Kinston Accounting & Advising

Loaning or giving Money to Friends & Family and Tax Implications For lender/giver: As long as the aggregate loan amounts to a single borrower are less than $10,000, and the borrower doesn’t use the loan proceeds to buy or carry income-producing assets. In that case, lender can charge an interest rate below the AFR, and there won't be any federal tax consequences — even if lender charges no interest. If the aggregate loan amounts are more than $10,000, lender should draft a formal loan agreement outlining terms like interest rates, repayment schedule, etc. The interest rate should be at least the Applicable Federal Rate (AFR) to avoid imputed interest and potential gift tax implications. The lender might have to report any interest income received when filing the tax return. If the person just wants to gift the money to another person, the giver might have file gift tax return (IRS Form 709) if it exceeds aggregate amounts. As of 2025, the annual exclusion limit is $19,000 per recipient. This means an individual can give away $19,000 to as many different people as they want in a single year without triggering the need for a gift tax return (IRS Form 709). For borrower/recipient: When borrower receives the money, if the total exceeds the $10,000 reporting thresholdthe, financial institution may report the deposit to the IRS. Even if you split the money into two checks/zelle/wire transfers, and deposit both of them simultaneously or within a short period, financial institution may still report it. This is standard practice and nothing to be overly concerned about if you are compliant with tax laws. Both lender and borrow should keep copies of loan agreement documentation. From the recipient's standpoint, there is no maximum limit on the amount you can receive as a gift. You could technically receive $19,000 from each of multiple individuals without any of them having to file a gift tax return or pay gift tax. As the recipient, you're also not required to report these gifts to the IRS or pay tax on them. Because all the information is included in the giver's gift tax return.

If I have an LLC for rental property, where should I report the rental income? It is smart to form an LLC for your rental property because this structure?legally separates your personal assets from your business liabilities, meaning that in the event of a lawsuit or financial losses, your personal wealth — such as your home, car, and personal savings — usually remains protected. So where do you report the rental income? 1.?????If the LLC is a single member LLC, you will report it on your personal return, Schedule E, Form 1040, because a single-member LLC is a "disregarded entity" when it comes to tax reporting, it means that the LLC doesn’t exist?in this situation. Don’t report it on Schedule C because it will trigger the self-employment tax.?Rental income is generally not subject to self-employment tax unless you qualify as a real estate professional, which means 1.More than half of the personal services you performed in trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated, and 2. You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated. 2.?????If the LLC has 2 or more owners, the rental income will be reported on a business return Form 1065 or 1120-S, because LLCs can be selected and taxed as partnership or S-Corp, but LLCs for rental property usually are taxed as partnership because rental income is generally not subject to self-employment tax, and it does not specifically need to be filed as S-Corp. In this case, the LLC (partnership, or S-Corp) files IRS Form 8825,?Rental Real Estate Income and Expenses of a Partnership or an S Corporation,?on business return Form 1065 or 1120-S, to report the income and deductions from the property owned by the entity. This form is very similar to Schedule E. Note: never put your Real Estate Investments into a Corporation(C- Corporation or S- Corporation), the LLC structure is the best for real estate investments. Owning real estate in a corporation, if it is a C-Corporation, there is double taxation. If it is an S-Corporation, it can lead to complex tax implications that often outweigh the perceived benefits. One of the primary issues with holding real estate in an S-Corp is the limitation on the shareholder’s debt basis. In an S-Corporation, a shareholder’s ability to deduct losses is limited to their stock basis plus any direct loans they’ve made to the corporation. Unlike partnerships or LLCs, shareholders cannot increase their basis by their share of the entity’s debt. This limitation restricts their ability to deduct losses from real estate investment. ? For more details: https://lnkd.in/guhBYQEN https://lnkd.in/gNZjHjp4 https://lnkd.in/gFzZBeUT https://lnkd.in/gtZKGD-g

