Embarking on the journey of becoming a landlord, whether in the commercial or residential real estate sector, is a promising venture. However, before you start reaping the benefits of rental income, it’s essential to understand the tax implications of the initial costs involved. In particular, start-up expenses play a crucial role in shaping the financial landscape for landlords. In this article, we will delve into the intricacies of start-up expenses, exploring the two broad categories and the tax deductions available to landlords.
Understanding Start-Up Expenses:
Start-up expenses encompass the costs incurred before a property is offered for rent. These can be broadly categorized into two types:
Deducting Start-Up Expenses:
Landlords have the opportunity to deduct their start-up expenses when they commence their rental business. The deduction is calculated as follows:
When filing tax returns, landlords automatically elect to deduct start-up expenses by labeling and deducting them on Schedule E or the appropriate return.
Business Entity Formation Costs:
It’s important to distinguish between start-up expenses and costs associated with forming a business entity such as a partnership, limited liability company (LLC), or corporation. While the former can be deducted based on the rules mentioned earlier, entity formation costs are subject to a different tax rule.
Landlords can deduct up to $5,000 of entity formation costs in the first year of business. Any remaining costs can be amortized over the first 180 months of the business. This rule applies to the costs incurred in creating partnerships, LLCs, or corporations related to the rental business.
Expanding Your Rental Business:
Expanding an existing rental business is not considered a start-up expense. Instead, expansion costs are treated as ordinary business operating expenses. As long as these costs are deemed necessary and within the scope of the existing rental business, they are deductible.
Geographic Considerations:
The IRS and tax court emphasize that a rental business exists within the geographic area of the property. Therefore, purchasing or seeking to purchase property in a different location is viewed as starting a new rental business. Consequently, the associated expenses for expanding into a new location are considered start-up expenses and can be deducted accordingly.
Active Participation Requirement:
A crucial point to note is that the ability to deduct start-up expenses is reserved for active rental business owners, not mere investors. To qualify for these deductions, landlords must actively engage in the management and operations of their rental properties.
Becoming a landlord is an exciting venture that comes with its share of financial considerations. Understanding the nuances of start-up expenses and the associated tax deductions is essential for optimizing the financial outcomes of your rental business. By navigating the tax landscape with clarity, landlords can make informed decisions and lay the groundwork for a successful and profitable venture in the real estate market.
As we usher in the new year, businesses in the United States are gearing up for a significant change—the implementation of the Corporate Transparency Act (CTA) on January 1, 2024. This federal mandate brings with it a fresh filing requirement for a broad spectrum of business entities, aiming to enhance transparency and curb illicit financial activities. In this article, we’ll delve into the intricacies of the CTA, exploring its requirements, exemptions, and implications for businesses.
The Corporate Transparency Act in a Nutshell:
The CTA casts its net wide, covering most corporations, limited liability companies (LLCs), limited partnerships, and certain other business entities. The central requirement of the CTA is the filing of a Beneficial Owner Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) by December 31, 2024.
Identifying Beneficial Owners:
The heart of the BOI report lies in identifying and disclosing beneficial owners—individuals who control 25 percent or more of the ownership interests in the entity or exercise substantial control over it. Each beneficial owner’s information must include their full legal name, date of birth, complete current residential address, a unique identifying number (from a U.S. passport, state/local ID, or driver’s license), and an image of the document providing the unique identifying number.
The BOSS Database:
FinCEN is set to establish the Beneficial Ownership Secure System (BOSS) to house the BOI data. This database aims to assist law enforcement agencies in preventing the use of anonymous shell companies for various illegal activities, including money laundering, tax evasion, and terrorism. Notably, the BOI reports will not be publicly accessible.
The CTA primarily applies to business entities formed by filing documents with a state secretary of state or a similar official. Additionally, foreign entities registering to do business in the U.S. fall under the purview of the CTA. However, certain entities are exempt, such as larger businesses with 20 or more employees and $5 million in receipts, as well as those already heavily regulated by the government, including publicly traded corporations, banks, insurance companies, and non-profits.
