jainen

>>some of the new changes<< And don't forget that tax preparation fees went up an average of 10% this year!

>>Both of these LLC's are disregarded entities<< Obviously New Jersey doesn't disregard them quite as much as the IRS does. After all, he does register the business as a separate entity, presumably seeking to separate out his personal liability under New Jersey law. Most states have similar rules for LLC's.

>>you convinced me<< I did? Wow! Well that's enough for today--now I can give up on that other thread, which is truly going nowhere.

>>I have RARELY seen anyone get off of government programs<< You have a short memory. In the previous Democratic administration, welfare reform (with bi-partisan support from a Republican Congress) moved about 2/3 of welfare families into productive jobs which supported a great cycle of prosperity. Since then tax incentives (including reduced enforcement and other opportunities for fraud) have been given to business owners instead of workers, and the economy has tanked. (For JohnH, this is the direct connection between the two issues. The call for comparison was made in the original post of this thread.)

>>it should be administered by the department of social services<< EIC is for people who are working, not on welfare. In the form of advanced EIC, it is designed to help people get OFF welfare, and in fact welfare treats EIC as additional income that can reduce eligibility. Although it has a reputation for petty fraud, EIC continues to enjoy strong support in Congress because studies continue to show that it functions as planned and provides a valuable benefit to low income families and their communities. It is generally based on W-2s and Social Security numbers, with enhanced requirements for professional "due diligence." In my opinion there is a vastly greater opportunity for, and incidence of, tax fraud from business owners reporting incorrect income and expense amounts (not to mention changing their tax positions retroactively with the energetic assistance of tax professionals).

>>theft is relative while a lie is a lie?<< [the reference is to my facetious posts in MAS's thread, "Valid Reason."] Yes, I am taking contrarian positions in both these discussions. I hope to point out how silly I think selective morality is. Why should we tolerate a question about how corporate owners can invent some excuse to get around a tax limitation, yet criticize working families for using legitimate incentives?

>>Give it to everyone if that's the purpose<< Okay, that was last year's stimulus. I really don't understand the criticism of EIC recipients, especially from tax professionals. If you don't enjoy working with the tax code, why are you even in this business? Criticize Congress if you disagree with the widespread policy of using the tax code for economic incentives, but there is NOTHING wrong with individuals filing for benefits they are legally entitled to. IRC Section 32 has no greater moral significance than Section 179 or any other credit or deduction that Congress has authorized.

>>ewarding people for reproducing increases the odds of low income people reproducing<< Ah, the old prejudice that poor people have children so they can get more welfare. Don't hear that one much any more, but it was always one of my favorites.. Virtual Managed says that EIC was set up for the benefit of kids, but I wonder what he bases that opinion on? In my observation, the principal effect (and presumably the purpose for continuing) of an annual cash bonus is to increase consumer spending on big ticket items they couldn't otherwise afford. Yeah, that means something from Wal-Mart. 'Cause it's so doggone much money.

>>Was there ever a government program that was more abused??<< Why, yes, as a matter of fact I can think of quite a few, starting with defense contractors to our national shame. Frankly I'm not too worried that folks trying to raise kids on less than 30K might be getting more than they deserve. Even for the ones who are cheating, $5000 isn't exactly the crime of the century.

>>If he did it himself he was ignorant of the advantages of S-Corp election. If he relied on a professional, did that person explain to him the advantages? These could be possible reasons for a late election<< Well, I take my lesson from a certain political leader. If you are going to tell a lie, make it a big one! And we know that every single suggestion in this thread (including any that will be posted later) would in fact be no less a lie than the one I told. The original post was perfectly clear about the real reason: "Now he wants to change to a S-Corp." Sorry folks, he can't use any kind of hindsight to justify a late S-corp election. He'll have to lie.

