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As we near year end lots of questions, information and observations come up during seminars. This week’s newsletter discusses a few of them.
 
QBI Deduction
During the year the more we speak about this topic the more answers and questions come up. Here are our main observations, at least as of right now:
 

  1. The IRS’ 184 pages of proposed regulations were a miserable excuse for guidance. The 2 biggest questions were left either unanswered or vague. The definition of trade or business income refers to Code Section 162, which does not even include a definition! Instead, the professional must rely on court cases to vaguely answer the question. The court cases describe trade or business income as an activity carried on regularly, continuously and for profit. Of course, there is no definition of regular or continuous, so there is no clear answer to the fundamental definition of what is a trade or business.
 
  1. Because of the non-answer in #1, the question regarding the number 1 non-wage activity in America remains unanswered: does rental income to 3rd parties qualify for the QBI deduction? Until we get any kind of answer, we think it must be answered on a property-by-property basis applying the above 3 tests to each property. 184 pages of proposed regulations with no answer for this most basic of questions.
 
  1. What do we do with Section 179 deductions? Do they reduce QBI at the entity level or at the individual level? Since it is now mid-November and we have no answer let me throw in my two cents. The final determination of qualifying trade or business income is made at the 1040 level, so the Sec. 179 amount should be applied via a worksheet to QBI at that point.
 
  1. What about activities that are not clearly defined? Two huge questions are coming up in every city: Do statutory employees qualify for the deduction, and do royalties qualify for the deduction? We give you our weak opinions in class, but all they really represent are our best guesses, and that is all they are.
 
  1. And what about our tax education system? I am sick of going into a city to present a QBI class and having to help everyone “unlearn” the information they are getting. It seems that many of the courses taught by non-preparers assume that everyone is subject to a wage test or a profession test, when we know that the worst thing the majority of small business owners can do under this new deduction is to pay wages, and their profession does not matter unless they are the exception. When people that teach classes do not really prepare returns they fall back on their “Big 8” or educational experience, which is not relevant to the vast majority of America.

 
IRS Issues
Every tax professional is now so frustrated with the IRS we are losing any semblance of professional relationship with the system. Long phone waits combined with dropped calls after long phone waits are worse than at any point in history. Incompetence is rife with multiple agency requests for forms already sent multiple times, agency failure to correctly deal with S elections, failure to centrally database powers of attorney, and now multiple issues with IRS programming errors affecting things done correctly for many years (see the 1099-R, Code G fiasco) are all indicative of a department in collapse.
 
We have seen one example of a paid service from callenq.com that puts you at the front of the IRS phone queue (for a fee), but have not used the service so cannot really comment upon it.
 
Fees
It is becoming more evident on a daily basis that our time investment in most returns will increase by 10-25% for every return, but the client has been sold on a “more simple” return for this year. Raise your fees aggressively and be strong in the face of customer push-back. There are few tax professionals that can prepare 2018 returns in an “as near as you can get to correct” manner, and in light of the continued increase in preparer penalties (think of the ridiculous new Head of Household garbage penalty thrown on the back of honest preparers, when it is the ghost preparers and online software that causes this fraud) we must charge handsomely for our rarely available personal services.
 
Licensing
Enough already. Let’s get a strong national licensing law in place with felony penalties for unlicensed preparers, and let’s aggressively apply the same preparer penalties to the online software companies that apply to us paid preparers that actually do the returns.
 
Small Business
We need an immediate national fix to the sales tax issue for small business before small business is completely throttled. My letters to our US Senator (see Sen. Todd Young newsletter 2 months ago) have been ignored and I do not sincerely believe that our elected representatives have the slightest idea of the issue or that small business is the engine that drives the national economy.
 
Oh well, another day, another rant. See you at a seminar soon, and have a great Thanksgiving.

Elections, Checklists, & Letters USB --  Available Now! 
Jam-packed with immediately useful information and organized in an easy to use manner, the desktop reference will prove to be an invaluable source for the operation of your office. See below for a full list of contents and to get yours today, 
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Accounting Aids
Compilation Reports
Review Reports
Analytical Review Steps Tax Basis
Checklist Compilation Annual Reporting Tax Basis
Checklist Compilation Monthly Reporting Tax Basis
Client Acceptance and Retention Data Sheet
Continuing Education Planner
Employee Professional Skills Summary
Letters Financial Statement Engagement-Compilation
Letters Financial Statement Engagement-Preparation
Letters Financial Statement Engagement-Review
Letters-Agreed Upon Procedures Engagement
Letters-Management Representation
Loan 5 Year Summary
New Accounting Client Memo
Policy-Privacy and Confidentiality
Prepared Financial Statements Disclaimer Report
Prepared Financial Statements-Information Needed
Reviewed Financials Checklist
Reviewed Financials Ratio Analysis Worksheet
Stockholders Equity Reporting
The 4 Reporting Options
Workpaper Requirements
 
