Welcome to podcast episode #196 from Anderson Business Advisors, and this week’s edition of the Tax Tuesday show. Host Eliot Thomas, Esq., Manager of Tax Advisors at Anderson Business Advisors, welcomes Kurt Bergfjord, Esq.,Tax Consultant for ABA and CPA for Entrepreneurial Business Services at Mazars, to help answer your questions. We send a big thank you to all our people online answering your questions online today including Dana, Jared, Ross, Tanya, Troy, all from different departments, bookkeeping, tax advisors, the nonprofit department, attorneys, etc..
On today’s episode, Kurt and Eliot discuss the dos and don’ts of business partnerships and the best way to structure them, deducting medical expenses incurred outside the U.S. (along with what the IRS allows as an HSA reimbursement), and the usual array of questions around short-term and long-term rentals.
If you have a tax-related question for us, submit it to taxtuesday@andersonadvisors.
Highlights/Topics:
- "If bonus and accelerated depreciation were taken in 2022 via a cost seg on Schedule C, how many years does the IRS require that property to meet the active short-term rental criteria after the fact?” - There really is no requirement for you to keep it as a short-term rental from year to year to year. It's a year-by-year, a tax year by tax year determination.
- "We have a two member LLC taxes a Sub S or just commonly known as an S-corporation. Two members or two shareholders. Each member/shareholder contributed a substantial amount of money of capital over four years. They're putting a lot of money into this S-corporation, both of them, he or she. Can a member be bought out tax-free by the LLC by giving them a sell price in the form of capital distributions?" - It’s really no different than selling any stock, subtracting the shareholder basis…
- "If a medical procedure is performed in Mexico, can you use your health reimbursement account from your C-corporation?" - The actual medical expense certainly could be deductible anywhere. But when we talk about other types of auxiliary medical expenses like lodging and things like that, that is where we have to be a little bit more careful about what deductions we're taking. No personal pleasure or vacation along with it.
- "Is there a list of IRS allowable health care expenses that can be reimbursed under Section 105 HRA (Health Reimbursement Arrangement), which is what we often set up with our C-corporations? There is a defined list of allowable reimbursements for HSA plans and FSA, cafeteria plans, but I don't see an IRS specific list for 105 plans. Does the employer have some latitude as to what can be reimbursed?" - Publication 502 will give you a list of commonly deductible medical expenses.
- "I purchased my first short-term rental property last year. I've spent a year fixing it up, but it's still not out as a rental. Can I write off my expenses from 2022 for a business that isn't making revenue yet? If so, how? There's no LLC started yet, so this would be on my personal taxes for now." - Usually we look at if its available for rent, but the organizational costs may be deductible. You will have to wait until it is rentable/placed into service to get all the expenses deducted.
- "I share ownership of a single family rental property 50/50 with a relative. The other owner has not been involved. If I buy her out, step up in basis, or if she passes her ownership share to me by gift, then will I be responsible if I sell the property down the road for any depreciation that she may have claimed on her tax returns while she owned it?" - There will be depreciation recapture, 1250 or 1245, and some capital gains tax when the partner sells their interest if they realized profit. If gifted, the recipient has to worry about depreciation recap later on upon sale.
- "Me and my partner purchased, renovated, and set up a property in Houston for short-term rental. We have a 50/50 LLC.” “We've never partnered before. How do we separate the expenses and income? How do we file?" - All income and expenses are reported on one return, a multi member LLC is taxed as a partnership, each partner will get a K1 form detailing your portion - use that on your personal return.
- "I'm a 77-year-old newlywed." Congratulations. "My husband has a trust for his family. Do I need one for my family, or is a will sufficient?" - A will can be contested and waste time and money in probate court. A living trust is much more clear and uncontestable.
- "I wanted to know if I can write off any stock trading education through my LLC if I pay myself a W-2, have 401(k) deductions taken out, and put into a self-directed Solo 401(k) plan. I am the only employee. I want to start learning about covered calls and so forth." - maybe set up a partnership
- "When you pay your kids to work in your business, is this only allowed with a certain type of business structure, such as an LLC versus a partnership?” - No matter what structure you can always pay your kids to do actual work, but some structures are more efficient, like disregarded entities.
- Come out to our June Tax Events
Resources:
Kurt Bergfjord LinkedIn
https://www.linkedin.com/in/kurt-bergfjord-cpa-08873053/
Email us at Tax Tuesday
taxtuesday@andersonadvisors.com
Tax and Asset Protection Events in June
https://andersonadvisors.com/real-estate-asset-protection-workshop-training/
Anderson Advisors
https://andersonadvisors.com/
Anderson Advisors YouTube
http://aba.link/youtube
Anderson Business Advisors LinkedIn
https://www.linkedin.com/company/anderson-advisors/?originalSubdomain=fr
Toby Mathis YouTube
https://www.youtube.com/@TobyMathis
Toby Mathis TikTok
https://www.tiktok.com/@tobymathisesq
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