The bearded cpa

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


Taxation and Client

u  Sale of principal residence u Federal tax lien on real estate u Cancellation of debt


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 $$$$$$$$$$$$$$$$$


Table of Contents: �Part 2�

Tax Problem Solutions


Table of Contents: �Part 3

u Unfiled returns u Ostrich Method u If you owe money u How about audits?

Taxation and your Client


Part 1

Closingcontrolscommissions.Lienscontrolsclosings.


u Onlyoneprincipalresidencepermi5ed

u Exclusionof$250,000ofgain,or$500,000formarriedpersonsfilingjointly.

u Musthavebeentaxpayer’sprincipalresidencefor2ofthelast5years.

Sale of Principal Residence


SellingPrice$200,000Less:BalanceofPMM100,000ExcessCash$100,000Currenttaxonsale20,000CashtoIRS$80,000*Applytooldtaxliability,anyexcesswouldremainwithtaxpayer.

Federal Tax Lien On Real Estate

NotApplicabletoPrincipalResidence


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


Part 2

Taxesreduceprofits.Expensesreducetaxes.


Estimated Taxes

u Taxisduewhenincomeisearned.u Nomagictothe15thofApril,June,

September,andJanuary.u Sendintaxesonlywhenyouhave

money.u Wesendinpaymentsformanyclients,

atalldifferentVmes.


Documentation Issues

IRSbelievesthattaxpayersaretruthfulandhonest,aslongasitiswrappedin

proof!MoreonthisinPart3ofaudits…


u Themostaudited:ScheduleCu HomeOffice.(8829)u Autoexpense(2106)-ActualExpenses-Mileagemethodu Familyemployeesu Trackingexpenses-Computers,Logbooks,andJournals

Tax Areas of Special Interest


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


u Directexpenses–noallocaVon-Computers–BuyorLease?Itdepends.u Limita@onondeduc@ons-Homecostsforinsurance,repairs,uVliVesanddepreciaVonarelimitedtonetincomefrombusiness.-DisalloweddeducVonscarriedforward.

Home Office - Concluded


u Actualexpensevs.mileagemethodu Trackdetailsforactualu Trackmileage–logbook,needtotalandbusiness-Repairbillsreflectmileageu Parkingandtollsareseparateu Buyorlease?Itdepends

Automobile


u  Income–Shikingstrategy-Factorstoconsider:-Appropriateworkdoneinbusiness-Servicesmustbeactuallyrendered-Earnedincomenotsubjectto“kiddietax”-Child’swagesdeductedasbusinessexpense-MaysaveeducaVoncreditlostbyparentduetoadjustedgrossincome

Employ Children


Employ Adult Family

u LargersalarymaybejusVfied.u WageandbenefitplancontribuVonsdeductedasbusinessexpense.u Employee–spouseofsoleproprietorcancontributetoIRAorbeincludedinreVrementplans.u AGI–baseddeducVons,phase–outs,andexclusionsmaximized.


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


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.


Accounting Systems

u Disbursementsjournal(Expenses)u Separatebankaccount&reconcilia9onu Computerized-Quickbooks/Quickenu Youmayneedtoissue1099’sorW-2’su 1099’sfrombroker(Income)u Receiptsjournal(Income)-Recordsourcesofdeposits&transfers


$$$$$$$$$$$$$

u Howmuchshoulditcost?


TaxProblemSoluVons

Part 3

Faceit,Fixit.Sooner,notlater.


u  Failuretofilecanresultincriminalcharge

u Getbackinthesystemu FileonVme,evenwithoutmoney

-AvoidPenalVes-StatuteoflimitaVonsstarts

Unfiled Returns

IRSwantsyou!


Youcan’tseewhat’scomingandyourrearendis

exposed!

The Ostrich Method


u  GetVmetopay.u  GetridofpenalVes.u  Se5leforapercentageofamountdue.

-Basedonabilitytopay,notamountowed.u Bankruptcyusuallynotananswer.u Thirdpartyfinancing.

If You Owe Money


u  DonottalktoIRSwithoutrepresentaVon. -“CohanRule”u BeawareofdirecVonofauditor. -FinancialStatusQuesVons-MSSPdirectedatRealEstateagentsu Usuallyinvolvesseveralyears.u RepeVVveAudits.

How About Audits

\


Three Double D’s Avoid Audit Agony

u  Don’tDelayu  DirectDepositu  DocumentDeducVons-ThreeP’s

-Purchase-Payment-Purpose

\


Call for a Free Consultation

RoyMarVn,CPA(360)836-0679

15640NEFourthPlainBlvdSte200Vancouver,WA98682

Economy & Finance

The bearded cpa