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FAQ

Is the Schedule K-1 the same as the Form 1065?
Form 1065 is an information return filed by partnerships in the US. Partnerships are not taxed on the income that the partnership earns; the tax liability on the partnership income is passed through the partnership to the individual partners.When Form 1065 is filed, the partnership reports each partner's share of the partnership income and deductions and credits that are passed through to them on Schedule K-1. Each partner gets a copy of the applicable Schedule K-1 and uses the information from that form on their own individual tax returns. So Schedule K-1 is a part of Form 1065, generated from the information that the partnership reports on Form 1065.
What rights do beneficiaries of Irrevocable Trusts have in Arizona?
Great information from Mark Rigotti. Reminded me of some things. I am not an attorney, but I am a CPA in the trenches of trust taxation in Arizona.When I was starting out many years ago in Trust taxation, I had many questions. The answer was always: “What does the Trust Document say?”.In line with that response I direct your attention to this provision in the articles Mark posted.§14-10105 Default and Mandatory RulesB. The terms of a trust prevail over any provision of this chapter except:…8. The duty to respond to the request of a qualified beneficiary of an irrevocable trust for trustee’s reports and other information reasonably related to the administration of a trust. [emphasis supplied]“Reasonably related”. Have you seen the movie The Princess Bride. I don’t think this word means what you think it means.So before you start getting angry and litigious, graciously get a copy of the trust and go over it carefully with your attorney.Typically the Beneficiary of an Irrevocable Trust will receive an IRS Form 1041 Schedule K-1. If the beneficiary has not been receiving cash distributions, the K-1 typically says “No Taxable Income”. If the Beneficiary has been receiving cash distributions the Schedule K-1 will show what income the Beneficiary will be taxed on. Cash distributions usually, but not always, equal taxable income.There are normally three types of Irrevocable Trusts, 1) trusts that pay the tax on the income and create no taxable income to the beneficiary: 2) Intentionally Defective Irrevocable Trusts where the Grantor pays the taxes for the trust and the beneficiary; and 3) Irrevocable Trusts that are Distributing Income to the Beneficiary on which the Trust receives a Distributable Net Income (“DNI”) deduction and the Beneficiary gets a K-1 showing income on which the Beneficiary will pay taxes.If the trust is not being overseen by a Court, there are typically no “Trustees Reports” per se. Every Trust must file with the IRS, so I would expect the Trustee to respond to a request from a Qualified Beneficiary by providing the Form 1041. But the Form 1041 does not include a balance sheet. So the Trustee would probably ask me to provide a Working Trial Balance. A working trial balance would show the cost basis of all the assets in the trust, but give no indication of the Fair market value of the assets. The Trustee might not be in full conformity with the Arizona Statute. But how much are you willing to spend on attorney fees for what will probably be essentially meaningless information.If the trust went Irrevocable on the death of a Grantor. The Cost basis will typically be the Fair market value on the date of death. If the trust was set up by a Grantor, you should have some trust (faith) that the Grantor wants to see you taken care of, and probably wants some privacy until after the Grantor dies. Be grateful and don’t be a jerk.
How do you close a dormant LLC when you do not know the EIN number and have not filed taxes on it because you never used it?
Generally if an individual who “pays” to form an LLC will rarely ever forget an EIN or State Tax ID. If this is the case maybe you need to ask your partners. I’m certain you would have received numerous notifications from your state as well as bills from IRS for failure to file your 1041 and “issue" K-1’s before the deadline.“For each failure to furnish Schedule K-1 to a partner when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $100 penalty may be imposed with respect to each Schedule K-1 for which a failure occurs.”“For each failure to furnish Schedule K-1 to a shareholder when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $260 penalty may be imposed with respect to each Schedule K-1 for which a failure occurs. If the requirement to report correct information is intentionally disregarded.”“For returns on which no tax is due, the penalty is $195 for each month or part of a month (up to 12 months) the return is late or doesn’t include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due”.If that doesn’t jog your memory then ask the IRS to search for your EIN by calling the Business & Specialty Tax Line at 800-829-4933. Their hours of operation are 7:00 a.m. - 7:00 p.m. local time, Monday through Friday.Once you receive it have the representative immediately transfer you over to the collection division so you can make arrangements to pay your penalties.Unless you’re a single member LLC. In that case, by default IRS would treat the LLC as sole proprietorship and you are not required to file a return . Check your state Secretary of State's website for the form to file indicating that you are dissolving your LLC. File a form Schedule C with your individual return.https://www.irs.gov/pub/irs-pdf/...
