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Making Money RVF Tax Lounge
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Richiavelli Offline
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RVF Tax Lounge
Hey guys,

I did a quick search and didn't really find anything like this yet. I'm a tax accountant licensed in the states. With the upcoming filing season up, I'm more than happy to field one-off questions for anyone.

So...I'm a tax accountant, AMA.
02-05-2015 11:23 PM
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Richiavelli Offline
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RE: RVF Tax Lounge
Something that happened to me recently:

If you guys simply have W-2 income, it's best to just use turbotax. Anyone that has some type of business should seriously go out and find a CPA. One of my friends is a day trader using turbotax, and it just isn't built for that. Stop being cheap and get help.
02-05-2015 11:25 PM
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Disco_Volante Offline
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RE: RVF Tax Lounge
What is the total list of documents I need to incorporate a business?

I started a small S corp and so far I have

-Article of incorporation in my state
-Federal EIN number
-Stockholders agreement

I still need corporate bylaws, and issue stock certificates, IRS form 2553 and what else?

Also what are the mechanics of creating stock certificates? Can I type and print them myself or is there some registration process?


I asked an attorney and he charges $1500 to incorporate so I said fuck that. Other than completeing corporate by-laws Im not sure what else I need to do.
All the information online is very fragmented I can't find a definitive guide on the exact documents I need.

thanks
02-06-2015 12:03 AM
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Papi Rico Offline
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RE: RVF Tax Lounge
Expat tax question:

In 2014, John Doe successfully transitioned his online business from a Sole Proprietorship [BETA & ASSOCIATES] to an overseas-incorporated limited company [PAPI RICO LTD]. As of June 15, 2014 John began doing business under his new company name: he filed all necessary incorporation documents through his legal counsel, and overseas incorporation specialist. On that same date, John informed all of his preexisting clients of all changes, including his new company's name, physical address, webpage, and email. All invoices sent after June 15 reflected this information. PAPI RICO LTD was officially incorporated in the overseas jurisdiction on July 1, 2014.

Project 1 was ordered on June 15. Services were performed between June 16-20. An invoice was sent on July 1, and payment was collected on July 2, 2015.

Project 2 was ordered on June 29. Services were performed between June 29 and July 5. An invoice was sent on July 6 and payment was collected on July 7, 2015.

Project 3 was ordered on June 30. Services were performed between July 1 and July 15. An invoice was sent on July 15 and payment was promptly collected.

All services were performed overseas. All payments were received in the United States. John is unquestionably eligible for the Foreign Earned Income Exclusion: he spent a total of 14 days in the United States in 2014 and is the sole director and shareholder of the overseas entity.

Which of the 3 projects (if any) may John lawfully claim as income of PAPI RICO LTD, hence income subject to the Foreign Earned Income Exclusion?

Your advice on this matter is highly appreciated.

Lima | Kiev | Jakarta

Data Sheets: Da Nang (Vietnam), San Salvador (El Salvador), Arequipa (Peru), Santa Cruz (Bolivia)
02-06-2015 12:19 AM
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Richiavelli Offline
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RE: RVF Tax Lounge
(02-06-2015 12:03 AM)Disco_Volante Wrote:  What is the total list of documents I need to incorporate a business?

I started a small S corp and so far I have

-Article of incorporation in my state
-Federal EIN number
-Stockholders agreement

I still need corporate bylaws, and issue stock certificates, IRS form 2553 and what else?

Also what are the mechanics of creating stock certificates? Can I type and print them myself or is there some registration process?


I asked an attorney and he charges $1500 to incorporate so I said fuck that. Other than completeing corporate by-laws Im not sure what else I need to do.
All the information online is very fragmented I can't find a definitive guide on the exact documents I need.

thanks
This isn't really a tax question, so I won't be able to help you out much. I've never created stock certificates, so I would not know how to do this. Typically, it is done by an attorney. If you are not bringing in a ton of money, you can use legalzoom. If you're clearingdecent money, get it done correctly and pay the money. It is a pain in the ass to liquidate and then create a new entity when you did it wrong the first time. You do not lose money by using a good attorney.

