OldJack

If the trust document allows it, the trustee can allocate the capital gains to the beneficiaries to pay the tax.

>>Client received a letter from Prudential regarding the gain on cash surrender value of a life insurance policy. << If the client did not receive the "cash" from the policy there should be no taxable income. This letter would just be like a statement of the account.

Who is the taxpayer/client that received the letter? Are you talking about a cash basis individual taxpayer or a business? Did the client actually receive the proceeds of the policy? Did the client receive 1099s to report income during prior years of the policy? Janitor Bob, you know better than to leave out such important information on a question.

Not that I agree with her all the time, but KC is as close to a tax expert as anyone could be. In my opinion, I have never been or seen a real tax expert, its just impossible to know it all in todays world. :D

>>If someone wanted to file jointly with a member of the opposite sex<< Same sex marriages still does not qualify for federal joint filing. That may change in the future but for 2008 it is still not joint and a tax preparer could get penalties if they knew and still filed joint.

No would in many cases not give you any EIC. You need to read publication 17 where "no" is required to be put on line 64a: Rule 4, page 242 Rule 10, page 246 Rule 11, page 246 Rule 13, page 245 Rule 14, page 247

A marriage certificate is always issued in all states, I have no idea about foreign marriages. Unless the IRS is requesting proof I would not require proof in order to prepare a tax return unless I had a valid reason to suspect the person was not married.

Ten Thoughts to Ponder for 2009 Number 10 Life is sexually transmitted. Number 9 Good health is merely the slowest possible rate at which one can die. Number 8 Men have two emotions: Hungry and Horny. If you see him without an erection, make him a sandwich. Number 7 Give a person a fish and you feed them for a day, teach a person to use the internet and they won't bother you for weeks. Number 6 Some people are like a Slinky .. Not really good for anything, but you still can't help but smile when you shove them down the stairs. Number 5 Health nuts are going to feel stupid someday, lying in hospitals dying of nothing. Number 4 All of us could take a lesson from the weather. It pays no attention to Criticism. Number 3 Why does a slight tax increase cost you $200.00 and a substantial tax cut saves you $30.00? Number 2 In the 60's, people took acid to make the world weird. Now the world is Weird and people take Prozac to make it normal. And The Number 1 Thought For 2009 : We know exactly where one cow with Mad-cow-disease is located among millions and millions of cows in America but we haven't got a clue as to where millions of illegal immigrants and terrorists are located. Maybe we should put the Department of Agriculture in charge of Immigration? " Life is like a jar of Jalapeno peppers. What you do today, might Burn Your Ass Tomorrow" :)

>>There was no W-2.<< W2's are not required to be issued as of this message post date. You may still get one. I would think this whole question could be cleared up by simply asking the client what the payments were for.

The original post said: >>But, the company insist that the classification be correct. He is a sales person. << There was nothing that said what the payments were for in the original post. Why should we assume that it is commissions when the company clearly has reviewed the 1099 and still says it is not box 7, non-employee compensation. If a Statutory Employee (W2 employee) is paid an expense allowance and does not account for the actual expenses I could understand a 1099, box 3, even though it should probably be added to the W2 instead of 1099. Why would we think we can just ignore box 3 treatment and subject it to SE tax without a clearer understanding of the payments?

Sounds like this might be a Statutory employee that will receive a W2 showing payroll taxes withheld (other than federal withholding). If that is the case reimbursement income on the 1099, box 3, would be appropriate to report on form 2106 and thereby claim employee expenses not reimbursed. I expect that was what the employer/payer was trying to tell us so called experts!

When he sold it the sale price was probably lower than his basis so he finally got his deduction for the losses by way of the sale price. Unfortunately that would be a capital loss whereas the losses could have been ordinary each year as a S-corp.

And it is said you don't have to spend as much time dealing with a return if you efile. Its fast and you get an ack that the IRS has it. lol

>>and a loss at the end of 2008<< >>and avoid double taxation<< If he has a loss in the first year 2008, he would not have a problem with double taxation as the loss is carried forward to reduce 2009 C-corp income. He should not elect S-corp for 2009 unless he does not want to deduct the 2008 loss until the corporation is liquidated. He needs to control 2009 income to match the 2008 loss and then elect S-corp if he wants. However, when you elect S-corp after C-corp earnings you have the old built-in-gains and related tax on any assets to deal with for the next 10 years. If there is no future profits expected he should just liquidate the C-corp and go home.

>>He relied on advice from a professional.<< He relied on statements from jainen.

If the S-corp has always been an S-corp, ALL S-corp "distributions" (cash or other property) are reported on the 1120S, Page 3, Sch-K, line 16d and the shareholders K-1 as Box 16d to reduce individual shareholder tax basis. Line 16d does not reduce profit reported on Page 2, Sch-K, line 1. One exception would be liquidating distributions that might be reported on 1099-DIV. S-corp distributions are sometime incorrectly call draws.

>>then who r we to judge... << >>Most of your questions would be resolved if you attend to Form 8867 in a duly diligent manner. << Are we really working for the IRS? If we are we should be paid by IRS or at least given a tax credit.

As said above the payment goes on line 16d to indicate that it was a tax-free distribution of profits that you have or will already pay income tax personally. Its shown on the 1120S-K1 as a code 16d to tell the shareholder that it reduces his tax basis in his stock. The payment is not deductible by the S-corp under any circumstances.

>>their former accountant followed that same philosophy<< That was probably not the reason they changed accountants. However, I have had a few over the years that I had to "fire" as they were always with some emergency because they knew I would drop everything and cater to their need. Life is a whole lot better without those clients and you will be more productive and make more money without them.

I concur with taxbilly. However, the retirement box is required to be checked on the W2.

I try to accommodate my clients, but their last minute emergency due to negligence is not my problem.

If his total 941 tax is less than $2500 (line 10, form 941) he can pay the balance of tax mailed with the quarterly report.

It would appear that CCH programmers are not aware of rounding formulas.

I don't remember the court case where a lawyer/shareholder was allowed to be paid for legal fees as a deduction to the S-corp but a search could probably find it. You misunderstood my statement about administration of the S-corp... that would be services as an employee. The IRS can only "reclassify other payments" (after IRS audit) made to a shareholder employee if the shareholder has not received a reasonable compensation for employee services rendered. The IRS has no authority to demand any employee take a paycheck but they have authority to charge penalties after they reclassify other payments to the shareholder/officer. And, the best little tax book published (2008 Small Business Quickfinder Handbook) page D-8, quotes Reg. 31.3121(d)-1( b ) states an exception from reasonable wages for an officer who performs no, or minor, services.

>>The IRS allredy knew that he had died. << Big brother knows all.