What is the Tax Form 1065 K-1 used for?
This is intended as general information. It may not apply to your specific situation, and should not be taken as advice. State laws and the laws of other countries differ. I am not a tax professional. Consult a tax professional for reliable information.Partnerships are usually considered “pass-through” for tax purposes.A partnership can have income, deductions, capital gains, expenses, interest, etc, but they do not pay taxes. Instead, the partners report the information on their own personal tax returns. Everything is “passed through” to the partners.Schedule K-1 is used to inform the partners of what to report on their tax returns. For example, if a K-1 reported interest income in Box 5, the partner would need to report this on Schedule B of their own return, as if they had personally earned it.A note about the form names: Form 1065 is the form returned by the partnership to the IRS. Partners never see a Form 1065. But K-1 is sometimes called “K-1 (Form 1065)”. This is to distinguish it from other kinds of K-1s. For example, “K-1 (Form 1041)” is used for trusts instead of partnerships.
Supposed that you are stuck in an elevator with Donald Trump, what would you say to him?
Me: “Hi.”Him: “Hi.”I take out my phone and press the record button, then place it in my front chest pocket— with the front camera facing Trump. “You know, I absolutely LOVE that you decided to work with the Russians to manipulate the election in your favour. It’s brilliant! A shame that Mueller is trying to get in the way of your great vision— he should really quit sticking his nose where it doesn’t belong.”Trump glances at me, and chuckles. “Yeah, it was the best plan, and I worked it out so well with Putin. He’s a great guy.”Objective #1 has been completed, I think to myself. Now moving on to objective #2. “You know, if you manage to stall Mueller and the libtard squad, you could have this whole thing in the bag. I mean, this could be one of your greatest achievements, and you can really use it to your advantage. Seriously, who cares about America, am I right? You’re putting on a really convincing act. Keep it up!”“Thanks.” Trump smirks. “Every American will think I’m the best, even though all I’m doing is winging it. You’re absolutely right— I don’t care about America any more than I care about Nigeria— my family and I come first. And you know, besides that irritating Mueller poking around, this job is remarkably simple. I sit there in my couch almost all day, eating my burger and watching FOX News praise me every single day, and all I have to do to combat criticism from liberal media is Tweet ‘fake news!’ on Twitter— it really puts a smile on my face!” He chuckles. “Hahahaha!”“Hahaha!” I laugh too— although, for a very different reason than Trump is. But he doesn’t know that. “Hahahahahaha!”“HAHAHA!”“HAHAHAHA!”*Ding!* The elevator stops.“Oh, that’s my exit. It was a pleasure meeting you, Mr. President. You’re my greatest role model!”“Well, you have a nice day, young sir!”“You too.”After the elevator doors close between us, I pull out my phone and hit ‘stop recording’. Immediately, I contact BBC News. “Hi, my name is Alexander Lee. I have obtained material that I believe would make a very intriguing scoop. ”The lady on the other end pauses.I continue the pitch. “This information is regarding Donald Trump, and it may seriously compromise his presidency.”“Name your price.”
What are the rules around a 401k passed to a survivor through a will?