Among other things, you also need a book of records for the stock as well as to register to do business in your home state. FYI, do not screw up your S Election - you can't make another one for a decent amount of time if you break it.
02-11-2015 01:23 AM
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Richiavelli Offline
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RE: RVF Tax Lounge
(02-06-2015 12:19 AM)Papi Rico Wrote:  Expat tax question:

In 2014, John Doe successfully transitioned his online business from a Sole Proprietorship [BETA & ASSOCIATES] to an overseas-incorporated limited company [PAPI RICO LTD]. As of June 15, 2014 John began doing business under his new company name: he filed all necessary incorporation documents through his legal counsel, and overseas incorporation specialist. On that same date, John informed all of his preexisting clients of all changes, including his new company's name, physical address, webpage, and email. All invoices sent after June 15 reflected this information. PAPI RICO LTD was officially incorporated in the overseas jurisdiction on July 1, 2014.

Project 1 was ordered on June 15. Services were performed between June 16-20. An invoice was sent on July 1, and payment was collected on July 2, 2015.

Project 2 was ordered on June 29. Services were performed between June 29 and July 5. An invoice was sent on July 6 and payment was collected on July 7, 2015.

Project 3 was ordered on June 30. Services were performed between July 1 and July 15. An invoice was sent on July 15 and payment was promptly collected.

All services were performed overseas. All payments were received in the United States. John is unquestionably eligible for the Foreign Earned Income Exclusion: he spent a total of 14 days in the United States in 2014 and is the sole director and shareholder of the overseas entity.

Which of the 3 projects (if any) may John lawfully claim as income of PAPI RICO LTD, hence income subject to the Foreign Earned Income Exclusion?

Your advice on this matter is highly appreciated.

A bit vague, I need to know a little bit more information:

1. How were you picking up income of the sole properitorship in prior years?

2. Is the LTD treated as a flow through vehicle or is it a corporation?

3. The corporation is doing business with US citizens?

4. Are you sure you qualify for the Foreign Earned Income Exclusion? http://www.irs.gov/Individuals/Internati...quirements

The conservative part of me says that you wouldn't pick up any of the income inside of the LTD until incorporation, especially if there is documentation of such. I do not really see how that would affect your tax position though - if the LTD is flow through, you would still treat it as a sole proprietorship, only new there is a liability shield. I feel like I am missing something.
(This post was last modified: 02-11-2015 01:38 AM by Richiavelli.)
02-11-2015 01:34 AM
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BallsDeep Offline
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RE: RVF Tax Lounge
..
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02-11-2015 02:05 AM
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Phoenix Offline
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RE: RVF Tax Lounge
Do you only know US tax law, or do you have knowledge about international tax-minimizing strategies?
02-11-2015 08:50 AM
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Richiavelli Offline
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RE: RVF Tax Lounge
FYI, Section 179 limits have not been established for 2015. Congress keeps doing this crap of passing it a couple days before the tax year ends.

http://www.section179.org/section_179_ve...tions.html

Make sure the car is over the certain pound limiit.

I don't have much advice here again, as it is not a tax question. What I can tell you is this:

1) Have you done a cost benefit analysis to see how much money you would save if you just bought it there? Depending on what tax bracket you are in, you may not save as much as you think.

2) Taking section 179 for a vehicle is probably one of the higher risk items that you could claim on a tax return. I am not saying it is a 100% you will get audited, but there is a separate form you must fill out just to take a vehicle on 179. Also keep in mind that your business must make a profit in order to take a 179 deduction. Is your company legit, or is this something that you are claiming on schedule C for this year and are going to expatriate/etc?

Example: You make $1000 of revenue. Your deductions are $500. Your gross profit is $500. You try to take 179 for 26,000. You are limited to a $500 section 179 deduction with a carryover for 25,500.
02-11-2015 11:24 AM
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Richiavelli Offline
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RE: RVF Tax Lounge
(02-11-2015 08:50 AM)Phoenix Wrote:  Do you only know US tax law, or do you have knowledge about international tax-minimizing strategies?

