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Preparing W-2 and LLC tax returns - Schedule C vs Schedule E confusion
I've taken on helping a family friend with their tax situation and I'm using Intuit ProConnect but hitting a roadblock on how to structure everything correctly. They have regular W-2 income plus two single-member LLCs that are completely different businesses. One LLC is for medical equipment repair services (which I'm pretty sure needs Schedule C) and the other LLC is for a rental property they own. I've got the 1040 part figured out, and I'm confident about using Schedule C for the medical equipment repair business, but I'm not sure if I also need to use Schedule E for the rental property LLC or if that should be on Schedule C too since it's an LLC? This is my first time dealing with rental property income alongside business income and I don't want to file incorrectly. Would really appreciate any guidance from someone who's dealt with this combo before!
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Think my parents' tax preparer is committing tax fraud - how can I report this?
I'm not a tax expert by any means - I usually just follow the prompts on TurboTax and call it a day. So earlier this year, I helped my parents with their taxes using TurboTax, and their refund seemed reasonable based on their situation and the numbers we entered. Yesterday they went to this tax preparer that one of their coworkers recommended, and suddenly their refund DOUBLED from what I had calculated. Seemed super fishy so I looked through the paperwork (they used TurboTax too). The differences I found are really concerning: - Added a capital loss (my parents have zero investments) - Claimed moving expenses for members of the armed forces (they're civilians who've lived in the same house for like 12 years) - Listed my dad as a "laborer" when he's not - Added vehicle expenses under "employee business expense and reimbursements" with random mileage numbers that came out of nowhere What's extra sketchy is that the preparer marked it as "self-prepared" and didn't provide any receipt. My parents' coworker who's been using this person since 2018 says they never get receipts either. If this guy is committing tax fraud, what should I do? How do I report him? I'm worried because he seems to cover his tracks by marking everything as "self-prepared" so my parents would be on the hook. My parents aren't tax-savvy - that's why they asked me to help in the first place and then went to this preparer hoping for better results. They don't understand all these tax forms and rules, and being adults doesn't automatically make them experts in the tax code.
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Just a heads up - IRS recently announced increased penalties for preparers who pull this kind of stuff. The "self-prepared" trick is actually super common and the IRS is cracking down on it hard. My advice? Take screenshots or photos of EVERYTHING related to this preparer - their office location, any business cards, the paperwork they gave your parents, texts or emails if you have them. The more evidence you can provide to the IRS the better. Also check if they have a PTIN (Preparer Tax Identification Number) - legitimate tax preparers are required to have one and include it on returns they prepare. Bet you anything this person doesn't have one or isn't including it to avoid accountability.
Thanks for the advice! I didn't even think about documenting the physical location. I'll definitely take pictures next time my parents go there. Do you know if there's a way to check if someone has a valid PTIN? I looked at the paperwork again and don't see any ID number for the preparer.
There's no public database where you can verify PTINs unfortunately. If the preparer didn't include their PTIN on the return where it asks for "Paid Preparer's Information," that's a violation of IRS requirements right there. Take photos of the office exterior, interior if possible, and any signage showing the business name. If they have a website or social media presence, screenshot those too - these operations sometimes disappear overnight when they get reported. Also, if your parents paid by anything other than cash, that bank or credit card statement is valuable evidence of them using this service.
Omg this happened to my sister last year! The "tax preparer" claimed she had a home office (she didn't) and business mileage for a non-existent business. She got a massive refund and was super happy until the IRS audit letter came 8 months later. She ended up having to pay back the refund PLUS penalties and interest. Just make sure your parents understand they're 100% responsible for what's on that return even if somebody else prepared it. The IRS doesn't care who filled it out - the person who signs it is on the hook.
Did your sister end up reporting the preparer too? Just curious if anything actually happens to these people when they get reported or if they just keep scamming others.
Landlord Question: Does a Towing Fee Count as Safe Harbor Expense for Rental Property?
