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Unanswered Tax Questions

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Tax Forms

Gift tax on donor and receiver

Asked onFriday, August 29, 2025 by Tianxue

If a donor writes me a $900,000 check and I deposit it into my personal bank account, do neither of us need to pay taxes? Does only the donor need to file a Form 709 with the IRS because the amount is below the $13.99 million lifetime exemption, so it won’t trigger any tax for the donor? Also, since this money is not considered income for the recipient, does that mean the receiver doesn’t need to report or pay taxes on it? Additionally, for a gift of this nature, is it better to have written doc

Quick Answer:

No. Both the donor and recipient may have tax implications. The donor may need to file a Form 709, Gift Tax Return, if the total gifts in a year exceed the annual gift tax exclusion (currently $17,000 per recipient in 2023). While the lifetime exemption is high, exceeding the annual exclusion triggers reporting requirements. The $900,000 gift likely exceeds this. The recipient does not recognize the gift as income, but this is a gift tax issue, not an income tax issue for the recipient. Written documentation of the gift is crucial for both parties to substantiate the transaction for audit purposes. This should include a record of the check and deposit. I recommend consulting with a tax advisor for personalized guidance.

This answer is provided for convenience only and is not tax advice. It is important that you speak to a CPA about your individual tax situation.


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Retirement

How to fix an excess contribution to a SEP IRA

Asked onThursday, August 28, 2025 by Lisa

In '25, I contributed too much to my personal SEP IRA for '24. I had part of the excess recharacterized as a trad. IRA contrib for '25 and am using a form to withdraw the remaining excess. All seems clear except I have to choose a correction method- IRC404(h) or EPCRS. Which do I choose? What happens if I choose incorrectly? Will there be other documents or forms required later depending on my choice? (I filed for an extension for '24 taxes. I will not have any self-employment income in '25.)

Quick Answer:

Since you're correcting an excess SEP IRA contribution for a prior tax year (2024), and you have no 2025 self-employment income, IRC Section 404(h) is not applicable. This section deals with correcting *current year* excess contributions to defined contribution plans. You must use the Employee Plans Compliance Resolution System (EPCRS). Choosing the wrong method is a procedural issue, not a substantive one. The IRS will guide you towards the correct method if you initially select the wrong one. EPCRS involves completing Form 5329. Depending on the amount of the excess contribution, additional forms or documentation might be requested by the IRS as part of the EPCRS process. Your tax extension for 2024 is irrelevant to this correction.

This answer is provided for convenience only and is not tax advice. It is important that you speak to a CPA about your individual tax situation.


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Personal Taxes

Receiving income as Contracted status

Asked onWednesday, August 27, 2025 by Chris

I have contracted with a company for services and am receiving an income. I need to find out my tax liability for this income. Does it become part of my other income and reported with my income taxes? Do I owe quarterly taxes on it? It is not my only source of income. I am over 72 years old.

Quick Answer:

Yes, your contract income is part of your overall income and must be reported on your income tax return. Since it's not your only source of income, whether you owe estimated quarterly taxes depends on your total projected tax liability for the year, including this contract income, and any tax withheld from other sources. If your combined income and tax liability exceed the amount you expect to have withheld from other sources (such as W-2 income), you are generally required to pay estimated taxes quarterly to avoid penalties. Age 72 doesn't change this requirement. Use Form 1040-ES to estimate and pay quarterly taxes. Consult a tax professional or tax software for accurate calculations based on your specific financial situation.

This answer is provided for convenience only and is not tax advice. It is important that you speak to a CPA about your individual tax situation.


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Business Formation

Is there a tax efficient single member patent holding company structure?

Asked onMonday, August 25, 2025 by Earl

I am creating a patent holding co. responsible for monetizing my patents. I plan to create a single member LLC and assign the patents to the LLC. If the LLC sells the patents or enters an exclusive license, I will be able to take advantage of capital gains tax rates. But the more likely scenario is a non-exclusive license with a lump sum royalty taxed at ordinary income tax rates (37%) plus SE tax, etc. Is there a better structure that will let me keep more of the royalties?

Quick Answer:

The single-member LLC structure you describe will likely result in the royalty income being taxed as self-employment income, subject to self-employment (SE) tax and ordinary income tax rates, regardless of whether it's a lump sum or ongoing payments. This is because the LLC is disregarded as a separate entity for tax purposes. To potentially reduce your tax burden on royalty income, consider forming a different entity, such as a regular corporation (C-corp) or an S-corp. A C-corp could potentially allow for lower tax rates on retained earnings, but this introduces corporate-level taxes. An S-corp might offer some tax advantages by allowing you to take distributions as salary (subject to employment taxes) and the remaining profits as non-taxed distributions. However, the optimal structure depends on many factors including the anticipated income level, other income sources, and long-term business plans. Consulting with a tax professional is crucial for determining the most tax-efficient structure for your specific situation. I am not providing tax advice.