How to use United States income tax treaty to get tax refund? ? If you are a foreigner who study or work in the U.S, with either Resident Alien (RA) or Nonresident Alien (NRA) status, you may qualify claiming the tax treaty benefit on your tax return. Many treaties limit the number of years you can claim a treaty exemption. For international students, apprentices, and trainees, the limit is usually 4–5 years from the date of entry into the USA.?For teachers, professors, and researchers, the limit is usually 2–3 years from the date of entry into the USA.?Once you reach this limit, you can no longer claim the tax treaty exemption.??It is important to note that the tax treaty benefit clock begins as of the date you enter the USA.?Therefore, if you do not claim tax treaty benefits during the allowed time, you cannot claim them later.?? ? Some of the states that do not allow treaty benefits are: Alabama, Arkansas, California, Connecticut, Hawaii, Kansas, Kentucky, Maryland, Mississippi, Montana, New Jersey, North Dakota, and Pennsylvania. ? How to fill out tax forms and mail them? 1.?????Fill out Form 8833. 2.?????Fill out Line 24.z, Other adjustments, on SCHEDULE 1 Form 1040 (2024). 3.?????Add the number of adjustments above to line 10. Adjustments to income from Schedule 1, From 1040 or 1040NR. 4. You can attached the federal return with the Form 8833 to your state return and mail them for the state refund if the state you live in allow tax treaty. ? Reference: https://lnkd.in/gHwKW7PG ? https://lnkd.in/gGqs3tcs ? https://lnkd.in/gdJVbeCz

How to get your FICA tax refund as an international student? International students in F-1, J-1, M-1, Q-1 or Q-2 visa who are non-resident aliens for tax purposes are NOT required to pay FICA tax, aka Social Security Tax and Medicare Tax, which is in total of 15.3% of the gross income. Non-resident aliens means that you will not be considered a United States resident for tax purposes if you don’t meet the substantial presence test for the calendar year. Broadly speaking,?you are entitled to the FICA exemption for the first 5 calendar years of physical presence in the USA. After this period has passed, international students are classified as Resident for Tax Purposes and are subject to FICA tax withholding. Please see reference for more details of substantial presence test. Because you are NOT required to pay FICA tax, your employer should refund to you any amount shown on your Form W-2, Box 4 or Box 6. Contact your employer and ask for a refund of FICA tax because you qualify for the exemption from FICA tax under Internal Revenue Code section 3121(b)(19). If your employer refuses to give you a refund, go to?www.irs.gov to download and fill out Form 843 and Form 8316. Complete and print both forms and mail to the IRS;?DO NOT include Form 843 or Form 8316 with your tax return. Reference: https://lnkd.in/g6ywEB5

How to Take Money Out of a Partnership A partnership structure is similar to a sole proprietorship in that?both are not legal entities, meaning it is not a corporation or LLC, and they are considered "pass-through" entities, meaning business profits and losses are reported on the owners' personal tax returns, and both involve personal liability for the business debts, but the key difference is that a partnership has multiple owners while a sole proprietorship has only one owner. Partners are never paid via payroll.?There is no W-2 and no 1099 issued to partners.?You can have employees in your Partnership that you have on payroll, but not Partnership owners. The Partnership does not pay Federal income taxes, but it does require state sales tax and income tax, this varies by state.?Even though the Partnership does not pay Federal income taxes, it is still required to file a Partnership tax return, Form1065 annually.? The Partnership tax return generates K-1 packages that are distributed to partner owners which enable the Partners to report their share of business net income on their own 1040 individual tax returns. Three ways to take money out of a Partnership 1. Distributions (Via cash withdrawal, ACH, check, bank transfer, etc. Each partner should receive equally.) 2. Guaranteed Payments (Such as partners’ medical insurance. Guaranteed payments are recurring payments to select partner(s) for services performed. Guaranteed Payments are paid out in the same way as distributions.) 3. Partner Reimbursements (Such as home office reimbursement, reporting on (1) UPE - unreimbursed partner expense – K1, and partners report their unreimbursed partnership expenses on Schedule E, Form 1040, or (2) get reimbursement from your partnership via an accountable plan.) Note: Accountable plan is better than UPE—Why? Please see the example below: ? Sam is a 20 percent partner in a Partnership. He’s in the 24% federal tax bracket (for this example, let's keep it simple and ignore the self-employment tax). ? Let’s say Sam uses Form 8829 on his personal return and calculates his home-office deduction as $5,000. If Sam deducts $5,000 as UPE, he only gets actual $1200 tax money saved (24% of $5,000). But if Sam receives an accountable plan for the reimbursement from the partnership, it puts $5240 into his pocket: ? $5,000 as a tax-free cash reimbursement from the business bank account to his personal bank account, and $240 from reduced pass-through income (24% of $1000, which is 20 percent of the $5,000 partnership expense). Reference: https://lnkd.in/gGR3F2KJ