So I've got this rental property and I just had a situation with a car that needed to be towed from the driveway. My tenant and I split the towing fee which came to $340 total (I paid $170). I'm trying to figure out if this would count as a safe harbor expense for tax purposes? The car wasn't either of ours - some random person had parked there and abandoned it! We had to get it removed because it was blocking access to the garbage bins and my tenant couldn't get their recycling out. The towing company charged us because they said they couldn't locate the owner to bill them directly. This is my first year as a landlord and I'm still learning all the tax rules. Does anyone know if this kind of expense qualifies under the safe harbor provision? I want to make sure I'm categorizing everything correctly for when I file.
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One thing to consider - if the car wasn't yours or your tenant's, did you contact the police before having it towed? In some jurisdictions, there are specific legal procedures for removing abandoned vehicles, even from private property. This could potentially affect whether the expense is considered "ordinary and necessary" for tax purposes.
Yes, we did call the police first! They came out and documented it, put one of those orange stickers on it, and told us we needed to wait 72 hours before having it towed. We followed all the proper channels. The police report actually said the car was reported stolen in another county, but for some reason the towing company still charged us because they said the owner didn't come claim it and they had storage fees.
That's good to hear! Since you followed the proper legal procedures, the expense would definitely qualify as an ordinary and necessary business expense for your rental activity. When you list it on your Schedule E, I recommend noting that proper procedures were followed and that it was necessary to maintain access to the property. While you probably won't need to provide that detail unless audited, it's good documentation to have.
I'm confused about safe harbor in general. Does it mean I don't have to keep receipts for small purchases for my rental? I've been saving every little Home Depot receipt even for $5 items and it's driving me crazy.
The de minimis safe harbor election does simplify recordkeeping, but you still need to keep receipts! What it really does is allow you to immediately deduct small-cost items (generally under $2,500 per item or invoice) rather than having to capitalize and depreciate them. For example, if you buy a $200 microwave for your rental unit, you can deduct it immediately rather than depreciating it over several years. But you absolutely should keep those receipts - they're your proof if audited. The safe harbor is about how you treat the expenses, not whether you need documentation.
Can I legally claim unrelated children as dependents on my taxes before marriage? IRS says no
So I'm in a really confusing situation with our taxes this year and need advice on claiming dependents. My boyfriend and I went to one of those big tax preparation chains, and the preparer told us that "the laws have changed" and that my boyfriend could legally claim my two biological children on his tax return even though we're not married yet. We're getting married next month, but currently he's not their legal guardian, biological father, or even their stepfather yet. We filed this way because the tax preparer seemed so confident. Now we're in a mess - our return has been sitting in processing forever. The IRS has sent us multiple letters, and the tax preparer who filed for us is totally ghosting us. The IRS finally sent us a disallowance letter denying our dependent claims and is asking us to remove the children from my boyfriend's return and refile. When we tried showing the disallowment letter to the district manager at the tax preparation place, he refused to accept it, saying he needs a "different form" but won't specify what form he's talking about. Has anyone dealt with this? What are the actual rules for claiming non-biological, non-adopted children as dependents? Can my boyfriend legally claim my kids before we're married? Any help or information would be greatly appreciated.
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The issue is pretty clear-cut based on IRS Publication 501. To claim someone as a dependent who's not your biological child, they must be either: 1. Your legally adopted child 2. Your stepchild (through legal marriage) 3. Your foster child (placed by authorized agency) 4. A qualifying relative who lives with you all year Since you weren't married during the tax year, your fiancé can't claim your children. Period. It doesn't matter if you're getting married soon or if he supports them financially. The tax preparer was completely wrong, and honestly, I'd report them to the chain's corporate office because this is a pretty basic tax rule they should know.
Thanks for this clear explanation! So even though he pays for a lot of their expenses, the relationship test is a hard requirement? Would we need to amend both our returns now, or just his?
The relationship test is absolutely a hard requirement that can't be worked around just with financial support. The IRS is very clear on this point. You'll need to amend your fiancé's return to remove the children as dependents. You should also file or amend your return to claim them if you're eligible (meet the tests for claiming your own children). This should resolve the issue with the IRS, though you might still face some penalties or interest if there was a significant underpayment on your fiancé's original return.
