Tax Info Blog

S-Corporations and 529 Plans

Q: Can I set up a 529 college savings plan for my child using my S-corporation?
Rob, MN

A: These two tax items have nothing to do with one another.  Setting up a 529 plan is something an individual sets up.  There is no "earned income" requirement like IRAs have, so you can feel free to use S-corp profits to fund a 529 plan.  However, the 529 plan is not set up by the business, but by individuals.  In no case is a 529 plan contribution deductible as an ordinary and necessary business expense.

IRS Streamlines Per Diem Substantiation

We've spoken before about per diems.  These allow taxpayers to account for lodging, meals, and incidental expenses using a location-specific safe harbor, rather than having to tabulate actual expenses paid.  These per diems are available to the self-employed and for employees.  An important consideration is substantiation, or demonstrating sufficiently that a per diem expense was incurred.

In a Revenue Ruling 2007-63 , the IRS has determined that a sufficient amount of substantiation is achieved if the claimant shows the time, place, and business purpose of the travel.  As with any travel, the test is an overnight trip at least fifty miles away from your tax home (the place where you do business regularly).

Answering the Backlog of Comments

My apologies to those of you who have been sending comments in over the last few months.  Yahoo has been putting the Typepad emails in my junk folder, so I didn't even notice they were there.  Over the next couple of months, I will be plowing through them (one per weekday).  Keep sending them in, and I will get to them.

Rangel Introduces Second Home Tax

Congress is swooping in to save the day on sub-prime mortgages.  In so doing, they're only creating an artificial subsidy for reckless behavior, but this is Congress, after all.  Unfortunately, this Congress feels the need to pay for any new tax cuts, and the revenue raisers will affect anyone with rental property or even a second home...

Employer ID Numbers Now Automatic

A quick note from the IRS front: many business owners are familiar with the EIN application process.  In prior years, an SS-4 form would be filled out, and the IRS would send you your EIN.  This improved in the past few years, as a preliminary EIN could be obtained online, and the IRS would send you a confirmation letter within a few weeks.

Now, the final streamlining step has been achieved.  The online EIN application now produces a real-time, permanent EIN.

Combining a Workplace Retirement Plan and a Solo 401(k)

Q: I have a full-time job with a 401(k) benefit.  Additionally, I receive side business income (unincorporated).  Can I combine my workplace 401(k) with a self-employed 401(k) plan?
John

A: Yes, you can.  However, you have to be careful to juggle the separate limits that apply.  These include the limit on elective deferrals, the limit on self-employed contributions, and the overall limit on defined contribution pension savings...

2008 Tax Brackets and Inflation Adjustments

The official stats on this will come out in October, but CCH has come out with their list of probable adjustments here.

How to Deal with IRAs from the Beneficiary End

Q: As many of us have parents getting older, could you please inform us about  how to best handle an IRA which you receive as a beneficiary upon their passing?  I am sure the rules are tricky and one mistake could lead to unitended taxable income.
Richard, North Providence RI

A: The rules on this are pretty tricky, which is why you should always be careful how you do it.  Let's dig in and get our hands dirty...

New IRS Website on Home Foreclosures

With all the news in recent weeks about the potential taxability of "cancellation of debt" income (see my post on that here), the IRS has come out with a one-stop webpage on house foreclosures.  Click here to see it.

Can Bill Belichick Deduct His Fine?

I had some fun this weekend (before the Patriots romp over San Diego) reading this post by some contributors at the excellent Tax Prof Blog run by Paul Caron.  These tax professors determined that the fine was most likely deductible as an ordinary and necessary business expense under Section 162.  I replied with the practicioner perspective here.