Tax Archives

From Commingled to Contested: The IRS’s Audit of Tax Deductions

The common idea that business expenses are deductible while personal expenses are not is an oversimplification. In reality, the tax rules are more nuanced. Some personal expenses are deductible, and the line between personal and business expenses is often blurry. This complexity is further compounded by the fact that many businesses, particularly small ones, fail…

The Tax Treatment of Pre-Start-Up Costs

Can you deduct costs incurred while investigating whether to start a business? What if you spend several years researching, planning, and preparing to launch and you incurred costs during these years to do so? Are these expenses deductible in the years before your business officially begins operations? Does the answer change if the business actually…

Tax Planning With Disproportionate Distributions from S Corporation

There are several rules one has to meet for a legal entity to qualify as an S corporation. One of the rules is the requirement that shareholders of S corporations get identical distributions. Because this is a qualification to be an S corporation, one might think that the consequence of violating this rule is that…

IRS Collections: Different Rules for Foreign Debts?

The United States is built on fundamental principles of rule of law, due process, and justice. These concepts are not merely abstract ideals but are deeply ingrained in our legal system and societal expectations. They form the bedrock of what many consider to be American exceptionalism – a system where laws are transparent, consistently applied,…

Dealing With IRS Audit of a Hobby Loss Activity

The IRS is a silent partner in every business venture. It is quick to take its share of profits when a business venture succeeds. The IRS is often not a good business partner. It often refuses to share in the losses during the down times. This unequal treatment often comes up when the taxpayer reports…

Can a Failed ESOP be Saved by Installment Sale Rules?

Imagine a building with two entrances. Once you’re inside, does it really matter which door you used to enter? This analogy often applies to tax disputes when there are overlapping tax laws. The IRS frequently argues that taxpayers are bound by their initial choice of tax treatment–insisting they stick with the “door” they first entered…

The Short-Term Rental Tax Rules

While short-term rentals have fallen out of favor as of late, they do still offer tax benefits. There are reasons why short-term rentals have more favorable tax treatment than long-term rentals. Short-term rentals often require substantially more active management than traditional long-term leases. Owners must handle frequent turnovers, maintain the property to hotel-like standards, and…

Navigating Late GST Tax Elections: Maximizing Exemptions for Trusts

Those who create or come into significant wealth often face difficult decisions about what to do with it. What is one to do with excess wealth—the wealth that will have no material impact on the owner’s life? The most common solution is to simply do nothing and let the estate tax take about half of…

Strategic S Corp Conversion to Avoid Tax Basis Limitation

Time. We can’t stop it, but we can use it. We can use it to take advantage of compounding to grow our savings. We can use it to pay down debt to increase equity. And we can use it for tax planning. Time is one aspect of tax planning. It can help taxpayers avoid just…

Income Shifting to Reduce Tax for Real Estate Sale

Income shifting is a fundamental income tax planning concept. It involves strategically allocating income among related taxpayers to minimize the overall tax liability. This may be intended to use up tax attributes of one taxpayer (such as deductions or tax credits), take advantage of tax deferral options to delay paying taxes, or take advantage of…