Archive for the ‘Tax Planning Tips’ 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.

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July 14th, 2015 No comments reported Click Here to Read Full Article that a seasonal tax preparer hired by Liberty Tax in Bigfork, MT received a five-year sentence which will be served with the Montana Department of Corrections. The preparer, using information obtained as a tax preparer, illegally transferred thousands of dollars from a Liberty Tax customer’s account to her own account.

Why is this relevant tax news? Individual taxpayers need to do their due diligence when hiring a tax preparer. First, the big tax preparation firms hire seasonal tax preparers to prepare tax returns during the height of the tax season. How these seasonal preparers become knowledgeable about the complex Internal Revenue Code during their 2-3 week part-time training sessions is beyond our imagination. And yet, millions of taxpayers have their returns prepared by these large franchise firms. What is the attraction? Is it the perceived low tax preparation cost? Is it the mass marketing? Second, do you know who is preparing your tax return and Read more…

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June 2nd, 2015 No comments

A rental real estate activity is subject to the passive loss limitation rules. Thus losses from this type of activity may be restricted, meaning that a taxpayer often cannot use the losses to offset non-passive income from sources such as wages, interest, and dividends. One exception to this rule is when the taxpayer qualifies as a real estate professional.

A real estate professional is a taxpayer who Read more…



August 13th, 2014 No comments

A recent court case (Hoang, U.S. Court of Appeals, 11th Circuit, May 6, 2014) illustrates that if a taxpayer cannot substantiate cost of securities (stocks, bonds, etc.) sold, then the cost basis is zero. If a taxpayer works closely with his/her tax professional and uses the tax pro for tax planning services in addition to tax preparation services, the taxpayer can begin the process of substantiating the cost basis of securities sold to withstand an IRS challenge.

In Hoang, the taxpayer was found to owe the IRS $5.1 million based on his $14.8 million of capital gains. Hoang’s only support for his cost basis was a one-page Scottrade Composite Substitute 1099 Statement, and a one-page supplemental information statement from Scottrade showing a cost basis of $12.6 million. The court found the taxpayer’s these documents to be incomplete and unauthenticated. There was no itemization of what securities were in the lump-sum cost basis, nor any support as to what each security was sold for and what each security cost. The taxpayer’s documentation prevented the IRS from matching how much Hoang paid for each security sold. The court found that the documentation fell far short of providing cost basis evidence sufficient to rebut the presumption of correctness enjoyed by the IRS. Unfortunately, a bad case can be used by the IRS as precedent. Now whenever a taxpayer is found to lack proper documentation to support the tax basis of stock sold, the IRS agent will cite Hoang and propose that the entire sales proceeds be treated as gain.

If you want to learn more about your personal tax situation, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA officeto discuss your situation. You can also schedule a consultation at Click Here.

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April 2nd, 2014 No comments

How many times has the executor of an estate say upon the death of a parent that an estate tax return was not required to be filed for the deceased parent because the value of the estate was less than the estate tax credit? Would the same conclusion had been reached if the executor had consulted with a tax professional regarding the estate tax preparation or tax planning services?

The estate of every decedent is allowed a credit (the “applicable credit amount”) in determining the amount of estate tax due. The applicable credit amount effectively acts to exclude a certain amount of property from the estate tax (the “applicable exclusion amount”). With proper planning, a married couple could take advantage of the applicable exclusion amount in each of their respective estates.

The 2010 Tax Relief Act introduced the concept of “portability” with respect to the unused portion of the applicable exclusion amount of a predeceased spouse, referred to as the deceased spousal unused exclusion (DSUE) amount. A “portability election” passes along a decedent’s unused estate and gift tax exclusion amount to a surviving spouse. The American Taxpayer Relief Act of 2012 then made portability permanent. How does the DSUE work? Read more…

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Tax Tips for the Self-Employed

July 27th, 2012 No comments

There are many perceived benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed (SE). Self-employment (SEM) can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.

Listed below are some key tax points Read more…

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2012 Tax Planning: Alternative Minimum Tax (AMT) for Individuals

April 26th, 2012 No comments

“Why was my 2011 tax liability so high this year?” was a question asked by many taxpayers when their CPAs presented them with their 2011 tax returns. CNBC reported that the “AMT will trap more taxpayers in 2011 than at any time in its 42-year history”. The Tax Policy Center estimated that 4.3 million taxpayers are expected to pay the AMT in 2011 and that the majority of those taxpayers will be making under $200,000. The AMT continues to trap more middle income taxpayers each year. If Congressional Budget Office forecasts are correct, in 2012 Read more…


Independent Contractor vs. Employee

August 19th, 2011 No comments

The IRS estimates that $54 billion of tax revenues are lost annually relating to noncompliance of employment taxes. What is being done to collect this money? The IRS has entered into agreements with 29 state agencies to share the results of employment tax examinations and has begun to randomly select employers Read more…

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Can You Write Off a Personal Vacation as a Business Trip?

August 10th, 2011 No comments

Let’s assume you are an employee or business owner going on a business trip. Wouldn’t it be great if you could combine a mini-vacation with the business trip and write off Read more…

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