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He is an IL resident paying real estate taxes on his personal residence in IL.

No. It is on his personal residence.

Bart It is added back on line S (Missouri modifications) on the NRI and comes from line 5Y on MO-A. The effect is to add this to Missouri source income. Art

Taxpayer received $23,000 in SRECs from the Adjustable Block Program in Illinois (payments from IL Power Authority), but has not received any 1099 form. How does this get reported on the 1040? Anyone run across this yet? Art

Filing a non-resident MO 1040 with $75 of MO source W-2 income who itemizes on Fed return with $2700 of real estate tax. MO NRI form is adding back the real estate tax as MO source income with result that she is paying $97 of MO tax on $75 of MO source income. How is that correct? What am I missing? Art

Do small employers (under 250 W-2s) still get relief from reporting for 2019? There was an exception for 2018, but I did not see anything for this year.

I have already had 8 clients who have gotten notices that IL could not verify property tax for 2018 and they are requesting proof - copy of bill and payment. The parcel # is clearly shown on the return. Never had a problem in prior years. Anyone else getting a rash of these notices?

Thanks for all of the replies! I appreciate the feedback

Lion, Per my reading TTB p 12-6 yes you can used room & board for 529.

That was the $523 of other qualifying expenses. I was wondering if this could be added to bring the AQEE to $18,067.23 and then there would be no income to include on the return and they could still get the max AOC of $2500 based on $4000 of qualifying expenses?

$153.61 of the earnings need to be included on parent’s return as income. Client has son attending college (4th year for AOC) and received 1099Q for payments from QEP: Box 1 Gross Distributions $17,980.63 Box 2 Earnings $ 6,325.69 Box 4 Basis $11,654.94 Box 6 checked Amounts were not paid to designated beneficiary or college direct, but to Mom who sent payments to college Total Billings from college $ 28,000.00 Scholarships & Grants 6,456.00 Expenses to take AOC 4,000.00 AQEE 17,544.00 Payments reflected on bursar’s statements: Paid by ACH/Credit Cards 17,544.00 Other qualifying expenses for classes 523.23 Total amounts paid 18,067.23 Tax-free 17,544/17,980.63 x 6325.69 = 6172.08 Earnings 6325.69- tax free 6172.08 = 153.61

Client wants to e-file this with his return. If he is opting to have the payments come out of his bank account will they also take out the $31 filing fee or how do we pay this? Have not done this before.

Thanks, Gail

Taxpayer, US citizen and CA resident is currently working in Africa from Jan-Jun of this year and wants to file an extension to file and pay his federal taxes. The instructions in Pub 54 state that to qualify you must be living outside of the US on the due date of your return so he would seem to qualify. He is expected to owe about $15,000 and does not meet any of the normal exceptions for avoiding underpayment penalties (paying amount equal to last years tax or 90% of current year) Question: Because he qualifies for this special extension will the normal underpayment penalties and interest still apply? Even if he manages to pay the full $15,000 by June 15, 2019?

Client got 1099-R box 7 Code J For $33,000 indicating penalty applies. He has had Roth since 2008 and is age 48. Amount contributed + earnings is $31,000 so only $2000 should be taxable and subject to 10% penalty. Correct? Should I put $31,000 in box 5 and let it go at that or include an attachment to explain this?

Pastor who does foreign missionary work is not reimbursed for meals and incidentals while traveling in Africa. For tax purposes he is a dual-status taxpayer-employee for income tax purposes but not for Social Security & Medicare tax. His air fare and lodging are paid by the church, but not meals & incidentals. Question: Can he use the foreign ME&I rate (as listed by US State Department) for expense deduction for determining his income subject to SE Tax? Is he limited to actual expense if less?

Yes we have to file Sch C with income reported on 1099-MISC box 7 and contract he signed.

That is difficult to say definitely. He has lived in IL all his life. After he completed his medical residency in IL in 2017 he entered into this contractual agreement working in LIberia from Jan-Jun each year and in CA from Jul-Dec. He still maintains his house in IL, pays his mortgage there and still maintains IL drivers license, but has not spent hardly any time there. He has split his time between CA and Liberia. If we treat his tax home as IL, then we have no IL source income to report since he worked in CA for part of the year and in Liberia for the other half, but if we report him with CA tax home, then no expense deduction for living accommodations while working temporarily?? in CA??. Otherwise he has virtually no expenses to offset the income he has to report on Sch C for this contract work.

Yes. His income is below threshold. Related questions: Can he deduct travel expense for periodic trips from CA to his home in IL? What about rent payments for temporary living accommodations while working in CA?

