Terry D EA

Okay may have spoke too soon. Definitely does not qualify for the EITC. May qualify for CTC under the exceptions for divorced or separated parents.

You stated the child live with his mother all year and not his father who is gaining the dependency this year. The fact the child did not live with him during the year negates both credits.

Try this link. It should give you a better understanding of how the Net Investment Tax is calculated. Examples are at the bottom of the page. Just a suggestion, but in no way should you trust the program calculations. While most are very good and probably spot on, you should calculate various results yourself to be sure the software is calculating correctly. https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax

Below is a breakdown. You don't calculate QBI at the S-Corp level. S-Corps are pass entities and do not pay tax. The QBI is reported from the S-Corp is to be on line 20 of the K-1 form and is the net income/loss that passes thru to the shareholder. Then the actual deduction is calculated at the shareholder level taking into consideration the shareholder's w-2 wages (not the employee's) and basis for determining the QBI deduction. Of course, it doesn't stop there, then the final determination is 20% of taxable income or QBI which ever is less on the 1040. Also, remember the limitations on the income levels and filing status. BTW- NEVER adjust a W-2 form. Long read but very good examples. Section 199A allows S Corp shareholders to take a deduction on qualified business income (QBI). QBI per IRC 199A (c)(1) is “the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer”. Basically, it is the taxable net income. The deduction which an S Corp shareholder can take is the lessor of 20% of QBI OR the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of the unadjusted basis after acquisition of qualified property [IRC 199A (b)(2)(B)]. Clear as mud? Let’s break this down Here are two S Corps’ information used below as examples; S Corp 1 and S Corp 2. S Corp 1 has one shareholder, Shareholder A and S Corp 2 has two shareholders, Shareholder B own 60% and Shareholder C owns 40%. Example Information for tax year 2018 QBI Unadjusted Basis S Corp 1 $ 100,000 $ 120,000 S Corp 2 $ 180,000 $ 200,000 Shareholder % W-2 Wages Shareholder A 100% $ 50,000 Shareholder B 60% $ 30,000 Shareholder C 40% $ 20,000 20% of QBI S Corp 1 Shareholder A will use $20,000 ($100,000 x 20%) for the deduction calculation. The S Corp 2 shareholders will calculate their deduction calculation as follows; Shareholder B will use $21,600 ($180,000 x 20% x 60%) for the deduction calculation while Shareholder C will use $14,400 ($180,000 x 20% x 40%). 50% of W-2 wages This part is as straight forward as it sounds. Each shareholder must calculate 50% of their wages to use as part of the deduction calculation. The W-2 deduction calculations would be as follows; Shareholder A $25,000 ($50,000 x 50%), Shareholder B $15,000 ($30,000 x 50%) and Shareholder C $10,000 ($20,000 x 50%). 25% of W-2 wages plus 2.5% of Unadjusted Basis The first part of this is self-explanatory. The second part is a bit trickier. The unadjusted basis after acquisition of qualified property, is a calculation of net income without the depreciation expenses and deductions. For Shareholder A the deduction calculation will be $15,500 [($50,000 x 25%)+($120,000 x 2.5%)]. For Shareholder B the deduction calculation will be $10,500 [($30,000 x 25%) + (60% * ($200,000 x 2.5%))] and Shareholder C $7,000 [($20,000 x 25%) + (40% + ($200,000 x 2.5%))]. Section 199A calculations Lessor of Greater of 20% of QBI 50% of Wages 25% wages + 2.5% Unadj Basis Shareholder A $ 20,000 $ 25,000 $ 15,500 Shareholder B $ 21,600 $ 15,000 $ 10,500 Shareholder C $ 14,400 $ 10,000 $ 7,000 Example Results Shareholder A’s deduction will be the 20% of QBI. It is the lessor of $20,000 vs the greater of $25,000 and $15,500. On the other hand both Shareholder B and Shareholder C will use the 50% of wages for their deduction. It is the greater of 50% wages and 25% wages plus 2.5% Unadjusted Basis which is also the lessor compared to 20% of QBI. What does this all mean? Prior to this deduction, shareholders faced tax rates up to 39.6% for the full amount of business income as the income was taxed at the personal rate. This deduction lowers the amount of taxable income for individual business shareholders with pass through entities. Thresholds on shareholders’ personal returns will affect the maximum tax benefit each individual can personally take. A Few Limitations There are two big limits to be aware of. The first is the threshold limit for the individual shareholders. Per IRC 199A (e)(2)(A) until the threshold limit of $157,500 income for single tax filers and $315,000 income for joint tax filers, the 20% deduction is fully deductible. The income used to calculate includes all sources of income not just the business income. The amount of the 20% income deduction is phased out ending with $0 income deduction allowed after $207,500 income for single tax filer and $415,000 for joint tax filers [IRC 199A (b)(3)(B)(i)(I)]. The second limit is the type of businesses which are not eligible. IRC 199A(d)(2) specifically defines specified service trade or business as a trade or business as defined by IRC 1202(e)(3)(A) without the words engineering or architect.

This is a new scenario for me and I hope someone has dealt with it in the past enough to give good guidance. Divorced couple, both are parents of the said dependent child. Child is under 17. Parents are granted joint custody under divorce decree. Now the fun begins, they have been alternating years claiming the dependent child. Now one parent wants to claim again this year by reason of keeping the child more than the other parent. So, I know the IRS rules are the custodial parent normally gets the dependency but who qualifies in this scenario? My take is who the child spends more than 6 months of the year with and the one who has the higher AGI. Yes, EIC and CTC will come into play here. Am I thinking correctly? Also, court orders have no effect on tax law or conditions set forth by the IRS correct?

EricF hit this straight on. Also, as cbslee said it too.

