Posted by adminjian on March 16, 2016 · Leave a Comment
The IRS performs audits when a tax return seems inflated or its numbers seem off. In most cases, it is a simple mistake on the preparer’s part and is quickly remedied. To avoid being audited, try not to make these five mistakes.
Big Charitable Donations
When making large charitable donations, make sure that you are donating to a 501(c)(3) organization. Only donations made to these organizations are tax deductible. Larger donations used for tax deduction purposes are scrutinized a bit more than smaller donations.
Being Rich
Being wealthy alone is reason for audit. The IRS is going to make sure that all of your earnings are reported and that major reported expenses are justified. Of course it’s not a bad aim to acquire wealth, however if you do become rich you should be aware that you are more likely to face an audit.
Sold Investments
When you sell an investment, your broker is now required to report the cost basis directly to the IRS. You must report the exact same numbers that your broker submits to the IRS. If the numbers do not match exactly there is a high probability of facing an audit.
Withdrawing from Retirement Funds Early
When you withdraw from a retirement fund early – i.e. before age 59 and a half – you must pay an additional 10-percent tax. Moreover, withdrawing early can also trigger an audit in certain cases.
Auto Mileage Usage Reports
Improper reporting of mileage when using your own vehicle for work purposes can trigger an audit. You are permitted to deduct $0.575 per mile for work travel. The vehicle must be used solely for work purposes to qualify.
The best advice is to make sure your figures are correct and that you report absolutely everything. Leaving out the most miniscule detail can trigger an audit. Keeping immaculate records throughout the year helps prevent these mistakes.
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Posted by adminjian on March 8, 2016 · Leave a Comment
Paying taxes with credit cards seems convenient due to the ability to make smaller payments to the credit card company. However, the IRS also offers payment plans, often with a lower interest rate and you are able to select how much you can feasibly pay each month. Overall, credit cards may be the easiest way to make the large payment, but it definitely has its drawbacks.
Missing Payments
As long as all of your payments are made on time, you should not experience higher interest. This changes when you miss a payment. The credit card company is going to charge you a higher rate of interest on the next payment you have to make.
Higher Interest via Credit Card Company
The federal government does charge interest when a payment plan is required to pay tax debt. This is often lower than the interest rate on your credit card. Many taxpayers obtain a new credit card with an introductory interest rate period. The hope is often to pay the tax debt prior to that introductory interest rate period expiring, but that does not always happen, thus leaving you paying more in the end.
Bottom Line
When you realize that you are going to have to pay taxes and not receive a refund, it is important to decide what you can pay each month. If your options are better paying the IRS via their payment plan, that is the better route to take. Those that owe small amounts really are better off working with the IRS directly. The IRS offers a 120-day fee and interest free period to pay your owed taxes.
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Posted by adminjian on March 2, 2016 · Leave a Comment
Millions of people each year submit their tax return via online tax software programs. Tax software is typically secure, but is in no way completely foolproof. There is always the chance that there could be a data breach. More and more industries are dealing with identity theft and data breaches every year. Here is how to deal with a breach if you are in one.
Freeze Your Credit
One of the main reasons that people hack into tax companies is to receive personal information. You can put a freeze on your credit if you are concerned about someone using your social security number to get credit products in your name.
Track Your Return
If someone is able to breach tax software and extract information, they may be trying to submit your tax return and claim a refund in your name before your actual tax forms go through. If your return is rejected because it has already been put through the system, get in contact with the IRS about identity theft to report the issue.
Monitor Your Refund
Another reason for tax software data breaches is the interception of income. Be sure to keep an eye on your refund and make sure it is still going to the correct bank. You can also put the refund on a prepaid card if you are concerned about a possible breach allowing thieves to gain access to your personal bank account.
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Posted by adminjian on February 25, 2016 · Leave a Comment
Though it may seem like a daunting task, doing taxes is not necessarily a frightening activity. With a little preparation, you can easily figure out taxes on your own and get your federal and state taxes prepared. Let’s go over the tax documents that you will need in order to file your taxes.
W-2s
Most people who work will receive either a W-2 or a 1099 form. A W-2 form is used for most workers who are considered employees. If you are a W-2 worker, chances are you were having taxes taken out of your check while you were working. With one form of income and a W-2, you can fill out a 1040EZ form to complete your taxes.
1099s
If you are a 1099 worker, or an independent contractor, you will be considered self-employed. You will need to declare all of your income from each 1099 form, along with your business expenses and losses. Business loses can be money that you were not paid; business expenses include travel and the materials required to perform your job. If you work from home, you may also deduct your home office space on taxes. You can choose to itemize your deductions or select the standard deduction. Be aware that self-employed persons are charged a much higher tax rate than employees, so you need to keep track of your taxes and make estimated tax payments throughout the year to avoid being penalized.
