Archive for the ‘IRS Tax Planning Ideas, Tips & News’ Category

Why Holding Real Estate in a C Corporation Is a (VERY) Bad Idea

March 13th, 2018 No comments

Classic Example of Double-Taxation with C Corps


Holding real estate in a C Corporation (or an LLC taxed as a C Corporation) is generally a very bad idea from a tax perspective.

Let’s assume the following facts:

  • C Corp purchases real estate for $100,000 or owner/shareholder contributes $100,000 of real estate to a C Corp
  • No capital improvements are made
  • Real estate appreciates to $1,250,000
  • The C Corp. has a taxable gain of $1,150,000 (sales proceeds of $1,250,000 less tax basis of $100,000)
  • The Corp has a tax liability of $241,500 (21% of taxable gain).
  • The Corp has slightly over a $1 million in its bank account that the shareholder wishes to invest in the stock market. The Corp distributes $1 million to the shareholder.
  • The shareholder has received a taxable dividend distribution from the C Corp. The owner reports the $1,000,000 of dividend income and let’s assume that s/he files as married filing jointly. This income, subject to tax at the capital gains rate (20%) as well as being subject to the net investment income tax of 3.8%, would result in an additional tax liability of $238,000.

Read more…


New Partnership Audit Rules

March 6th, 2018 No comments

New Partnership Audit Rules

New Rules Became Effective January 1, 2018

If you are a partner in a partnership or in an LLC taxed as a partnership, you need to know that there are new IRS audit rules that became effective January 1, 2018.

The new rules require that any tax due on partnership adjustments made by the IRS must be paid by Read more…


When is a Worthless Stock Worthless

February 27th, 2018 No comments

When is a Worthless Stock Worthless

Writing Off Worthless Stock Investments

Nobody likes to see his/her stock investment decline in value. It is even worse when the hopefully next Apple or Google stock declares bankruptcy. Is there some solace in that the stock investment can be written off as worthless for tax reporting purposes?

While taxpayers can write off as a deductible tax loss a wholly worthless security held by them, they cannot claim a loss when the stock becomes partially worthless. The challenge is to determine the year in which the stock becomes wholly worthless. The loss can be claimed Read more…


Gig Economy Continues to Grow – Tax Trap for the Unwary

February 13th, 2018 No comments

Gig Economy Continues to Grow

Tax Trap for the Unwary

For purposes of this posting, let’s define the gig economy as workers who are primarily freelancers or independent contractors who have chosen to work for themselves for a variety of reasons, which could include the flexibility to work when and where the person desires, work only on projects of interest, or for work-life balances.

The National Bureau of Economic Research reported that 95% of employment growth in the U.S. between 1995 and 2015 was in the gig economy. A study by McKinsey Global Institute found that between 20% and 30% of workers are engaged in some type of independent contractor work. Intuit, the software company that offers QuickBooks software for business owners, estimates that the number of on-demand workers will more than double by the year 2020. The study also showed that 79% of existing on-demand providers are part-time workers and that this market will grow by 18.5% a year over the next five years.

Since the majority of self-employed individuals operate as a Sch. C business, they need to realize that there are some very significant differences between a self-employed business worker and an employee working for an employer. Self-employment means that the worker is responsible Read more…


Yes, Place a Lien on Your Children’s Property

January 30th, 2018 No comments

Yes, Place a Lien on Your Children’s Property

This May Be An Effective Tax Planning Tool

We represent taxpayers who have tax problems. They often owe the IRS thousands of dollars. They may have lost their job, had a serious medical issue, or had suffered some other financial hardship which prevented them from paying their taxes. As is often the case in such situations, they may have borrowed from parents, children, and friends to make ends meet.

Eventually the IRS comes knocking on their door (literally and figuratively) and demands payment of past taxes due, interest and penalties. The interest and penalties often increase the amount owed to the IRS by 50% of the taxes due. One option open to the IRS is to place a lien on the properties held by the taxpayer. When those properties are sold (or seized by the IRS) to satisfy the tax debt, those loans from friends and family members will often not be repaid. Your friendly creditors are the losers and the IRS is the winner.

When monies are lent between friends and family, it is often consummated with an oral promise and a handshake. There is the lack of formality.

Did you know that there is a legal way to ensure that family and friends get to the front of the line (ahead of the IRS) when property is sold?

When property with liens on it is disposed, generally the oldest liens are satisfied first. This is why the mortgage company is protected because its lien is attached to the mortgaged property when it is purchased. The mortgage company could care less who files liens after it does because it is first in line.

So how do you protect your friends and family? You need to Read more…


Scam – Fake IRS Agent Visits Your Residence

January 23rd, 2018 No comments

Is That The IRS Ringing Your Doorbell?

I recently attended a webinar and an IRS agent warned the audience of a growing popular scam. A supposedly IRS agent shows up at your residence (or place of work) and informs you that the IRS visit is to collect past taxes due. Failure to immediately remit payment is cause for arrest.

What should you do? First, Read more…


Self-Prepared Tax Returns – What Makes the Most Sense to You?

January 16th, 2018 No comments

Self-Prepared Tax Returns

What Makes the Most Sense to You?

We were curious how much the average American household spends on income taxes. Looking at data released in August by the Bureau of Labor Statistics as reported by, Americans on average spent more on taxes in 2016 than they did on food and clothing combined. It was also reported that in three years, from 2013 to 2016, the average tax bill for Americans increased 41.13%. The only expense category that exceeded the payment of income taxes was the cost of housing, which included the cost of the housing, property taxes, utilities, public services, household operations and supplies, and furnishings. It is quite apparent that income taxes are a major household expense.

Per the IRS, 51.763 million taxpayers self-prepared their returns for the 2016 tax year. The IRS statistics show that this number has been increasing annually.

Why are more Americans self-preparing their returns? Read more…


Flexible Spending Account (FSA) vs. Health Savings Account (HSA)

January 2nd, 2018 No comments

FSAs and HSAs allow taxpayers to make tax-free contributions to pay for out-of-pocket (co-pays and deductibles) medical expenses. The monies contributed to these plans are shielded from personal income and payroll taxes (social security & Medicare). However, the payroll tax exclusion does not apply to self-employed individuals.

What are some of the differences between these two plans? Read more…


Crypto Currency and Taxes

December 19th, 2017 No comments

Remember the days when Swiss banks (as well as banks in other countries) refused to reveal their customers’ names? Some very wealthy Americans placed their assets in these foreign banks to hide them from the IRS to avoid paying income taxes. The IRS began serving “John Doe” warrants to foreign banks to compel those banks to release the names of account holders on certain bank accounts. This was followed by a tough crackdown by the IRS on taxpayers who failed to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), which certain foreign bank account holders are required to file (and face stiff penalties for not filing, including jail time).

You may not have heard of crypto currency. However, you likely have heard of Bitcoin which is a form of crypto currency. The use of crypto currency has definitely caught the attention of the IRS just like foreign banks did many years ago. Why is the IRS interested in crypto currency? Read more…


Tax Rule Changes Regarding Sale of Stock

December 12th, 2017 No comments

Tax Rule Changes Regarding Sale of Stock

New Rule Becomes Effective January 1, 2018

Effective January 1, 2018, assuming that the proposed tax law changes go into effect, taxpayers will no longer be able to choose which lot of stock they own is sold. This choosing of the lot that was being sold was referred to as specific identification.  Taxpayers could choose which lot of stock was sold (usually the one(s) with the highest tax basis (cost), to minimize the gain on the sale of stock or to generate the largest capital loss to offset capital gains from other sales. Effective January 1, 2018, taxpayers Read more…

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