PA Income Tax on Employee Contribution to Retirement Plan

2010-02-24T16:50:19Z

Some of you know far more about PA Income Tax than I--here is the real world hypothetical As a condition of employment a $50,000 a year employee is required as a condition of employment to contribute say 4% of salary to a qualified retirement plan and the deduction is made directly by employer ..of course the correct taxable salary for Federal purposes is $48,000. The employer also contributes to said plan, no tax questions as to that.

Yes I know 61 PaCode 101.6(c)8 says such contributions are included in pay in PA but that is inconsistent with PA's own revenue rulings! BOTH WAYS

Rulings as to voluntary contributions 401k or 403b employee plans clearly focus on contributions being included IN income because employee had "constructive receipt of the funds" under federal concepts and state was obligated to follow the feds, therefore state must divert from Federal exclusion federal and include the payment as income .
Ruling as to paying unused sick /vacation leave directly into a qualified plan (403b plan ), per a collective bargaining clause, in contradiction to literal read of 61 PaCode 101.6(c)8 says exactly the same thing that since the employee lacked constructive receipt of the funds the state was clearly required to follow the federal rule and exclude the payment as income. (Pit 05-020) Actually this PIT is very well laid out!

Clearly both rules are consistent as to constructive receipt! !

So both ways to issue the determining factor was "constructive receipt or lack of same" And in my hypothetical it is clear that employee lacks any element of constructive receipt and the plan is clearly a qualified plan and nothing is voluntary about the contribution ---

OK so why is the employee contribution added back to income in PA?

And the rather shallow response I got from PaDept Of Rev is it must be taxed on one side or other--which is not the question at all--and besides--the #2 example clearly and openly results in NO tax at either end!

So if PA is bound by own rules to follow constructive receipt doctrine--why is it taxable?

Foreign Earned Income Exclusion for A Sales Rep Working Overseas

2010-03-11T02:05:38Z

I have a tax client who moved to China in Aug of 2009. He will continue living there until an undetermined period of time, but it will be at least a year from the time he moved. His employer is in Atlanta, GA and so is his payroll and tax withholding as if he is still working and living in GA. His position is a sales rep for computer parts and IT products. Almost all of the clients he brought in are from overseas, East Asia, more specifically. He could work from anywhere and not limited to any specific office. He mostly makes sales calls, sends catalog, and provides online product demos. He moved to China, so he can be closer to his family in his home country. He just got his green card (Permanent Residency) about two years ago. The company whom he works for has a plan to open a satellite office there but nothing is definite and mostly talk. His employer did not provide nor reimbursed any of his living, moving, and meals expenses the entire time he is living there. His income is around $300K as shown on his W2.

My questions: 1) Can he claim Foreign Earned Income (FEI) and Housing exclusions? My research so far has been leaning toward "Yes" due to the fact that he gets client from China and it is for the benefit of his employer.

2) Since he will not be living overseas for a year comes April 15, we will need to file an extension. My understanding is he cannot file with the exclusion until after he has actually stayed there for a year (based on bona fide resident and physical presence tests). Is this correct?

I appreciate any response out there.

Filips

Is additional stock received as consideration to convert a loan to stock reportable on Form 1099-MISC, box 3?

2010-02-03T23:31:20Z

I've got a new non-public client that issues common stock (restricted as to transferability) as a "bonus" for an unrelated non-corporate lender to convert the loan to common stock, either under the terms of the loan, or as an amendment to the loan. Sometimes the "bonus" stock is issued to induce a potential lender to make the initial loan. The value of this "bonus" is usually stated in the Note Payable document. Is that reportable on Form 1099-MISC, Box 3 (Other income) if the amount is over $600? I'm guessing that it is, and Section 83(b) is not applicable, because this is not for services as a contractor or employee.

Schedule C - Huge Loss

2010-03-07T22:12:03Z

Is there a limit as to the amount of loss I can report on schedule-C?

Opened a business in 2009 - Revenues = $50,000, Expenses = $125,000.

Included in expenses is about $12,000 start up costs.

I also, have W-2 income of about $60,000.

Can I report the full $75,000 loss on my schedule-c?

Thanks.

Should independent contractor say business uses cash or accrual method, if he does not remember and last return was so long ago that it cannot easily be checked?

