JohnH

It's very difficult for a person to understand something when they recognize that understanding it is going to cost them money.

Thanks for the reply, Tom. I've always understood that even with a cash-basis taxpayer, a security deposit is not treated as income at the time received provided it is intended to be returned to the renter (minus any damages) at the end of the term, but is treated as advance rental income if the contract calls for it to be applied to the last rent payment. But I'll be interested to hear what others might say about this as well. I suppose part of the answer depends upon the language in the rental agreement.

Client received a 1099-K from their rental management company because tenants paid by credit card. The 1099-K amounts include two security deposits received in the same year (because a prospective tenant backed out and the owner refunded the deposit in full within a few days, plus it also includes the actual security deposit received from the replacement tenant). So the 1099-K shows roughly $4K more in receipts that was collected in rent. Any suggestions on the best way to handle this? Reducing the total gross rental income by the $4K produces a mis-match to the 1099-K (if there is any cross-checking with rental income). Options for Schedule E seem to be: 1) Reduce the gross rental income on Schedule E to actual; 2) Report the full amount in gross rental income and then deduct the deposits under other deductions, perhaps as "Security Deposits reported on 1099-K in error"; 3) Report the 1099-K on a separate worksheet, subtracting the deposits with the same notation as in #2, and thus reporting the correct reportable gross rental income on Schedule E. Most any of these approaches could result in an inquiry a year or two from now, but I'm leaning toward #3 as being preferable because it includes full disclosure and actually reports the correct gross rental income as the starting number on Schedule E. Would appreciate any comments/opinions on this, as well as suggestions on any other ways to handle it.

So do I. It was an enjoyable meeting. It’s closed now, although there are 3 or 4 in the area that are just as good.

Sorry, I lost you at “JohnH has a tax-preparation and consulting business in North Carolina, which makes $100,000 per year.”

Just write a letter that’s woeful enough to make them cry.

I'd be concerned that the whiskey is watered down and that all the top-shelf bottles had been refilled with rotgut. Next morning, while I'm still sick from the adulterated product and examining the overcharges & inflated tips on my tab, I'd come to realize that neither the bartender nor the owner will be around as I discover the fraud and have no means of restitution.

I hear it’s really easy to make a small fortune trading crypto by using a simple 3-step plan 1) Stat with a large fortune. 2) Begin trading crypto. 3) When you notice you’re down to a small fortune, stop trading. Sounds foolproof when you do it that way.

Tom: I've never dealt with a Self Directed IRA directly. However several clients have come to me with schemes to use one for a rental property, or even to invest in a franchise business. It seemed really popular among some franchising companies a decade or so ago - the franchising company would ally with a S/D IRA administrator to promote this as a way to buy into the franchise. (Maybe they still do). After reading a little about the rules, and studying a few stories about how these schemes failed, primarily over "prohibited transactions" as you mentioned, I decided to never touch one. I learned just enough about them to avoid them like the plague. I'd just tell the client that if they moved ahead with the plan they would need to find another accountant. Furthermore, I knew someone who was scammed by a financial advisor who set up a promissory note in a S/D IRA that even their family didn't know anything about until it blew up in their face. So I have a strong bias against these contrivances. Not saying they never work or there isn't a place for them, but there's too much room to get tripped up by seemingly minor mistakes as well as lots of room for outright abuse.

I’m beginning to wonder whether the client knows more than they are telling you, but they’re already aware that the whole story is going to cost them money and they’re hoping to somehow slide by. is it possible this is rental property (or some other business asset) held in a self directed IRA and they titled it back to themselves because it couldn’t self-fund maintenance or repairs?

This MIGHT be a self-directed IRA, and I’ve seen a couple of those who had some very weird transactions reported. Especially since they were actually self-directed in name only.