Conclusion
Taxes for the average person will be rather straightforward. If you find yourself with too much information – i.e. investment accounts, real estate, and other forms – you may want to obtain the services an accountant.
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Posted by Mill Creek CPA on November 11, 2013 · Leave a Comment
The guidelines associated with the personal and leasing utilization of premises are included in this article in the Landlord’s Tax Guide. This may be either because you are leasing out a space in the same property which you are living in, or you have got a vacation residence that you might privately employ a few weeks out of the calendar year and rent the remainder of the time. This information will not apply to you at all if you never use your rental property for personal use. However, if you do, you will want to keep reading.
Property rented for less than fifteen days. Any time you leased your property for less than fifteen days total in the past year, you don’t have to file any of your rental revenue. If this is the scenario, then the real estate property is going to be considered personal for taxation considerations, and on Schedule A of Form 1040, it is possible to deduct any of the property associated expenditures as personal.
Employing Your Holiday Home as a Part Time Rental
Personal use test. It’s important to work with some type of numeric formula to determine the total number of days during which the rental property was used for personal use. That is the personal use test. How you deduct your rental expenses is going to largely be determined by whether or not the personal use test is satisfied. Finding out the actual quantity of days in the past year in which the real estate property was leased out at fair market value is the initial step in calculating the personal use test. The next step is to multiply that number of days by ten percent. We will label the outcome the “total days rented” or “TDR” for short. The next stage will be to figure out how many days the rental property was employed for private use. We can label this “personal use days” or “PUD” abbreviated. Look at the table below for a vision of the personal use test.
NOTE: “Personal use” consists of use by you, any other owners of the home and property, plus the families of all individuals who own the property, unless of course your family member is paying out rent at fair market value.
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If TDR is…
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and PUD is…
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then the personal use test is…
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over 14
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less than TDR
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not satisfied
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under 14
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less than 14
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not satisfied
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|
over 14
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more than TDR
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satisfied
|
|
under 14
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more than 14
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satisfied
|
If test is satisfied. If the personal use test is satisfied, you will deduct your rental expenses only to the extent of the rental income. A net rental loss will not be attainable, but when there are any additional expenditures you do not write off this year, they can be moved forward to later years, provided that there is an adequate sum of rental earnings in the tax year in which you claim them.
If test is not satisfied. Your own leasing costs will never be restricted by the rental income if the personal use test is not satisfied. You could deduct your rental costs and also have a net rental loss. There could be a few passive activity rules, however, which may still restrict the rental loss tax deduction.
Computing all of your rental expenditures. A number of expenses should be allocated between leasing and personal application. These include expenditures that will have already been charged no matter the use, such as real estate taxes and mortgage interest. Find out the whole number of personal use days. Then, you will need to determine the total quantity of TDR. After that, divide rental days by the sum of PUD and rental days. The end result is the rental percentage. Finally, you have to multiply the total cost of your expenses by the leasing percentage that you have established, and then the result will be the rental deductible part.
Leasing a Section of Your House
You need to expressly allot all your costs in between private usage and leasing use if you rent out a part of your own personal home. The IRS allows a little versatility with the method you employ; just make sure it’s consistent from year to year. Some people choose the option of taking the number of rooms within their residence along with the number of rooms within the home, and divide them. Dividing the rented sq . ft . by the residence’s total sq . ft . is another option that lots of people go for. You’ll end up with rental costs and personal costs. Those allotted to the leasing income can be deducted as such, and you can use Schedule A of Form 1040 to deduct what’s left.
Mill Creek CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is the owner of his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Mill Creek CPA on October 25, 2013 · Leave a Comment
You must ascertain that all of the expert services and fees are arranged adequately and accurately reported for the objectives of taxation compliance, if you have decided to rent out your property for income. Here, we are going to name these fundamental expenses.
Insurance
Just like most insurance premiums, this is usually prepaid in advance for a certain length of time. Illustration: You obtained an insurance policy for the rental property in March 2012 for $1200. April 2012 to March 31, 2013 will be the protection duration of this plan. Since the policy period does surpass the present tax year, you must apportion and allocate the premiums applicable for this present tax year only and then carry forward the rest for the following reporting year. In this particular example the allowed premium tax deduction may be $900 (9 months April to Dec 2012) or $100 per month of eligible rental use.
Business and personal clients will often receive a discount charge if their insurer is able to bundle their premium plans. Just the business rental property applicable part can be deducted. Use your individual income tax return to write off any non-business or private use. You will include Title insurance within the Cost Basis of the property, since it is not an applicable expense.
