Taxation For Real Estate Professionals© The Bearded CPA 15640 NE Fourth Plain Blvd Ste. 200 Vancouver, WA 98682 American Society of Tax Problem Solvers©
Taxation For Real Estate Professionals©
The Bearded CPA 15640 NE Fourth Plain Blvd Ste. 200
Vancouver, WA 98682
American Society of Tax Problem Solvers©
Roy Martin, CPA Member of the American Society of Tax Problem Solvers
American Society of Tax Problem Solvers©
Taxation and Client
u Sale of principal residence u Federal tax lien on real estate u Cancellation of debt
American Society of Tax Problem Solvers©
Table of Contents: �Part 1
u Estimated taxes u Tax areas of special
interest u Home office u Automobile
Taxation and the Realtor u Employ children u Employ adult family u Family Employees u Accounting systems u $$$$$$$$$$$$$$$$$
American Society of Tax Problem Solvers©
Table of Contents: �Part 2�
Tax Problem Solutions
American Society of Tax Problem Solvers©
Table of Contents: �Part 3
u Unfiled returns u Ostrich Method u If you owe money u How about audits?
Taxation and your Client
American Society of Tax Problem Solvers©
Part 1
Closingcontrolscommissions.Lienscontrolsclosings.
American Society of Tax Problem Solvers©
u Onlyoneprincipalresidencepermi5ed
u Exclusionof$250,000ofgain,or$500,000formarriedpersonsfilingjointly.
u Musthavebeentaxpayer’sprincipalresidencefor2ofthelast5years.
Sale of Principal Residence
American Society of Tax Problem Solvers©
SellingPrice$200,000Less:BalanceofPMM100,000ExcessCash$100,000Currenttaxonsale20,000CashtoIRS$80,000*Applytooldtaxliability,anyexcesswouldremainwithtaxpayer.
Federal Tax Lien On Real Estate
NotApplicabletoPrincipalResidence
American Society of Tax Problem Solvers©
Cancellation of Debt (Short Sale)
AmountofDebtCancelled $ 100,000
Less:FMVofProperty
IncomefromCancella@onofDebt $ 10,000
90,000
SmallerofDebtCancelledorFMV $
$
90,000
Less:AdjustedBasis 110,000
Gainor(Loss) (20,000)
*$2Morless’07-’13
**Non-deduc@bleonpersonresidence
ExclusionfromGrossIncome:
BankruptcyorInsolvency
Taxes and the Realtor
American Society of Tax Problem Solvers©
Part 2
Taxesreduceprofits.Expensesreducetaxes.
American Society of Tax Problem Solvers©
Estimated Taxes
u Taxisduewhenincomeisearned.u Nomagictothe15thofApril,June,
September,andJanuary.u Sendintaxesonlywhenyouhave
money.u Wesendinpaymentsformanyclients,
atalldifferentVmes.
American Society of Tax Problem Solvers©
Documentation Issues
IRSbelievesthattaxpayersaretruthfulandhonest,aslongasitiswrappedin
proof!MoreonthisinPart3ofaudits…
American Society of Tax Problem Solvers©
u Themostaudited:ScheduleCu HomeOffice.(8829)u Autoexpense(2106)-ActualExpenses-Mileagemethodu Familyemployeesu Trackingexpenses-Computers,Logbooks,andJournals
Tax Areas of Special Interest
American Society of Tax Problem Solvers©
u Regularandexclusiveuseu Indirectexpenses–mustallocate,generallyonsquarefootage-Mortgageinterest&propertytaxes-Homeowner’sinsurance-Repairsandmaintenance-RentordepreciaVon(noland,39yrs.)-UVliVes(mayrequiredifferentallocaVon%)-Water,sewer,trash,snowplowing,etc.-Lawncare/landscaping???
-Howaggressiveareyou?!?!
Home Office
American Society of Tax Problem Solvers©
u Directexpenses–noallocaVon-Computers–BuyorLease?Itdepends.u Limita@onondeduc@ons-Homecostsforinsurance,repairs,uVliVesanddepreciaVonarelimitedtonetincomefrombusiness.-DisalloweddeducVonscarriedforward.
