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TaxConnections Tax Professionals – Can You Help With This Question Of The Week?

TaxConnections Tax Professionals – Can You Help With This Question Of The Week?

When making a PARTIAL sale of an MLP, can designating recently purchased unit Lots as the ones to be sold reduce income tax?

I have searched and searched but have been unable to find this answer. I am unfamiliar with the accounting for MLP sales, and have a situation with a PARTIAL sale of an MLP, where it was designated the most recently purchased unit Lot be sold, which is documented by the broker’s statement. The K-1 figured the Ordinary Income based on the FIFO method using the first Lots purchased which are about 18 yrs. old. Read more

TaxConnections Tax Professionals – Can You Help With This Question Of The Week?

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TaxConnections Tax Professionals – Can You Help With This Question Of The Week?

Is future income from a promissory note all taxable in the year the note was issued?

When we sold our business we signed a promissory note with the buyers for a portion of the purchase price with a 15 year payback at 6% interest. Our accountant told us that we must pay taxes on the full amount of the note even though we will receive the income over 15 years. Seems unfair to have taxation BEFORE compensation. Is this right? Read more

Tax Advisor’s – Please Help Answer Tax Question Of The Week!

Tax Advisor’s – Your Thoughts On This Question Of The Week?

Could long term capital carryover loss eliminate or reduce depreciation recapture?
Sold during 2017 strip mall in 50% partnership after holding for 15 years.
Currently up against 4/17/2018 dead line with following tax issue.

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Tax Advisor’s – Please Help Answer Tax Question Of The Week!

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Tax Advisor’s – Your Thoughts On This Question Of The Week?

Do US citizens with U.K. personal pensions have to pay tax on the 25% portion that is not taxable in the U.K? The tax treaty suggests two different outcomes. Article 17.2 – yes and article 17.1 a and b – No.

I have seen some are now suggesting as these are periodic payments rather than the US definition of a lump sum then the relevant article is 17 1b and the US savings clause does also not apply and these payments are not taxable.

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Tax Advisor’s – Please Help Answer Tax Question Of The Week!

Answer Tax Question, Ask Tax Advisor, Ask Tax Expert, ask tax question, Tax Blog, Tax Question, TaxConnections

Tax Advisor’s – Your Thoughts On This Question Of The Week?

I spoke with the IRS about a Letter 12C and they have my response. Knowing it was an error on Turbotax end, will it take 6-8 weeks to deposit into my account? Can anyone help me?

Every Friday, TaxConnections addresses a question submitted to our Ask Tax Questions Platform. We ask our members to offer their thoughts on this question for the week. We realize you may need more information which you can request in the comments section below, or reach taxpayer privately as a TaxConnections Member. 

Please Make Comments Below To Communicate Your Thoughts

 

Tax Question: How Do I Handle My LLC With Early Retirement?

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I am early retiring this year and own an LLC company that only makes about 30K a year but much more than the allotted 17K that I have to stay under for this year. My wife helps me with this work but we don’t pay each other a salary, we just put the money in our business account when it comes in and file 1 Schedule C for the business on our yearly tax forms. She owns 1 share in the LLC and I own 100.

How would I structure this so that my income is limited to 17K and the remainder over that goes into her income. Do I need to update the LLC agreement or put each other on the payroll or maybe just me on the payroll? Do I just transfer ownership (all shares) to her? How would you advise me? Read more

Tax Advisor’s – Please Help Answer Tax Question Of The Week!

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Tax Advisor’s – Your Thoughts On This Question Of The Week?

A 62 year old exempt Catholic Priest has paid 44 quarters of social security and medicare payments with the past eleven years of income tax returns. He qualifies for medicare at age 65, reduced social security at age 62 and full social security at age 66.

Can the Catholic Priest stop paying social security and medicare payments on future earnings?

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Tax Advisor’s – Answer Tax Question Of The Week!

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Tax Advisors- Your Thoughts On This Question Are Appreciated

Taxpayer Question: I invested about 250 hours on a project that did not pan out and this had a huge impact on my bottom line in 2015.

For a consultant who charges an hourly rate and working as a sole proprietor, can I take a loss for work done on a project that was rejected by the client?  Read more

Tax Advisors – Answer Tax Question

Kat Jennings, CEO, TaxConnections, Tax Questions, Tax Blog

TaxConnections Members are able to connect with a steady stream of prospective clients by answering tax questions. Answering visitors’ tax questions is a great way to begin the conversation. Each Friday we post a question we ask our community members to comment in order to help our site visitors.

How would you advise a client given this scenario? 

We are a married couple and we both have W2 jobs from stable large corporations. Wife also has 1099 income (physician practice + moonlighting). How should we organize her business so that we can maximize tax avoidance while taking our combined situation into account? These numbers are for 2018.
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Tax Experts Wanted – A High Traffic TaxConnections Experience

While many tax experts are preparing clients for April 15th, we realize that tax lawyers, tax and financial planners and many others are excited about being the first to access extraordinary marketing tools we developed for promoting tax expertise. We have worked passionately to build online marketing tools that make all the difference in the world to the tax profession. Our technology is exceeding everyone’s expectations as you will discover from private metrics and information shared with you during this session.

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Tax Year End In South Africa

TaxConnections Picture - Africa Money and Flag XSmallTax year-end in South Africa, for smaller companies and all individuals, is on the last day of February 2013.

