If Speculators Get Itchy, Residential Market Could Fall – As big a fan of real estate investing as I may be, I have always known that buying property based on the same kind of “greater fool” theory of investing that propelled the late 1990s dot-com stock market bubble, is just as reckless with real estate. 

Art Berkowitz, the CPA whose spreadsheet I mentioned earlier regarding keeping track of the different states’ rules for licensing of out of state CPAs, has a blog devoted just to this topic, called CPA Out-of-state licensing.   He has some interesting feedback from other CPAs who are just now learning about these new rules around the country.

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My opinion on the foolishness of relying on do-it-yourself tax prep software for the actual returns that will be sent  to IRS and State tax agencies hasn’t changed any.  However, as I mentioned on several occasions, they can be useful tools for organizing data for your personal tax professional, especially when doing trial runs before April 15, when you need to know how much, if any, to send in along with your extension.

I came across the following helpful articles.

Tax Software – What Do You Really Get in That Box? – From NATP (1/13/2006)

PC Magazine’s review roundup of tax prep software.

Kay Bell’s tips on getting the most from tax software.

QuickBooks QuickMaps in Lacerte – Intuit guide to transferring data from QuickBooks into Lacerte tax programs.  I’m looking forward to giving this a try. Since all of our corporate tax clients are required to use QuickBooks, I’m hoping it will speed up the tax prep process.

Schedule D Guidance Helpful; Clarity Still Sought For E-Filers – From CCH

One of the main reasons I have always had for avoiding electronic filing of tax returns is the inability to attach additional info.  This Schedule D issue makes that difference very apparent, and is causing concern for tax preparers in states that mandate e-filing, such as the PRC.

What You Need To Know About Real-Estate Investing – From the WSJ

Richard Hatch Jury Selection Begins

Hatch’s accountant cannot testify as to Hatch’s accounting abilities, nor will he be able to discuss an accountant’s ethical duties in preparing income tax returns. Another rather odd request for his testimony was also forbidden, as he will not be allowed to talk about whether tax problems can result from personal trauma. Is this a hint into Hatch’s defense strategy? Not guilty because he was traumatized and didn’t know he wasn’t paying his taxes?

Energy Policy Act of 2005 Tax Credits – Courtesy of Lowe’s

Q:

Subject: Self-Employment Tax

Guru,

Much to my own fault I believe, I was surprised to work through my first year’s tax return to realize partner distributions from an LLC would pay self-employment tax.  Is this definately the case, and might I have been wrong to structure the business as an LLC with multiple members?  I’ve read that chapter S corp sharholders don’t pay self-employment tax, but I’m sure it’s not that clear cut.  My annual income is $150K+.

A:

As I’ve discussed several times in my blog, such as this one, there are differences of opinion over whether the K-1 net profit distribution from an LLC is subject to SE tax. 

Guaranteed payments or payments made to LLC members that are specifically identified as being for services rendered are subject to SE tax.  That’s not really debatable. 

My opinion on the K-1 net profit hasn’t changed on this matter because no laws or regulations have been passed firming up the issue; so it is essentially voluntary. 

You may also want to download and listen to Ed Zollars’ podcast  from July on SE tax and LLCs.  I just found it a short while  back.  He has a lot of code cites, and emphasizes that the IRS is afraid to firm up the rules after issuing some temporary and proposed regs.  You can download it from his website here.

There are plenty of other tax pros around the country who have the same opinion as mine on this matter.  If your LLC’s tax pro isn’t one of them, you will have to decide if that’s a big enough issue to warrant finding a new one.

Good luck.

Kerry Kerstetter

Follow-up:

Thanks for the information.  I’m reading that some people believe an s-corp has a more favorable tax position than a multi-member LLC where each member does not pay self-employment tax (as your blog recommends).  Are there any advantages from moving to an s-corp, assuming net income is always drawn from the business?

My Reply:

While the SE tax issue is still in the gray area for LLCs, things are a bit more settled with S corps.  Trying to avoid all payroll taxes via an S corp is dangerous because IRS has the power to reclassify S corp income as W-2 compensation (with all of the related payroll taxes) if they are not satisfied that the corp has already set up enough.

This issue has been around for decades; so any experienced tax pro should be able to help you see how it would affect your particular business.

Good luck.

Kerry Kerstetter