I have worked on hedge funds and have seen some international planning. It is not extensive, but I am familiar with ECI rules, etc.
02-11-2015 11:24 AM
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Papi Rico Offline
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RE: RVF Tax Lounge
(02-11-2015 01:34 AM)Richiavelli Wrote:  
(02-06-2015 12:19 AM)Papi Rico Wrote:  Expat tax question:

In 2014, John Doe successfully transitioned his online business from a Sole Proprietorship [BETA & ASSOCIATES] to an overseas-incorporated limited company [PAPI RICO LTD]. As of June 15, 2014 John began doing business under his new company name: he filed all necessary incorporation documents through his legal counsel, and overseas incorporation specialist. On that same date, John informed all of his preexisting clients of all changes, including his new company's name, physical address, webpage, and email. All invoices sent after June 15 reflected this information. PAPI RICO LTD was officially incorporated in the overseas jurisdiction on July 1, 2014.

Project 1 was ordered on June 15. Services were performed between June 16-20. An invoice was sent on July 1, and payment was collected on July 2, 2015.

Project 2 was ordered on June 29. Services were performed between June 29 and July 5. An invoice was sent on July 6 and payment was collected on July 7, 2015.

Project 3 was ordered on June 30. Services were performed between July 1 and July 15. An invoice was sent on July 15 and payment was promptly collected.

All services were performed overseas. All payments were received in the United States. John is unquestionably eligible for the Foreign Earned Income Exclusion: he spent a total of 14 days in the United States in 2014 and is the sole director and shareholder of the overseas entity.

Which of the 3 projects (if any) may John lawfully claim as income of PAPI RICO LTD, hence income subject to the Foreign Earned Income Exclusion?

Your advice on this matter is highly appreciated.

A bit vague, I need to know a little bit more information:

1. How were you picking up income of the sole properitorship in prior years?

2. Is the LTD treated as a flow through vehicle or is it a corporation?

3. The corporation is doing business with US citizens?

4. Are you sure you qualify for the Foreign Earned Income Exclusion? http://www.irs.gov/Individuals/Internati...quirements

The conservative part of me says that you wouldn't pick up any of the income inside of the LTD until incorporation, especially if there is documentation of such. I do not really see how that would affect your tax position though - if the LTD is flow through, you would still treat it as a sole proprietorship, only new there is a liability shield. I feel like I am missing something.

1. As a sole proprietorship, things were straightforward: I used cash-based accounting and paid self-employment tax on my worldwide income.

2. The LTD is a foreign corporation for US tax purposes. I understand there are Form 5471 filing requirements.

3. The corporation has US clients. However, it has no U.S. permanent establishment or office and performs all services overseas. To my understanding, this doesn't trigger 26 U.S. Code § 882 (a)(2)'s tax basis: gross income which is effectively connected with the conduct of a trade or business within the United States.

4. There is no question that I qualify for the Foreign Earned Income Exclusion.

The original question is this:

If I'm on a cash-based accounting system as a sole proprietor and bill clients as such, could my "successor" corporation pick up any payments received following the date of incorporation? I've been looking all over for legal authority, but cannot find an answer one way or the other..

Lima | Kiev | Jakarta

Data Sheets: Da Nang (Vietnam), San Salvador (El Salvador), Arequipa (Peru), Santa Cruz (Bolivia)
02-11-2015 11:56 AM
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Harvey Specter Offline
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RE: RVF Tax Lounge
If you take section 179 depreciation on an asset then remove it from the corporation by any means (sale, dividend, compensation, whatever) you need to then recapture the depreciation as ordinary income. So basically there is no benefit for doing it.
02-11-2015 06:01 PM
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RE: RVF Tax Lounge
..
(This post was last modified: 02-12-2016 12:21 PM by BallsDeep.)
02-12-2015 02:31 AM
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Harvey Specter Offline
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RE: RVF Tax Lounge
(02-12-2015 02:31 AM)BallsDeep Wrote:  
(02-11-2015 06:01 PM)Harvey Specter Wrote:  If you take section 179 depreciation on an asset then remove it from the corporation by any means (sale, dividend, compensation, whatever) you need to then recapture the depreciation as ordinary income. So basically there is no benefit for doing it.

