Like Kind Exchanges

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 There's a lot to like about like-kind exchanges If you own real estate that has appreciated in value, you may owe a sizeable capital gains tax when you sell. But tax law provides a way to postpone the tax. Here's how: Instead of a sale, you can swap your property for another property of a similar character in a transaction called a "like-kind exchange." To qualify, you'll need to meet specific conditions, such as completing the transaction within a certain period of time and making sure the property qualifies. Two of the timing requirements are strict. First, you must identify or actually receive the replacement property within 45 days of transferring legal ownership of the relinquished property. And second, you must receive title to the replacement property by the earlier of 180 days or your tax return due date, plus extensions, for the tax year of the transfer. Be aware of the second rule if the exchange will straddle tax years. Why? When you relinquish real estate late in the year, you might want to apply for a filing extension if you need more time to wrap things up. The rules are fairly lenient as to what constitutes "like-kind property." As an example, you might exchange an apartment building for a warehouse or raw land. However, both the relinquished and replacement real estate must be used as investment or business property. The like-kind tax break doesn't apply to swaps involving a personal residence. Like-kind exchanges may involve multiple parties, as it's unusual for you and a single real estate owner to each own property the other wants. In some cases, you might arrange for an individual who is in the business of making these exchanges work (known as a "qualified intermediary") to help consummate the deal. The end result is the same: You give up property and receive like-kind property in exchange. Keep in mind that you'll generally owe tax on any excess value, called "boot," that you receive in the deal. Boot can be more than just cash — for instance, it might represent partial forgiveness of a mortgage. If you're the one giving the boot, you realize no taxable income. If you think you can benefit from a like-kind exchange, contact us for more information. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our newsletters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Ten Forty Plus Quality Tax Preparation We care about you

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 TAX PREPARATION AND PLANNING Don't leave money on the table during tax time. Preparing and planning for taxes is often a stressful and complicated endeavor for most people. Preparing your own tax return can be extremely difficult with today's complex tax code and may often leave you with more questions than answers. These days, the majority of people and small businesses use a professional tax preparer to assist with the preparation of taxes. Even if you are just filing a simple return, the rules may change from year to year and it is easy to overlook these changes and submit an incorrect return. By doing your taxes yourself, you may also end up overlooking deductions and credits. At 1040+ Quality Tax Preparation & Financial Services, we have the expertise that is needed to help you file your returns while also helping you to minimize your tax liability with careful planning. Tax Preparation in Houston Our tax preparation services include: • Individual Tax Preparation • Business Tax Return Preparation • Gift & Estate Tax Return Preparation • Partnership & Corporate Tax Preparation • Estate and Succession Planning • Out-of-State Returns • Business Start-Ups 1040+ Quality Tax Preparation & Financial Services can also help with our extensive tax planning services. Tax Planning & Education Tax planning is essential to helping you successfully and legally reduce the amount of your tax liabilities. In addition to making sure that your business is tax compliant, we also can suggest tax saving strategies that will maximize your after-tax income. We offer tax and education planning to assist start-ups, as well as, established businesses. We will provide you with a complete list of the most commonly overlooked deductions so that you can limit your tax liability for the following year. We’ll also assist you with tax planning by: • helping you to defer income so that you can save money now and pay less taxes in the future • lower taxes on your income so that you can keep more of your earnings • lower taxes on your estate and gifts so that the beneficiaries can keep more of what you have given • lower taxes on investments and retirement distributions so that you can maintain your lifestyle and much more. If you own a small business in Houston or need help with individual taxes, working with a professional tax planning service can help save you more money. 1040+ Quality Tax Preparation & Financial Services offers the expertise that you need to save on your taxes at affordable prices. If you'd like to receive more information about our Houston tax preparation and planning services, please call us at (281) 397-9777 or contact us. We service the greater Houston Texas area. Now with a second location in Orlando, FL! Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our newsletters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

IRS AUDITS

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax AUDITS Individual taxpayers who are under audit by the IRS may attend the audit in person without any assistance from a tax professional. However, this can be a dangerous mistake. Although not officially stated, it is the job of an IRS Revenue Agent to conduct an audit with an eye toward finding additional tax owed. With so many gray areas in tax law, and considering the tax code’s complexity, an individual who chooses to go it alone is a sitting duck. Without extensive tax education and experience, the examiner can (and sometimes will) say anything to find additional tax due on the return. Without the necessary knowledge, the taxpayer is powerless to refute the agent’s rationale. Selection of Returns for Examination Search for Unreported Income The IRS performs matching functions to reconcile information reported on Forms 1099 and W-2 with information reported on the taxpayer’s return. If income reported by the taxpayer does not meet or exceed amounts reported to the IRS, the taxpayer will receive either a bill for tax on the difference or an audit notice. Worker Reclassification Efforts The IRS conducts joint employment audits with state tax agencies to determine whether workers classified as independent contractors are in fact employees. One initiative looks at employers who issue both Forms 1099 and W-2 to the same employee in the same year, while a second examines employers issuing more than five 1099-MISC forms exceeding $25,000 each to contractors with no other source of income. Schedule C, Profit or Loss From Business Issues associated with sole proprietorship's are common audit triggers. The IRS has several approaches to achieve an increase in income tax, as well as the assessment of self-employment tax. • Unreported income. There is a relatively high potential for unreported income from cash transactions with sole proprietorship's. The IRS will examine the taxpayer’s bank records to detect deposits that are unaccounted for, compare revenue and expenses of similar businesses, and in some cases will perform a “lifestyle” audit to reconstruct income based on changes in the sole proprietor’s net worth based on valuation of assets. • Losses. Significant losses reported on Schedule C, or losses continuing over two or more years, may increase the chance of audit. If the IRS is successful in reclassifying an activity as a hobby instead of a forprofit business, losses will be disallowed. • Bartering. The fair market value of products and services received through bartering can be considered business income if the products or services rendered are associated with the sole proprietorship. If the sole proprietor trades through a barter exchange program, the program will issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. Audit Procedures Soft Notice The IRS uses the Automated Underreporter (AUR) Soft Notice to encourage taxpayers to self-correct income reporting with minimal burden and resources. Notice CP 2057 is issued to certain taxpayers with apparent underreported income. The form informs the taxpayer that there appears to be a discrepancy with the income types listed but does not provide them with any type of calculations. It instructs the taxpayer to file a Form 1040X to correct their return if the information shown on the notice is correct. The IRS does not directly follow up these notices but taxpayers that repeat their behavior will be identified in the following tax year. Examination by Mail The taxpayer receives Notice CP 2000 from the IRS disclosing proposed changes. The taxpayer typically has 30 days to respond and has three options to the IRS proposals. • To agree with all the proposals. • To partially agree with the changes. • To dispute all the changes proposed by the IRS. The taxpayer is allowed to sign an authorization that enables another party to represent him or her in connection with the Notice CP 2000. The authorization is part of Notice CP 2000, and a separate power of attorney is not required. Field Audit The revenue agent will send a letter to the taxpayer requesting that the taxpayer phone the agent. At that time, the date, location, and agenda for the first meeting will be set. The taxpayer has the right to request that the examination take place at a reasonable time and place that is convenient for both the taxpayer and the IRS. The best way to prepare for an audit is to put oneself into the auditor’s shoes. Take the perspective that you are looking for anything possible to increase the tax liability on the return. This is an area where a qualified tax preparer can be invaluable. Pose tough questions and “throw out” any questionable deductions. Make sure any issue raised during an audit is something that has already been considered. The IRS has created a video web page to assist taxpayers preparing for a small business audit. Go to the IRS website at www.irsvideos.gov/audit. Requesting a Different Auditor A taxpayer or taxpayer’s representative has the right to request a different auditor if the current one seems uncooperative, too busy, or too inexperienced to properly consider the issues under examination. The request should be made to the auditor’s supervisor by phone or in writing and should include a detailed explanation of the reasons for the request. Take It Seriously Any comments made to an IRS employee that could be interpreted as a threat against the employee will be taken seriously and fully investigated. Do not to joke around with IRS employees during an examination. Repeat Examinations If a return was examined for the same items in either of the two previous years, and no change was proposed to the tax liability, contact the IRS immediately and the examination will likely be discontinued. This policy is in accordance with IRC section 7605(b), which states that no taxpayer shall be subjected to “unnecessary examinations.” Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our newsletters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Minister