>>I am having trouble coming up with a reason<< The reason your client is requesting approval of a late election is that his bookkeeper was killed in a car wreck on the way to the post office to mail the original election. Between the cops impounding the car as evidence and the estate refusing to cooperate in any investigation, your client has only just now discovered that the election was never submitted. Even though the key death and other factors caused business results to fall short of plans, your client feels obligated to file according to the decision that was approved by the corporate board of directors before these other things became known.

>>What you won't get is explanations of why an answer was right or wrong.<< This is basically the only difference between a $600 course and free self-study so lets' examine it. I remain skeptical, though someone who hasn't studied marketing (like our erstwhile drowsy business student) might get a different understanding of the value of such commercial appeals. We can be under no illusion that the Gleim author's sense of right and wrong has any particular relationship to how the test is developed. Gleim offers no special insight not readily available in expanded format from any standard tax guide with a good index. One might assume an efficiency in skipping the index and going right to the particular question, but -- hello? --they change the questions each year! Anybody who graduated from an American high school should have enough experience taking tests to recognize how the EA exam is constructed. Multiple choice questions are easy because the correct answer is right in front of you. Wrong answers fall into only a few categories. First, there are math errors like decimal points. A $600 analysis won't help at all with that; you must double-check your work. (Sorry, Catherine, I can't endorse the "Once done, it was over" approach to math calculations.) Then there are theory errors. You might forget, for example, that commercial property has a different depreciation than residential. But focusing on that answer may trip you up. Next year they might invert the question, asking about residential with commercial being wrong. Might. Might not. If the right answer doesn't instantly leap off the page at you, spend a little time with the Quickfinder Depreciation Handbook until you feel completely comfortable about the whole picture. Oh, Catherine mentioned that Gleim points out ambiguous questions. Who cares? IRS fixes those every year, and any new ones don't count in the score anyway. Just another reason not to focus on individual questions.

>>looking at the Gleim website<< ALL study courses use exactly the same basic material--prior year exams. You can get everything for free the same way Gleim does, on the tax pro section of the IRS web site. (Commercial courses add commentary of uncertain quality, none of it endorsed by the Office of Professional Responsibility, and housekeeping material like scheduling which might be valuable to unmotivated candidates.) As I said in my last post on the previous page, I think everyone should take the exam. But save the hundreds of dollars Gleim demands and buy some genuine reference material. When you look up the answer yourself, that's the best way to learn. And who needs some stupid book bag anyway?

>>really don't now how to get more clients<< I must say, TG, that if a college degree in business management didn't cover marketing, the fundamental business issue, then you should go back and work on that subject prior to adding new credentials to your name. Apparently this is not the best forum for Enrolled Agent cheerleaders--let me pick up the pom poms. North, South, East, West. EA's, EA's, we're the best! In my opinion, nobody who enjoys tax work should skip this important step, even if one were already an attorney or CPA. Enrolled Agent is the ONLY designation available for a tax specialist. It can certainly open doors for you. You yourself mentioned representation before the IRS. (Let me add that an EA can even be admitted to practice in Tax Court!) But you aren't going to jump into that career without some serious on-the-job guidance, and nobody is going to give you an apprenticeship without proof that you are serious. Finally, here's a new reason for you. A number of states have already successfully implemented some form of tax preparer registration or licensing. You can expect the IRS to follow. In California, EA's are exempt from state registration. (Actually "state" registration is a euphemism for a program administered by, well, certain corporations in the industry.) Do it, Tax Guy!

>>we're back to the owner being the 'responsible party', right? << Well, of course, if the owner chooses that arrangement he or she can be subject to 100% penalty (on the trust fund portion), but that's not the same thing. A lot of disregarded entities are Q-subs or part of a group of related companies. This new reg protects the parent company. Even for individuals it can be an important matter. Recently a taxpayer named Kandi was held liable for almost a quarter million dollars in payroll taxes from an LLC he had sold years earlier. This was even after the new IRS interpretation had been published (but before the effective date). The principle issue was that he never made a check-the-box election, which would have subjected the company to ALL the rules of corporate taxation but is henceforth unnecessary. Chief Counsel Advice 200604001 held another individual liable for payroll taxes of two LLC's whose bank had never forwarded their checks to the IRS. Admittedly this isn't a great example because the individual had bribed a bank clerk to issue a receipt without depositing the funds, but it shows what used to be possible. It reminds me of the infamous case in which a payroll service embezzled a company's tax deposits. The company (Pediatric Affiliates) had to pay a second time, and if it had been a disregarded entity that liability could have been enforced against a parent company or owner.