The asset would not be sold or change ownership. It would just be located outside of the country.

For example, let's say it was driven to Canada and remained there for a while. It may stay there for three months or three years. How would that make a difference?

I thought you meant that you were taking it out of the company. If you have a legitimate business reason for it then it shouldn't be a problem. I also recommend at least picking up some portion of personal usage for any autos, unless you have impeccable records.
02-12-2015 12:04 PM
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RE: RVF Tax Lounge
..
(This post was last modified: 02-12-2016 12:19 PM by BallsDeep.)
02-12-2015 03:07 PM
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Harvey Specter Offline
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RE: RVF Tax Lounge
Yes by mileage.

I don't really know how to explain this in layman's terms but here is my attempt. Whatever percentage of mileage you drive for business is multiplied by the cost of vehicle and that becomes your cost basis for the auto. You can take a section 179 deduction on your cost basis of the auto. This will change on a yearly basis depending on your personal/business usage. If it decreases you have to recapture some of what you previously took a 179 deduction on. You are required to keep a mileage log detailing business vs. personal usage.

In theory, you could lie and say that it is 100% business usage and then deduct the full price of the vehicle and drive it around Canada all you want. Just hope that you don't get audited, but chances are that you won't.
02-12-2015 03:26 PM
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RE: RVF Tax Lounge
I just wanted to point out that the "audit protection" that companies like "turbo tax" sell usually only go so far as the offers in compromise part of the audit process. If you have a disagreement on the law or the facts that necessitates going to Tax Court, you will be paying for lawyers on yourself. I've seen a few people get burned.
02-12-2015 07:43 PM
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RE: RVF Tax Lounge
..
(This post was last modified: 02-12-2016 12:21 PM by BallsDeep.)
02-12-2015 09:13 PM
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Richiavelli Offline
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RE: RVF Tax Lounge
(02-12-2015 09:13 PM)BallsDeep Wrote:  Ok last question on the subject of Section 179:

My understanding is that if you buy a car and write it off, and later sell it, that you then need to report the sale as income.

But what if someone buys a section 179 vehicle for 25K, takes a full writeoff on it, and then trades it in for a regular car that's valued around the same amount... Would you get a huge tax break by doing that? Because I don't see how you'd even declare that. (Not that I'm planning on doing that, but it just popped in my head)

Like he said before, you would be subject to recapture on depreciation if you did not wait the full amount of time to depreciate an asset. I once saw a calculation on a jet that did the same thing, they got raped on recapture.
02-13-2015 11:00 PM
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Richiavelli Offline
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RE: RVF Tax Lounge
(02-12-2015 03:26 PM)Harvey Specter Wrote:  
(02-12-2015 03:07 PM)BallsDeep Wrote:  
(02-12-2015 12:04 PM)Harvey Specter Wrote:  I thought you meant that you were taking it out of the company. If you have a legitimate business reason for it then it shouldn't be a problem. I also recommend at least picking up some portion of personal usage for any autos, unless you have impeccable records.

Ownership wouldn't change, and there wouldn't be a legitimate reason for the vehicle leaving the country. However to qualify for Section 179 the vehicle needs to be used "at least 50%" for business. So I'm not asked to claim that I partially use it for personal reasons.

How is the 50% supposed to be quantified? I assume by mileage, but what's to say that I don't run up the miles in the first couple months I own the car for business purposes, and then use it occasionally in Canada for the rest of the year?

Yes by mileage.

I don't really know how to explain this in layman's terms but here is my attempt. Whatever percentage of mileage you drive for business is multiplied by the cost of vehicle and that becomes your cost basis for the auto. You can take a section 179 deduction on your cost basis of the auto. This will change on a yearly basis depending on your personal/business usage. If it decreases you have to recapture some of what you previously took a 179 deduction on. You are required to keep a mileage log detailing business vs. personal usage.

In theory, you could lie and say that it is 100% business usage and then deduct the full price of the vehicle and drive it around Canada all you want. Just hope that you don't get audited, but chances are that you won't.