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Ministers Ministers are individuals duly ordained, commissioned, or licensed by a church. “Church” is used generically and does not refer to any religion. Most ministers who receive compensation are treated as dual status taxpayers—employees for income tax purposes but not for Social Security and Medicare tax. Many ministers also receive a parsonage allowance. See Parsonage Allowance, later. Ministerial income. Total ministerial income includes church wages, gross self-employment income from ministerial service, and tax-exempt allowances. Employee income and expenses. The minister receives Form W-2 from the church employer. • The minister’s wage income is reported in box 1, Form W-2. • Social Security and Medicare taxes (FICA) are not withheld. The wages will be included in the minister’s self-employment tax computation. • Ministers are not subject to federal income tax with-holding. A minister and employer may agree to voluntary withholding. • Parsonage or housing allowances are reported in box 14, Form W-2. • Employee expenses are allowed as itemized deductions on Schedule A, Form 1040, subject to the 2% AGI limitation, and prorated to the extent the minister has tax-exempt income from a parsonage allowance. Self-employment income and expenses. Amounts received by a minister for performing marriages, baptisms, funerals, etc., are generally self-employment income, even if no Form 1099-MISC is received by the minister. • Self-employment income is reported on Schedule C, Profit or Loss from Business, Form 1040. • Self-employment expenses are deductible on Schedule C, prorated to the extent the minister has tax-exempt income from a parsonage allowance. Expense reduction for tax-exempt income. A minister who receives tax-exempt income (such as a parsonage allowance) as part of compensation must reduce deductions for Schedule A employee expenses and Schedule C self-employment expenses as follows. Tax-exempt income = Reduction percentage Example: Patrick is a minister who receives a housing allowance of $15,000. His total ministerial income including the housing allowance is $60,000. Since the housing allowance is not subject to regular income tax, Patrick must reduce his allowable expenses for purposes of computing itemized deductions by 25% ($15,000 ÷ $60,000 = 25%). Assume Patrick’s ministerial expenses are $4,000. For purposes of itemized deductions, Patrick can claim only $3,000 ($4,000 × 25% = $1,000 reduction). Since Patrick’s housing allowance is subject to self-employment tax, he can deduct the entire $4,000. Minister’s self-employment tax. A minister reports income subject to self-employment tax on Schedule SE, Self-Employment Tax, Form 1040. The following income is included as self-employment income on Schedule SE. • Church wages from box 1, Form W-2, less associated employee expenses in full. • Gross Schedule C income from ministerial services, less associated self-employment expenses in full. • Entire amount of parsonage allowance, including utilities, whether received in the form of allowances or provided in-kind to the minister. If housing and utilities are provided, include the fair rental value of the home and cost of utilities. Do not include any of the following. • Expense reduction due to tax exempt income. • Housing and housing allowance, including utilities, provided to retired ministers. Earned Income Credit. For purposes of the Earned Income Credit, a minister’s earned income includes: • Net earnings from self-employment from Schedule SE, including parsonage allowance (line 2, Section A or line 2, Section B), minus: • The portion of SE tax deducted on line 27, Form 1040, plus • Non-ministerial wages. Parsonage Allowance A church or congregation may provide for a minister’s residence in the form of a parsonage or a housing allowance. The value of a parsonage, plus utilities, if paid by the church, and housing allowances are subject to self-employment tax but may generally be excluded from income tax. Parsonage provided to a minister: Income tax. The value of the home, including utilities, is excluded from income. The exclusion cannot be more than reasonable pay for the minister’s services. Self-employment tax. The fair rental value of the home, including the cost of utilities, is included in gross income when calculating self-employment tax. Housing allowance paid to a minister: Income tax. A minister can exclude from income the smallest of: 1) The amount officially designated by the employer as housing allowance. Amounts must be designated as housing allowance before payment is made. 2) The amount used to provide a home. Include amounts paid in the tax year for rent, mortgage payments, furnishings, appliances, repairs, utilities, and down payments. Do not include food, entertainment, servants, or home equity loan payments for items unrelated to the home. Mortgage interest and property tax used in this calculation are also allowed as itemized deductions on Schedule A, Form 1040. Powered by TCPDF (www.tcpdf.org) 3) The fair rental value of the home, including furnishings, utilities, garage, etc. 4) The minister’s reasonable pay. Employers typically report housing allowances in box 14, Form W-2. Housing allowances are not included in taxable wages in box 1. If the excludable amount is less than the housing allowance, include the excess as income on line 7, Form 1040. Self-employment tax. The entire housing allowance, including utilities, is included in gross income when calculating self-employment tax. Retired Ministers Income tax. Retired ministers can exclude from taxable income: • The value of housing and utilities provided to them, or • The part of a pension officially designated as housing allowance. The amount excluded is limited to actual expenses or fair rental value of the home. See (2) and (3) above. Self-employment tax for retired ministers. Housing provided to retired ministers and housing allowances paid to retired ministers are not subject to SE tax. Surviving spouses. A minister’s surviving spouse cannot exclude a parsonage allowance from income unless it is received for ministerial services he or she performs or performed. Court Case: The IRS appealed a Tax Court ruling permitting an ordained minister to use his parsonage allowance to provide both a principal and second home. The Circuit Court determined that Congress intended for the parsonage allowance exclusion to apply to only one home, reversing the Tax Court ruling. The parsonage allowance was excludable only to the extent used for the taxpayer’s main home. (Driscoll, 135 T.C. 557 and Driscoll, 11th Cir., February 8, 2012) Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our newsletters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Tax Tips for Real Estate Professionals