2010-03-07T01:01:59Z

Person worked as a self-employed independent contractor (receiving Form 1099-MISC non-employee compensation) in 2001, 2003, 2004, and 2009, but not in 2005-2008. Person no longer remembers whether 2001, 2003, and 2004 returns used cash or accrual method on Schedule C. I considered using Form 4506-T to get a transcript or record of account, but Form 4506-T says to that it is too late now to request a 2001, 2003, or 2004 transcript or record. I also considered just saying that the original business ended in 2004 and this is a new business that started in 2009, but that does not work because of issues with the retirement plan. Taxes will be the same regardless of which box is checked, but the same box needs to be checked as previously, because IRS approval to change methods has not been requested. How do I determine which box was checked on the 2001, 2003, and 2004 returns?

smllc now as s corp

2010-03-10T21:09:44Z

I received acceptance from IRS for 2010 sub s status

but now considering pass through as smllc due to current fees/expense arrangement

can i use a w-9 with disregarded entity and continue as smllc / pass through even though sub s status is in place?

I may want to sub s status in future years - not this year though.... do i have to cancel with IRS - if so how? I didn't see a particular form like a 2553 revocation....

or can i continue proceeding as pass through disregarded entity without completing revocation process?

Thank you!

S corp wages health insurance premiums attribution rules

2010-03-10T19:12:24Z

Am I correct to add the health insurance premiums to wages for the son of an "S" corp owner due to rules of attribution for the stock ownership? The son owns no shares of his own, however, my understanding is that he is considered owning his father's shares for this purpose. Any comments or directions?

Can a business charge another business a tax on SERVICE?

2010-03-10T00:10:33Z

Can a business charge another business a tax on a SERVICE?

For example, when purchasing technology e.g. hardware and software, is a vendor required to list and itemize separately for the equipment - which may include a tax (sales) - and for the professional SERVICE, or maintenance SERVICE - which is not subject to any tax?

What is the treatise for not taxing SERVICE? and,

Is there any U.S. jurisdiction that may apply a tax to a SERVICE?

Neal Huffman Contract Manager, Strategic Procurement

IRS Levies and spouse

2010-03-02T19:04:43Z

Employer receives an IRS levy for a man who no longer works for the employer. However, the man's wife works for the employer and the couple was married during the year in question. Does the employer have an obligation to let the IRS know the spouse works for the employer?

Thanks!

Cash Accounting: Which year to report final check?

2010-03-05T13:55:59Z

I'm a consultant using cash accounting. One of my clients provided me a W-2 that includes payment for my December billings even though I didn't receive or deposit the funds until January.

Do I need to report the Dec billing amount in my 2009 taxes or is it fine to report a number that's inconsistent with the W-2?

First Time Homebuyer tax credit

2010-03-06T19:48:56Z

Can a taxpayer, who bought a house through her dad's name, only to have her name added to the deed after closing as joint tenants, qualify for the first time homebuyer tax credit?

Taxpayer herself qualifies as far as not owning a residence within the required time period. Dad does not qualify. The house acquired is the residence for the taxpayer.

Please provide a reference for your answer (if possible).

How to handle C-Corp investment on individual return?

2010-03-10T00:43:28Z

We started a C-Corp business in 2009 and each (two people) invested $3,000. We purchased some stock with this investment. In 2010, we have already purchased more stock with $6,000 each. This is a new startup business that has no revenue yet, so we have received no profits from the corporation.

How do we handle this on our 2009 personal tax returns? Will that be the same for 2010?

Edit: it's a Delaware C-Corp operating in Florida, but without a brick-and-mortar office or retail location. We all work from home.

Off the books employment

2010-03-09T17:32:46Z

I have already filed my taxes, however I baby-sat my god daughter from time to time throughout the year. I did not include that income when I filed.

Can her mother still put me down as the baby sitter, even thought I did not include it in my taxes?

What risks (if any) should I be cautious of?

Long Time Owner First time Home buyer credit

2009-11-18T00:45:17Z

I have looked and looked and read everything I can find to date and can not find this specific situation defined. I realize there are still regulations to be written for this new credit. This is the situation, married couple, always file Joint now (due to SS income). TP lives in FL, spouse (wife) lives in OH. The house in Ohio has been his for a long time, maybe 15 or 20 years, thru inheritance. She has lived in it continuously for over 10 years (maybe even 20, I am not sure). He does visit Ohio occasionally, but his main residence is in Florida, but not for 5 years yet. She wants to buy a new home in Ohio. She would meet the 5 continuous years out of 8 requirement and then some. He does not since he moved to Fl. Can she claim the $6500 credit on their joint return? I know that for the other first time home buyer credit one spouse not qualifying eliminates both from qualifying, along the same logic I would think that one spouse meeting the residence requirement should suffice for this long time owner credit.