Sole proprietors and general partnerships in most states are exempt from the CTA, providing some relief to smaller businesses. However, single-member LLCs, despite their pass-through tax treatment, are subject to the CTA’s requirements.
While the initial BOI report filing does not expire, businesses must remain vigilant in fulfilling their ongoing duty to keep the report up to date. Any changes in beneficial ownership must be promptly reported to FinCEN within 30 days of occurrence. This continuous monitoring ensures that the information remains accurate and relevant.
The CTA underscores the seriousness of compliance by imposing hefty penalties for failure to adhere to the filing requirements. Businesses that neglect to file the BOI report or provide inaccurate information may face significant monetary fines and, in extreme cases, imprisonment for up to two years.
As the Corporate Transparency Act takes effect in 2024, businesses must adapt to the new regulatory landscape. Compliance with the BOI reporting requirements is not only a legal obligation but also a crucial step toward fostering transparency and combating financial crimes. By understanding the nuances of the CTA, businesses can navigate the reporting process with confidence, ensuring a smooth transition into this era of heightened corporate accountability.
The IRS has recently intensified its efforts to combat improper Employee Retention Credit (ERC) claims. In response to a surge in questionable claims, the IRS has taken several actions. In this article, we will delve into these actions and their implications for businesses seeking ERC relief.
1. Temporary Halt on New ERC Claims:
On September 15, 2023, the IRS announced a temporary stop in processing new ERC claims, effective until the end of the year at the earliest. This decision stems from the IRS’s concern about the rising number of improper ERC claims. While some tax experts and associations support this measure, there are differing opinions. Some believe that all valid claims should be addressed promptly, especially for businesses facing ongoing financial hardships. Despite the processing delay, it’s advisable to submit your claim now to secure a spot in the queue.
2. Slower Processing of Existing Claims:
The IRS faces a backlog of over 600,000 ERC claims, causing delays in processing. The standard processing goal of 90 days has been extended to 180 days, with even longer processing times for claims requiring further review or audit. For legitimate ERC claims, patience is essential, and having proper documentation is crucial. Those with questionable claims should consult IR-2023-169 and engage with their tax professionals to explore options.
3. New IRS Q&A Document:
The IRS released a new Q&A document with a headline that some find problematic. The document aims to provide clarity on ERC eligibility, but its wording may discourage eligible businesses. Clear guidance on qualification and non-qualification is essential. The IRS’s primary mission should be helping taxpayers pay the correct tax, not intimidating them.
4. Watch Out for Red Flags:
The ERC is a legitimate tax credit, but it has become a target for aggressive marketing to businesses that may not qualify. In a September 2023 news release, the IRS warns businesses to be cautious of improper assistance in claiming credits. The example of paying hefty fees to promoters, only to have claims disallowed, serves as a cautionary tale. The rule of thumb is to ensure the validity of your claim.
5. IRS’s Recruitment of 3,700 New Employees for Audits:
The IRS’s latest hiring effort includes the recruitment of 3,700 new employees, primarily for audit purposes. This expansion of the audit workforce will focus on high-income earners, partnerships, large corporations, and promoters. For promoters, the IRS aims to investigate those involved in peddling abusive schemes.
The IRS’s actions against improper ERC claims signify a commitment to ensuring that tax credits are granted to those who genuinely qualify. Businesses seeking ERC relief should be cautious, patient, and well-prepared to navigate these changes and protect their interests. Additionally, the IRS’s efforts to crack down on promoters of abusive schemes aim to maintain the integrity of the tax system.
Two tax term that hold significant value are ‘safe harbor.’
Moreover, five more tax terms that bring great benefits are ‘tax-advantaged expensing without recapture.’