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Real Estate Professionals A taxpayer who spends significant time in activities related to real estate may qualify as a “real estate professional,” which can provide tax benefits. Passive Loss Limits A passive activity is generally defined as a business activity without a minimum amount of “material participation” by the taxpayer. A taxpayer is not allowed to deduct losses from passive activities more than income from passive activities. Any unused losses from passive activities must be carried forward until there are gains from passive activities, or until the passive activities that generated the losses are disposed of. Special Rules for Real Estate Activities Under passive loss rules, rental real estate activities are considered passive activities regardless of whether the taxpayer met the definition of “material participation.” In other words, for most rental real estate activities, losses more than income are not deductible in the year incurred. Exception for real estate professionals. If a taxpayer qualifies as a real estate professional, passive activity loss limits do not apply to the losses from the taxpayer’s rental activities. For a real estate professional, losses may be deducted in the year incurred even if the losses are greater than income. Qualifying as a real estate professional. A taxpayer will qualify as a real estate professional if the following requirements are met. 1) More than half the personal services the taxpayer performed in all trades or businesses during the tax year were performed in real property trades or businesses in which the taxpayer materially participated, and 2) The taxpayer performed more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participated. Personal services performed as an employee do not count unless the taxpayer was a 5% or greater owner of the employer. Real property trades or businesses include development, construction, acquisition, conversion, rental, operation, management, or brokerage of real property. Material Participation Material participation is defined as the taxpayer being involved in the activity on a basis that is “regular, continuous, and substantial.” The taxpayer will be considered to materially participate in an activity if: 1) The individual worked in the activity for more than 500 hours during the year, the individual’s participation in the activity constitutes substantially all the participation in the activity of all individuals for the tax year, including the participation of individuals who did not own any interest in the activity, 2) The individual participated in the activity for more than 100 hours during the tax year, and the individual’s participation was at least as much as any other individual for the year, 3) The activity is a “significant participation activity” for the year (more than 100 hours’ participation per activity with aggregate of 500 hours), 4) The individual materially participated in the activity for any five (whether consecutive) of the ten immediately preceding tax years, 5) The activity is a personal service activity and the individual materially participated in the activity for any three preceding tax years, or 6) Based on all the facts and circumstances, the individual participated in the activity on a regular, continuous, and substantial basis during the year. This test is not met if the individual participated in the activity for 100 hours or less during the year. Managing the activity does not count for this purpose if any person other than the individual received compensation for managing the activity, or any individual spent more hours during the year managing the activity. Election to combine rental activities. For purposes of qualifying as a real estate professional, each of the taxpayer’s rental activities are treated as separate activities unless the taxpayer elects to treat all interests in rental real estate as a single activity. Failure to make the election can trigger passive loss limits for real estate professionals. To make the election, the taxpayer must file a statement with the original income tax return declaring that he or she is a qualified taxpayer for the taxable year and is making the election to treat all interest in rental real estate as a single rental real estate activity. The election is binding for the taxable year it is made and for all future years whether the taxpayer continues to be a qualifying taxpayer. A taxpayer may revoke the election only in the taxable year in which a material change in facts and circumstances occurs. Example: Leo is a real estate agent who spends more than 750 hours and more than 50% of his time selling real estate. He also owns several rental properties. As a real estate professional, in order for Leo to treat his rental properties as nonpassive activities, he would either have to pass the material participation rules for each separate rental property or elect to combine all rentals into one activity and meet the material participation rules as a group. Court Case: For over 20 years, the taxpayer had been involved in real estate properties. For the years at issue the taxpayer aggregated all rental income and expenses as a single activity on his tax return, but did not attach an election to treat the activities as a single activity. The Tax Court stated that a taxpayer must clearly notify the IRS of the intent to make the election. Without treating the rental properties as one activity, the taxpayer was not able to meet material participation requirements. Net losses were treated as passive losses, and the deductions were not allowed under passive loss rules. (May, T.C. Summary 2005-146). Regardless of passive loss rules, a taxpayer can deduct up to $25,000 in losses from rental real estate if the taxpayer actively participated in the activity. The special loss allowance begins to phase out at incomes above $100,000. Married Filing Separately. The phaseout begins at $50,000 for taxpayers using the filing status of Married Filing Separately. Additional limits apply. Active participation. Active participation is not the same as material participation. Active participation standards are met if the taxpayer (or taxpayer’s spouse) participates in the rental activity in a significant and bona fide sense. The taxpayer (and/or spouse) must hold at least 10% by value of all interests in the activity during the year. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our newsletters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Itemized Deductions - Job Expenses

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Itemized Deductions: Job Expenses Ordinary and necessary job expenses which were not reimbursed are deductible. Ordinary and necessary expenses reimbursed by the employer and reported as income in box 1, Form W-2, are also deductible. An ordinary expense is one that is common and accepted in the taxpayer’s line of work. A necessary expense is one that is helpful and appropriate for work. An expense does not have to be required to be considered necessary. Tax Reporting A taxpayer must report on his or her tax return if any of the following apply. • The employee claims any job-related vehicle, travel, transportation, meal, or entertainment expenses. • The employer reimbursed any reportable expenses. • The employee claims any job-related expenses as a reservist, a qualified performing artist, a fee-basis state or local government official, or an individual with a disability claiming impairment-related work expenses. Standard Mileage Rate The business standard mileage rate for 2017 is 53.5¢ per mile. Examples of other job expenses deductible as unreimbursed employee expenses. • Business bad debt. • Business liability insurance premiums. • Casualty and theft losses of property used in performing services as an employee. • Depreciation on a computer or cell phone required by an employer. • Dues to professional organizations and chambers of commerce if work related and entertainment is not one of the main purposes of the organization. Any part of dues that is for lobbying and political activities is nondeductible. • Education expenses related to work. • Job search fees to employment agencies and other costs to look for a new job in the taxpayer’s present occupation, even if the taxpayer does not find a new job. • Legal fees related to work. • Licenses and regulatory fees. • Lobbying expenses to influence local legislation, and other exceptions to the general rule. • Malpractice insurance premiums. • Occupational taxes. • Office-in-home expenses as an employee. • Phone charges for business use, but not the cost of basic service for the first phone line into a residence. • Physical examinations required by employer. • Protective clothing required for work, such as hard hats, safety shoes, and glasses. • Safety equipment needed for work. • Subscriptions to professional journals and trade magazines related to work. • Tools and supplies used for work. • Uniforms required by employer that are not suitable for ordinary wear. • Union dues and expenses. Job Search Expenses Expenses incurred in looking for a new job in the taxpayer’s present occupation are deductible, even if the taxpayer does not get a new job. Job search expenses are not deductible for: • Looking for a job in a new occupation. A substantial break between the ending of the last job and looking for a new job. The taxpayer looking for a job for the first time. Uniforms and Work Clothes The cost and upkeep of uniforms and work clothes are deductible if: • The taxpayer must wear them as a condition of employment, and • The clothes are not suitable for everyday wear. • It is not enough that the taxpayer wears unique or distinctive clothing on the job, or that the taxpayer does not in fact wear the work clothing away from work. Example: The union requires Gregg to wear a white cap, white shirt, white bib overalls, and standard tennis shoes as a painter. Because these clothes could also be suitable for everyday wear, they are not deductible. It is irrelevant that the items get ruined by paint after their first use on the job. Example: Mark wears traditional Celtic costumes while performing accordion folk music at parties and weddings. Because the clothing is not suitable for everyday wear, the cost and upkeep are deductible.   Military Uniforms A deduction for a military uniform item must be reduced by any nontaxable allowance received. Never deductible: Military uniforms worn by full-time active duty members of the armed forces. May be deductible: Reservists’ uniforms, if military regulations permit uniform to be worn only while reservist is on duty. Always deductible: Extra cost of insignia, stripes, shoulder boards, and related items, whether the uniform is deductible. A deduction for a military uniform must be reduced by any nontaxable allowance received for the uniform. Lobbying Expenses Expenses to influence legislation are not deductible. Exceptions: • Expenses for attempting to influence the legislation of any local council or similar local government, including an Indian tribal government. Up to $2,000 per year (not counting overhead expenses) for in-house expenses to influence legislation or communicating directly with a covered executive branch official. • Expenses of a professional lobbyist in the trade or business of lobbying on behalf of another person. Residential Telephone Line The cost of local telephone service for the first telephone line into a taxpayer’s residence is not deductible, even if it is used in a trade or business. Any added charges for business use are deductible, such as the cost of a second line, fax line, long distance, voice mail, internet service, etc. Unclaimed Reimbursements If a taxpayer is entitled to be reimbursed by his or her employer for job-related costs but does not put in a claim for reimbursement, the costs are not deductible. Travel Expenses Travel expenses are ordinary and necessary expenses incurred by a taxpayer while on temporary travel away from his or her tax home for business purposes. A taxpayer travels away from his or her tax home if the taxpayer’s business duties require an absence from home that is substantially longer than a day’s work, and the taxpayer needs sleep or rest to meet the demands of the work while away from home. The tax home includes the entire city or general area in which the taxpayer’s business is located. Standard meal allowance. A taxpayer can substantiate meal and incidental expenses with a standard meal allowance ($51 per day from October 1, 2016 through September 30, 2017). Additional amounts may apply for certain high-cost localities. See www.gsa.gov, Per Diem. Lodging. Although an employer can reimburse an employee tax free for qualified lodging at per diem rates, for an employee or self-employed individual, only actual expenses are allowed for lodging. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our newsletters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Selling your home Tax or No Tax?