This is spot on, I really do not have much to add to this description - totally forgot about recapture hahah.

Another option you have if you use a car for business is you could just take the mileage deduction the IRS publishes every year. You cannot depreciate your vehicle or take 179 if you do this though. I'd imagine most lyft drivers are doing this, but it seems different than your situation.
(This post was last modified: 02-13-2015 11:03 PM by Richiavelli.)
02-13-2015 11:01 PM
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RE: RVF Tax Lounge
(02-12-2015 07:43 PM)tarquin Wrote:  I just wanted to point out that the "audit protection" that companies like "turbo tax" sell usually only go so far as the offers in compromise part of the audit process. If you have a disagreement on the law or the facts that necessitates going to Tax Court, you will be paying for lawyers on yourself. I've seen a few people get burned.

Yeah from what I hear, the "audit protection" won't really help you - they'll blame you for not understanding what you were putting into turbotax, so it would be negligence on your part.
02-13-2015 11:04 PM
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Richiavelli Offline
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RE: RVF Tax Lounge
(02-11-2015 11:56 AM)Papi Rico Wrote:  
(02-11-2015 01:34 AM)Richiavelli Wrote:  
(02-06-2015 12:19 AM)Papi Rico Wrote:  Expat tax question:

In 2014, John Doe successfully transitioned his online business from a Sole Proprietorship [BETA & ASSOCIATES] to an overseas-incorporated limited company [PAPI RICO LTD]. As of June 15, 2014 John began doing business under his new company name: he filed all necessary incorporation documents through his legal counsel, and overseas incorporation specialist. On that same date, John informed all of his preexisting clients of all changes, including his new company's name, physical address, webpage, and email. All invoices sent after June 15 reflected this information. PAPI RICO LTD was officially incorporated in the overseas jurisdiction on July 1, 2014.

Project 1 was ordered on June 15. Services were performed between June 16-20. An invoice was sent on July 1, and payment was collected on July 2, 2015.

Project 2 was ordered on June 29. Services were performed between June 29 and July 5. An invoice was sent on July 6 and payment was collected on July 7, 2015.

Project 3 was ordered on June 30. Services were performed between July 1 and July 15. An invoice was sent on July 15 and payment was promptly collected.

All services were performed overseas. All payments were received in the United States. John is unquestionably eligible for the Foreign Earned Income Exclusion: he spent a total of 14 days in the United States in 2014 and is the sole director and shareholder of the overseas entity.

Which of the 3 projects (if any) may John lawfully claim as income of PAPI RICO LTD, hence income subject to the Foreign Earned Income Exclusion?

Your advice on this matter is highly appreciated.

A bit vague, I need to know a little bit more information:

1. How were you picking up income of the sole properitorship in prior years?

2. Is the LTD treated as a flow through vehicle or is it a corporation?

3. The corporation is doing business with US citizens?

4. Are you sure you qualify for the Foreign Earned Income Exclusion? http://www.irs.gov/Individuals/Internati...quirements

The conservative part of me says that you wouldn't pick up any of the income inside of the LTD until incorporation, especially if there is documentation of such. I do not really see how that would affect your tax position though - if the LTD is flow through, you would still treat it as a sole proprietorship, only new there is a liability shield. I feel like I am missing something.

1. As a sole proprietorship, things were straightforward: I used cash-based accounting and paid self-employment tax on my worldwide income.

2. The LTD is a foreign corporation for US tax purposes. I understand there are Form 5471 filing requirements.

3. The corporation has US clients. However, it has no U.S. permanent establishment or office and performs all services overseas. To my understanding, this doesn't trigger 26 U.S. Code § 882 (a)(2)'s tax basis: gross income which is effectively connected with the conduct of a trade or business within the United States.

4. There is no question that I qualify for the Foreign Earned Income Exclusion.

The original question is this:

If I'm on a cash-based accounting system as a sole proprietor and bill clients as such, could my "successor" corporation pick up any payments received following the date of incorporation? I've been looking all over for legal authority, but cannot find an answer one way or the other..

