Did You Know? Commonly Asked Tax Questions

The numerous technical requirements for qualifying and maintaining status as an S corporation create many opportunities for loss of S corporation status.  In recognition of this, the law provides that taxpayers may get relief from accidental terminations of a corporation’s S election if the termination is “inadvertent,” the corporation takes action to correct the termination within a reasonable time after discovery, and consents to certain adjustments required by the IRS.

By contrast, if an S corporation files a statement of

Continue Reading Did you know you can rescind a revocation of S corporation status but only if the rescission is filed prior to the effective date of the revocation?

S corporations provide valuable tax advantages for businesses with simple capital structures. Unfortunately, they are subject to stringent requirements creating multiple opportunities for missteps and potential loss of S corporation status. Recently, in. Rev. Proc. 2022-19, the IRS provided methods for addressing some such missteps, without the need to incur the time and expense to seek a private letter ruling.

The IRS guidance identifies six potential problems (1), non-identical governing provisions; (2) principal purpose determinations relating to the single class

Continue Reading Did you know there are self-help and streamlined ways to fix defects in S Corporation status?

This is the case in California, and soon will be the case in Minnesota and New York.  For over six decades, businesses have avoided multistate income taxation relying on a federal law (P. L. 86–272) adopted in 1959.  P. L. 86–272 prohibits states from imposing income tax on income derived by an out-of-state business if the seller’s only business activity in that state is solicitation of orders for tangible personal property.  Orders must be sent outside the state for approval

Continue Reading Did you know that your business may be subject to income tax in a different state solely by virtue of interacting with customers via the Internet?

On August 25, 2023, employers, employees and ERISA attorneys all over the nation breathed a collective sigh of relief after the IRS announced that it would provide a two-year “administrative transition” period for employers and plan administrators to coordinate and prepare for the implementation of the new Roth catch-up contribution rules expressed in SECURE Act 2.0.

By way of background, for people age 50 and older, the IRS allows additional pre-tax deferrals to their 401(k) of an annual amount in

Continue Reading Did you know that the new Roth catch-up contribution rule created by the SECURE Act 2.0 has been delayed by two-years?

Often times when a partnership or LLC is selling a real estate investment, some partners may be ready to cash out, while others would like to defer the gain and reinvest in real estate.  If the partnership simply sells the property and uses part of the proceeds for a like- kind exchange under Section 1031 and distributes the remaining proceeds to the cash out partners, the gain on the sale that was not reinvested would be taxable to all of

Continue Reading Did you know you can use a ‘drop and swap’ when selling real estate so that some partners can defer gain and other partners can cash out?

As you are probably aware, the Federal tax code was amended in 2017 to limit the deduction that individuals can take for state and local taxes to $10,000.

As noted in prior installments of Did You Know, both Minnesota and Indiana have adopted laws that  enable owners to avoid that limitation by having their partnership or S corporation pay the income tax on the company’s income (rather than the owners pay it on their share of the income).  As a

Continue Reading Did you know 36 states have enacted PTE tax laws to enable owners of partnerships and s corporations to avoid the $10,000 annual limit on the deductibility of state taxes?

Taft summer associate Lauren Lambert contributed to this article.

A taxpayer who invests an amount of capital gains in a QOF generally defers recognizing the gain until the earlier of (i) the date on which he or she disposes of the QOF interest and (ii) December 31, 2026. The tax code provides investors who hold their interest for at least 7 years (or 5 years) prior to the recognition date with a basis bump that permits them to permanently exclude

Continue Reading Did you know you may never have to recognize some of the gain you previously deferred via investing in a Qualified Opportunity Fund (QOF)?

This approach not only benefits the charitable cause but can also provide significant advantages for the property owner, including liquidity, tax savings, and reduction of holding costs.

A bargain sale involves selling a property to a tax-exempt charity at a price below its fair market value.  If the sale is to the right type of tax-exempt organization (known as a public charity), the seller is entitled to a tax deduction for the full fair market value of the property in
Continue Reading Did you know a bargain sale to a tax-exempt charity may be an effective strategy to dispose of hard-to-sell real estate assets?

On February 22, 2023, Governor Holcomb signed Senate Bill 2 (SB 2), allowing elective pass-through entity taxation (PTET) for partnerships, S corporations, and LLCs taxed as S corporations or partnerships. The Indiana PTET and accompanying deductible expense election allow the pass-through of reduced federal taxable income to small Indiana business owners, thereby allowing qualifying owners to avoid the Federal $10,000 SALT deduction limit on their individual returns. Indiana law reflects a nationwide trend of state income tax responses to the
Continue Reading Did you know Indiana pass-through entity owners can make an election that allows a workaround for federal income tax limitations on state tax deductions?

In order to make a tax free like kind exchange, replacement property must be identified within 45 days of the sale of the old property and the replacement property must be acquired within 180 days of the sale. As you might expect, these timelines can be challenging to meet.

Taxpayers can also defer gain by investing in a Qualified Opportunity Zone (QOZ) investment. The QOZ rules also require that the investment (in a Qualified Opportunity Fund (QOF)) be made within
Continue Reading Did you know that a Qualified Opportunity Zone investment may be a good fallback for a failed 1031 like kind exchange?