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Selling your Home Tax or no Tax You're probably familiar with the current version of the tax break known as the home sale exclusion. If you're single, you can exclude up to $250,000 of gain on the sale of your home. The exclusion can be as much as $500,000 when you're married filing jointly. In either case, the general requirement is that you have owned and used the home as your principal residence for at least two of the previous five years. Typically, the exclusion is unavailable if you claimed it on your tax return within the last two years. What happens if you sell the home without meeting the two-of-five-year requirement, or if you elected the exclusion within the last two years? In some cases, you still may be eligible for a partial exclusion. To qualify for this modified tax break, the home sale must have resulted from a change in employment, the need for medical care, or other "unforeseen circumstances." What are unforeseen circumstances? Examples include death, divorce, loss of a job or a substantial pay cut, multiple births from the same pregnancy, the taking of property, and damage from a disaster. What if none of the examples apply? You may not be able to claim any exclusion – or the IRS may examine the facts and circumstances of your case, and grant a partial exclusion. That could happen when factors beyond your control forced you to sell the home before you could have reasonably anticipated that you would in the normal course of events. A partial exclusion is based on the time of use and ownership as a principal residence. For example, if you lived in the home for one year, the maximum is $125,000 when you're single, and $250,000 when you're married filing jointly. No matter the reason you're selling your home, contact us to learn how the rules can affect your tax return. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our news letters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Do you have a 2016 Loss in your Business?

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Do you have a loss in your business for 2016? If your expecting to show a loss in your business for 2016 year, with deductions that exceed your income, resulting in negative taxable income. You should still file your return, your loss can generate valuable tax benefits for you. The first step involves calculating the loss to exclude some deductions, such as personal exemptions and certain non-business deductions. If, at the end of this computation, there is a loss, that loss is considered a net operating loss (NOL), which can provide you big tax benefits. You can benefit from an NOL using one of two options. The first provides you instant cash and the second provides future savings. The tax rule is if you generate an NOL in a tax year, it becomes a deduction that you first carry back two years and then carry forward 20 years. The carryback will usually provide you an instant refund from the taxes you paid in a prior year. This is the first way you can benefit from an NOL. Example. You have an NOL in tax year 2016. You will first carry back the NOL to tax year 2014. If the 2014 carryback does not use up the NOL, you carry the remainder to tax year 2015. If the 2015 carryback does not use up the NOL, you carry the remainder forward to 2017, where you can continue to carry forward and use the NOL year by year for up to 20 years. To take advantage of the carryback, you must file a claim for a refund related to an NOL within three years of the due date of the return for the loss year. So, if you filed your 2016 Form 1040 return with an NOL on April 15, 2017, you have until April 15, 2020, to file a claim for a refund for tax years 2014 and 2015 due to the NOL carryback. The second way you can benefit from an NOL is to elect in your tax return to waive the two-year carryback and only carry forward the NOL. You should consider forgoing the carryback and electing the carryforward in the following circumstances: • The carryback would generate minimal or no tax refund. • You have no need for immediate cash from a tax refund. • The NOL deduction will generate greater tax savings in the future than it would in the prior years (i.e., your marginal tax rate will be higher in the future). • You want to reduce your next year’s tax liability due to cash flow issues or so you won’t have to pay estimated tax payments. If you opt to carry the NOL forward, then the election to waive the two-year carryback must be made on a timely filed return. If the return is filed late, you must carry back the NOL. Please call me if you wish to discuss this further. I can help you make the decision that benefits you the most. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our news letters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Employee or Contract Labor (w-2 or 1099? Employee or Independent Contractor? In order for a business owner to know how to treat payments made to workers for services, he or she must first know the business relationship that exists between the business and the person performing the services. A worker’s status determines what taxes are paid and who is responsible for reporting and paying those taxes. A worker performing services for a business is generally an employee or an independent contractor. If a worker is classified incorrectly, the IRS may assess penalties on the employer for nonpayment of certain taxes. It is not the worker or the employer that determines whether an individual is an employee or contractor. IT IS THE CIRCUMSTANCES. If you directly supervise and provide the tools to get the job done you normally should treat the worker as an employee. If you say go paint the house at some address and send the worker there to supervise themselves, provide their own equipment, and materials...they would normally be treated as a contractor. Penalties/Interest When the IRS determines that a worker is actually an employee rather than an independent contractor, the employer is subject to penalties for failure to withhold and remit income, FICA (Social Security and Medicare) and FUTA (federal unemployment tax) taxes, interest on the underpaid amounts, and penalties for failure to file information returns. The state will also seek to collect workers’ compensation and unemployment compensation premiums for unreported wages. Independent Contractor An independent contractor is self-employed and is generally responsible for paying his or her own taxes through estimated tax payments. A business issues Form 1099-MISC, Miscellaneous Income, to any one independent contractor, subcontractor, freelancer, etc., to whom the business made $600 or more in payments over the course of the tax year. The business is not generally responsible for withholding income tax or FICA. Employee A worker treated as an employee will be issued Form W-2 for wages paid. The business hiring the worker is responsible for withholding income tax and FICA. The employer is also liable for FUTA and various state employment taxes. Also, the employee may be eligible for certain fringe benefits offered by the employer, such as health care. Factors to Determine Worker Status The general rules for classifying workers as independent contractors or common-law employees center on who has the right to control the details of how services are to be performed. The factors can be grouped into three categories. 1) Behavioral control. Factors that indicate a business has the right to control a worker’s behavior include the following. • Instructions that the business gives to the worker. Employers generally control when and where work is to be done, what tools or equipment to use, what workers to hire or to assist with the work, where to purchase supplies and services, what work must be performed by a specified individual, and what order or sequence to follow. • Training that the business gives to the worker. Employees may be trained to perform a service in a particular manner. Independent contractors generally use their own methods. 2) Financial control. Factors that indicate a business has the right to control the business aspects of a worker’s job include the following. • Extent of the worker’s unreimbursed business expenses. Independent contractors are more likely to incur expenses that are not reimbursed, such as fixed overhead costs that the worker incurs regardless of whether work is currently being performed. • Extent of the worker’s investment. Independent contractors often have significant investment in facilities used to perform services for someone else, such as maintaining a separate office or other business location. • Extent to which the worker makes his or her services available to the public. Independent contractors are generally free to offer their services to other businesses or consumers. They often advertise and maintain a visible business location. • Method of payment for services performed. Employees generally are guaranteed a regular wage and work for an hourly fee or a salary. Independent contractors are generally paid a flat fee for a specific job. Exceptions apply to some professions, such as accountants and lawyers who charge hourly fees for their services. • Extent to which the worker can make a profit. Independent contractors can make a profit or a loss. 3) Type of relationship between the parties. Factors that indicate the type of relationship include the following. • Written contracts that describe the relationship and intent between the worker and the business hiring the worker. • Employee-type benefits provided to worker. Employers often provide fringe benefits to employees, such as health insurance, pensions, and vacation pay. • Permanency of the relationship. Employer-employee relationshipsgenerallycontinueindefinitely. • Extent services performed by the worker are a key aspect of the business hiring the worker. A worker who is key to the success of a business is more likely to be controlled by the business, which indicates employee status. For example, an accounting firm hires an accountant to provide accounting services for clients. It is more likely that the accounting firm will present the accountant’s a as worker who receives a 1099-MISC instead of a W-2 has two options: 1) Agree with the way the business has classified the worker, file Schedules C and SE, and pay self-employment tax on the earnings, or 2) File Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The IRS will then decide if the worker should have been treated as an employee, subject to income and FICA tax withholding. If the IRS agrees that the worker really is an employee, the employer will be liable for employment taxes. However, if the IRS determines that the worker is really an independent contractor, the worker will be liable for paying SE tax. Example 1: Harold owns a restaurant and hires Jim, a gardener, to mow the lawn and weed the landscaping once a week. The contract states that Jim will arrive at the restaurant on Monday mornings, mow the lawn, pull weeds, and tend to the landscaping. In exchange, Harold agrees to pay Jim $50 for this service each week. Jim supplies his own lawnmower, weed eater, and hedge clippers. Jim decides what time he arrives and how long the job will take him. Harold does not supervise Jim in his tasks or dictate to him how they are to be done. Jim is an independent contractor. Example 2: Jeffrey owns Jeffrey’s Gardening Service and employs three gardeners to perform services for his business. Jeffrey pays his gardeners a fixed wage and withholds taxes, FICA, and various benefits and remits those withholdings to the appropriate government agencies. In addition, Jeffrey provides his employees with the tools and equipment they need to perform their work, instructs his employees which jobs to go to, and supervises them while they are doing their work. Jeffrey’s workers are employees. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can schedule appointment, send encrypted data, and receive our news letters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Start up Costs