Taxpayer (Medical doctor) has worked as an independent contractor in CA for Echo Locum Tenens (a staffing provider) since July 2017. He received a 1099-MISC with the income reported in box 7- non-employee compensation. The contract requires his services for 6-month stints from July-Dec for 2017 and 2018 to perform services at a hospital I CA. For the remaining 6 months each year he was required to work overseas at a hospital in Libera under the HEAL UCSF Global Health Fellowship. For this work he received a W-2 from UCFS. When he returns from Liberia in July 2019, he will finish his last 6-month requirement for Echo Locum Tenens under the current contract and be paid on the 1099-MISC. He expects to continue this working relationship going forward. Question: Does his work as an independent contractor qualify for QBI?

Did some digging into the trust document and got copies of the last 3 years of trust returns and the income beneficiary’s returns. 1. The only governing provision states “ The Trustee shall distribute so much of the net income of the trust as the trustee believes desirable for the support, comfort, companionship, enjoyment, and medical care of both of us or for any other purpose the Trustee considers to be for our best interest, adding to principal any net income not applied for such purposes. Except as provided otherwise herein, the Trustee shall have no authority to use any portion of the principal of the trust for the benefit of either of us.” 2. Looking at the prior returns virtually all of the ordinary dividends, interest, capital gain dividends and capital gains were allocated to the beneficiaries and included on the K-1’s for each year. They included the full amount on their individual tax returns. The Trustee only distributed cash out to the income beneficiaries as they requested for their needs, but not the full amount of DNI deduction as shown on the returns. The beneficiaries (Trustee’s elderly parents) live very frugally, did not really need or want the full cash distributions, and paid no tax on the capital gain income and relatively little tax on the dividend and interest income based on their tax bracket. Looking at the returns I saw, most years the capital gains were under $15,000 and the regular dividends and interest about $10,000. Trustee stated that both the income beneficiaries (parents) and the residual beneficiaries (children) were completely in agreement with this. I confirmed this with a discussion with the parents. I am at a loss as to what to do about the prior year’s returns, if anything. Going forward can the trust document be amended to allow capital gains to be distributed to the income beneficiaries? The past practice has been to do so, though not correctly. Then, actually pay the cash out in full and on time. I understand their tax motive to save taxes by paying at the lower effective rate on the individual return, but I have a real mess here. These are good people but need to get this situation straightened out. Any advice will be most appreciated.

Bulldog Tom I thought about filing as a full year CA resident but he does not have a valid CA address so I thought about using C/O address for his parents who live near me since he gets his mail forwarded there anyway while he is overseas that way the Peoria address would not appear anywhere on the returns. The Sch C would look a little odd with the C/O address in IL and the income being reported in CA. This is just a very crazy situation. AND.... Full shaker of salt, yes, but preferably salt on the rim of a margaretta...a very large one! Thanks for the suggestions and advice..

Catherine, Clarification--Assuming corpus distributions are allowed, are you saying that we could handle a future annuity transaction as I indicated above? For now, aren't we stuck with the result I outlined above for the transaction already completed? There is no way to unwind what they are already done? The other thing I saw on the instructions for the 1041 is that withholding taxes on the annuity could not be passed thru to the beneficiary. Have you run across this ?

Thanks for the heads-up Bulldog Tom. I am especially concerned since client is now planning to go back to CA when they return to the US in June and selling the house in IL. They have just signed a 9 month (July 2019-March 2020) lease on a place in CA. May need to bite the bullet and report all of the CA W-2 wages to CA as a PY CA, PY IL resident and try to get a partial tax credit on IL. Any further thoughts?

Client transferred an insurance annuity contract to his irrevocable trust many years ago. He originally purchased the annuity for lump sum payment of $40,000. In May 2018 the accumulation phase of the contract ended, and he and the trust administrator made the election to take out the value ($95,000) as a single payment with $15,000 of federal tax withheld. Since this asset was held in the trust, it appears the entire gain of $55,000 must be taxed to the trust at trust income tax rates and the $15,000 withholding applied to the trust tax. Client was wanting to have the “income” passed thru to him to be paid on his personal return and take the $15,000 tax payment against that income. The trustee stated that the proceeds were reinvested in an existing trustee brokerage account. I am not a trust expert, but I do not see any way to avoid paying the higher tax at the trust level. Comments? Question: If they had not cashed out the annuity while it was in the trust, could they have pulled it back out of the trust to the taxpayer and then had him cash it out personally to get the tax result he was looking for? I am concerned that there may be another annuity in the trust and we could be back in the same boat again.