Start Up Expenses

The two major start up business expenses are the costs to organize and the costs of normal business expenses incurred prior to the beginning of business or the point where the business is ready to receive revenue. Sole proprietors do not normally have costs to organize because a business entity is not formed however they could expend substantial up-front business…

Details

Acquisition Debt and Divorce

Generally speaking IRS regulations provide that debt incurred to acquire the interest of a spouse or former spouse in a residence, incident to divorce or legal separation, may be treated as acquisition indebtedness under IRC Sec. 163 (mortgage interest deductions) without regard to the treatment of the transaction under IRC Sec. 1041 (spousal transfers). This debt is considered incurred to acquire a…

Details

IRS Tax Treatment of Incentive Stock Options Forms 3921, 6251, 8949

Incentive stock options (ISO) are compensation to employees in the form of stock rather than cash. With an ISO, the employer grants to the employee an option to purchase stock in the employer’s corporation, or parent or subsidiary corporations, at a predetermined price, called the exercise price or strike price. This transaction can happen as…

Details

Cash Basis Balance Sheet Basic Overview

Having spent way too much time dissecting a balance sheet today I thought it might be a good idea to put out a cash basis balance sheet basic overview post. A balance sheet is a snap shot at a specific point in time – usually the end of a quarter or fiscal year – that…

Details

IRS And the Trust Fund Recovery Penalty (TFRP) for Employment Tax Delinquencies

Here are 5 things I learned through experience regarding TFRP: 1. An IRS Revenue Officer makes a determination to “assess” or “not assess” the Trust Fund Recovery Penalty (TFRP). Bankruptcy does not stop the Assessment Statute even though it can stop the Collection effort. One of the major reasons why an IRS Revenue Officer won’t…

Details

Major Changes Made to IRS Penalty Relief + Lien Process Through New Fresh Start Program

The IRS announced new policies and programs to help taxpayers pay back taxes and avoid tax liens. The changes include: Tax Lien Thresholds The IRS will significantly increase the dollar thresholds when liens are generally filed. The new dollar amount is in keeping with inflationary changes since the number was last revised. Currently, liens are automatically…

Details

IRS Undercover Operations STILL Lacks Sufficient Oversight

The Treasury Inspector General for Tax Administration released a report today dated February 3rd 2012 titled Criminal Investigation Can Take Steps to Strengthen Oversight of Its Undercover Operation. This audit was conducted as a follow up to an audit in tax years 2001 and 2002 – 10 YEARS AGO.  So it is fair to presume that the people at…

Details

Reporting A Settlement

If you happen to be awarded a settlement you need to be careful in how the proceeds are reported to avoid scrutiny by the taxing authorities. I just closed a file today in IRS Examination the facts of which surrounded unintentional incorrect reporting of a settlement. While wrapping loose ends up with the taxpayer we…

Details

Exclusion of Capital Gain from Sale of Personal Residence Does Not Always Apply

The US Tax Court case of David A. Gates, et ux. v. Commissioner 135 serves as best I can tell as precedent. Under §121, if married taxpayers own and use property as their principal residence for at least two of the five years ending on the date of sale, they can exclude up to $500,000 of capital gain on a…

Details

Reporting Back Pay

Reporting back pay is not as straight forward as one imagines. If you issued back pay you should report it on IRS Form W-2 (in boxes 1, 3, and 5) for the year payment is made. If any punitive damages are involved in a settlement they should be reported by the company on IRS Form 1099-MISC because they are…

Details