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Start up Costs If your planning on starting a new business, this is very exciting, and I want to make sure you maximize your tax benefits with this new venture. Instead of waiting until you officially open for business, you can start the timer now on your deductible expenses. The tax law allows you a deduction for start-up expenses. Think of this as the money you spend while thinking about and investigating the business. Here are some common start-up expenses: • Travel expenses to gain knowledge from others already in the business • Entertainment expenses to pick the brains of friends and business acquaintances • Training expenses • Costs incurred in analyzing the market conditions • Purchasing books or magazines about the business • Certain automobile expenses • Office supplies to use in the business • Advertising fees for the opening of your business • Wages paid to consultants or employees If you eventually operate your business as a corporation or partnership, you can include even more expenses, known as organization costs. These are costs incurred for the creation of the business. Examples are legal and accounting fees, incorporation fees, temporary director expenses, and the cost of organizational meetings. While you can start accruing your expenses as soon as you begin thinking about going into business, you don’t get the deductions until you officially begin an active business. I would just like to touch on the actual application of the tax break. The tax law allows you to deduct up to $5,000 of start-up expenditures in the year in which your business becomes active. Your immediate $5,000 write-off is reduced dollar for dollar for any start-up expenses exceeding $50,000. Don’t worry, you don’t lose any excess. Any start-up expenses you can’t deduct immediately can be amortized on a straight-line basis over 180 months, beginning with the month the business begins. Example 1. Say you, a calendar year taxpayer, spend $5,000 on start-up expenses relating to a business that is up and running on May 1, 2017. You deduct the $5,000 in 2017. Example 2. The facts are the same, but instead of spending $5,000 on start-up expenses, your total outlay amounts to $41,000. In 2017, you deduct $5,000 plus the portion of the remaining $36,000 allocable to May–December, or $1,600 ($36,000/180 x 8). Example 3. Same facts, but this time your total expenses are $54,500. Because your start-up expenses exceed $50,000, your 2017 deduction equals $500 ($5,000 - $4,500) plus that portion of the remaining $54,000 allocable to May–December, or $2,400 ($54,000/180 x 8). If you have any questions on the application of these rules, please do not hesitate to contact me. I look forward to hearing from you. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

2017 Retirement Contributionis

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip 2017 IRA / SEP Contributions Each year, the IRS makes inflation adjustments to the contribution limits for retirement plans. For 2017, the numbers barely budged. Here's an overview as you begin making 2017 retirement plan contributions. The IRA contribution limit when you're under age 50 remains at $5,500. You can add an extra $1,000 when you're 50 or older. The 401(k) salary deferral limit is still $18,000 when you're under age 50. If you're 50 or older, the catch-up contribution is $6,000. The Savings Incentive Match Plan for Employees (SIMPLE) deferral limit remains at $12,500 if you're under age 50, with a catch-up contribution of $3,000 if you're 50 or older. The Simplified Employee Pension (SEP) plan annual contribution limit increases for 2017 to $54,000, up from $53,000 for 2016. For more information on 2017 inflation adjustments, including income phase-out thresholds for plan eligibility, please give me an email or call. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can join our portal, set an appointment and receive our blogs and newsletters. Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Tax Season is coming

Can you claim a dependency exemption for your college graduate child?

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Can you claim your College Graduate child as a dependent? Do you have a recent college graduate in the family, or will your child be graduating this year? If so, this might the last chance you have to claim a dependency exemption on your federal income tax return. Since the exemption is $4,050 for 2016 and 2017, that's a tax break you don't want to miss. Here's what you need to know. Generally, you can claim a dependency exemption for your child based on a support test for the year and whether your child has taxable income of less than the personal exemption. For 2017, the personal exemption amount is $4,050, the same as in 2016. The taxable income requirement doesn't apply when your child is under age 19 or is a full-time student under age 24. To meet the full-time student rule, your child must attend school at least five months during the year. That means you may be entitled to the exemption if your twenty-something child graduates in May after the spring semester, though you'll still have to pass the support test. What counts as support? Examples include food, clothing, and medical care. Typically, money your child receives but doesn't use as support — for example, wages that are banked and not spent — does not count as support for this purpose. Be aware that dependency exemptions, along with other personal exemptions, are phased out, or reduced, when your modified adjusted gross income exceeds certain levels. On your 2016 federal income tax return, the phase-out begins at $259,400 when you're single and $311,300 if you're married filing jointly. For 2017, the phase-out increases slightly to $261,500 for singles, and $313,800 when you file jointly. Please contact us for more information on dependency exemptions and how you can maximize your tax savings. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Lost Records / The Cohan Rule