This answer is provided for convenience only and is not tax advice. It is important that you speak to a CPA about your individual tax situation.


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Tax Forms

Non-resident Tax

Asked onTuesday, August 19, 2025 by Koyo

I am a non-resident LLC owner with my agency residing in Wyoming. I would like to hire CPA for the following documents: Form 5472, Pro Forma Form 1120, and W-8BEN-E (to file for U.S.–Japan tax treaty). I would like to know how much hiring one would cost; does it depend on the person? Since I am non-resident, I am wondering how I can best find the person. Thank you very much for your support and looking forward to hearing back. Best, Koyo Asakawa

Quick Answer:

The cost of hiring a CPA to prepare Form 5472, a pro forma Form 1120, and a W-8BEN-E will vary depending on the CPA's experience, location, and the complexity of your situation. Fees can range from a few hundred to several thousand dollars. The complexity of your business structure and transactions will significantly impact the cost. Finding a CPA familiar with international tax matters and the US-Japan tax treaty is crucial since you are a non-resident. I recommend searching online directories of CPAs specializing in international taxation or contacting the AICPA (American Institute of CPAs) for referrals. Look for CPAs with experience in preparing these specific forms. Requesting quotes from several CPAs before making a decision is advisable.

This answer is provided for convenience only and is not tax advice. It is important that you speak to a CPA about your individual tax situation.


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Deductions and Write-Offs

New Car Deduction

Asked onTuesday, August 12, 2025 by Mary Sue

Hello, I was wondering if I can deduct a portion of the cost of a new car purchase under section 179 if I have a sole proprietorship and will be using the car 60% of the time for business meetings, site visits, and client meetings?

Quick Answer:

No, you cannot deduct a portion of the cost of a new car under Section 179. Section 179 allows for the immediate expensing of certain *property*, but passenger automobiles are subject to limitations. While you can deduct depreciation, the amount is limited and calculated using a complex formula involving the car's cost and business use percentage. The 60% business use will affect your depreciation calculation, but not eligibility for Section 179 expensing. You should consult IRS Publication 946 for details on depreciation of automobiles.

This answer is provided for convenience only and is not tax advice. It is important that you speak to a CPA about your individual tax situation.


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Investment and Finance

Interest income from a CD - Cash or Accrual accounting?

Asked onTuesday, August 12, 2025 by San

If I open a standard 1 year bank CD on 8/20/2025, and it matures on 8/19/2026, with interest paid *only* at maturity. The bank however compunds the interest monthly and "credits" it to the balance every month. But I will not actually receive any interest in hand until maturity. Contract is clear - if I close the CD on 5/8/2026, zero interest will be paid, and I'll only get principal back. So is income tax due on 4 mths of interest "credited" in 2025? Or is all 12 mth of interest taxed in 2026?

Quick Answer:

Under U.S. tax law, interest income from a CD is taxable in the year it is earned, regardless of when it's received. Even though you don't receive the interest until maturity, the interest is considered earned and credited to your account monthly. Therefore, you'll need to report the interest earned during 2025 (four months' worth) on your 2025 tax return, and the remaining interest earned in 2026 on your 2026 tax return. The bank's 1099-INT will reflect the interest earned in each year.

This answer is provided for convenience only and is not tax advice. It is important that you speak to a CPA about your individual tax situation.


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Business Formation

LLC, Corporation, or SCorp

Asked onFriday, August 08, 2025 by Eric

Im running a small home business. I make crafts to sell on etsy and am making about 15K per year in additional income. My question is at this volume, does it make any sense to form an LLC, Corporation, or Scorp for my side hussle?

Quick Answer:

At $15,000 annual income, forming an LLC, corporation, or S corp for your Etsy business likely offers minimal tax advantages and adds complexity. The self-employment tax on your $15,000 profit will be significant regardless of your business structure. An LLC offers liability protection, but doesn't change how your business is taxed (likely as a sole proprietorship or disregarded entity for federal tax purposes). Corporations and S corps have more stringent compliance requirements, including corporate filings and potentially higher accounting costs. These costs may outweigh any potential tax savings at this income level. Consult with a tax professional to assess your specific situation, but at this income level, the additional costs and complexities generally outweigh the benefits.

This answer is provided for convenience only and is not tax advice. It is important that you speak to a CPA about your individual tax situation.


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Business Formation

LLC EIN Question

Asked onSaturday, August 02, 2025 by Jiwon

Hello, I already operate a sole prop business, and I am looking to either open a new LLC or turn this into LCC. Will I be getting a new EIN for the new LLC? It will be single member LCC. Sincerely,


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Tax Filing Tips

LLC is active but won't generate revenue. Do I file for taxes?

Asked onWednesday, June 11, 2025 by Mona

I'm a Canadian resident. I registered an LLC last year in Washington. The LLC is in active status but does not operate and won't generate any revenue. Do I still need to file with IRS?


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