Home Office - Concluded
American Society of Tax Problem Solvers©
u Actualexpensevs.mileagemethodu Trackdetailsforactualu Trackmileage–logbook,needtotalandbusiness-Repairbillsreflectmileageu Parkingandtollsareseparateu Buyorlease?Itdepends
Automobile
American Society of Tax Problem Solvers©
u Income–Shikingstrategy-Factorstoconsider:-Appropriateworkdoneinbusiness-Servicesmustbeactuallyrendered-Earnedincomenotsubjectto“kiddietax”-Child’swagesdeductedasbusinessexpense-MaysaveeducaVoncreditlostbyparentduetoadjustedgrossincome
Employ Children
American Society of Tax Problem Solvers©
Employ Adult Family
u LargersalarymaybejusVfied.u WageandbenefitplancontribuVonsdeductedasbusinessexpense.u Employee–spouseofsoleproprietorcancontributetoIRAorbeincludedinreVrementplans.u AGI–baseddeducVons,phase–outs,andexclusionsmaximized.
American Society of Tax Problem Solvers©
Family Employees
DescripVon
IncomeTax
Withholding
FICA
FUTA
GAUI
Worker’sCompensaVonInsurance*
GADisabilityInsurance
ChildEmployedbyParent(BusinessUnincorporated)
Yes
ExemptifunderAge18
ExemptifunderAge21
ExemptifunderAge21
HSGrad-YesF/TStudent-Yes
HSGrad-YesF/T
Student-No
ChildEmployedbyParent-OwnedCorporaVon
Yes
Taxable
Taxable
Taxable
Covered
Covered
ParentEmployedbyChild(BusinessUnincorporated)
Yes
TaxableifintheCourseofChild’s
Business
Exempt
Taxable
Covered
Covered
SpouseEmployedbySpouse
(BusinessUnincorporated)
Yes
Taxableifinthecourseof
Spouse’sBusiness
Exempt
Exempt
Covered
Covered
ChildEmployedbyParentfor
DomesVcWork
No
ExemptifunderAge21
ExemptifunderAge21
ExemptifunderAge21
Exemptunder40hoursper
week
Exemptunder40hoursper
week
*GeneralRule-Coveredif
businessisforprofit
FamilyEmployees
EmploymentTaxTreatment
American Society of Tax Problem Solvers©
Family Employees
Example:Child<18yearsofage,notHSgraduateWagesof:$2,500ExemptfromFICA,FUTA,NYSUI,WC,NYS,DBLSavingstoParent:
15.3%x2500=$38528.0%x2500=$700
TotalSaved=$1,085MustconsiderimpactoneducaVoncredits,etc.But,generallynoeffectonchildrenHSageorless.No‘KiddieTax’onearnedincome.
American Society of Tax Problem Solvers©
Accounting Systems
u Disbursementsjournal(Expenses)u Separatebankaccount&reconcilia9onu Computerized-Quickbooks/Quickenu Youmayneedtoissue1099’sorW-2’su 1099’sfrombroker(Income)u Receiptsjournal(Income)-Recordsourcesofdeposits&transfers
American Society of Tax Problem Solvers©
$$$$$$$$$$$$$
u Howmuchshoulditcost?
American Society of Tax Problem Solvers©
TaxProblemSoluVons
Part 3
Faceit,Fixit.Sooner,notlater.
American Society of Tax Problem Solvers©
u Failuretofilecanresultincriminalcharge
u Getbackinthesystemu FileonVme,evenwithoutmoney
-AvoidPenalVes-StatuteoflimitaVonsstarts
Unfiled Returns
IRSwantsyou!
American Society of Tax Problem Solvers©
Youcan’tseewhat’scomingandyourrearendis
exposed!
The Ostrich Method
American Society of Tax Problem Solvers©
u GetVmetopay.u GetridofpenalVes.u Se5leforapercentageofamountdue.
-Basedonabilitytopay,notamountowed.u Bankruptcyusuallynotananswer.u Thirdpartyfinancing.
If You Owe Money
American Society of Tax Problem Solvers©
u DonottalktoIRSwithoutrepresentaVon. -“CohanRule”u BeawareofdirecVonofauditor. -FinancialStatusQuesVons-MSSPdirectedatRealEstateagentsu Usuallyinvolvesseveralyears.u RepeVVveAudits.
How About Audits
\
American Society of Tax Problem Solvers©
Three Double D’s Avoid Audit Agony
u Don’tDelayu DirectDepositu DocumentDeducVons-ThreeP’s
-Purchase-Payment-Purpose
\
American Society of Tax Problem Solvers©
Call for a Free Consultation
RoyMarVn,CPA(360)836-0679
15640NEFourthPlainBlvdSte200Vancouver,WA98682