In terms of the collection process, South African Revenue Services (SARS or the equivalent of IRS and HMRC, the competent taxing authority in SA)  expects all provisional taxpayers to be either 80% or 90% correct in the end February provisional tax estimate, compared to the final assessment or IT34.

Irrelevant I hear the expats shout, as non-resident taxpayers face withholding taxes and are not required to pay provisional tax. True, I agree but non-resident for purpose of the provisional tax exemption, refers to a person that is either actually tax non-resident or was never tax resident and to a person exclusively tax resident of another country in terms of an applicable double tax treaty.

SA expats residing in the USA relying on anything less than a green card is probably exclusively tax resident in South Africa, as the SA Expats in Australia are exclusively SA tax resident (normally) until they receive a Permanent Residence (PR) Permit. The USA PR obviously is the green card and most others are not adequate to change the tax treaty tie breaker outcome. Read more

The Substantial Presence Test for U.S. Residency Status

Residency Status Determines Your Tax Bill

If you are neither a citizen nor a permanent resident of the United States, you must determine your U.S. residency status for tax purposes. If you are a nonresident for tax purposes, you file a special tax form (Form 1040NR), pay tax only on U.S. source income, are subject to special rates on investment income, and might benefit from exemptions from income conferred by the tax treaty between the United States and your home country.

If you are a resident taxpayer, you must report your worldwide income for U.S. tax purposes. You are also eligible to claim deductions and credits available to U.S. citizens. You can file Form 1040, 1040A, or 1040-EZ, whichever is applicable to your situation, and if you are married you can file a joint return with your spouse. Additionally, you still might be eligible for treaty benefits in certain situations.

It’s Not Your Immigration Status That Counts

Your residency status for tax purposes is completely separate from your immigration status. Even though you arrived in the United States as a non-immigrant visa holder, you might be a U.S. resident for tax purposes.

So, if you are not a citizen or permanent resident of the United States, how do you determine your residency status for tax purposes? You look to the “substantial presence test” set forth in Section 7701(b)(3) of the Internal Revenue Code. To meet the substantial presence test for the current year, you must be physically present in the United States during a period you are not an “exempt individual” on at least:

1) 31 days during the current year, and

2) 183 days during the three-year period that includes the current year and the previous two years, counting:

* all of the days you were present in the current year, 
* 1/3 of the days you were present in the first preceding year, and
* 1/6 of the days you were present in the second preceding year.

For example, let’s say you were present in the United States for 120 days in 2010, 222 days in 2011, and 80 days in 2012. In applying the substantial presence test to 2012, you count 20 days from 2010 (120 x 1/6) +74 days from 2011 (222 x 1/3) +80 days from 2012 = 174 days. That means that you did not pass the substantial presence test (< 183) and are not a resident of the U.S. for tax purposes for 2012. 

Exempt Individuals

An exempt individual is someone whose days in the United States are not counted toward the substantial presence test. It is not someone who is exempt from taxation. If you are an exempt individual, you are a nonresident for tax purposes until you are no longer an exempt individual, or until you receive permanent residency status. You are generally in this category if you are:

* Temporarily present in the United States as a foreign government related individual (A or G visa holder). 
* A teacher or training temporarily present in the United States under a J or Q visa, who substantially complies with the requirements of the visa.
* A student temporarily present in the United States under an F, J, M or Q visa, who substantially complies with the requirements of the visa.
* A professional athlete temporarily present in the United States to compete in nature will sporting event.

Teacher or trainee. If you are a teacher or trainee temporarily in the United States on a J or Q visa, and you have been present in the United States during no more than two calendar years out of the last six calendar years, you are an exempt individual. For example, let’s say you entered the U.S. on December 28, 2009 as a trainee on a J visa, and stayed in the U.S. continuously through 2011. Your days in the United States are exempt from the substantial presence test for 2009 and 2010, but they all count in 2011 and later years if you remain in the United States.

There is an exception to this rule. If all of your compensation during the prior six years  is from a foreign employer, the two year exemption period is extended to four years.

Student. If you are a student temporarily in the United States on an F, J, M, or Q visa, and you have been present in the United States during no more than five calendar years, you are an exempt individual. For example, let’s say you entered the U.S. on June 4, 2007 as an F-1 student visa holder, and have remained here until 2012. You are a nonresident alien for 2007, 2008, 2009, 2010, and 2011. If you are in the U.S. for at least 183 days in 2012, you will be a resident for tax purposes in 2012.

Members of the family. If you are an exempt individual, members of your immediate family who are with you in the United States on visas derived from your visa (J-2, F-2, etc.) are also exempt individuals.

Dual Status Aliens

If you are classified as a resident for tax purposes during part of a year, and a nonresident for the rest of the year, you are a dual status alien for tax purposes and are required to file a dual status return. This sometimes occurs during the year you enter the United States, during a year in which you change your visa status from an exempt individual to a non-exempt individual, or vice versa, or when you become a permanent resident.

There are several provisions, both statutory and through tax treaties, that allow you to elect to be treated as a full-year resident, a full-year nonresident, or a dual status alien in particular situations, if the choice is beneficial.

Confused?

Well, this is a confusing topic, but one that is very important. Don’t worry – there is an interactive questionnaire at www.form1040NR.com that you can use to guide you to the correct result. In the header menu go to “Your Tax Residency” and answer the questions (after reading them very carefully). If you are still confused, I would be happy to answer your questions.

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