Catering Gone Sour

Jerry and Joan were college buddies and started a catering business together, Taste Buddies. Three years in, Jerry decided to take a part- time teaching position and a leave of absence from the catering enterprise.  He later wanted to negotiate a return to the company, but Joan would have none of it.

Separation was inevitable.  Jerry wants his 50% share or the equipment he gave the business —  and out.  Joan feels ripped off and is struggling to stay afloat, working like mad.  What does the partnership agreement say about what happens in such a circumstance?  How does it account for the equipment — was it a loan or a gift? There was no partnership agreement. So now she won’t even discuss it and he needs at least his initial investment of $45,000 back to move on with his life. They’re both unhappy.

Separation Anxiety

Mo and Molly seemed like the ideal couple, then things fell apart.  They divorced quickly, with no agreement as  to who will claim their toddlers, Will and Wanda, as dependents.  Molly is the high wage earner and could benefit from the exemptions.  Mo is currently unemployed and the benefits to him are minimal.  But he’s angry and filed his tax return first, claiming the kids.  The IRS is not a divorce court.  They’re both unhappy.

As (one of) my promotional business magnets says “bliss requires careful planning.” Yes, be passionate about business and relationships, and be willing to take risks as befit your nature. But don’t be dumb — or so cheap as to avoid basic “insurance”.  You wouldn’t forego homeowner’s insurance would you?  Yeah, a good lawyer will require $, but the cost to you — and not just financial — can far exceed that initial outlay if things go sour, which they often do. Yup, I know some great lawyers, and also can help you understand what should be addressed in
a partnership or divorce agreement.

CALL it the miracle of compound interest. Or the government’s interest in collecting taxes. However you cut it, your household or sole proprietor business can easily rack up hundreds or thousands of dollars in late fees even if you are just a few months tardy.

“But Rich, I filed an extension.”
– Over-extended, Milwaukee

Yes, and as it says in Scripture, it is not an extension to pay, just an extension to file. You are expected to pay up by April 15, and you can file the paperwork later. If you underpay with the extension, you pay the price in interest and penalties.

Why is the IRS (and my state) doing that?  Taking my money again!
– Sons of the Minutemen, Montana

Okay, McVeigh, put the gun away. You said you want the government to operate efficiently, like a business.  What kind of business gives free loans to its customers year after year?  And, um, this is what is left for  last year’s taxes.  You had a full year to withhold properly or pay sufficient estimated taxes.

Hey, I ski all winter and my CPA is arithmetically-challenged. April 15 is too soon to nail this down.
– B. Pascal, France

This is a legitimate beef, or boeuf. You and your professional should do your best to estimate and then overpay if you can, by April 15. Again, you should be thinking about your potential liability during the year, not at the last minute.

I didn’t file extension. Actually didn’t file. Since 2009.
– A.M. Nesia,  Never-Never Land

Ouch. Make that taxes, penalties and a fee for “failure to file.”  On the other hand if you are due a refund, you do not actually need to file an extension (but best to do, just in case.)

Whee. I was underwater for 9 years and the extension would have gotten wet.  I believe I am due refunds.
– J. Cousteau, submerged

Q: I am paying my mom’s substantial medical bills but she collects a pension and lives independently. Can I get any relief through my tax return?
–Samantha Stephens

A: Believe it or not — YES, under some circumstance.

You CANNOT take Granny as a dependent, the way you canTabitha. Her $18,000 yearly income from her pension exceeds the $4,050 annual gross income  threshold for claiming dependents, by a wide margin.

BUT — Let’s say you are paying mom’s rent of  $500 per month, $6,000 per year, and some of her out of pocket medical bills —  to the tune of $5,000 annually.  She pays the rest of her bills herself, about $9,000.  You have met the “support test” because you are paying more than half her “support expenses” ($11,000 out of $20,000). This means you can claim Esmeralda’smedical expenses on your own return, even though she is not a dependent.

HOWEVER — Hold on Henrietta! Claiming medical deductions is not a slam-dunk! First  — You must “itemize your deductions.” Typically if you are not a homeowner you are not eligible to itemize, you take the standard deduction.

Second — There is a “floor”, like a deductible that you must meet first.  You are 67, so your floor is 7.5% of  your andDarrin’s” adjusted gross income”, which is $100,000.  So the first  $7,500 you and your magical family, including Granny Esmeralda, don’t count. Your out of pocket medical excluding Granny come to $5,000 — under the threshold of $7,500. Add in Granny and PRESTO — you are at $10,000, and the excess of $2,500 becomes an additional tax deduction. 

ALERT:  FILING DEADLINE CHANGES!   

Ready? If your business files as a partnership (Federal Form 1065), your returns are now due one month earlier for Federal and RI purposes, March 15, 2017. Attendant state fees of $450are due March 15 as well. You may file for a six month extension to submit the actual return. S-Corps (Form 1120 S) are still due March 15. But C-Corp (Form 1120) are now dueone month later (actually April 18 this year). Except for Mass — Still March 15! Sorry!