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September 23, 2012

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Shirley Callahan, EA

I am a tax instructor, and I would like to teach this theory. I understand the EIC thing, but not really the take all your deductions anyway for anybody with a business. Where do you think I might find this theory so I can present it to my students? It would be a good topic to teach in January just before tax season begins. Thanks. P. S. I have only recently found you, but I love what I see so far!

John DeWitt

K-1's show the gain or loss passed through, which is either taxed or is a deductible. However other distributions that are not taxable are common. The most common is the refi of an investment that generates cash (an apt. bldg., e.g.). That's not income and is not taxed to the LLC/S corp. The excess cash is distributed and is likewise not taxed. Those numbers are commonly huge. They are also commonly never recaptured but are passed in the estate at a stepped up basis (perhaps our biggest tax dodge) and never taxed. What distributions did Romney receive that were not taxable?

Trish

John, please re-read the post. Romney didn't claim all the charitable contributions he made so that his tax rate would be close to what he projected it to be. Never did I mention K-1 income.

trishmc


Please see my response to your comment.

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    A reader should seek advice from an independent tax adviser with respect to the information on this blog based on the reader’s particular circumstances. This advice is intended to be general information and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed here.
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