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Why does the 1040 reflect a different figure than the K-1?

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Sometimes the loss on the K-1 is not totally deducted on the 1040 due to basis limitation…. And the unused basis limitation is carried forward in those computations. 


i.e.   You put $10k into new business.


The business has a loss of $12k on the first K-1


                BUT the 1040 will only show up to $10k being deducted (can only deduct up to the skin you have in the game).


                Year 2 we have gain of $50k and do not take any distributions.


                $50k is on the K-1 but the 1040 now reflects $48k ($50k profit this year plus we now have basis so can deduct prior year unused loss)


                Distributions would reduce the basis.  If the basis is reduced to below zero due to distributions,

                those distribuitons are considered to be a taxable dividendD


1099 Reporting Requirement

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Any individual to whom you pay $600 or more in a calendar year should receive a 1099.

If you pay MARY JONES INC.... that is not an individual so no 1099.

If you pay MARY JONES, that would require a 1099.

And, only businesses are required to generate the 1099. The home you rent out is considered a business.

If Mary Jones cleaned your personal residence, your home is not a business so no 1099 is required.


1099's are prepared in January for the previous year.

Whether you properly do a 1099 or not, Mary Jones is required to report her income.

The 1099 actually protects you. You don't want IRS thinking you are helping Mary not report her income by not doing a 1099!

Affordable Care Act Penalty Exemptions

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Special hardship exemptions have to be applied for.... and when taxpayer receives an ECN (exemption certificate number) we can input that and the penalty goes away.   Has to be applied for....

Here is the link.

If you have not done so, you should explore this.... some possible exemptions.......

Required care of a loved one disrupts your ability to pay living expenses


Marketplace plans are unaffordable


Experience some hardship in obtaining health insurance.



Primary Residence Sale after Death

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The rules about investing in a home of greater or equal value within a certain period of time after the sale are long gone (1997).
The current rules... if you lived in the home 2 our of the last 5 years from the date of sale, your GAIN can be up to $500,000 (married filing joint) or $250,000 (single)...
But what about if a spouse dies at the end of 2014, and the home is sold by the remaining spouse in 2015?
There is a special rule that allows the surviving spouse to use the $500,000 exclusion IF THE SALE OCCURS WITHIN 2 YEARS OF THE DATE OF DEATH.

Partnership Basis when contributed property is sold

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Partner 1 contributed cash
Partner 2 contributed stuff
Both count toward their basis in the partnership. The stuff is valued at the Fair Market Value.
That being said...
Partner 2 has BASIS in the stuff contributed to the partnership BUT that basis may be less than the Fair Market Value. Nothing taxable yet.
Example: You and I are going to sell cars. I contribute my 65 GTO Convertible (I wish). My cost in it years ago is $10k but it is worth $80k.
If that stuff is sold within 7 years by the partnership, a calculation is made as if the stuff is sold with the partner's individual basis in the stuff even though the partners agreed the basis contributed was Fair Market Value.
Gain on Contributed stuff sold within 7 years must be calculated at the partner's individual basis even though that basis is not reflected on partnership books.
It makes sense. If partner 2 sold the stuff prior to the partnership being in business, he would have a gain. If he puts it in the partnership at FMV, then the partnership immediately sells it, there would be no gain.