If the deceased has named their estate as the beneficiary of their 401(k) and has corresponding instructions in their last will and testament as to whom should receive the 401(k) plan proceeds, the executor should notify the 401(k) plan administrator that a trustee to trustee transfer will be made to the the trustee that the beneficiary named in the last will testament selects. The executor should avoid receiving the funds in the estate account since it will not be eligible for a IRA rollover unless the named heir is the deceased's spouse. The plan funds must be transferred from the 401k plan administrator via a “trustee to trustee transfer” to defer taxation on the funds. If the estate 401k plan beneficiary is not concerned about income tax consequences on the funds, then the funds can be disbursed to the estate and then to the beneficiary or directly to the beneficiary from the 401(k) plan.When a qualified plan participant dies without naming a beneficiary, or they have named their estate as beneficiary, the executor of their estate must use caution to prevent full taxation while maneuvering these funds through the estate settlement process. This document will provide guidance to the executor for reducing income tax consequences to the estate and heirs. Definitions are provided for italicized terms.A Worst Case ScenarioIf the executor requests that qualified funds be disbursed to the deceased’s estate, the estate is 100% taxed on the taxable portion of the distribution. (Neither After-tax contributions nor Roth IRA funds are taxable upon distribution.)Taxable qualified retirement distributions made after death are considered “Income in Respect of Decedent “ hereinafter called (IRD) and is taxable to the recipient as such. Code Sec. 408(d) and Code Sec. 72 (Rev. Rul. 92-47, 1992-1 CB 198). If the estate receives IRD, in this case in the form of IRA proceeds, and distributes the IRA proceeds to the heirs, it can claim a tax deduction for the amount of the distribution. (See instructions for Schedule B Form 1041). Reporting income to the heirs is performed by issuing a K-1.As a quick side bar, the estate can also take an income tax deduction for administrations expenses, if the executor files a statement waiving the right to deduct administration expenses on the Estate Tax Return, Form 706. An executor will file this statement on the estate income tax return, Form 1041. An executor is required to file Form 706 when the estate is valued in excess of $5.4 million.You should also know, that an income tax deduction cannot be taken for funeral, medical and dental expenses.Since estate income tax brackets escalate faster than personal tax brackets, IRC distributions to heirs normally results in lower taxation of the funds. Also, if an estate has multiple heirs, resulting in the IRC being distributed to a number of recipients, the taxable income is spread out among those heirs.Example:Okay, so now if the deceased plan participant had one million dollars in his qualified retirement plan, we have one million dollars of taxable income that is either taxable to the estate or taxable to the heirs receiving the funds. So, somebody is thinking, “Why don’t the heirs just roll over these funds into a Beneficiary IRA? The answer is painful.The only heir that is eligible for an IRA Rollover is the deceased’s spouse. A non-spouse is prohibited from rolling over qualified retirement funds (PLR 2005-13032). This means that if a non-spouse receives a check from the estate, or, for that matter, receives a check directly from the plan administrator or plan custodian, they will be taxed on the distribution in the year paid without remedy. To put it plainly, you cannot set up a beneficiary IRA with a check from the estate, nor can you set up a beneficiary IRA with a personal check. A beneficiary IRA must be expedited as a Trustee-to-Trustee transfer from one qualified plan custodian directly to another plan custodian. Code Section 408(d)(3)(C). If a beneficiary IRA is set up any other way besides a Trustee-to-Trustee transfer or re-titling it at the original custodian, it is a rollover which is prohibited by tax law unless you are the spouse of the deceased.Just one more point on this matter. If you manage to set up a beneficiary IRA with a personal check because a financial institution, such as an insurance company takes your check along with an application for an annuity designated as a beneficiary IRA, tax law is clear that the beneficiary IRA will not be recognized as such by the Internal Revenue Service. If this happens, here are my concerns:1. You, your agent or financial advisor believe that the funds have been successfully placed in a Beneficiary IRA just because the annuity application and the issued annuity clearly states it is a beneficiary IRA.2. Consequently, you believe that you have avoided the taxation on these funds until later distribution, when, in fact, they are fully taxable in the year these funds were disbursed to you.3. You also mistakenly believe that you can receive distributions from the beneficiary IRA over the course of five years, your life expectancy, or the deceased’s life expectancy. In fact, since these funds are not recognizedas a beneficiary IRA by the IRS, you have indeed purchased a non-qualified annuity, that is subject to 10% non-deductible tax penalties on all interest that is paid to you under the age of 59 ½.4. Also, when the IRS sends you a letter requesting a past due tax payment on the initial