I worked as a tax preparer for 10 years and this makes me so angry! The tax chain should absolutely help you fix this situation since THEY gave you incorrect advice. They're trying to avoid admitting fault by asking for a different form. Take your disallowment letter straight to corporate if the DM won't help. The specific law is in Internal Revenue Code Section 152, which defines qualifying child and qualifying relative. Being a fiancé doesn't meet either test. Also, if they prepared your return with incorrect information, they should cover any penalties or fees associated with amending the return. Many tax prep companies have accuracy guarantees - check if yours does.
What about common law marriage states? Would that change anything in this situation?
Tax strategies for avoiding taxes on my stock market gains this year?
So I did pretty well in the stock market this year and now I'm staring down some serious capital gains. I made about $14,500 from selling some tech stocks I bought last year. Tax season is coming up and I'm really trying to figure out if there's a legal way to minimize what I'll owe the IRS. I was talking to my buddy who flips houses and he mentioned something about putting profits into real estate investments to avoid the tax hit. Is that actually a thing? Like, if I take the stock profits and buy an investment property before the end of the year, can I escape paying capital gains taxes altogether? Or is it just a way to delay paying? I'm not trying to do anything shady, just want to be smart about this. The thought of giving 15-20% of my gains to the government is painful when I worked so hard researching those stocks. Any tips or strategies would be super helpful!
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Has anyone considered suggesting tax-advantaged accounts? If OP hasn't maxed out their IRA or 401k for the year, putting money there won't help with the current capital gains taxes, but it could reduce their overall tax burden.
This is what I did last year. Had about 10k in stock gains, maxed out my traditional IRA contribution for $6,500 which lowered my taxable income. Didn't eliminate the capital gains tax but my overall tax bill was lower. Every bit helps.
I actually haven't maxed out my 401k this year! Been too focused on my brokerage account since that's where I've been seeing better returns. But you're right, I should probably look at the tax advantages too. My company does a 5% match so I'm definitely leaving money on the table. Thanks for bringing this up - sometimes the obvious solutions get overlooked when you're trying to find clever tax hacks.
Remember that short-term capital gains (held less than a year) are taxed as ordinary income, but long-term gains get preferential rates. If you're close to the 1-year mark on any positions, it might be worth holding just to get the lower long-term rate. Also, don't overlook state taxes! Depending on where you live, state taxes on capital gains can be significant. Some states have no income tax (like TX, FL, WA) while others have high rates. You mentioned $14,500 in gains - what tax bracket are you in? If you're in the 12% federal income tax bracket, your long-term capital gains rate could actually be 0%!
I'm in California (ouch) and in the 22% federal bracket based on my job income. Most of my gains are long-term thankfully, but I did have a few quick trades that'll be hit with short-term rates. I've been thinking about moving to a no-income-tax state at some point, but for now I'm stuck with CA's rates on top of federal. It's a double whammy.
Adriana Cohn
Don't forget to check if either LLC has elected to be taxed as an S-Corp instead of a disregarded entity! That would change everything about how you'd file. Most single-member LLCs haven't made this election, but it's worth confirming before proceeding.
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Jace Caspullo
How would you know if they made this election? Is there specific paperwork they would have?
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Adriana Cohn
They should have filed Form 8832 (Entity Classification Election) and/or Form 2553 (Election by a Small Business Corporation) with the IRS if they made that choice. Ask your client if they ever filed these forms or received confirmation of S-Corp status from the IRS. Most small business owners remember making this election because it's a significant tax decision that usually involves discussing it with a tax professional first. They'd also have been filing very different tax forms in previous years - Form 1120-S instead of just including a Schedule C with their personal return. Plus, if they were an S-Corp, they should have been paying themselves a reasonable salary with payroll taxes.
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Melody Miles
Important thing nobody's mentioned yet - if they've been using QuickBooks or some other accounting software for these LLCs, make sure the accounts are properly set up to track expenses separately. I had a client with multiple businesses and they were mixing expenses between them, which made filling out the right schedules a nightmare!
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Nathaniel Mikhaylov
Omg yes this! I had a client put all their rental property repairs on the same credit card as their other business expenses and sorting it out took FOREVER.
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