Jeremy dives into the often-overlooked legal requirements for taxpayer recordkeeping under IRC Section 6001, explaining why accurate books aren't just nice to have: they're mandatory. He breaks down the Cohan rule (and why it's widely misunderstood), explores how good recordkeeping can shift the burden of proof to the IRS under Section 7491, and offers practical ways tax professionals can encourage better client recordkeeping without becoming bookkeepers themselves.
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Jeremy concludes his three-part series on losses by examining IRC Section 1033, the tax code's provision for what happens after you replace property lost to casualty, theft, or government condemnation. When clients receive insurance payouts or condemnation proceeds, they face a critical decision: recognize the gain immediately or defer it by purchasing qualifying replacement property within specific timeframes. Jeremy breaks down the "similar use" requirements, the two to four year replacement periods depending on property type, and how basis carries over to help clients avoid unexpected tax bills when bad things force them to start over.
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Jeremy explores the complex world of theft loss deductions, examining how digital asset scams have renewed interest in these tax provisions under the Tax Cuts and Jobs Act. The episode breaks down the three key criteria for claiming theft losses, explains why timing of discovery matters more than when the theft occurred, and analyzes five modern scam scenarios from IRS Chief Counsel guidance including pig butchering schemes and romance scams. Jeremy concludes with a fascinating 1984 court case involving Civil War veterans' land rights that shows even tax court judges can disagree on fundamental questions of tax law.
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Natural disasters, accidents, and sudden destructive events can create significant financial hardship, but the tax code provides some relief through casualty loss deductions. This episode breaks down the complex rules governing what qualifies as a deductible casualty loss, including the critical distinction between personal and business losses under the Tax Cuts and Jobs Act. Jeremy walks through the three-part test for casualty losses, calculation methods using fair market value changes, and the reporting requirements on Form 4684, using a real-world hurricane damage scenario to illustrate these concepts.
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Jeremy breaks down the complex rules surrounding Section 121's capital gains exclusion for home sales, using the Weber v. Commissioner tax court case to illustrate how taxpayers can lose out on excluding up to $500,000 in gains. The episode covers the critical two-out-of-five year ownership and use tests, explains how rental conversions can disqualify you from the exclusion, and details the partial exclusion exceptions for employment changes, health issues, and unforeseen circumstances. Understanding these nuances is essential since home sales often represent the largest financial transactions in taxpayers' lives.
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A rental property owner faces a $27,000 repair bill after a plumbing leak forces a complete bathroom renovation, water heater replacement, and structural repairs. Jeremy breaks down Treasury Decision 9636's framework for distinguishing between deductible repairs and capitalized improvements, using the three-part test of betterment, restoration, and adaptation. He also explains three valuable safe harbors including the de minimis election and routine maintenance provisions that can help property owners expense more costs immediately rather than depreciating them over time.
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Jeremy breaks down the complex world of work-related education tax benefits, revealing why most educational expenses aren't as deductible as business owners think. He explains the stark difference between limited educational assistance programs that cap benefits at $5,250 annually and business expense deductions that often get rejected by the IRS for qualifying taxpayers for "new trades or businesses." Through real tax court cases involving everyone from IRS agents trying to deduct law school to nurses upgrading their licenses, this episode exposes the narrow window where education costs actually qualify as legitimate business deductions.
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Understanding the refund statute of limitations can mean the difference between claiming a refund and losing that money forever. This episode breaks down the complex rules around when taxpayers can file refund claims and how much they can recover, using the recent Hamilton v. US case as a cautionary tale. Whether you're dealing with late-filed returns, amended returns, or clients who've fallen behind on their taxes, these statute of limitations rules will determine what's possible and what's permanently lost.
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Most tax professionals assume joint filing is the default for married couples, but the tax code actually says the opposite. Jeremy Wells explores the surprising reality that married filing separately is technically the default status, requiring both spouses to elect joint filing under IRC Section 6013. He breaks down the key disadvantages of separate returns—from reduced credits to income limitations—while explaining legitimate scenarios where paying extra tax through separate filing can lead to better overall financial outcomes, particularly with student loan repayment strategies.
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Jeremy Wells breaks down the fundamentals of Section 1031 exchanges, explaining how real estate investors can defer capital gains taxes by swapping properties rather than selling and buying separately. He clarifies common misconceptions about these transactions, walks through the strict timing requirements including the 45-day identification and 180-day completion rules, and examines court cases that reveal when the IRS challenges whether replacement properties were truly intended for investment purposes. The discussion covers qualifying property types, disqualified persons, and the practical mechanics of using qualified intermediaries to facilitate these tax-advantaged exchanges.
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Jeremy dives deep into the critical red flags that should make tax professionals pump the brakes on S-corporation elections. From balance sheet debt ratios that could trigger unexpected taxable events to operating agreement provisions that can inadvertently terminate S-elections, this episode challenges the "default to S-corp" mentality that's become prevalent in tax advisory circles. Jeremy breaks down the specific scenarios where partnerships or sole proprietorships actually serve business owners better than the often-hyped S-corporation structure.
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The R&D tax credit offers significant tax-saving potential, yet remains misunderstood by many small business owners and their advisors. Jeremy breaks down the key components of the Section 41 credit, explaining qualified research activities, eligible expenses, and calculation methods. Small service-based businesses might qualify more often than they realize, especially when research activities relate to technological innovation, computer science, or engineering processes.
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Solar installations create valuable tax benefits, but determining eligible expenses requires careful analysis. Jeremy Wells breaks down the Residential Clean Energy Credit under IRC Section 25D, explaining which costs qualify, how to handle roof modifications, and when the credit can be claimed. The episode provides essential guidance for tax professionals encountering clean energy improvements on client properties.
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