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Personal Taxes

Fixing Electronics Side Business - What Info Do I Need Come Tax Time?

Asked Tuesday, September 21, 2021 by Codee B.

Congratulations on your new business venture.

I will give you some general thoughts to help you.

First and foremost, you should open a separate bank account where you deposit all the income and from which pay your expenses. You absolutely do not want to use a personal account. Why? If you ever got audited, if any business activity went through a personal account (meaning you commingled funds), IRS can and will force banks to surrender all your bank accounts, and IRS will treat any deposits to your personal account as income (even if it’s not truly income). IRS is correct that taxpayers should never commingle funds. Taxpayers do it all the time, but it’s to their detriment because they hand the IRS the right to audit all their personal accounts. Why make it harder on yourself?

To answer your question, you should keep any records pertaining to your business. That means copies of invoices you give to customers, copies of deposit slips when you make deposits to the bank account, copies of bank statements, copies of check stubs, copies of receipts when you make purchases for parts, etc.

As far as expenses are concerned, you can deduct any legitimate business expense you pay on behalf of the business. That includes the parts you mention. You cannot deduct things like meals, entertainment, clothing (unless you pay to have a logo added to the clothing), haircuts, etc. You can deduct business mileage. That’s going to be a big deduction for you, so you need to keep a complete and accurate mileage log.

It’s best to keep all your records for seven years, in case you’re audited. If you don’t have records, IRS has the right to deny deductions.

If you need a CPA now or in the future, I am available. I’m here in Texas, but I service clients across state, across the country, and even internationally.

Finally, if you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).

Answer Provided by: personimage Adam Dickreiter

Small Business

EIN Question

Asked Tuesday, September 21, 2021 by Teri O.

You both can be right. In my opinion, the answer depends how the practice purchase/sale is structured. If you are buying the assets of the practice, then you are right, you need to get a new EIN for your LLC that is buying the practice. On the other hand, if you are buying the seller’s LLC, then you can keep the same EIN that currently belongs to the seller.

Just to let you know, if you are investing the big bucks to purchase a practice, you need to have an attorney and a CPA in your corner, to look out for your best interests. If you don’t, you could easily find yourself in a situation where you are saving a few dollars by not paying professional fees, but you could be losing much, much more because you didn’t do things right or overlooked something.

As a certified public accountant (CPA), I am available to help on a consulting basis now and an ongoing basis going forward for taxes, bookkeeping, etc.

if you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).

Answer Provided by: personimage Adam Dickreiter

Tax Forms

Form 2553

Asked Friday, September 17, 2021 by Tiffani Y.

You’re on the right track, but you need to do a little more. Please be sure to read the instructions for Form 2553.

If you are filing the Form 2553 now (not as an attachment to the Form 1120S), you must write “FILED PURSUANT TO REV. PROC. 2013-30” in the top margin of the first page of Form 2553.

For your explanation, I would not plead ignorance. IRS doesn’t take that well, as they say that everyone should read the law and be aware of the requirements. Instead, it’s better to give them a tangible reason or reasons why you did not timely file. If COVID played a role, explain that. Or, if you or someone in your family had medical issues, death, etc., explain that. I think even the narrative you explain (finding employees, finding a building, build-out, etc.) could be part of an explanation.

Also, you should mail the form certified mail with return receipt requested, to have proof that you mailed the form and that the Internal Revenue Service received it. IRS still has a backlog of several months. Plus, they are losing things. So you need to protect yourself.

Trying to think outside the box, you may ask yourself if filing the S election with an effective date back to 09/15/2020 is the best thing to do. For example, did you timely file an extension back on 03/15/21? Also, the deadline for the 2020 Form 1120S just passed on September 15, 2021. You may wish the effective date to be 01/01/21. Just something to consider – not trying to add to your stress.

As a CPA, I am available for consulting, tax preparation, bookkeeping, payroll, etc.

if you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).