NYS NOL Carryforward - How many years

2010-03-09T15:16:37Z

For how many years may a corporation carryforward a NYS NOL? Does NYS conform to the Federal 20 year carryforward?

Partnership with Negative Capital Accounts

2010-02-05T23:31:01Z

I have four person partnership. The capital accounts are as follows:

 A.      (112,000)
B.       (49,000)
C.        92,000
D.       250,000
Total    181,000

The Partners A and B with negative capital accounts have walked away from the partnerhip. Partners C and D will remain. The operating agreement does have a negative capital make up provision. However, partners A and B will not pay back the money. I presume that A and B will pay tax on the negative accounts. What happens to C and D and the partnership going forward?

Home Health Care providers

2010-02-05T19:32:06Z

I have a client who provides care for adults in her home under a state sanctioned program. I believe some of the payments she receives from government agencies may be exempt from reporting as income on her return. Does anyone know where I can find information relating to the exemption of payments from income? I searched several areas on the IRS website, but most info relates to child or foster care, not adults, or relates to hospitals, not in the home. Thanks everyone!

CTPA/bookkeeper will not reliquish the QuickBooks file. What recourse does the client have?

2010-03-06T23:44:46Z

The offer to pay for the file setup was made, and the tax preparer/bookkeeper -REFUSED!

He will not give the QuickBooks file over. This individual has claimed that the file belongs to him even though he has been paid to do the work. A letter from a lawyer has not accomplished anything to date.

We live in an electonic data day and age, data entry is terribly expensive. To recreate any data that has been already been paid for is ridiculous!

This is not my battle but my clients, but I am so passionate about this, it has consumed me!

To date the possible recourse results are:

File a complaint with the IRS
Small claims court
Create a state law to protect small business owners
Write a letter to the local papers

My belief is that Lawyers should not have to get a penny, this should be just common sense or outright illegal.

Any help would be appreciated for a QUICK resolution!

UPDATE:

I don't personally know what a CTPA is, but this individual put these letters next to his name.

I asked a lawyer and they told me Certified Tax Preparer Accountant which I have never heard of. The IRS would be the agency to resolve any of the issues for this individual.

Closing an LLC Partnership

2009-11-17T06:07:40Z

I'm dealing with a client who has an LLC (my client and his father) that they rolled over into their new company.

They would like to close/cancel the old LLC.

What is the proper procedure for accomplishing this transaction? I'm assuming that it quite possibly varies from state to state. In this case the LLC is located in Ohio.

Thanks in advance.

Calling all tax professionals with blogs...

2009-10-26T23:41:17Z

Calling all tax professionals with blogs...

The Internet is full of excellent resources that help tax professionals keep up with the latest changes.

With so much information much of it goes undiscovered for too long. Sometimes its never discovered.

This question aims to help tackle that problem by having bloggers introduce themselves and their blogs.

If you have a blog that is related to taxes please post the link below in an answer and we'll compile a list.

Please only post the blog link if YOU are the author/owner of that blog.

Thank You,
TaxQueries.com

Note: Users with a reputation of 15 or higher... if you see a blog you like please up vote it.

Per Diem Expenses for Schedule C filer

2010-03-08T20:02:14Z

Can a schedule C filer use per diem rates for meals and lodging rather than actual receipts? Can you point me to the IRS regulation that addresses this? Thanks!

Returning records to a deadbeat client?

2009-10-24T05:05:46Z

I have a client who recently started a new business. He and I had a verbal agreement that I would do all accounting, payroll, sales tax, etc. on a monthly basis.

I set up the client files on Quickbooks, prepared monthly sales tax, etc. Everything is ready to go... or so I thought...

It appears now that I've done all of this preliminary work he no longer wants my services. He basically fired me via a phone call, asked for all of the documentation back concerning his business, and is now hiring an accountant (for less money) who will use my documents and setup as a starting point.