I am leaning toward yes, but there's no real documentation following my logic pattern. Here's why.

On the day of incorporation, I assume you would contribute all assets of your business into the corporation in some sort of "tax free" transaction under section 351. The corporation would then "step into the shoes" of the previous business and could pick the income up, as the sole proprietorship does not exist anymore. I did a quick search and didn't see anything, but I am a bit surprised there is not Private Letter Ruling (PLR) that the IRS has issued for something similar than this.

By the way, there are a lot of foreign issues that you are dealing with - I really hope you are talking to an accountant who knows international tax. Penalties on new FATCA foreign regulations are daunting - it's like a 10K penalty for missing a foreign bank account reporting form (FINCEN). Just be careful. ECI is also an absolute bitch, be careful out there bud.
(This post was last modified: 02-13-2015 11:19 PM by Richiavelli.)
02-13-2015 11:18 PM
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tarquin Offline
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Post: #23
RE: RVF Tax Lounge
(02-13-2015 11:04 PM)Richiavelli Wrote:  
(02-12-2015 07:43 PM)tarquin Wrote:  I just wanted to point out that the "audit protection" that companies like "turbo tax" sell usually only go so far as the offers in compromise part of the audit process. If you have a disagreement on the law or the facts that necessitates going to Tax Court, you will be paying for lawyers on yourself. I've seen a few people get burned.

Yeah from what I hear, the "audit protection" won't really help you - they'll blame you for not understanding what you were putting into turbotax, so it would be negligence on your part.

Well, say you have deductions that are larger than most people, but entirely legitimate. You are a traveling salesman and rack up 100k miles a year. That's a $56k deduction. You will be flagged and you will be audited. I can guarantee it to a 99.999 certainty. You need to have absolutely flawless travel logs to deduct that large of an amount, and the auditor is still going to probably say that only some of the miles are legitimate. Once you reach an impasse and need Tax Court, you will go out of pocket to try and fight for that last chunk of deductions. Now multiply that by the three years that you were audited for and start paying out your ass for an attorney to represent you in Tax Court.
02-14-2015 12:22 AM
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Harvey Specter Offline
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RE: RVF Tax Lounge
In this case you could do a tax free exchange and not have to pay taxes until you disposed of the trade in. The basis will transfer to the new vehicle, so you couldn't depreciate it in this case, because you already would have taken the 179. It is most commonly done with real estate, but you can do it for all sorts of business assets, even businesses themselves. There are some specific requirements that must be fulfilled though in order for it to be legitimate.
02-14-2015 11:47 AM
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RE: RVF Tax Lounge
Let say you have a doctor who operates as a sole-prop ( medical/dental liability pierces the coporate veil)

Said doctor also owns the real estate that the office sits on.

Q1: You can not pay rent to yourself as a sole prop. Is that correct?

Q2: If the doctor sold a minimal share of business (say 5-10%) to a partner, can the business (partnership or other joint venture company aka LLC or S-corp) start writing rent checks to doctor?

^^^From my understanding, rent expenses will lower self-employment taxes, FICA and social security

Q3: Considering this is a minority share of the business (lack of control and liquidity), what discount can you apply to this minority share of business? What passes the bullshit smell test?

_____________________________________

Foreign national family member (grandfather) passes away.

Inheritance share is roughly 100k. From brief research, this shouldn't be a problem to bring into the country (Form 3250).

Q1: Any special precautions I should take?

Q2: I have family members who might occasionally want to give me gifts. From a brief read of the IRS form 3250, its roughly 15k/person but each family counts as 1 person (related persons). <--- I might be misunderstanding this

How far does one extend this family interaction? Say you have ten cousins? How about family of your cousin? This whole section is just riddled with holes

How much $ before a red flag gets set off? 50k? 100k?

WIA- For most of men, our time being masters of our own fate, kings in our own castles is short. Even those of us in the game will eventually succumb to ease of servitude rather than deal with the malaise of solitude
(This post was last modified: 02-14-2015 12:48 PM by DVY.)
02-14-2015 12:34 PM
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