Parents earnings do phase out everything in terms of credits. But they live a relatively modest middle-class lifestyle, nice home but not a McMansion, drive used vehicles until the wheels fall off, don’t buy boats, motorcycles, RVs, or other frills. Son doesn’t save much, if any, at this point in his life. I’m going to do a support calculation just to be sure, but I’m pretty sure he’s ok claiming himself.

I think we will do a workup on support just to be sure. But given what I already know of their family size & lifestyle (not extravagant), think the $32k is going easily add up to more than half his support. I appreciate all the replies.

Client's 22-year-old single son living at home earned $32K and is a full-time student with $8K of tuition expense. Mom & dad's earnings cause dependent exemption and education credits to completely phase out so no reason to claim him as a qualifying child, especially given his income. Seems logical for son to file single and claim the AOC credit. I don't run into this very often since my client base is generally much older, so I'd like to ask for input. Anyone care to comment?

Yes, the performance of the post office is less than stellar. But when it must be mailed, Certified Mail is still the gold standard for proof of mailing. Just be sure to keep the receipt. And online tracking is a good backup for those times when the green card never makes it back.

When mailing, I assume you're going to use Certified Mail with Return Receipt. That way you'll have proof of mailing and the tracking system allows you to verify when the envelope is received by IRS. Of course, there's no way to know how long they will take to actually process it.

A relative of a client has posed this question to me. - this is a real situation, not a hypothetical. Person #1 has assets and is financially very stable. They are contemplating marriage to Person#2 who has an outstanding Federal tax liability of around $100K (no problems with state tax liabilities). Long story, and somewhat understandable, as to how the tax liability of Person#2 came to be, but nevertheless it exists. There a repayment plan under way with liens in place. The repayment plan is scheduled for about 6 years so this will be with them for quite a while. Person#2 is current in tax filings for the current and previous year (aside from the older tax liability). I''m not asking for opinions about the undesirability of Person#2 being in this position - that's clearly understood in this group. Question is, if they marry, does the prior tax liability pose any financial risk to Person#1? The only thing I can think of would be seizure of any refunds due on jointly-filed returns (possibly partially recoverable using 8379 Injured Spouse allocations, or careful management of withholdings at the outset). The other option of course would be MFS, but that would be evaluated on a year-by-year basis. Due to incomes, EIC would not be a major issue with MFS. The only other thing I can think of would be the inability to borrow money jointly due to the existence of the lien, which isn't likely to be a problem for them. Aside from that, NC is not a community property state (although it is a "marital property" state, so ownership of any property acquired after the marriage would be affected by the lien, but not previously owned property, I think). Would appreciate any additional thoughts or cautions on this.

Thanks for that link. I approached the research the hard way. Sure would have liked to have this about a month ago. Guess I should have asked on this forum, eh? Will certainly save the link just in case I ever run across one myself.

I've never done this, but recently walked through the process with a colleague (they did the work - I only looked up instructions and made suggestions). At first glance it looks complicated, but the process is fairly straightforward once you get the "allowable" depreciation calculation finished and determine the exact codes to use on the Form 3115. IMO, you should charge the client well for this work - if you haven't done this before it will require some intensive study, but the client will benefit greatly from your extra effort.

Splashtop

I only respond to surveys when I know my response is going to affect outcomes or future actions. You know, things like political surveys, Medicare Supplement signups, car warranty advisories, bank customer service follow-ups. All those things that really have an impact…

Since they're not on my known caller list, they will reach my voice email. They're free to speak to it as long as they wish.

I’ve been using 1099Express for several years (after a client began to exceed 250 forms per year). Their combined package (e-file plus Print & Mail) is outstanding, although it’s also possible to choose only the e-file option if you like stuffing envelopes and mailing by hand Their eVerify service is also reasonably priced. A great resource for avoiding the hassle of B notices. Fine company with great customer service. Here’s their link if you want to check them out https://1099express.com/

Too bad they don't let us use emojis in the password. I think I'd use (unless the various hand emojis were permitted).

Mine only has 8 characters. I tried it today and it worked fine. But maybe they’re rolling this out slowly.