I have no problem giving them HARD COPIES of what I have (assuming he pays my invoices and brings his account current with me but I do NOT want to send him the Quickbooks file that I created.

I was reading AICPA rule 501 and I interpret it as saying I must provide anything requested by the client (even electronic files) if available. I am not a CPA though. Do these rules still apply to me?

Am I obligated to send him the Quickbooks file or is it acceptable to give him ONLY hard copies of the work I prepared and move on with life?

Rent reduction in CY made up higher rents in future

2010-02-11T21:03:23Z

Tenant is unable to pay 100% of current year rents. Landlord (accrual basis taxpayer) agrees to lower rent for current year; signs a new lease with higher than market rental rates - making up for CY lost rent Would like to get comments on tax and accounting issues from the landlord point of view. Is landlord required to accrue the forgiven rent in the current year?

Improvments vs repairs under commercial lease

2010-03-07T18:21:20Z

Client has a freestanding small commercial buliding valued at $600,000. A new tenant is moving in under a five year lease. The tenant has requested the following: Three small offices reconfigured into a large training/conference room, existing kitchen and another office made into one large breakroom, water foutain and sinks to conform to ADA regulations (not currently required by building code due to small square footage). Basically he is moving walls, lighting and air ducts, reconfiguring light switches & outlets, recarpeting/retiling the area, improving the plumbing to ADA and painting to entire interior. Costs including plans etc about $30,000. The tenant is paying for kitchen upgrades to counters & appliances, telecom & internet wiring and signage. None of wich extends the life of the building (its only 5years old) but it gets it leased. Any thoughts about repairs vs. capital. If capital what lives would you use?

Is a lawsuit settlement paid by Taxpayer to defend the property where the taxpayer was running his business a deductible expense?

2010-03-06T19:41:27Z

Taxpayer with his own funds bought a building 40 years ago that was titled in his father’s name. During that time until present, Taxpayer was operating a doctor’s office as a sole proprietorship out of that building. Despite all indicia of ownership, Taxpayer never took title.

Taxpayer’s father died 25 years ago and left all his property to his wife. During this time, Taxpayer continued to operate a doctor’s office out of the building. Years later, the Taxpayer’s mother died and her will left all of her property to be shared amongst the children (Taxpayer and Brother) equally. Brother of Taxpayer decided to file suit for the property.

The taxpayer decided to settle and pay a lump sum settlement of $100,000.00 dollars to Brother. The settlement discusses an agreement arising out of the Estate of Taxpayer’s mother between Taxpayer, individually, (he was operating a sole proprietorship), and Brother. Taxpayer took out a home equity loan (against his personal residence) to pay for the settlement.

Would the settlement be a deductible expense on the taxpayer’s 1040?

Identity Theft: Not clients income

2010-02-28T21:54:42Z

I may be about to get a client who I suspect received a CP2000 letter. Someone else used his SSN. Back when I was auditing there was a court case (out of El Paso I think & the name started with a P - maybe Patillo?) that required IRS to establish the income is that persons but it sounds like things may have changed. I haven't talked with him that much yet & haven't seen any documents. I was hoping someone here who represents clients may have run into this recently.

How much do you charge for tax returns?

2010-02-19T22:29:34Z

I am a CPA. Most of my business is write-up and QB consulting. This is my first year offering tax return prep. Most of the work will be current clients but I am hoping to pick up new clients with recurring work as well. One of my prospects needs a S corp return along with the 1040, containing two Sched Cs and the related State return. Could some of you please share your fee structure? I know some charge by the schedule, some a flat rate, etc. I want to charge low enough to encourage them to give me more non-tax work but not so low that if nothing else pans out, I lose money. I am located in the Northeast. In advance, thanks for the help.

Setting up a branch office for an Indian Co

2010-03-05T10:42:48Z

An Indian company plans to set up its branch office in USA.

I need to know the regulations for the same.

Can anyone guide me in this please.

Schedule C contractor is injured. Business expense or itemized deduction?

2010-03-01T19:26:28Z

A schedule C contractor has an industrial accident and is injured. Are his medical costs related to this injury deductible as a business expense on the schedule C or is he required to take them as an itemized deduction.

Maryland state refund on form 1041 estate tax

2010-03-06T17:21:18Z

Is a state tax refund considered other income on Form 1041 (line 8) for an estate?

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