All Forum Posts by: Benjamin Weinhart

Hi Frank,

I, like many on this forum would say that if you're looking at getting into a new venture just for the tax advantages it might bring, it's normally not a good idea to factor that into consideration. I think it's important to focus on if the investment would be good for you in the long run and then see the tax advantages as a nice benefit (obviously this changes with growth/larger investors). There isn't a one-size-fits-all solution as you mention, but I would be sure that this is something that you see as sustainable due to the substantial up-front investment that it requires from the outlay. In general though, you're able to directly offset your income from the active rental activity with the *losses* you take from the business, but once the business becomes profitable, this would also add to your taxable income. 

Do keep in mind as well you may need to recapture any depreciation taken if you go to sell the property and don't use a 721/1031 exchange to assist with deferring that taxable gain.

 For my own curiosity, would you happen to know which case that was? I know the one you're talking about, I just can't remember the name. Thanks!

 Hi Jose, simply put, no. You must satisfy all 4 of those bullet points to take QBID for the year (the last one is easy). Also do keep in mind that unless it gets renewed, 2025 will be the last year that a taxpayer is able to take advantage of QBID as it was included as part of the TCJA from 2017. I would advise you to consult with your tax professional to see if you may be able to use some planning strategies to help you best take advantage of the deduction in 2024/25 in the event it isn't renewed by the next congress.

Hi Jen, great question! Any CPA worth their salt would be able to assist you either by knowing things immediately or knowing exactly where to look to find out if they don't. Being specifically located in CA could help marginally, but you may also pay a much higher fee due to the higher cost of living (depending on which part of CA of course). I'd need to know more information to determine myself if I were assisting you (hypothetically, of course, since we aren't allowed to advertise our services through this medium), but from the surface level it does sound like you do qualify for the 121 exclusion. A 1031 exchange is also possible, but albiet a little more costly to perform. You would be wanting to look for a CPA/EA/Tax Professional though to help guide you through this process.

 That's my assumption is that it may cause a liability issue depending on how the state laws are worded. Seems like a pretty simple fix to call up the bank and update them that the entity is now an S-corp with this fancy new tax ID, possible they'd have to create a new account for it. I've always thought that so long as the intent is there, the details can be corrected after-the-fact in a lot of cases (not all). I am a bit confused as to why you have a $7,600 swing by changing entity type, I could see it causing some difference in accountant fees at the very least if you're including them in that, and maybe something with SE tax, but $7,600 for a new business seems a little much.

Hi Tom,  I just saw this but thought I'd add my significant experience working with gift tax returns. I think you are overthinking things quite a bit. While it is possible to structure things like this for legitimate gifts, your intent is not there since you plan on paying the money back in 2 weeks. You don't need anything significant drawn up for the loan agreement either, a verbal agreement may be fine or just an email exchange can be sufficient (you could sign if you realllllly wanted to). 

As Bill said, you'd technically need to remit market interest of ~5-6% to avoid a related party transaction, but since $100-120 would be vastly below their annual exclusion amount, you can just say that any interest that would otherwise normally accrue would be considered a gift to you. I think the correct treatment is for them to report the interest on their personal return if the IRS gets really nit-picky, but I don't forsee it being an issue since the amount is relatively small.

 I think I might understand where you're coming from/where the confusion might lay. Ignore the loan when trying to factor in the possible tax implications as paying off a principal balance doesn't do anything tax-wise. Your "basis" in the property is what the purchase price of it is plus capitalized improvements less depreciation. Except in cases of things like a 1031 exchange, your capital gain is measured on the sale price in excess of the properties basis.

Hi Kislay, just wanted to update you in case you were unaware. For your #5, NOL rules have been changed to where they can be carried forward indefinitely now, but there is no carryback anymore (except for farming) and the deduction is limited to 80% ATI (100% pre-2021). This was changed with the TCJA. Certain states and localities may still use the old NOL carryover rules, but most I've seen have switched over by now.

Hi Chris, as Kislay said, I would highly recommend that you file a state tax return even if your income may be $0 or negative. I'm not sure if Oklahoma requires filing or not, but it's good practice to do as you'll be able to accumulate carryover losses that will offset future tax years where you do have income.

 Hi Bill, I think you make a great point. I have often said that about 95% of Americans could do their own taxes in about a day or less if they have everything they need with one of the free softwares floating out there. The other 5% are people who "graduate" to needing a CPA/EA/Experienced tax preparer due to other specialized knowledge required. There have often been scenarios (happened yesterday actually) where people will ask me to do their simple return just because they enjoy having the peace of mind, and/or want to build a future relationship as they anticipate more complex issues in the next few years. I of course am happy to do so.

There is also something to be said about the shrinking number of CPAs in general. The AICPA recently published an article last April that 75% of active CPAs will retire in the next 15 years. They have been publishing similar statistics for the last several years now to encourage more to become CPAs, yet the number continues trending upwards. Should this trend continue and/or become a reality, $1,200 may be seen as a "steal" in as little as 5-10 years as the demand continues/increases while the supply of those capable of doing the work continues to shrink. I already know of some firms personally, who will not take on a client for anything less than $2,500 (including businesses but still), and I know they outsource most of that preparation work as well.