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip LOST RECORDS Share Lost Tax Records Destroy Both Your Time and Your Tax Deductions What happens if you lose your tax records? Let’s say that your house burns down and your tax records go up in flames. What happens? Your tax life could become very miserable. Protect your tax records so that they will not go up in flames should your house burn down. This may seem like a bit much. But if the IRS came looking for your tax records, you would absolutely wish you had protected them. Pain! Reg. Section 1.274­5T(c)(5) addresses your loss of tax records due to circumstances beyond your control. The regulation states: Where the taxpayer establishes that the failure to produce adequate records is due to the loss of such records through circumstances beyond the taxpayer’s control, such as destruction by fire, flood, earthquake, or other casualty, the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures or use. How painful will your reconstruction of your tax records be? How long will it take? Whom do you know who can testify on your behalf? Let’s face it. You are going to spend a lot of time and effort in trying to make a reconstruction. It’s pretty likely that you will get tired of reconstruction and just go with what you have when you reach that “I’m too tired” point. Reason 2 Cash! Let’s say you do a great reconstruction. Even so, it’s unlikely that you will get your original deductions. The courts don’t have a history of making taxpayers whole when they have to reconstruct. So the bottom line is that this loss of records through no fault of your own is going to cost you some money. How much lost cash depends on how many deductions you’re going to lose. Further, if it appears to the court that your lack of records is your fault, either because you were careless or you did not do a good faith reconstruction, you are going to face penalties on top of the taxes and interest. Example 1 David E. Christensen probably hoped for some mercy when he arrived in court with no records to prove his deductions. He explained that his records were either destroyed in “hard disk crashes” or were lost while moving. the court explained to Mr. Christensen that when you lose your tax records for any reason—including floods, theft, hurricanes, and earthquakes—you have the right to substantiate your deductions using a reasonable reconstruction of those records. Mr. Christensen testified on his own behalf in court, but the court found the testimony deficient, noting that Mr. Christensen contradicted himself, admitted to errors in his Schedule C expenses, and, in some instances, could not recall what he claimed the expenses for. The court ruled that Mr. Christensen did not make a good­faith effort to reconstruct his expenses, did not provide documentation, and did not provide corroborating evidence to bolster the credibility of his testimony. On the basis of Mr. Christensen’s failure to produce records, the court disallowed all of his Schedule C expenses —$46,669, $44,451, $44,063, and $39,135—in the four years under consideration.3 Example 2 Suppose you failed to file tax returns for a number of years and that you misplaced and lost many of your records. This is a major problem. Are you doing a decent job keeping your tax records? If so, why not protect your time and money by protecting your tax records? That’s easier today than ever. With computers and scanners, you can have a paperless office that’s backed up online for very little money. In this situation, a fire or flood would be a major problem, but it would not destroy any of your tax records. Further, as you know, some of those thermal paper receipts allow the ink to disappear from the receipt. To protect the receipts, you need to either photocopy or scan them. If you are doing this, you are on your way to a paperless office. If paperless is not your thing, then an investment in file cabinets that are fireproof and waterproof makes sense, especially when compared to the pain and suffering of re­creating the records and then losing cash too. However, don’t forget the Chohan Rule “Receipts are critical to good book-keeping and tax returns. But if you can’t find one, contrary to popular belief, you are not out of luck. Remember the Cohan Rule, from a still good today tax case called Cohan v. Commissioner. George M. Cohan was a Broadway pioneer with hits like “Give My Regards to Broadway” and “Yankee Doodle Boy.” His statue still commands Times Square if you look amid all the hubbub. In the 1920s, the IRS disallowed Cohan’s (very large) travel and entertainment expenses for lack of receipts. He was a flashy guy and tended to pay in cash. And he wasn't going to take no for an answer. So when the IRS denied all his deductions, he took the IRS to court. Receipts being the stock in trade of the tax system, the trial court upheld the IRS. Again, Mr. Cohan wouldn't take no for an answer and appealed to the Second Circuit. In 1930, the Appeals Court rocked the IRS back on its heels with the Cohan Rule. To this day, it is as an exception to stringent IRS record-keeping requirements. It allows taxpayers to prove by “other credible evidence” they actually incurred deductible expenses. Mr. Cohan testified that he paid in cash, and others too remembered big dinners. Of course, this is a tough way to prove expenses. Not surprisingly, the Cohan Rule often doesn’t impress the IRS. You may have to go to court, and the argument doesn’t always work there either. Still, the IRS or a court may be convinced by oral or written statements or other supporting evidence. If you get over that hurdle and can make a reasonable approximation of the expenses, you may be OK despite your lack of documentation. Even charitable contributions have been allowed under the Cohan Rule, though not in cases subject to special strict substantiation requirements. Remember the IRS computer crashes and the hunt for those long destroyed or lost emails of Lois Lerner? Rep. Steve Stockman of Texas introduced a bill he called the “The Dog Ate My Tax Receipts Act,” to allow us all to try out some excuses. Rep. Stockman said, “Taxpayers should be allowed to offer the same flimsy, obviously made-up excuses the Obama administration uses.” The bill would allow taxpayers who do not provide documents requested by the IRS to claim one of the following reasons: 1. The dog ate my tax receipts. 2. Convenient, unexplained, miscellaneous computer malfunction. 3. Traded documents for five terrorists. 4. Burned for warmth while lost in the Yukon. 5. Left on table in Hillary’s Book Room. 6. Received water damage in the trunk of Ted Kennedy’s car. 7. Forgot in gun case sold to Mexican drug lords. 8. Forced to recycle by municipal Green Czar. 9. Was short on toilet paper while camping. 10. At this point, what difference does it make? The resolution says that the “IRS must allow taxpayers the same lame excuses for missing documentation that the IRS itself is currently proffering.” Every taxpayer has looked for receipts. Seinfeld fans may remember an episode called the ‘‘The Truth,’’ which aired Sept. 25, 1991. The IRS questioned Jerry about a $50 charitable contribution to the people of Krakatoa. The IRS normally doesn’t require extra substantiation of charitable donations less than $250, so Jerry’s check or bank statement would have sufficed. But as this show revealed, worrying about an IRS audit isn't fun. Trying to prove expenses isn't either. The best advice? Save those receipts so you never have to argue the Cohan Rule.”1 Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Cancelled Debt can be excluded from income using form 982