Estate and Social Security Aids
10 Social Security Benefits
Calculator 2018 Social Security Benefit
Checklist-Death of Another
Digital Assets
Identity Theft Actions
Reference-Social Security Child Benefit
Reference-Social Security Divorce or Widow Benefit
Reference-Social Security Summary of Benefits
Reference-Social Security Surviving Spouse
Summary of Trust Provisions
Summary of Will Provisions
 
Practice Management Aids
2017 Employee Physical Security Checklist
20108 Avoiding Individual Identity Theft
2019 Fee Schedule
Break Even Point Calculator
Business Plan Checklist
Practice Management Aids-continued
 
Cash Flow Worksheet
Checklist Best Operation Practices
Checklist-Firm Operation
Checklist-Security
Checklist-Website
Client Evaluation Form
Commercial Loan Checklist
Contacting Online Accounts
Continuing Education Planner
Disaster Checklist
Disaster Planning Checklist
Education Assistance Plan
Employee Professional Skills Summary
Equipment Inventory
Executor Portability Waiver
Household Budget Calculator
Invoice Template
Letter Client Firing
Letter Lender Response
Letter Raising Fees
Letter-Records Release when fired by client
New Business Client Info Needed Letter
Policy-Privacy and Confidentiality
Policy-Computer and Internet
Policy-Telecommuting
Return Tracker
September 15 Cutoff Letter
 
Tax Aids
Calculators and Worksheets
            351 Attachment
            Accountable Expense Plan        
            Calculator Minister-Housing Allowance Taxable for Regular Income Tax
            Calculator-20% QBI Deduction
            Calculator-Like Kind Exchange BEP
            Calculator-Minister Deason Rule
            Calculator-Minister Self-Employment Income
            Calculator-S Corps Built in Gains
            Capital Gains Planning
Charity Bargain Sale Worksheet
Commodity Wage Agreement
Crop Insurance Deferral
Calculators and Worksheets-continued
            De Minimis Election
            Dependent Care Assistance Plan Document
            Estate Planning Asset Spreadsheet
            Form 8960 Line 4b Worksheet
            Gain on Sale of Converted Residence
            Insolvency Worksheet
            Installment Reduced Gain
            Installment Sale-Real Property Repossession Worksheet
            Installment Sale-Reduced Price Worksheet
            IRA and Pension Rollover Checklist
            IRA Pro-Rata Withdrawal Calculator
            Livestock Gain Deferral
            Loan Amortization Calculator
            S Corps Built in Gains Worksheet
            Sed 263A Calculator
Support Worksheet
Worksheet for Calculating Taxable Gain on Sale of Personal Residence
           
Elections
            83B Election
            Accountable Expense Plan
            De Minimis Election
            Dependent Care Assistance Plan Document
            Disaster Area Loss Carryback
            Election to Defer Gain on Involuntary Conversion
            Election to Defer Livestock Sales Proceeds
Election to Expense Decedent Medical Expenses
ESBT Election
Grouping election
Grouping Election-Real Estate Professional
Individual Tax 10-T Election
Individual Tax Section 266 Election’      
Livestock Gain Deferral
LLC 754 Step Up Basis Election
LLC Late C Corp Election Relief
QSST Election
S Corps-Closing of Books Election
S Corps-Deemed Dividend Election
S Corps-Election Revocation Shareholder Consent
S Corps-Election Revocation
S Corps-Election to Distribute EP before AAA
S Corps-Special Ordering Election
 
IRS Forms
            Form 23
            Form 843
            Form 911
            Form 990
            Form 1023
            Form 1310
            Form 2553
            Form 2848
            Form 3115
            Form 4506
            Form 4506-T
            Form 5452
            Form 8937
            Form W-4
            Form W-9        
 
Letters and Checklists
            2018 1040 Engagement Letter
            2018 1040 interview
            2018 1065 Engagement Letter
            2018 1099 Engagement Letter
            2018 1120 Engagement Letter
            2018 1120S Engagement Letter
            Accountable Expense Plan
            Checklist for Employee Fringe Benefit Availability and Participation
            Checklist S Corp 338 Step Up Election
Checklist-Incorporation
Client Consent IRS
Items Needed to Prepare 1041
Letter QBI Client Omitted k-1 QBI information
Letter-Example 2210 Penalty Waiver
Letter-First Time Penalty Abatement
Letter-IRA K-1
Letter-LLC Client Letter re Attorney Updating Agreements
Letter-LLC Incorrect Receipt of W-2
Letter-LLC Opt Out Notification to Members
Letter-LLC Ownership Verification
Letter-LLC Partner Representative Designation
LLC Unreimbursed Partner Expense Agreement
            S Corps-Shareholder Consent
 