>>>>>>>There is history between the TPs and a lot of fighting. I want to make sure that I am correct by saying the statement doesn't matter to the IRS and only the custodial parent can claim the child and the CTC. <<<<<<<<< You are correct, the IRS could care less. The dependency goes to the custodial parent. However, they can play nice and agree to the every other year. However, I don't see that statement holding up in any tax court case.

Lynn, you are correct regarding the amounts that belong in each box. I know you know this but the Roth distribution is reported on form 8606. Apparently I made a mistake one time where I did not put a Roth distribution on the 8606 simply because the distribution was not taxable with all appropriate boxes checked on the 1099R input in Drake. The IRS sent a letter taxing the whole amount and the correction was to submit the 8606. So, just cautioning a bit here.

Margaret, I have several of these clients who I have watched their children grow up. For these folks, I check the boxes on the 8867 appropriately and at the bottom, I choose that I did not rely on any documents but made notes in the file. Those notes are usually a short blurb about the client/accountant relationship that has existed for x number of years with continuity with claiming the dependents. Also, I note the previous files can be reviewed for consistency. Don't know if this helps or not.

Simply put, if the child is not the boyfriend's child, NO.

First question, has a partnership been established? I am assuming you are in KY which is not a community property state. Therefore, the IRS says a husband and wife owned LLC must file as a partnership on form 1065 which the rental activity is reported on form 8825.

Hmmm, I did file a deceased tax return through Drake and the words deceased were at the top of the form. Sounds like something is missing in ATX.

I don't think you need to check "Service Business". Not sure cause I don't use ATX. My thoughts are the service business is the SSTB for accountants, attorney's Dr's etc.

The first page of the instructions for form 4797 identifies what type of transaction goes in which section of the form. In your case, it would be 1250 property sold at a long term gain in Part III. https://www.irs.gov/pub/irs-pdf/i4797.pdf

How about "SEE STMT (Number or whatever identifier you use) and then create the detailed supporting statement. As I try to remember in the past, ATX did let you attach pdf's to the return for e-filing. Not sure now though. However, does ATX have a list of supporting statements or statement items you can create within their program? Maybe someone here, like Jack will chime in and be better assistance.

As I understand the new revenue procedure on requiring a statement with a jurat statement for the safe harbor for rental real estate, this statement must be included in the return of the pass thru entity passing thru the QBI. I have read this thing several times and do see clearly if the partner of a partnership passing thru the QBI has to include a similar statement with the 1040. Any suggestions?

It did give the same information. It did appear to me that the items surrounding the safer harbor were a little more definitive. Still no real confirmation on rentals rising to the level of a trade or business. I am still standing on the safe harbor or sec162 for some of my clients. For others that do not participate at all, then no deduction and they do not meet the requirements under section 162.

Don't know what happened in the past nor do I care to know. Simply put, welcome back! There is more than enough information here regarding section 199A. Best of luck with the upcoming procedure and I pray it is a complete success.

The IRS just released the following document regarding section 199A. It does address the rental property issue regarding rising to the level of a trade or business and the safe harbor. Also, gives better definition of dividend capital gains used for QBI. Long read but maybe worth it. https://www.irs.gov/pub/irs-drop/td-reg-107892-18-corrected.pdf

Agree No

Maybe this will help. Has your client hired an independent caregiver? Is the caregiver an employee of another company providing the care? Knowing these answers will help. According to the IRS, if a privately hired / independent caregiver is paid more than $2,000 per year, they are considered to be a household employee, not an independent contractor. Therefore, the family hiring the independent caregiver takes on all the responsibilities of being an employer including payroll and taxes. Jul 1, 2017

I know the program is new and I am using it as well. I only have 6 clients and I have to honest, I have not witnessed any lag at all. I have it installed on a standalone machine as well. I do know Drake is open for any feedback. To me, there are few little quirky things here and there that bother me. I think there should be some more shortcuts added. Right now I can't say which area cause I'm not looking at it and am already tired. I do know the accounting program does not update as quick as the tax program but I hope it gets better as they continue to work on the program. BTW- 2019 seems to work at the same speed for me. No real noticeable difference there.

DANRVAN, I agree that sec 162 is the document to follow. I guess I'm still hung up a bit on the fact the instructor of the course I took referenced sec 469 outlining the same rules used to determine the 8582 losses that defines the conditions that give rise to a trade or business. I don't plan on relying or using the sec 469. Thanks for your input with this. BTW- I did download the TCJA Blue Book.

SSTB restrictions kick in at the threshold levels. If they are below the threshold levels the restrictions do not apply. Below taken from IS FAQ regarding section 199A & SSTB's. 8. In 2018, I will report taxable income under $315,000 and file married filing jointly. Do I have to determine if I am in an SSTB in order to take the deduction? Is there any limitation on my deduction? A8. No, if your 2018 taxable income is below $315,000, if married filing jointly, or $157,500 for all other filing statuses, it doesn’t matter what type of business you are in. You will be able to deduct the lesser of: a) Twenty percent (20%) of your QBI, plus 20 percent of your qualified REIT dividends and qualified PTP income, or b) Twenty percent (20%) of your taxable income minus your net capital gains.

Is it possible this return was accepted by the Drake servers and not the IRS or CA? From the client manager, right click on the client's name and select "Open Efile Data Base For Selected Client. This will give you the transmission detail. Maybe you just got one thru. To answer your second question, in the client manager, the status will be displayed. It will show accepted, rejected, pending; etc. Also, look at the left side of the screen under alerts and notifications, if you have a notice you have acks to process, click that and it will give you the status as well. Trust me when I say, once you get used to Drake, you won't regret it. Yes, a small learning curve. In the early years of ATX/Sabre Pro, I always fought with how to know the status of a return. Last year I used ATX was 2007 so a lot may have changed.