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Cancelled Debt using form 982 to avoid paying Tax Cancellation of Debt— Insolvency Taxpayers with cancelled debt can often exclude the cancellation of debt income to the extent they were in- solvent immediately before the cancellation. If a cancelled debt is excluded from income, it is nontaxable. Cancellation of Debt Cancellation of debt (COD) is settlement of a debt for less than the amount owed. A debt may be cancelled by a lender voluntarily or through bankruptcy or other le- gal proceedings and may result in ordinary income, in- come from the sale of assets, or both. Cancelled Debt Situation Tax Treatment Debt owed by a taxpayer is cancelled or forgiven. Amount cancelled or forgiven is generally taxable as ordinary income from cancellation of debt. Property that is security for a debt is taken by the The transaction is treated as a sale of the property, which may result in a gain or lender in full or partial satisfaction of that debt. loss. Property that is security for a debt is taken by the Excess of cancelled debt over FMV is ordinary income from cancellation of debt, lender, and lender cancels recourse debt in excess of in addition to any gain or loss from the sale. FMV of property taken. Cancelled debt is intended as gift. Amount cancelled is not income. Gift tax may apply. Form 1099-C, Cancellation of Debt If a lender cancels or forgives a debt of $600 or more, it must provide the borrower with Form 1099-C, showing the amount of cancelled debt to be reported as income. Generally, individual taxpayers must include all can- celled amounts, even if less than $600, as Other Income on line 21, Form 1040. Examples of COD Income Non business credit card debt cancellation. If non- business credit card debt is cancelled, the taxpayer may be able to exclude the cancelled debt from income up to the extent he or she is insolvent. Personal vehicle repossession. If the taxpayer had a personal vehicle repossessed during the year, the trans- action is treated as a sale, and gain or loss on the repossession must be computed. If the lender also cancels all or part of the remaining debt, the taxpayer may be able to exclude the cancelled debt from income to the extent he or she is insolvent. Taxpayer Insolvency A taxpayer is insolvent to the extent that the total of all their liabilities exceeds the fair market value (FMV) of all their assets immediately before the cancellation of debt. For purposes of determining insolvency, assets include the value of everything the taxpayer owns (including as- sets that serve as collateral for debt and exempt assets which are beyond the reach of creditors, such as the value of a retirement account). Liabilities include the following items: • The entire amount of recourse debts, • The amount of non recourse debt that is not in excess of the FMV of the property that is security for the debt, and • The amount of non recourse debt in excess of the FMV of the property subject to the non recourse debt to the extent non recourse debt in excess of the FMV of the property subject to the debt is forgiven. Example #1 – Amount of Insolvency More Than Cancelled Debt Jill was released from her obligation to pay her personal credit card debt in the amount of $5,000. Jill received a Form 1099-C from her credit card lender showing can- celled debt of $5,000. Jill uses the insolvency worksheet to determine that her total liabilities immediately before the cancellation were $15,000 and the FMV of her total assets immediately before the cancellation were $7,000, which means that immediately before the cancellation, Jill was in- solvent to the extent of $8,000 ($15,000 total liabilities mi- nus $7,000 FMV of her total assets). Because the amount by which Jill was insolvent immediately before the cancellation was more than the amount of her debt cancelled, Jill can exclude the entire $5,000 cancelled debt from income. Example #2 – Amount of Insolvency Less Than Cancelled Debt Assume the same facts as Example #1, except that Jill’s total liabilities immediately before the cancellation were $10,000 and the FMV of her total assets immediately before cancellation were $7,000. In this case, Jill is insolvent to the extent of $3,000 ($10,000 total liabilities minus $7,000 FMV of her total assets) immediately before the cancellation. Because the amount of the cancelled debt was more than the amount by which Jill was insolvent immediately before the cancellation, Jill can exclude only $3,000 of the $5,000 cancelled debt from income under the insolvency exception. Jill must include $2,000 of cancelled debt as an addition to her income, unless another exclusion applies. Form 982 Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, is used to exclude cancelled debt from in- come due to insolvency and also to indicate a reduction in tax attributes for certain assets, if required. Reduction of Tax Attributes If cancelled debt is excluded from income, the taxpay- er must reduce certain tax attributes by the amount ex- cluded. Tax attributes include the basis of certain assets, losses, and credits. By reducing the tax attributes, the tax on the cancelled debt is partially postponed instead of being entirely forgiven.This prevents an excessive tax benefit from the debt cancellation. Insolvency Work Sheet All amounts listed should be immediately before the debt cancellation. Liabilities 1) Credit card debt............................................................. 1)________ 2) Mortgages (and home equity loans).............................. 2)_____________ 3) Car and other vehicle loans........................................... 3)_______________ 4) Medical bills owed ........................................................ 4)______________ 5) Student loans ................................................................ 5)_____________ 6) Accrued or past-due bills owed .................................... 6)___________ 7) Federal or state income taxes due ................................ 7)____________ Judgments..................................................................... 8)________ 9) Business debts .............................................................. 9)_________ 10) Other loans and past-due bills..................................... 10)____________________ 11) Total liabilities. Add lines 1 through 10......................... 11) _______________ Assets 12) Cash and bank account balances ............................... 12)__________________ 13) FMV real estate ........................................................... 13)______________ 14) FMV vehicles............................................................... 14)___________________ 15) FMV household items (computers, tools, jewelry, clothing, appliances, furniture, etc.) ............................................................................. 15)____________ 16) Retirement accounts, IRAs, etc. .................................. 16_____________) 17) Cash value of life insurance ........................................ 17)____________ 18) Stocks and bonds ........................................................ 18)________________ 19) Interest in education account ..................................... 19)_____________ 20) Investments in collectibles.......................................... 20)_____________ 21) Security deposits ........................................................ 21)______________ 22) Interests in partnerships ............................................. 22)_________________ 23) Value of investment in business .................................. 23)______________ 24) Other assets ................................................................ 24)____________ 25) Total assets. Add lines 12 through 24........................... 25)_____________ 26) Amount of insolvency. Subtract line 25 from 11......................................................................... 26) ____________ If zero or less, taxpayer is not insolvent. If over zero, the amount is the extent to which the taxpayer is insolvent. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

Helping your children buy a house.

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 As parents I am sure all of us with kids realize they don’t quit being our kids when they turn 18 years old. After they complete school we all want to help our children be successful in life. One thing many clients have asked me is how can we help our child purchase a house. 1. Gift. You and your spouse can each gift $14,000 to your child and to the child’s spouse for a down payment. This gives you a tax-free gift of $56,000 using the gift exclusion, and your child and his or her spouse have $56,000 for the down payment. The gifts should be in four separate checks. 2. Lend the money. If you lend money to your child to purchase a home, the child can deduct the mortgage interest that he or she pays you. You can create a really favorable interest rate for your child. Simply charge your child interest equal to the applicable federal rate. The rate for a long-term loan with monthly payments beginning in December 2016 was 2.24 percent a month. 3. Create equitable ownership. Perhaps your child cannot qualify for a loan but can make the mortgage payments. So you buy the home and take out the mortgage in your name, and your child makes the payments. Your child can deduct the mortgage interest if he or she can show that he or she is the equitable owner. Equitable ownership and legal ownership are two different concepts under the law. This can get complicated, so if this approach appeals to you, please call me and I’ll walk you through it. 4. Joint ownership. For tax deduction purposes, this is easy to make work. Your child can deduct the full amount of the mortgage interest that the child actually pays, even though the child is only a partial owner of the home. 5. Shared equity. If you prefer a more businesslike arrangement in helping your child achieve home ownership, the shared equity program could be the ticket. Under this arrangement, you create a rent-to-own program with your child. I’m happy to guide you through any of the possibilities for helping your child buy that home. We are here 7 days a week all year long. Call us if you need any help or have any questions. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.

The Standard Mileage Rate for 2017 has been lowered again.