Tables and References
            1099-R Distribution Codes
            2018 Capital Gains 0% Worksheets
2018 Capital Gains Rates
2018 IRA Contribution Limits
2018 Pension Tables
2018 Savers Credit
8949 Table
Accountable Expense Plan
Alimony Requirements
Amortization Codes
Asset Sales-Where to Report
Basis of Home Acquired by Gift
Business Entity Choice Factor Table
Business Owners Health Insurance Table
C Corp Distribution Reporting
Casualty Loss Deductions
Charitable Contributions Deductions
College Savings Table
Control Group Test
Depreciation Lives
Depreciation Recapture Rules
Divorce Property Transfers
Early Distribution Penalty Exception Table
Education Credit Comparison
Education Reference Table
Farm Income Averaging
FBAR vs FinCen Reporting Requirements
Flex Spending Advantages
Fringe Benefit Summary-Hyperlinked
Gold in an IRA
Health Care Unaffordable Coverage Exemption
Health Savings Accounts
Individual 529 Plan Comparison
Individual Coverdell Table
Individual Foreign Activity Reporting Summary Table
Investment Basis and Holding Periods
Investor vs Trader5
Land in an IRA
Lawsuit taxability and attorney fees
Life Expectancy Tables
LLC Basis and Capital Account Chart
LLC Initial Basis
Long Term Care-Who Pays
Tables and References-continued
            Luxury Vehicle Depreciation Limits 2018
Medicare Earned Income Surtax
Net Investment Income Table
Owner Business Expense Deductions
Payroll Penalties
QBI Deduction Qualifying Income
RMD Requirements for Beneficiaries
Rolling Qualified Plans to IRA Advantages and Disadvantages
Roth Withdrawal Rules
S Corp-Shareholder Fringe Benefit Tax Treatment
S Corp-Non-Qualified Owners
S Corps-Cash and Property Distribution Hierarchy
S Corps-Distribution Ordering Rules
S Corps-Distribution Reporting Rules
Scholarship Payments
Sec. 179 Income Tests
SEP Summary Table
SIMPLE Summary Table
Surtax Guide
Tuition Deduction Table
Vehicles Exempted from Luxury Depreciation Limits
 
Technology Aids
3rd party Computer Services Confidentiality Agreement
2018 Avoiding Individual Identity Theft
Business Web Portal Client Letter
Checklist Best Operation Practices
Checklist-Security
Contacting Online Accounts
Disaster Checklist
Disaster Planning Checklist
Individual Web Portal Client Letter
Policy-Computer and Internet
Policy-Telecommuting
Web Portal Policy
Talking with TaxSpeaker Series
This week's video is on forms & letters-- questions submitted by you! To subscribe to the series, please visit 
www.taxspeakerquestionspro.vhx.tv. If you aren't sure how it works, we answer 10-15 questions every week or two that have been submitted by you, our members. To see how the series works, click here to watch one of the videos free of charge! It's $20/month or $200/year. (A yearly subscription saves you 17%!) A subscription will give you access to all previously released videos as well as any future videos for the duration of your subscription. If you have questions you'd like to have answered, please email them to raelync@taxspeaker.com.

See the questions for this week's video below: 
 
  1. If they are above the income thresholds for the QBI deduction and have no employees, do you have any suggestions for structuring their business to get some QBI deduction? They are precluded by code from taking commission income as salary, but can they form an S corporation, take a salary to manage the business and have the rest of the income from that company come out as 1099 income?
  2. If a client has sales to an entity-a cooperative-that issues a DPAD on a Form 1099-PATR and also sales to other entities that do not issue DPAD- Would it be advisable to segregate the computation of QBI accordingly to eliminate taking a double deduction in the eyes of the IRS?
  3. Do you think the IRS could delay the Partnership Audit Rules and a new Form 1065 until 2020 like the W-4?
  4. Taxpayer (Owner of 30% interest) started "New Business-Restaurant" in 2017 as a Partnership and had to shut down business due to losses (Taxpayer portion $100,000.00) in approximate 4 months.  Has requested for 2017 Schedule K-1 from the other Partner (70% Owner) and has not received any response.  What options does he have to report these losses on his 2017 Form 1040?
  5. A single member LLC filed Form 2553 to be taxed as an S corp. Now they want to revert to filing on Form 1040 Sch C, taxed as a sole proprietorship. Will notifying the IRS of an S corp election revocation accomplish this? If not, what procedure should be followed?
  6. We are considering moving to the per form billing. Is there some listing or recommendations of forms and prices so that we have an idea of the current rates?
  7. Should fee raise letter be sent now or with organizer in December?
  8. What are your thoughts on the new "postcard" for filing of tax returns?
  9. In the Preparation sample there is a line about the fact that no disclosures will be given with the financials. Should this be added to an engagement letter for a compilation without disclosures? 
  10. Under the Our Report section in the engagement letter for a compilation, shouldn't it have a line stating that you are not independent if that is the case rather than the paragraph about what we would need to do to remain independent?
  11. I filed an election for a client to be an Scorp asking for a 1/1/18 start date. This was filed timely. I received back a letter from IRS stating that they have accepted the Scorp election for year beginning 1/1/19. What is the best way to deal with this to correct it to 1/1/18?
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