In a nutshell:
is a QTP distribution considered a nontaxable educational benefit?
Yes and no. (yeah, "in a nutshell" right?)
While scholarships can only be used for the qualified education expenses of tuition, lab fees and books, a QTP distribution can be used for those three things "AND" for the allowed by unqualified expense of room and board *provided* that room and board is "in direct support" of the education.
So any monies left over from a QTP distribution after paying the qualified expenses and "allowed" expenses is taxable income to the recipient named on the 1099-Q.
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When filing is it best to say we are a single member or multi-member LLC?
This is not a choice you or anyone else gets to make. If there is more than one owner, it's a multi-member LLC. Percentage of ownership is irrelevant. So even if only one of the two owners owned .000001% it's still a multi-member LLC.
Multi-Member LLC – This is a business with more than one owner. It’s also the exact same as a Partnership (for tax purposes) This type of business also has to register at the state level, and may also be required to obtain an Occupational License from more localized jurisdictions within the state, in which that business will operate. This type of business will file its own physically separate tax return with the IRS (and state if applicable) referred to as a Partnership Return, on IRS Form 1065. When completing the 1065 (using TurboTax) the business will issue each individual owner a K-1 reporting the income (or loss) of each owner. Each owner will use this K-1 to complete their personal return. So an owner can’t even start their personal return, until after the 1065 Partnership Return has been complete, filed, and all K-1’s issued to all owners.
In the community property states of Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin if you have a multi-member LLC where there are only two owners, those two owners are legally married to each other, and those two owners will be filing a joint 1040 tax return, they have the option of splitting all business income and expenses down the middle and each partner reporting their share of the business income/expenses on a separate SCH C for each tax filer on the joint return. That means your joint 1040 return will have two SCH C’s included with it – one for each owner. But this can present its own problems in the event of divorce, separation. The issues can become even more compounded upon the death of one of the owners. If that deceased owner’s will does not pass all assets to the surviving partner, then that surviving partner can find themselves in a tax hell, not to mention the problems that can arise with the “new” owner or owners.
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Where would you add a business owned airplane for tracking business related travel expense?
If the aircraft is owned by the business, then it is *NOT* a vehicular asset of any type. It's a business asset that gets listed as such in the Business assets section and depreciated over time. For a plane it's depreciated over 7 years.
Your expenses related to a specific job are all entered in the Business Expenses section of the program. In the Business Expenses section elect to start/update Other Common Business Expenses and on that screen is a category specifically called "Business Travel". That's where you'll enter all of your expenses related to your travel to work sites.
Please note that if travel is between your residence to your "Primary" place of employment, that is referred to as "commuting expenses". Such expenses are never deductible.
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Reporting the Sale of Rental Property
If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.
Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in 2018". Select it. After you select the "I sold or otherwise disposed of this property in 2018" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).
Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1
Basically, when working through an asset you select the option for "I stopped using this asset in 2017" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.
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1. Landlord makes/pays for improvements and is reimbursed by the tenant as a substitute for rent - Rental income and depreciation for the Landlord in both commercial and residential scenarios.
A: correct. The landlord/owner "owns" the improvements and the landlord/owner is the one who depreciates the property improvement/asset. All monies paid to the landlord/owner by the tenant, is rental income. Period.
2. Landlord provides a cash allowance to the tenant to make improvements - Rental Income and depreciation to Tenant if commercial. Just Rental Income to Tenant if residential. Landlord amortizes as a lease acquisition cost in both residential and commercial scenarios.
Incorrect on both counts. A "tenant" doesn't report "income" from a property they are paying rent for, unless they are sub-leasing to a third party and sub-leasing is permitted by the property owner.
Any way you look at this, the landlord/owner paid for the improvements and the landlord/owner owns those improvements. Only the landlord/owner will depreciate those improvements. All you've done here is make the tenant an unnecessary "middle-man" in the money path to pay for the improvements. Nothing is amortized. It's all capitalized and depreciated by the property owner.
On the commercial front, if the tenant is renting the commercial building and does a "build out" that they the tenant pay for with no reimbursement from the owner, then the tenant has what is referred to as "qualified improvement property" and the tenant claims and depreciates it on the tenant's tax return. Whereas if the landlord/owner pays for it, then it's just a standard property improvement that the landlord claims and depreciates.
3. Tenant makes/pays for improvements and agrees to have their rent reduced - The difference in reduction of rent from original amount is Rental Income to the Landlord in both commercial vs residential scenarios. No depreciation for Landlord.
The fact the rent is reduced doesn't play into this. The commercial tenant has qualified improvement property the tenant paid for. The residential tenant has nothing, since they have no ownership in the property they improved. The residential owner has an increase in cost basis with that property improvement/depreciable asset since they own that residential property. It doesn't matter who paid for it either.
