressive consumption tax, an ambitious idea that would eliminate the income tax’s penalty on saving. However, a new Tax Policy Center analysis finds that Rubio’s version would slash federal tax revenues by $6.8 trillion over the next decade with most of the benefits going to high-income households.

The “mostly benefits high-income households” is the most tiresome and useless cliché in tax policy. Considering that the high earners pay almost all the income taxes, any improvement to the (awful) system will inevitably benefit them disproportionately. But the possible revenue loss is a serious issue, if Rubio remains a serious candidate.

Alan Cole, The Most Important Chart from Tax Policy Center’s Analysis of the Rubio Plan (Tax Policy Blog). “Our latest estimates, calibrated for Washington’s traditional ten-year budget window, showed the plan reducing overall tax revenues by $6.1 trillion on a static basis, while TPC shows a reduction in revenue of $6.8 trillion.”

If only there was a candidate with a plan that would improve the tax system and not increase the deficit

 

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Megan McArdle, Obama’s Oil Tax Is Running on Empty. “The administration has made some gestures toward mitigating this opposition, notably by claiming that the tax will be paid by oil companies. But this is obvious nonsense.”

Carl Davis, More Details Emerge on President’s Proposed Oil Tax (Tax Justice Blog)

TaxProf, The IRS Scandal, Day 1009

Alex Durante, High Corporate Taxes May Increase Debt, Study Finds (Tax Policy Blog). “A new paper published in the Journal of Financial Economics finds that countries with high tax rates on corporate income also have higher corporate leverage ratios. This paper improves upon the methodologies of prior research that had struggled to confirm a link between tax rates and corporate structure.”

 

News from the… Profession? Area Police Department Offers Help to Drug Dealers Struggling With Tax Season Preparations (Caleb Newquist, Going Concern)

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