Feature Article

Lucky and talented folks win all sorts of prizes and awards. Often, the winnings have nothing to do with the winner’s business or profession, but sometimes there’s a professional or business connection. You might view your career arcs as a series of applications, interviews, hirings, promotions with one or multiple employers. But some career paths – musicians (both instrumental and vocal), songwriters, and composers come to mind – involve frequent auditions with a healthy dose of competition. The renown and visibility afforded to competition winners often open doors to career advancement – more and better engagements, management contracts, and media/recording opportunities. Competition prizes and awards are taxable. But these winnings might also be subject to self-employment tax that can be up to 15.3 percent on the taxable amount. While most professional musicians are in the business of being musicians, very few consider themselves in the business of being competition participants. The distinction is important and allows for tax planning and savings opportunities. To learn which is better for tax planning, keep reading.

The best tax planning will often be found where both the form and substance of a transaction align in the client’s interest. One such planning activity focuses on reducing self-employment tax, and while the attempt is admirable, the substance of the transaction might be stronger than its form. Generally, if you’re a partner in a partnership, your distributive share of income is subject to Self Employment Contributions Act (SECA) tax, also known as self-employment tax. This can be up to an additional 15.3 percent on your earnings, unless an exception applies. Many tax pros attempt to mitigate this tax by simply making the spouse of the main business partner a limited partner in the entity. The thought is that an exclusion applies for SECA tax when there is a “limited partner’s” share of partnership income. But be careful! When the underlying substance overrides the form of a transaction, the taxpayer generally will lose. The IRS recently highlighted such a problem with form in its draft partnership tax instructions by saying “For purposes of self-employment tax, however, status as a limited partner is determined under Section 1402(a)(13); whether a partner is a limited partner under state limited partnership law is not determinative.” Simply calling a partner “limited” is not enough. The limited partner exception from self-employment tax creates a significant benefit when applied, but rulings focused on the substance of the partner’s interest have narrowed this exception. Let’s review how to properly qualify as a limited partner in light of the IRS’s recent emphasis in this area. In the process, we will also look at the specifics of how particular forms should still win the day by avoiding SE tax. Keep reading for more.

Every year, tax courts hear more than 600 federal tax cases, mostly by the U.S. Tax Court. The vast majority are trial court decisions, again, mostly from the U.S. Tax Court, but also district courts throughout the U.S. Independent of the IRS, the court hears cases relating to income, estate, and gift tax and its rulings can be used as precedent for better interpreting the laws. It practically can provide a roadmap as to what the judges are looking for in defense of a taxpayer’s claim or position. Among the Tax Court decisions, most are memorandum and summary opinions focused on figuring out facts so practitioners can apply the proper law. Annually, we might see fewer than 50 regular Tax Court decisions involving a new interpretation of the tax law. But this still leaves a lot of potentially significant cases in attempting to identify the top 10federal tax cases dating back to the start of our modern income tax in 1913. Which are the most significant? That all depends on you and what you are trying to learn from each case. When it comes to tax planning, read on to learn about the top 10 cases of all time.

Tax Court Docket 26425-21 can serve as a wake-up call to your clients who have been dabbling in cryptocurrency. TaxNotes has published the petition if you want to know the name and profession of the taxpayer involved, but I am just going to call him Joe. Joe is doing pretty well in his profession. Just for the heck of it he decided to dabble in crypto. He never had more than ten to fifteen thousand dollars invested in crypto. What could possibly go wrong?

It is the best of times, it is the worst of times – and charity cannot only help those in need; it can provide some hefty tax deductions to the donor, as well.

There are some significant lessons in the recent decision in the case of Estate of Michael Connelly. Sorry to spoil the surprise, but what I think the big one is is that co-owners of S corporations (and other sorts of entities) should consider a cross-purchase rather than redemption when they have a buy/sell agreement. That is particularly true if life insurance funds the arrangement. Keep reading to find out why.

Back in the spring of 2021 Editor-in-Chief, Dominique Molina, sat down with Michael Kitces from Kitces.com to discuss creative ways to use the ROTH IRA when developing tax planning strategies. This exclusive video interview is jam-packed with a variety of recommendations and suggestions highlighting the flexibility you gain in your planning when including the ROTH IRA as a tool! Sit back, relax, and enjoy the show!

The pandemic forced businesses to adapt in many ways. The economic recovery has highlighted supply chain issues exacerbated by strong demand and leading to overall inflation. Businesses are now continuing to adapt to higher prices. If you have inventory, you perhaps can realize tax benefits to help with this inflationary effect through the Last-In, First-Out inventory method (LIFO). LIFO inventory methods are hardly a new tax concept, but taxpayers often may have ignored them due to complexity or periods of marginal inflation. This strategy deserves a second look during a year of high inflation. Read on to learn more about this tax savings strategy and the simplified calculation methods available.