Cleaning and Maintenance
The day to day upkeep of the property is an allowed expense as long as it is for general areas and daily cleanliness. Still, the costs are only allowable if they’re not on personal use days, but are on allowed leasing days. A lot of property owners have long term contracts with local area services to help maintain the rental property on a continuous basis to be sure it’s in running and functional order. These services can provide a number of professional services including common upkeep, dusting, washing windows, and cleaning appliances. Only these sorts of professional services are permitted, any kind of major structural repairs and/or alterations will have to be allotted to the Cost Basis of the property.
Repairs
There are sometimes tasks that don’t need major reconstruction of the framework of the rental property such as painting or machine maintenance. Depending on the rental duration, you can deduct these kinds of important and normal expenditures.
Never include any periods which will be looked at to be personal use days, since costs are only allowable in relation to the earnings of the property. Just those costs in which are directly related to the authorized leasing timeframe are allowed.
- On the IRS’s website, you’ll find various reports you need. Refer to IRS Publication 527 for additional information.
Edmonds CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Mill Creek CPA on October 18, 2013 · Leave a Comment
Ordinary and necessary travel expenses pertaining to your rental property may be deductible. Travel to perform maintenance or managerial duties or to collect rent from your tenants are all deductible costs. Commuting is considered a personal expense and is not deductible. Travel to make improvements on a property are not deductible, and are generally recoverable under a cost recovery process such as depreciation.
Actual Expenses
Here all deductible travel costs connected to your rental property are reported. IRS Publication 463, Chapter 5 explains what is needed to keep a record of your expenses. A number of software applications can be obtained from iPod, Quick Books, Mint, and more which will help you back up your files; however, you must continue to keep a physical report to back up any write offs. You are required to claim this either with your Schedule C or Schedule E. The costs must be allotted to each property where the expenses are incurred if you have more than one rental property. Remember all deductions must be business related.
Mileage Method
This method allows you to write off all miles traveled that tax year. For example, if you traveled 1200 miles in 2012, you would utilize the latest standard mileage rate of $0.55.5 per mile.
Travel with local transport including Zip Cars, metro bus services, and motor vehicle rental it is a good idea to keep records of your expenses. It is also a good idea to place all of these charges on a business account tied directly to your rental property business.
Quick Note: You can obtain the different documents outlined in this information on the IRS’s webpage. To find out more you should consult IRS Publication 527.
Lynnwood CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Mill Creek CPA on October 11, 2013 · Leave a Comment
As a property manager, to accurately account for and report your own rental property earnings to the Internal Revenue Service, you must have different Internal Revenue Service tax forms which will be outlined inside this brief article. As laid out just below, the tax forms needed will be different, depending on the type of professional business who possesses the property (individual, partnership, corporation, or LLC). For more concerning legal entity rental property ownership, find the article included in this Guide, entitled Best Rental Property Ownership.
TIP: All of the forms discussed here are available on the Revenue Service’s homepage at: http://www.irs.gov/Forms-&-Pubs. The necessary documents will be found in any tax preparing software programs, if you work with one of them.
Individual Ownership
Which includes mutual rental property ownership with a significant other, tenancy in common, or mutual tenancy with right of survivorship.
Form 1040. All independent people have to fill out Form 1040, so this is where you will have to begin. Your own total rental property profit or losses subject to taxes will appear on line 17 of the 1st page of the Form 1040. You’re not permitted to use the simple Forms 1040A or 1040-EZ, as a law abiding property owner with rental property income and expenses.
Schedule E. A certain addendum to Form 1040 that you need to know about is Schedule E. It actually has several usages, however the use that is meant for you is reporting of rental property earnings and costs. The portion of Schedule E titled “Part I” will be the single portion you have to complete. A handful of critical tips to be aware of: when reporting on the rental that you mutually own with a partner, who isn’t your wife or husband, you will only have to report the expenditures which you incurred and the revenue you received. Try to remember, also, that you will need to allocate costs between rental and non-rental use when you are renting a portion of your personal property, or when you rented only for part of the entire year. Read the compilation of articles entitled Tax Deductible Rental Property Expenses, included with this Guide, for more tips.
Form 4562. At line 18 of Schedule E, you are able to deduct the depreciation of your rental property, that you will fill out Form 4562 to calculate. For more information, look at the article titled, Depreciation Expenses for Rental Property, which is provided in this Guide.
Partnership/Corporate Ownership
A general or limited partnership, or S corporation is an example.
Form 1065/1120-S. If you have a partnership, you must employ Form 1065, the tax form a collaboration uses to report all of its organization activities. Form 1120-S is used by an S corporation to report enterprise activities. Schedule K, line 2 of Form 1065 or 1120-S the place your annual net leasing deficit or earnings are reported (Schedule K is embedded inside these documents).
Form 8825. This document operates just like Schedule E, but is for partnerships and S corporations. Schedule E and Form 8852 are in essence very much the same. Make certain that all earnings and expenditures accrued by the corporation or partnership are provided in their whole amounts (they are going to be divided among each partner or investor later).