Answer Provided by: personimage Adam Dickreiter

Miscellaneous

Being paid via W2 and 1099

Asked Sunday, September 05, 2021 by Donald P.

It sounds like you could do with some tax planning! Unfortunately, these are too many unknowns for a specific answer here.

First - setting up an LLC (or perhaps taking an S-Corp election?) would depend on a variety of factors. How high is your 1099 compensation? Would you prefer the "hands off" route and possibly ask for a W-2 instead of a 1099 from your second job (if possible, and if I understood that part of your question correctly), or would you like to set up an LLC and expense various things yourself, in addition to any other tax savings that come with having an LLC? Usually, the LLC route can offer more tax savings, but a more "hands on" approach from you - e.g. a possible additional S-Corp tax return + putting yourself on payroll (if the S-Corp route makes sense); accounting for your LLC (with or without an S-Corp election), etc.

If you'd like to schedule a (no-strings/complimentary) consultation with my firm (we work predominantly with medical service providers and specialize in tax planning), let me know. You can email my business partner, Paulina S., for more information or to set up a call - her email address is paulina (at) ratio.cpa - she handles all initial client inquiries and can help steer you through your options. We do our best to have the consultations be as transparent and informative as possible.

Apologies that I could not help more - but taxes are never straightforward, more information is needed, and making mistakes now can cost you in the future.



Answer Provided by: Eli Keren Eli Keren

Deductions and Write-Offs

Business Expense from Refund of Previous Year

Asked Thursday, July 08, 2021 by Mark B.

Yes and no.

Technically, I would code it to a contra-revenue account, something like Sales Returns and Allowances (that would be a general ledger account for a business that sells products). So you would debit or increase that account on the income statement and credit or decrease your bank balance on the balance sheet.

The effect would be that it would lower your profit (bottom line). So in that sense, it’s like a business expense, but it’s not actually an expense, it’s a reduction to overall revenue.

Answer Provided by: personimage Adam Dickreiter

Personal Taxes

Gift taxes

Asked Wednesday, July 07, 2021 by Jacqueline D.

Seeing that there was no paperwork to document the loan, I assume no interest was ever paid. While the intention may have been for it to be treated as a loan, neither party behaved like it was a loan (by having a written promissory note, periodic payments, interest to be paid, etc.).

If your father every got audited and this issue arose in audit, he would first have to prove that the receipt of the $30,000 was not income to him. Again, it’s difficult for your father to assert it was a loan when it was never treated as such. Assuming that you could prove it was not income, then the IRS might argue that it was a loan (if that was in the IRS’ best interest). If the IRS could win on that front, they’d go after your father’s friend for imputed interest income, as you can’t have a loan with no interest. However, if it ended up being treated as a gift, I recommend the following.

To keep things simple, your father should repay the $30,000 in two pieces, making sure not to exceed the annual exclusion (presently $15,000) by giving no more than $15,000 each calendar year. So it would take two payments – one for $15,000 this year (2021) and the second for $15,000 next year (2022). By doing it this way, your father would not need to file a gift tax return for the total transfer of $30,000 back to his friend. Also, your father would not need to pay any tax.

To summarize, I would assume it was a gift all along and take the aforementioned steps to do damage control. Of course, it would have been better to simply have done things right from the beginning, rather than try to find a legal way out of the mess later.

Answer Provided by: personimage Adam Dickreiter

Business Formation

PLLC or LLC for Physical Therapy in WA

Asked Sunday, July 04, 2021 by Gina B.

First, congratulations on your decision to form your own practice!

To answer your question, I will make a few comments.

First, a PLLC and an LLC are both creatures (creations) of state law. I practice as a CPA in Texas, so I cannot speak to Washington state law. From my experience in Texas, if you have a license (such as a CPA license), you are required to form a PLLC instead of an LLC (if you choose to operate through a limited liability company).