Purchasing a New Business

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip How to handle purchasing a new business If you buy a business that the owner operated as a sole proprietorship or a single­member LLC treated as a sole proprietorship for tax purposes, your purchase transaction is automatically an asset purchase for tax purposes. The reason you have an asset purchase is that tax law considers the proprietorship to directly own all the business assets. You are buying the assets directly from the owner. You can also arrange an asset purchase deal for a business that has been operated as a corporation, a partnership, or a multi­member LLC treated as a partnership for tax purposes. In this scenario, the seller would generally prefer to sell his or her ownership interest rather than the assets, for two reasons: 1. Selling an ownership interest generally divorces the seller from any ongoing exposure to business­related liabilities. 2. The taxable gain from selling an ownership interest that has been held for more than one year is generally treated as a lower­taxed long­term capital gain. In contrast, you as the buyer will usually prefer to purchase the business assets rather than an ownership interest, for two reasons: 1. An asset purchase generally allows you to avoid exposure to unknown or undisclosed business liabilities. 2. The tax basis of the assets can be stepped up (increased) to reflect the purchase price that you pay for the business. The step­up gives you bigger depreciation and amortization deductions for buildings, furniture, equipment, and intangibles and reduces taxable gains when assets like inventories or receivables are sold or converted into cash. Background: Asset Purchase Tax Results In an asset purchase, you allocate the total purchase price to the specific assets that you acquire. The amount you allocate to each purchased asset becomes the tax basis of that asset. The price you allocate to depreciable and amortizable assets (such as furniture, fixtures, equipment, buildings, software, and intangibles such as customer lists and goodwill) becomes the tax basis that determines your post­purchase depreciation and amortization deductions for those assets. When you eventually sell a purchased asset or convert it into cash, you will have a taxable gain if the amount you receive for the asset exceeds its tax basis (the allocated purchase price plus any post­purchase improvements minus any depreciation or amortization deductions). If you operate the purchased business as a sole proprietorship, or as a single­member LLC treated as a sole proprietorship for tax purposes, or as a partnership or multi­member LLC treated as a partnership for tax purposes, or as an S corporation, the gains and losses will be passed through to you and reported on your personal federal income tax return. For depreciable real estate held for over one year after the purchase, gains attributable to prior depreciation deductions are taxed at a maximum individual federal rate of 25 percent on your personal return. For other depreciable or amortizable assets (such as furniture, equipment, purchased software, and purchased intangibles), gains attributable to post ­purchase depreciation or amortization deductions are taxed at higher ordinary income rates. (The current maximum federal ordinary income rate for individuals is 39.6 percent.) Any remaining gains from real estate, depreciable or amortizable assets, and most other business assets held for more than one year are generally treated as lower taxed long ­term capital gains. (The current maximum individual federal rate for long­term gains is 20 percent.) Gains from selling receivables and inventory are taxed at higher ordinary income rates, as are other assets held for one year or less. If you operate the purchased business as a C corporation, the corporation pays the tax bills from post purchase operations and asset sales. All types of gains recognized by a C corporation are taxed at the same federal income tax rates, which range from 15 percent to 39 percent (subject to a maximum average rate of 35 percent). However, gains recognized by a personal service corporation are taxed at a flat 35 percent rate. There is a taxable loss if the amount received for the asset is less than its tax basis. Losses from the sale of business assets generally are fully deducted in the year of the sale. How to Make Tax ­Smart Purchase Price Allocations With an asset purchase deal, the most important tax ­saving opportunity revolves around how you allocate the total purchase price to specific assets. To the extent possible, you want to allocate more of the price to: assets that generate deductions against ordinary income (such as inventory and receivables), assets that can be depreciated relatively quickly (such as furniture and equipment), and intangible assets (such as software, customer lists, and goodwill) that can be amortized over 15 years. You want to allocate less to assets that are depreciated over long periods (such as buildings), and land (which cannot be depreciated at all). Follow the Required Residual Allocation Method Under the federal income tax rules, you must use the so ­called residual method to allocate the total purchase price to the specific assets that you’ve acquired. Step 1. Allocate the price first—dollar for dollar—to any cash and CDs included in the deal and to the fair market value of any government securities, other marketable securities, and foreign currency holdings. These kinds of assets are not usually included in asset purchase deals, so you may be able to skip this step. Step 2. Allocate the price remaining after Step 1 to general business assets included in the deal (receivables, inventory, furniture and fixtures, equipment, buildings, land, and so forth). Allocations in this step are made in proportion to each asset’s fair market value but cannot exceed fair market value. Step 3. Allocate the price remaining after Step 2 to intangible assets other than goodwill. Such intangibles can include covenants not to compete, technology and knowledge­based intangibles, secret processes, specialized software, business systems, customer lists, favorable contracts, workforce in place, franchises, copyrights, patents, and the like.11 Allocations in this step are made in proportion to each asset’s fair market value but cannot exceed fair market value. Step 4. Allocate any price remaining after Step 3 to goodwill. Goodwill is the most intangible of intangible assets, and it often cannot be valued with any degree of precision. Therefore, there is no fair market value cap on allocations to goodwill.12 Finesse the Residual Allocation Method Rules The four steps outlined above may seem cut­and­dried, and in a way, they are. Given a set total purchase price and set fair market values for the assets being acquired, the price allocation will always be exactly the same. But appraising the fair market value of business assets is more of an art than a science. In many cases, there can be several legitimate appraisals that vary for the same assets. The tax results from one appraisal may be much better for you than the results from another. The good news: nothing in the tax rules prevents buyers and sellers from agreeing to use legitimate appraisals that result in acceptable tax outcomes for both parties. Settling on appraised values simply becomes part of the negotiation process. That said, the appraisal that is finally agreed to must be reasonable. Example of Tax­Smart Purchase Price Allocation Tax Masters, LLC (TML), is a single­-member LLC that is treated as a sole proprietorship for tax purposes. Sara, the owner of TML, tentatively agrees to sell all her assets to you for $1.5 million. The assets consist of client receivables; fully depreciated furniture, fixtures, and equipment; a small building and the underlying land; client lists; and client goodwill that Sara has developed over the years. Sara wants to minimize the purchase/sale price allocated to the receivables and the fully depreciated furniture, fixtures, and equipment assets, because gains from those assets will be treated as ordinary income and taxed at the maximum 39.6 percent federal rate on her personal return. Gains from the other assets will be long­-term capital gains that will be taxed at only 20 percent or 25 percent. Sara obtains an appraisal from a qualified professional, who estimates the following fair market values for TML’s assets: Receivables $ 250,000 Fully depreciated furniture, fixtures, and equipment 100,000 Building 250,000 Land 500,000 Customer lists 175,000 Goodwill 225,000 Total $1,500,000 Using this appraisal and the required residual allocation method, Sara must allocate the first $1.1 million of the purchase/sale price to the receivables and tangible assets in the amounts shown above. She then must allocate the $175,000 to the customer lists. The last $225,000 must be allocated to goodwill. Sara is happy with these allocations, because 77 percent of the total purchase/sale price is allocated to lowertaxed capital gain assets (building, land, customer lists, and goodwill). You, as the prospective buyer, want to allocate more of the purchase/sale price to the receivables (which will be quickly collected and written off for tax purposes); the furniture, fixtures, and equipment (which can be depreciated relatively quickly for tax purposes); and the intangibles (which can be amortized over 15 years for tax purposes). You want to allocate less to the building (depreciable over 39 years, which is a really long time) and the land (non­depreciable). So you insist on getting another appraisal that gives you better tax results. As a compromise, you and Sara agree to use a second legitimate professional appraisal that looks like this: Receivables $ 275,000 Fully depreciated furniture, fixtures, and equipment 175,000 Building 250,000 Land 350,000 Customer lists 200,000 Goodwill 250,000 Total $1,500,000 When you use this second appraisal, more of the purchase price is allocated to the receivables; furniture, fixtures, and equipment; and amortizable intangibles, which makes you happy. Sara is still satisfied because a healthy 70 percent of the sales price is allocated to lower­taxed capital gain assets (building, land, and intangibles). This is the art of the deal in action! Avoiding Unwanted IRS Attention As the buyer of business assets, you (or your business entity) must independently report to the IRS—as must the seller (or his or her business entity)—the purchase/sale price allocations that you and the seller use. You do this by attaching IRS Form 8594 to your respective federal income tax returns. The IRS can then decide to inspect the two forms to see whether you and the seller used different allocations. This can happen, unless it is prohibited because the buyer and seller agree to the same allocation in writing. If the IRS sees different allocations, it raises the risk of an audit. That audit might expand beyond just the asset purchase transaction. Not good! So it’s in your best interest to ensure that the seller reports the same allocations on his or her Form 8594 as you report on your Form 8594. Consider including this as a requirement in the asset purchase/sale agreement. When you start a business by buying the assets of a seller’s business, you want to allocate the price that you pay to those assets that give you the best tax results. Your first target should be receivables and inventory, because you can turn them into cash quickly and write off the corresponding basis. Your next choices are those that you can write off the quickest. You will want an appraisal to support your allocations. And you will want the seller to report to the IRS on IRS Form 8594 the same dollar allocations as you report. You likely should make this a requirement in the closing agreement. Before you purchase a new business please call us to discuss and review your purchase with you. Tax season is here. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you Regards, Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale/purchase of a business property in excess of $5,000 • Sale or purchase of a residence or other real estate.