What is safe harbor law? A safe harbor is a legal provision that protects individuals or entities from liability or penalties if they meet certain conditions.?Safe harbors can be found in statutes and regulations, and they apply to many areas of law, including taxation, copyright law, and 401(k) plans. Examples of safe harbors Safe harbor 401(k) plans These plans exempt employers from annual nondiscrimination testing if they meet certain conditions.?For example, employers can provide fully vested contributions to employees' accounts. Safe harbor rules for estimated taxes These rules protect taxpayers from penalties if they meet certain conditions.?For example, taxpayers may be able to avoid penalties if they pay the correct amount of estimated taxes. Safe harbors in copyright law These provisions limit the liability of online service providers for the actions of their users.?For example, service providers may be protected from liability if they promptly remove infringing material. Safe harbors in healthcare These are provisions that protect healthcare providers from violating the Anti-Kickback Statute (AKS).?By following these regulations, it can ensure ethical business practices in healthcare and prevent Medicare and Medicaid fraud. Safe harbors in real estate If all the safe harbor requirements are met, an interest in rental real estate will be treated as a trade or business for purposes of Section 199A and thus will be eligible for the qualified business income deduction (the “QBI Deduction”) under Section 199A, even if it does not meet the literal definition of a “trade or business” set forth in Treas. Reg. Section 1.199-1(b)(14). This safe harbor is available for taxpayers who seek to claim the QBI Deduction with respect to a “rental real estate enterprise.” Conclusion: Safe harbors protect good-faith actors who might otherwise violate the law on technicalities.?They give businesses peace of mind so they don't have to worry about accidentally making the wrong selection and later being penalized.?

Self own S-Corporation Home Office Deductions and Reimbursements If you are an employee of your own S corporation, you have two ways to claim the home office expenses deduction: 1. The S corporation can pay you rent for the home office, and you report the rent income and home office expenses on your 1040 sch. E. 2. The S corporation can write you checks for the costs of a home office under an “accountable” plan for employee business expense reimbursement.?Accountable Plan means that there must be a business condition for the expenses, and the expense must be in connection with performance of services as an employee. Also ,remember to document your expenses carefully in case the IRS wants to check your records. For more details, please read: https://lnkd.in/gMAQZTxT

What is S corporation stock and debt basis? Stock basis: The shareholder's income from S-Corp and personal equity contributions to the S-Corp?increase the stock basis. The shareholder's distributions and withdrawals, including both cash and property, decrease their stock basis. NOTE:?Only non-dividend distributions reduces stock basis, dividend distributions do not. Most distributions from an S corporation are non-dividend distributions. Dividend distributions can occur in a S-Corp that was previously a C corporation or acquired C corporation attributes in a non-taxable transaction (i.e., merger, reorganization, QSub election, etc.). Debt basis: Debt basis is?computed similarly to stock basis?but there are some differences. If a shareholder has S corporation loss and deduction items in excess of stock basis and those losses and deductions are claimed based on debt basis, the debt basis of the shareholder will be reduced by the claimed losses and deductions. Debt basis comes into play when a shareholder has loaned money to the S corporation.?It means that when the S Corporation owes the shareholder directly, it creates debt basis. You will report S Corporation Shareholder Stock and Debt Basis on Form 7203 that attached on your individual return (Form 1040). More details: https://lnkd.in/gY4tFEvN https://lnkd.in/gxVKeJpV https://lnkd.in/ghenhSEx