Second, from a federal income tax perspective, there is no difference in federal income tax treatment between a PLLC and an LLC. Why? Because for federal income tax purposes, there are generally only four (4) ways to get taxed – as a disregarded entity, partnership, C corporation, or S corporation. If you will be the sole owner of the company, your choices are really disregarded entity, C corporation, or S corporation. You can’t have a partnership with just one partner.

Third, I think you’re asking which is better (a PLLC or an LLC) in terms of federal income tax treatment. If that is your question, then they are treated the same. Again, the actual federal income tax treatment depends on how to choose to treat it – going back to the four choices I listed above. So the treatment doesn’t depend on whether it’s a PLLC or LLC.

I hope that answers your question. Feel free to contact me if you wish to engage me to help.

Answer Provided by: personimage Adam Dickreiter

Personal Taxes

Wage and Income Transcript

Asked Saturday, July 03, 2021 by John D.

I don’t think this is a reason to panic. On the other hand, I do think this is a reason to take proactive steps, which you have already been doing.

If you have not already done so, I recommend you prepare and file your return showing just the one Form W-2. You should not show the duplicate Form W-2. Hopefully, you’ve been documenting (writing down dates, times, names, phone numbers called, etc.) for all your contacts (with your employer, Social Security Administration, and Internal Revenue Service). Because you’re in a panic and quite motivated now (and the details are fresh in your mind), you should compose a letter to the Internal Revenue Service right now, to explain why you reported just one Form W-2 and to document all your efforts (even though unfruitful) to make things right.

Once you file your return, the Internal Revenue Service will process it. You can expect that they will send you a notice for what they perceive is unreported income. Don’t be surprised if they also assess penalties and interest. However, if you write your letter now, you will have most of the details on hand for when you get the IRS notice. Then, you’ll just need to tweak your letter to directly address the points raised in the IRS notice. If you choose, you could even include a copy of your letter when you file the return (if you paper file it). However, I don’t recommend it. The letter will probably be ignored. Also, if you paper file, the processing of the return will definitely be delayed.

So, I wouldn’t panic. You haven’t done anything wrong. Unfortunately, know that you have a long road ahead of you. There is light at the end of the tunnel, but it’s a long tunnel ahead of you.

Answer Provided by: personimage Adam Dickreiter

Business Formation

EIN question

Asked Friday, July 02, 2021 by Daniel G.

Daniel, good question. To answer your question, I will make two comments.

First, because your son is underage, you should put just your information as the responsible party on the Form SS-4 (Application for Employer Identification Number) or its online equivalent on the IRS’ website.

Second, I think your question reveals some confusion. On the Form SS-4 (or its online equivalent on the IRS’ website), you should indicate that there will be two LLC members (you and your son). After filing the Form SS-4, if you take no further action to elect to treat the LLC differently for federal income tax purposes, then the LLC will be treated as a partnership for federal income tax purposes (because you told the IRS on the Form SS-4 or its equivalent that there will be 2 LLC members). If you want to treat the LLC as something other than a partnership (such as a C corporation or an S corporation), you cannot accomplish that goal just by filing the Form SS-4 or its equivalent. That would take a second step with a different form.

I hope that helps. Feel free to contact me if you wish to engage me to help. Even though I practice as a CPA in Texas, I have clients in other states.

Answer Provided by: personimage Adam Dickreiter

Personal Taxes

Avoiding Capital Gains Tax for selling my home in under a year of buying

Asked Thursday, July 01, 2021 by Philip R.

Good question. It sounds like you already have a buyer and sales price in mind, so it sounds like a like-kind exchange isn’t an option for you.

You are right that a sale after only 9 months would force short-term capital gains tax on you. However, I you could hold the property for more than one year, you would get long-term capital gain tax treatment. Perhaps you could work out a deal with the buyer to rent it to him/her long enough to get you well over the one year holding period. Perhaps you could come to an agreement that would be beneficial for both of you.

Feel free to contact me if you wish to engage me to help. Even though I practice as a CPA in Texas, I have clients in other states.

Answer Provided by: personimage Adam Dickreiter