>>as owner/shareholder of an S-Corp pay yourself a distribution<< "Distribution" can mean different things, so I'm not quite sure what you are asking. An S-corp doesn't typically pay dividends, but if it did they would be reported on a 1099-DIV, not the K-1. Certain distributions that affect shareholder basis go in box 16. Wages paid to a corporate officer would of course go on a W-2 and as a deduction on K-1. But owner's draw, as such, has no tax effect and isn't reported. Tax on the flow-through income is the same whether the owner takes the money or not.

>>what in the world problem caused them to make this change? << Oh no, KC. This is not a stupid law at all. It is an important new protection for entrepreneurs. Remember that a corporation offers limited liability to the stockholders--they are not personally responsible for the corporation's debts. But until this year the IRS could levy on the owner of a disregarded entity for the payroll tax liability of the company. Not any more. Now the disregarded entity is always treated like a corporation for payroll taxes. The LLC must file under it's own name and number, and if it falls behind, the IRS can no longer hit up the owner.

>>He would be better off just deleting the Sched A and going for the Standard deduction plus $500<< Don't be so quick with that delete button, Granny Coral. It's fine for your state of TX, but here in CA we have a state income tax and the standard deduction is only $3962. We don't conform to the real estate tax deduction, so such a taxpayer would take standard on fed and itemize on the state.

>>Are we really working for the IRS? << We are an integral part of the same system. If we want to do this job, then we should do it. The only proper way for a client to claim EIC is with the proper forms. This includes 8867, a fairly mild inquiry into eligibility. This taxpayer has a plausible story. Some of her circumstances are generally open to fraud, but that is no reason (in my opinion) to be suspicious of her in particular. The IRS has made this part of our job easy. She is inexperienced, probably got some doubtful advice, and has come to a professional for support. We should respond professionally; that's our job. Conduct the interview; fill out the forms; file the the return. (Taxguy's comment about judging was concerning her lifestyle, not her tax position.)

>>new regulations<< Under final regs starting Jan. 1, 2009, a disregarded entity is treated as a SEPARATE entity for purposes of employment taxes and related reporting requirements. Reg. § 301.7701-2c(2).

>>Earnings around $12,000.00<< I don't see any problem with hand written income and expense records; not long ago that was the standard. The income isn't really enough, though, so you would need to inquire about other sources of support. Most of your questions would be resolved if you attend to Form 8867 in a duly diligent manner.

>>The real pain is for those depending on a state funded check<< I had no idea I was causing such pain. I plead guilty to failure to pay estimates and plan to buck up the state treasury by a couple of grand in early April. It's the least I can do for the Bear Flag Republic.

>>Your pool needs cleaning when skipping rocks across the water causes sparks<< In my opinion, Elrod, your poetic metaphors are very fine.

>>5450... $1635... $500 ... $5950...$3407 ... $5142... $5450<< I don't quite follow your math, but you seem to say that a taxpayer won't always realize the full benefit of standard deduction or of itemized deductions when the amounts are close. The answer is that a taxpayer can choose whichever is best under the specific circumstances, but can not choose what might have been better under other circumstances. Sometimes one must consider state taxes to see the whole benefit.

>> I have clients that will want to see this in writing.<< Print the instructions to Form 1040 at http://www.irs.gov/pub/irs-pdf/i1040.pdf. It's plain as day under a big headline "What's New," and looks very official with the Statue of Liberty and everything.