From a Client:

Kerry;
 
I am almost ready to send our personal tax info but I have one question. I never know how to classify what items are corporation and which are personal classifications.  I guess I don’t really understand the classification purpose. Can you help me out so I have it right when I send it to you?
 
Thank-you;

My Reply:

The reason the use of Classes is important is for you to be sure to properly identify the deductible business type expenses from the non-deductible personal ones.  Ideally, I like to run a P&L report with the columns sorted by Class and then reconcile each column to its schedule on the tax return.  In your case, there would be a Class for each of the Schedule E columns on your tax return, Corporate Royalties and Asset Leases.  Any other Schedule C, E or F business would also have its own class.  Income received from each of these operations would be coded with that Class, as would any expenses applicable to them.

It’s fine to leave the class off and let it show up in the report in the  Unclassified column.  The problem with this is that I don’t have the time to hunt through all of those entries searching for deductible things that should belong in one of the business classes.  I rely on you to do that kind of sorting & identification.   

I hope this helps you understand this issue a little better.  I have more info on  this on my website.

Let me know if you have any other questions.

Kerry

 

This would be perfect for Kay Bell’s blog on taxes from Texas.

Be Wary of Signs and Ads Offering To Pay Cash for Your Home

This reminds me of a consultation I had last week with a client who was considering selling her house. First, she was worried about her taxable gain because she couldn’t recall how much she had paid for the property seven years earlier. When I discovered that she was looking at selling for only $80,000, I explained that her cost basis was irrelevant, since she qualified for up to $250,000 of tax free gain.

Then, she explained the second area of concern. The buyer was going to pay her with a check for $40,000 and the other $40,000 in actual cash. He had stipulated that a condition of the sale was that she could not deposit the cash into her bank account. She claimed that he was a prominent local business owner, and that the source of the money was legitimate, and that was how he always did business. After more questioning, she explained that the offer was $9,000 under the most recent appraisal and she wasn’t desperate to sell.

While she wasn’t in the business of selling real estate, so that filing Form 8300 (Report of Cash Payments Over $10,000 Received In a Trade or Business) with IRS for the cash received wouldn’t technically be mandatory, the situation struck me as having potential to fall under the following from the 8300’s instructions.

Voluntary use of Form 8300. Form 8300 may be filed voluntarily for any suspicious transaction (see Definitions) for use by the IRS, even if the total amount does not exceed $10,000.

Suspicious transaction. A transaction in which it appears that a person is attempting to cause Form 8300 not to be filed, or to file a false or incomplete form. The term also includes any transaction in which there is an indication of possible illegal activity.

When I explained that the potential penalty for not filing the 8300 could be the full amount of the cash received ($40,000), my client decided it would be best to stay away from a sale under these suspicious conditions. While the $40,000 cash the buyer was offering could very well be perfectly legitimate, the fact that he wanted it kept secret sends up red flags with any normal person.

When a Partnership Is Right for You – The extremely dangerous general partnership format has been becoming less popular each year, especially as the more protective LLC format has grown in prevalence.