I believe that TPs who hire children also need to comply with state regulations regarding minors working. For example, in North Carolina: Minors 14 and 15 years of age may work no more than 3 hours a day when school is in session and 8 hours a day when school is out. They may only work between the hours of 7 a.m. and 7 p.m. when school is in session and 7 a.m. to 9 p.m. when school is not in session. In addition, they are limited to working in certain industries such as retail, food service, service stations and business offices.
Thank you for spelling this out in writing for people and backing it up with receipts! I'm so tired of seeing this strategy thrown around like it's free money. It's so lazy.
I was hoping you could clarify something for me. A client sold his business to an employee for 1.25M, then “gifted” the $250K and set up the 1.0M on a promissory note at 1% interest. First question, do I report the sale at $1.25M? Or $1.0M. Then second because it is a below market loan do I impute interest income to the seller as well as add the unpaid interest to the gift tax return?
I know you probably can’t get to this right away but the client needs to file by the 16th. Either way I’d like to know your thoughts
I have S corporation that initially made an S election on the date of formation.
However, now they want to change the tax clarification to a partnership, effective from the 2023 tax year. We submitted the form 8832 along with the statement to the IRS but haven't received anything from the IRS as of now.
I am concerned that the IRS may disallowed S election and reclassify the S corp as C corp,, The S corp owns a property, that they will complete renovation and will rent out in the 2023.
In the future, please only post questions related to the topic of the newsletter edition. You can post generic questions on the latest Ask Tom Anything edition. Thanks.
If you are concerned, you should call the IRS and ask.
RE CA PTE tax - Cleint - a CA 1120 S , made the $1,000 deposit in June of 2022 to reserve the PTE creidt for 12-31-2022 tax year. 2nd installment of the PTE tax is not due until 10-16-2023 (Due to CA Diaster Relief).
Is it true that the final payment of PTE tax paid in 2023 is NON-DEDUCTIBLE on partner's 2022 540?
If so, would the previous $1,000 be refunded automatically if client does not elect the PTE on the 2020 540 or would the $1,000 be forfeited?
I've been reading different answers from diff sources. So frustrating. I don't want to mess with the 2022 PTE if client has to put out $10,000 and wait till next year to reap any benefit. Really appreciate it if you can clarify for me. Many Thanks!!!
CA PTE tax is never deductible for CA purposes. CA PTE tax is federally deductible in the tax year in which it is paid. It is still worthwhile to participate. A taxpayer must plan the payments to get the benefit in the tax year that they want. If the TP doesn't participate, it is refunded.
You have to be careful of §127(b)(3) which prevents a plan from benefiting owners and their relatives: “Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.”
I believe that TPs who hire children also need to comply with state regulations regarding minors working. For example, in North Carolina: Minors 14 and 15 years of age may work no more than 3 hours a day when school is in session and 8 hours a day when school is out. They may only work between the hours of 7 a.m. and 7 p.m. when school is in session and 7 a.m. to 9 p.m. when school is not in session. In addition, they are limited to working in certain industries such as retail, food service, service stations and business offices.
Yes, they absolutely do have to follow local labor law.
Thank you for spelling this out in writing for people and backing it up with receipts! I'm so tired of seeing this strategy thrown around like it's free money. It's so lazy.
Good morning,
I was hoping you could clarify something for me. A client sold his business to an employee for 1.25M, then “gifted” the $250K and set up the 1.0M on a promissory note at 1% interest. First question, do I report the sale at $1.25M? Or $1.0M. Then second because it is a below market loan do I impute interest income to the seller as well as add the unpaid interest to the gift tax return?
I know you probably can’t get to this right away but the client needs to file by the 16th. Either way I’d like to know your thoughts
Good Morning Tom,
I have S corporation that initially made an S election on the date of formation.
However, now they want to change the tax clarification to a partnership, effective from the 2023 tax year. We submitted the form 8832 along with the statement to the IRS but haven't received anything from the IRS as of now.
I am concerned that the IRS may disallowed S election and reclassify the S corp as C corp,, The S corp owns a property, that they will complete renovation and will rent out in the 2023.
Thank you for your time.
In the future, please only post questions related to the topic of the newsletter edition. You can post generic questions on the latest Ask Tom Anything edition. Thanks.
If you are concerned, you should call the IRS and ask.
Thank you so much for the clarification Tom!
Yes, I meant to say deductible on client's 1040. What a foolish typo on my part.
Thanks again!
Good Evening Tom.
RE CA PTE tax - Cleint - a CA 1120 S , made the $1,000 deposit in June of 2022 to reserve the PTE creidt for 12-31-2022 tax year. 2nd installment of the PTE tax is not due until 10-16-2023 (Due to CA Diaster Relief).
Is it true that the final payment of PTE tax paid in 2023 is NON-DEDUCTIBLE on partner's 2022 540?
If so, would the previous $1,000 be refunded automatically if client does not elect the PTE on the 2020 540 or would the $1,000 be forfeited?
I've been reading different answers from diff sources. So frustrating. I don't want to mess with the 2022 PTE if client has to put out $10,000 and wait till next year to reap any benefit. Really appreciate it if you can clarify for me. Many Thanks!!!
CA PTE tax is never deductible for CA purposes. CA PTE tax is federally deductible in the tax year in which it is paid. It is still worthwhile to participate. A taxpayer must plan the payments to get the benefit in the tax year that they want. If the TP doesn't participate, it is refunded.
So adult (non dependent) children and nieces and nephews and grandchildren are ok?
I would check to see if the constructive ownership rules apply to §127.
I also set up a college tuition reimbursement plan for my employees (all of whom were related to me).
You have to be careful of §127(b)(3) which prevents a plan from benefiting owners and their relatives: “Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.”
What are your thoughts with hiring a child for occasional tasks?
And then issuing a 1099 NEC.
A child is not going to be an independent contractor in almost all cases.