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I have a new client that runs a Bed & Breakfast. He has been

I have a new client...
I have a new client that runs a Bed & Breakfast. He has been reporting income and expenses under an Scorp where he also did e-commerce and retail. The previous preparer listed all the income on 1120S line 1. They have had a carryover for home office expense and have current year home office expense. I am struggling with where to record the home office expense. It seems to me the entire return has not been prepared correctly.
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Answered in 11 minutes by:
3/25/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,859
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

NPVAdvisor :

Hi Ican help here

NPVAdvisor :

An S corp owner/employee deducts their qualified home office expenses as unreimbursed employee business expenses on Forms 2106 or 2106-EZ and Schedule A of their personal Form 1040. They're initially reported on Forms 2106 or 2106-EZ and carried forward to Schedule A where they are included under itemized miscellaneous deductions subject to the 2% of Adjusted Gross Income floor.

NPVAdvisor :

I'm guessing you already know the use tests? just wondering about reporting?

NPVAdvisor :

As shareholders involved in the business, they have to report the HO expsne as an employee

NPVAdvisor :

Analogouse to taxes on self employment ... S-corp owner eployees don't have self employment tax... tey have wages and dividends

NPVAdvisor :

Here's an excellent piece on this:

Customer:

That is the same answer I am coming up with. They wanted to know why I hadn't recorded the home office expense when the previous preparer kept carrying the expenses forward.

Customer:

They have had losses in the past but a profit this year.

NPVAdvisor :

This is not like an LLC or sole proprietorship

NPVAdvisor :

yep

NPVAdvisor :

If there was other income in the householf, might want to consider amending and taking the loss on schedula A

NPVAdvisor :

you might want to show them the link ... Also, there's a good article by XXXXX XXXXX on about.com tax that, although about, s-corp owners not having self employment tax, might help to clarify the distinction between employee shareholder and self-employed

NPVAdvisor :

just a sec

NPVAdvisor :

.

Customer:

The RE Tax and Mortgage Interest I have deducted on A and previous preparer did as well. I think that is the best I can do for them. Just wanted a second opinion.

NPVAdvisor :

You're spot on

Customer:

Thank you so much.

NPVAdvisor :

You're very welcome. Have a good evening!

Customer:

If I have another question regarding a different client do I log in again?

NPVAdvisor :

I mwould appreciate you simply rating this answer and then asking for me again by going here:


NPVAdvisor

NPVAdvisor :

know what? go ahead lets do it

NPVAdvisor :

Not so busy tonight

Customer:

If a client passed away and had a trust. I am going to need to file the 1041 regardless of the $ amount correct?

NPVAdvisor :

greater than 600 in income I think, I can look it up

NPVAdvisor :

If there's noting much there the last tax return will do it ... you just have to get the income somewhere

NPVAdvisor :

deceased's return

NPVAdvisor :

hang on

Customer:

That is what I found also. They requested a federal id # XXXXX trust

NPVAdvisor :

Here we go:

NPVAdvisor :

Decedent’s Estate


In the case of a death, the executor must file a Trusts and Estates (Form 1041) for a domestic estate that has:



  • Gross income of $600 or more for the tax year, or

  • A beneficiary who is a non-resident alien

Customer:

It is $511 under the trust id

NPVAdvisor :

no 1041

Customer:

I should just include the income on the final 1040 then?

NPVAdvisor :

yes, you said trust ... thisis just an estate right?

Customer:

Well the IRS letter says estate or trust. The documents say Roma M Alexander Trust

NPVAdvisor :

Ok. if it's a revocable trust, where it's been a pass-through, then you treat it as an estate

NPVAdvisor :

If it's a revocable trust that's been paying it's own taxes and 1041s have been done, you will need to do the 1041

NPVAdvisor :

see this:

NPVAdvisor :

Trust


You must file Form 1041 for a domestic trust that has:



  • Any taxable income for the tax year,

  • Gross income of $600 or more (regardless of taxable income),

  • A beneficiary who is a non-resident alien

Customer:

No other returns have been filed. I was just concerned with the different ID numbers

NPVAdvisor :

nope this is a pass through, and you're under the 600

Customer:

Okay. That is where I was stumbling. This is interest income so I will need to file.

NPVAdvisor :

who applied for the ID?

Customer:

The attorney

NPVAdvisor :

yes, file the 1041, but there should be a credit on the last personal return

NPVAdvisor :

don't pay tax on it twice

Customer:

I think I have it. I don't know why these two things seemed to bog me down. Seems so simple.

NPVAdvisor :

No No you saw how badly the prior guy screwed it up

NPVAdvisor :

These quiestions come through here on thos two issue ALL the time

Customer:

If I would need assistance in the future how do I request you?

NPVAdvisor :

Easy ... go here

NPVAdvisor :

To ask for me again, just go here: NPVAdvisor




And enter your question in the question box

NPVAdvisor :

Where are you in Ohio ... I'm in Atlanta now, but worked in Columbus and Cincinnati fr 10 years

Customer:

I am close to Mansfield

NPVAdvisor :

Used to gomup there to audit an American Express Financial Advisors office all the time

NPVAdvisor :

small world

NPVAdvisor :

Can I help with anything else this evening?

Customer:

Yes it is. If I have any other questions I will definately request you. I appreciate the help.

NPVAdvisor :

I'd appreciate it ... I'm actually finishing up my last year in Lawschool right now, so have excellent access to westlaw for both title 26 statutes and tax court cases ....can give citations if need be

NPVAdvisor :

I'd appreciate it

NPVAdvisor :

Lane

Customer:

Best wishes with your career. Thankgs again. I will submit and sign off.

NPVAdvisor :

Sounds good You too

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,859
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now


Thanks for the rating Shirley,

By the way my daughter was born at Good Sam hospital in Cincinnati.


Again, to ask for me again, just go here: NPVAdvisor



And enter your question in the question box



Thanks again,

Lane

Ask Your Own Tax Question
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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,859
12,859 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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