4 - Tenant moves out after improvements/lease ends - Unless improvements were tenant-specific (in that case they would be forced to be fully depreciated/written off), any improvements on the Landlords books would be kept to depreciate in both commercial vs residential scenarios.
For both commercial and residential, deprecation is "NEVER" written off. Remember, depreciation is *NOT* a permanent deduction. That depreciation "HAS" to be recaptured at some point in time, and taxes *will* be paid on that recaptured depreciation. (There is one exception involving death, but I'm not going to get off on that tangent for your particular scenario.)
On commercial property, when the lease ends and the tenant moves out, the owner "inherits" all of the tenants property improvements and all prior year's depreciation, and continues to depreciate based on the original "in service" date established by the tenant. This "inheritance" thus increases the owner's cost basis and benefits the departed tenant because it's the property owner, and not the departed tenant that will at some point in time, have to recapture all that depreciation and pay taxes on it.
On residential property this is not an issue to be considered since a tenant can not depreciate property they don't own. On the residential side, just because the tenant paid for it, does not make them the owner of it. As you're aware, this is not always the case on the commercial side, as it depends on the lease and how it's worded.
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I can't make any sense out of your question. But if it helps, all assets when properly entered into the program will be on the IRS Form 4562 which you can print once the return has been completed in it's entirety.
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1) Can I write-off the cost of the boat when I file my taxes in April 2020?
No. Not directly. When self-employed, items used to "generate income" on a recurring basis are referred to as business assets. What you pay for those assets (such as the boat) are not deductible. Not ever. You have to depreciate that asset over time. Now for a boat used in the charter business to produce income, that would be depreciated over 10 years.
2) Should I create the LLC NOW or should I wait and create it in March? Is there a "better" time to maximize tax returns?
If possible, wait until the tax year you will actually be "open for business" before you create the LLC. Business entities are created and registered at the state level. So if your state considers your business to be "active" in the year you register it, you may be "required" to file a tax return for it, even if said business was not actually "open for business" and did not produce any income. With your current plan to actually start the business in March, you'd be better off waiting until after the first of the year to start setting it up.
Now one thing I note is that you are not asking the really "important" questions on this. I figure either you know already, or you're flying blind at this point. If flying blind, then you're absolutely positively doing it right by asking "BEFORE" you start doling out money to get this going. To many times I've seen folks not start the learning process until "after" their first year of business at tax filing time, only to discover they've done so much wrong that results in fines and penalties that bankrupt the business before they even get it off the ground. So let me offer you some advice and information to help you find the "right track" for your endeavor.
First, make sure that "YOU" and "ONLY YOU" are the "ONLY LISTED OWNER" of the business. If you have more than one owner (such as your spouse) then you don't have a sole proprietorship or single member LLC. You have a partnership/multi-member LLC and dealing with the taxes for that ***IS*** complicated when compared to what you're probably used to.
Go right now and purchase the CD/Desktop version of TurboTax 2018 at https://turbotax.intuit.com/personal-taxes/past-years-products/ and install it on your computer. While any of the desktop versions of the program will have the SCH C in it that you need, the Home & Business version offers the most "in program help" for you. I suspect you're going to need it to.
Then you are going to "pretend" you started your business in march of 2018 and you're filing your 2018 tax return.
I do not recommend the online version of TurboTax for "at least" your first year starting this business. When you're not accustomed to how online works for your specific situation (new first time business owner) you will discover the online version is *NOT* user friendly "at all". I don't care what others tell you. If you try doing your first ever SCH C using the online version, you can fully expect to get frustrated to the point of giving up and paying a tax professional to just do your taxes for you.
With the desktop version, navigation is significantly easier and simpler, and unlike the online version, the desktop version has "forms mode" which is *extremely* useful when trying to figure out an issue and you need to "follow the math". You just can't do that with the online version.
So install the desktop version (Deluxe or higher) on your computer and start a 2018 tax return "as if" you've been in the charter business since march of 2018. Then as the questions arise, ask away and we'll be more than happy to answer and help you. Better you do this "now" instead of waiting for the 2019 tax season to start. We'll be extremely busy answering 2019 questions then and you would probably find yourself waiting more than a day for an answer to a simple question.
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By design, your address was removed from your post before it went public. This is a public user to user forum and nobody here can do anything with your account. Only *YOU* can update your information using the link provided earlier in this thread. Pay attention to details while doing it too. THere's a vast difference between "BILLING" address and "SHIPPING" address. You probably want to update both.
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One thing that will make this significantly easier for the 2019 taxes, is that there are no penalties or fines assessed any more, for not having coverage. At worst, if your income was higher than you reported when you enrolled in ACA for 2019, you'll just have to pay back some of the premium offset. But that's all, with no penalties or fines.
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