distribution from the estate or the IRA custodian, you will likely be subject to substantial surrender charges for premature surrender of the annuity.The consequences are:1. You will pay the back taxes that were due for the year of disbursement on the qualified plan distribution.2. You will pay penalties and interest for underpayment of income taxes.3. If you must withdraw funds from the non-qualified annuity that you thought was a beneficiary IRA, and if you are under the age of 59 ½, you will be accessed a 10% penalty; plus, payment annuity surrender charges that could be high enough to cause you a nervous breakdown.Can this Tax Tragedy be Avoided with Tax Strategy?The short answer is, “Maybe.” To successfully postpone taxation on qualified funds that have no beneficiary, the executor should make a request to the deceased’s qualified plan custodian to continue to hold the funds until further notice. Be aware that a company qualified plan custodian will have guidelines that may restrict them from honoring a request.The plan custodian may also have restrictions as to the disbursement of qualified funds when there is no named beneficiary or when the estate is beneficiary. If a beneficiary has not been named, you will want to ask if they have a default beneficiary. If so, you may have options that allow you to stretch the taxation of the IRA over many years using qualified disclaimers, etc.Once the executor has decided it is time to make distributions of the qualified retirement funds, he/she should consult with the deceased’s qualified administrator / custodian to ask their procedure for the disbursement of the funds. In all likelihood, the executor will need to consult with the heirs who are to receive the qualified funds as to whom they prefer to have as their Beneficiary IRA custodian. It, of course, may be a bank, a brokerage firm, an insurance company or another financial institution. In any event, these firms will have Beneficiary IRA trustee-to trustee transfer forms that should be completed. The estate’s personal representative should then send the trustee-to-trustee forms to the deceased qualified plan administrator with written instructions as to the percentage or amounts that should be disbursed to the beneficiary IRA’s custodian. By using this method of disbursement, the executor has assured that the funds remain in a qualified plan and the non-spouse beneficiary will not be taxed on the funds until they are disbursed to him/her from their beneficiary IRA.As stated earlier, the deceased’s plan custodian will have plan provisions that dictate their disbursement criteria. So they may require that a deceased plan participant’s estate receive funds when no beneficiary is named or when the estate is the beneficiary. If so, the estate, if allowed, should have the qualified retirement funds of the deceased, trustee to trustee transferred to an IRA that is titled after this example or something similar to it, “Alice Doe f/b/o Estate of Joe Smith,” or “Alice Doe, Executor of the estate of Joe Smith, as beneficiary of Joe Smith.” To postpone taxation, the funds should stay in this account until the estate’s personal representative is ready to process a trustee-to-trustee transfer to an heir’s beneficiary IRA custodian.When there is no beneficiary and the executor has successfully helped an heir or heirs of the estate set up a beneficiary IRA by having the deceased qualified plan administrator execute a trustee-to-trustee transfer to the beneficiary IRA custodian, the beneficiary then must use the 5-Year Rule for taking distributions from the beneficiary IRA . The beneficiary is not a “Designated Beneficiary” if he or she was not named as a beneficiary by the deceased; consequently, the beneficiary is not entitled to take distributions over the course of his /her life expectancy or the deceased’s IRA holder’s life expectancy.The 5-Year Rule applies when the IRA holder dies before age 70 1/2 and the IRA holder has no designated beneficiaries at the time of death. The minimum required distribution for a beneficiary IRA under the 5-Year Rule is: “All benefits must be distributed no later than December 31, of the year that contains the fifth anniversary of the participant’s death. Reg. § 1.401(a)(9)-3, A-2.Consequently, by using trustee-to trustee transfers of qualified retirement accounts from the deceased qualified plan’s custodian to the estate beneficiary IRA custodian or to preferred beneficiary IRA custodians, the holder of the beneficiary IRA has five tax years to liquidate the IRA rather than experiencing full taxation on the funds in the year received.Titling the Beneficiary IRAA title example of an individual beneficiary IRA is, “Joe Smith, deceased, f/b/o Jane Doe.”A title example of an IRA that is payable to the deceased qualified plan participant’s estate is, “Alice Doe, f/b/o Estate of Joe Smith,” or “, Alice Doe, Executor of the estate of Joe Smith as beneficiary of Joe Smith.”A title example for a Trust that is beneficiary is, “Joe Smith, f/b/o Joe Smith Testamentary Trust,” or Alice Doe of the Joe Smith Revocable Trust, as beneficiary of Joe Smith.”Disclaimer:This report does not cover all the possible contingencies regarding beneficiary IRAs and the tax implications, on the estate, its heirs, and beneficiaries. My hope is that it informs you well enough for you to know that all concerned needs to consult qualified estate and income tax professionals who have expertise specific to this matter.;""