Have you heard about the new, "creative" way to shift assets from your business to a Roth IRA to skirt the IRA contribution limits? Well, forget that advice and heed this:
The IRS came out swinging last month, issuing formal notice that such transactions would be listed as "abusive tax shelters" and trigger stiff penalties. (IRS Notice 2004-8)
With the stock market heating up, you may have borrowed cash in 2003 for investment purposes or to buy stock on margin.
Of course, you’ll want to maximize the write-off for your investment interest. But usually your investment interest deduction is capped at the amount of your total investment income.
Q: In a recent item in your newsletter, you said that sole proprietors, partners and LLC members can use the per-diem method for reimbursing meals and incidental expenses on business travel. (See 11/3/03 issue.) Shouldn’t that list also include S corporation shareholder/employees? P.D., CPA, Englewood, Colo.
You can file Form 4506, but it could take up to 60 days to receive a photocopy and cost you $39. Better option: Call the IRS to order a transcript that lists line items from your original return (only 1040s) for up to three previous years.
Q: My elderly father lives in Spain and plans to give large financial gifts to our family this year. Are there any special IRS requirements we must meet? T.D., Vero Beach, Fla.
Q: We own a vacation home in Vermont that we are leaving to our adult son in our wills. The home cost $95,000 and is now worth around $300,000. We’ve made about $15,000 in improvements over the years. Will our son owe any income tax if he inherits the home in the next few years? M.M., Stamford, Conn.
Q: My brother borrowed $20,000 from me back in 2000. We set up a payment plan with 7 percent interest payments. But he only paid back $2,700 before he died last year without any real assets. Can I deduct the unpaid balance on my 2003 return? K.R., Newburgh, N.Y.
After 12 years with the same company, I am losing my job due to a merger. I have no other job lined up. Should I elect COBRA health and dental coverage? Are there any tax benefits?
If your business pays nonemployees for services, you’re responsible for providing that information to the IRS each year.
The timing is critical, and the clock is running down.
C corporations offer better tax treatment for fringe benefits than S corporations. But don’t avoid an S corporation election simply because of fringe benefits.