Schedule K-1. This tax document reports the net rental property earnings or deficit due to each partner or investor in accordance with that partner or investor’s ownership interest. Every partner should get their own K-1 and must report the elements of their K-1 on their Form 1040, Schedule E, Part II.
Limited Liability Co-ownership
A one owner LLC is really a disregarded entity for tax requirements, meaning that you can file as if you’re an individual property owner (look above). A multiple-member LLC might choose to be taxed as either a partnership or as an S corporation (look above).
Kent CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Mill Creek CPA on May 20, 2013 · Leave a Comment
There are few tax deductions for business owners that are more feared than the dreaded home office deduction. Some business owners are convinced that claiming this deduction increases the chances of an audit, yet the IRS is insistent that this is just not the case. Either way, if you follow the rules, and records are properly documented, you should have nothing to fear.
Active owners of a rental property may qualify for the home office deduction. The key to this deduction is the word active. The landlord must do more than accept and deposit checks monthly. You should consistently spend substantial time maintaining properties and preparing them for rent as well as seeking new tenants.
If you meet the criteria for being an active rental property management the next requirement is that you must regularly use the office space solely for running your business as a rental property manager.
On top of these requirements, you must meet at least one of the following expectations:
1. This office must be your principle space for the day-to-day running of your business.
2. You must have no other location from where you run the administrative end of your management property rental business
3. You utilize this office to meet clients and potential clients.
4. You use a separate structure on your property for business.
After you’ve determined that you are eligible for home office deduction, then it’s time to learn what expenses qualify for deductions. There are two major types: indirect and direct. Indirect expenses benefit the entire home. While direct expenses benefit the home office space only. Examples of direct expenses can be painting or cleaning expenses. While examples of indirect expenses can be payments on mortgage, property tax, and utilities, these expenses are apportioned out between the office and the rest of your home. This percentage is usually calculated by the square-footage ratio. For example, a 2,000 square foot home with a 200 square foot office space would mean that 10% of indirect expenses would qualify for home office deduction expenses.
As you don’t want any trouble if you do get audited, you want to maintain good records to show that you were/are entitled to take the deduction and that the claim has been accurately reported. You should document the home office space with a diagram and/or photograph that supports your calculations. It is a good idea to use your home office address on any business cards and other forms of communication and to have business mail delivered to the home office address. You should keep a log of client meetings and other time spent working in this space. Records to keep proving expenses include: 1098 mortgage interest statements, property tax statements, utility bills, insurance premium notices and receipts for any other home office expenses.
This is a basic guide to home office deductions. This is not a substitute for the expert counsel of a Bellevue Certified Public Accountant.
Bellevue Accountant +John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Mill Creek CPA on February 21, 2013 · Leave a Comment
This portion of the Rental Property Tax Guide centers on the various deductible expenses of your gross rental income so as to determine your net rental income. Because there are so many deductible expenses, this guide divides the topic into four different kinds. This first section will give attention to interest, advertising, and professional fee expenses.
Interest
The primary type of interest you will likely deduct is interest on the mortgage. If you are renting the property as its own living unit, you can deduct all of the mortgage interest you paid on Schedule E. On the other hand, when you’re renting a room in your own home, or if it’s a duplex and you’re living in the other unit, you need to pro rate the mortgage expense. For more on personal use, see the article entitled Personal Use of Rental Property, which is included in the Tax Guide for Landlords. Personal use mortgage interest will always go on Schedule A of your Form 1040 and not on Schedule E. Additionally, if you own only a part interest in the rental, you must multiply the total amount of mortgage interest paid on the property by your ownership interest. Be aware, however, that certain expenses you pay to obtain a mortgage (such as title/recording fees and commissions) are capitalized as part of your depreciable basis for the property, and are not expensed. See the article titled Depreciation Expenses for Rental Property, included in this Guide, for more on depreciation expense. Other types of interest may also be deductible, if you incurred the interest solely for the benefit of the rental property. For example, if you took out a personal loan in order to replace carpeting, or fix the roof.
Advertising
Promoting your rental property on the open market, through marketing efforts such as posting newspaper ads or paying for internet marketing, is a tax deductible expense.
Professional fees
If you pay legal counsel to compose a rental contract or start legal actions for you to evict a tenant, you could deduct these payments. You can also deduct fees paid to a tax accountant for the preparation of the Schedule E of your tax return from the year prior. But do not forget to pro rate the overall fee between the rest of your return versus the Schedule E portion of you return based on time spent. Any fees unrelated to the Schedule E appear on Schedule A as personal tax preparation expenses. Also any management fees or commissions to professional realtor groups for managing the rental property are deductible as well.
Seattle CPA +John Huddleston has written several tax and accounting articles on topics of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
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