EV Tax Credit 2024-2025: How does it work? Do you need to report it on tax return? Before 2024, eligible clean vehicle buyers could only receive the amount of their?credit?after filing their tax return. Starting on Jan. 1, 2024, eligible consumers will have the option to transfer the value of the tax credit to dealers that meet certain requirements in exchange for an equivalent reduction in the vehicle’s purchase price. This means an immediate reduction of $7,500 (for new vehicles) off the price of the vehicle at the point of sale rather than waiting for the tax credit after filing taxes. (You can consider this as a discount instead of a tax credit, because you don’t need to pay it back if you don’t have enough tax liability when you file tax return for the tax year.) For customers who elected to transfer the credit to the deals or not, they will still need to file tax returns and report the purchased vehicle on Form 8936. There is a new update on the 2024 Form 8936 Schedule A, Line 4a. It will ask “Did you transfer the credit to the dealer at the time of sale?” If you didn’t, you will get the tax credit up to $7,500 based on your tax liability just like the old way before 2024. So, it is better to transfer the $7,500 credit to the dealer when you purchase it. Report required information for sellers For a buyer to receive a tax credit, sellers and dealers must report clean vehicle credit information to the buyer at the time of sale and to the IRS. Official Reference: https://lnkd.in/eF_6DUXe https://lnkd.in/eb4SPD64 https://lnkd.in/g4thG27U https://lnkd.in/gzAJb2QE https://lnkd.in/g4kP8bYn https://lnkd.in/g2MxpcjA https://lnkd.in/g3j5F9Gx https://lnkd.in/eb4SPD64

Can a corporation own a Limited Liability Company (LLC)? Or can a corporation be a member of LLC? Or can an LLC own another LLC? ? ? First, yes. A corporation can own an LLC, and this is a common business structure.?For example, an S corporation or C corporation can own an LLC. Why a corporation might own an LLC Joint ventures:?A corporation can own an LLC to participate in a joint venture. Subsidiaries:?A corporation can own an LLC to create a subsidiary or operating unit. Separate companies:?A corporation can own an LLC to create separate operating and holding companies. Venture capital funding:?A corporation can own an LLC to raise venture capital funding. How to structure a corporation owning an LLC The LLC should be reflected on the corporation's federal tax return as a division of the corporation.? The corporation should have a separate board of directors that are not owners of the LLCs.? The corporation can pay LLCs through bonuses instead of salaries. Other types of businesses that can own LLCs Partnerships:?A partnership can own an LLC.? ? ? Second, yes. All states allow other types of business entities (not only individuals) to serve as members of LLCs. This is a common structure for creating subsidiaries, joint ventures, and operating units. C corporations The LLC will be treated separately from the C corporation for federal tax purposes. The C corporation will file its own federal tax return and pay its own taxes. The LLC will report any dividends paid to it as income on its federal tax return. S corporations An LLC can own a stake in an S corporation if it is a single-member LLC. The IRS considers single-member LLCs to be disregarded entities. The LLC cannot file federally as a corporation. Ownership restrictions The IRS restricts ownership of S corporations, but not LLCs. LLCs can have an unlimited number of members, but S corporations can have no more than 100 shareholders. Non-U.S.?citizens and residents can be members of LLCs, but not shareholders of S corporations. Parent-subsidiary structure A parent LLC can oversee administrative tasks, while subsidiary LLCs can own and manage assets. This structure can help protect against liability if one business unit experiences problems. ? ? Third, yes. A parent or holding company LLC can own more than one subsidiary LLC, just like an individual or corporation can. How does it work? The LLC that owns another LLC is called the holding company.? The LLC that is owned by the holding company is called the subsidiary.? The holding company can own most of the assets needed to operate the subsidiary.? The subsidiary leases the assets from the holding company. Considerations Each LLC must be properly maintained and keep up to date government filings.? Accounting, property, and income must be kept separate for each LLC.? State laws vary, so it's important to understand the applicable laws and regulatory differences.?