To establish and safeguard your safe-harbor expensing, you, your corporation, or your partnership must formally elect, on your tax return, to utilize the de minimis safe harbor for assets valued at $2,500 or less (or $5,000 with applicable financial statements, as explained later).
This advantageous safe-harbor election removes the hassles associated with:
The term ‘safe harbor’ signifies that the IRS will approve your expensing of the qualified assets as long as you adhere to the safe-harbor rules.
For asset purchases that do not qualify for safe-harbor expensing, there is no issue: Section 179 expensing and Section 168(k) bonus depreciation are both available options.”
Overview
You aim to have your safe-harbor expensing ready for implementation by January 1, 2024, which is why you’re reading this article in September 2023. We’re providing this information well in advance to ensure you have ample time to establish your safe harbor for the upcoming year.
If you’ve utilized safe-harbor expensing in previous years, you should find your prior-year safe-harbor election on those respective tax returns.
If you’re a small business that has chosen the $2,500 limit for safe-harbor expensing, let’s consider a scenario where you purchase two desks, each costing $2,100. The invoice indicates a quantity of two, a total cost of $4,200, along with a sales tax of $378 and a $200 delivery and setup fee, bringing the total to $4,778.
Before adopting the safe harbor option, you would typically have treated each desk as a capital expense, totaling $2,389 ($4,778 ÷ 2). Subsequently, you would have either utilized Section 179 expensing or depreciation for both desks. Additionally, you would have maintained the desks on your depreciation schedule until they were eventually disposed of.
However, with the safe harbor provision, you can expense the desks as office supplies. This eliminates the necessity to include the desks in your accounting books, simplifying your financial record-keeping process.
Safe Harbor
When put into practice, involves the following:
The de minimis safe harbor consists of two options, and which one applies to you depends on whether you have what’s called an “applicable financial statement” (AFS) for your business. If your financial statements have been subject to a certified public accountant (CPA) audit or a similar process, then you have an applicable financial statement.
The key difference between having an AFS and not having one is as follows:
Creating the Safe Harbor
The Rise of Pass-Through Entity Tax (PTET)
The pass-through entity tax (PTET) has emerged as a game-changing solution for owners of pass-through businesses, such as S corporations and multi-member LLCs. Previously an exception, PTET has now taken center stage in most states. This innovative approach allows businesses to circumvent the $10,000 annual limitation on state and local tax (SALT) deductions.
Demystifying PTET Mechanics
At its core, the PTET process is elegantly simple yet remarkably impactful. Pass-through entities (PTEs) now have the option to pay state income taxes on their business earnings, a responsibility typically borne by the individual owners. Subsequently, the PTE claims a federal business expense deduction for these state income tax payments. Importantly, states permit individual owners to claim a credit or deduction for these taxes, enabling them to sidestep the SALT limit.
This strategic maneuver results in a dual benefit for owners: they leverage the federal deduction against state income tax, all while avoiding the shackles of the $10,000 SALT limit on a portion or entirety of their pass-through income.
State-Level Progress
Presently, 36 out of the 41 states that impose income taxes have embraced some iteration of the PTET concept. Notably, this trend continues in 2023, with Hawaii, Indiana, Iowa, Kentucky, Montana, Nebraska, and West Virginia joining the ranks of PTET adopters.
Of this group, Indiana, Iowa, Kentucky, and West Virginia have implemented retroactive PTET policies dating back to 2022. Nebraska’s PTET has retrospective implications for 2018. Meanwhile, Hawaii and Montana have chosen not to apply retroactive measures to their PTET implementations.
Eligibility Criteria
Eligibility for PTET hinges on the type of business entity. Partnerships, S corporations, and multi-member LLCs taxed as such are generally eligible to opt for state PTET. Conversely, sole proprietorships, single-member LLCs taxed as sole proprietorships, C corporations, most trust structures, and LLCs taxed as C corporations are typically ineligible.
Election Deadlines and Opt-Outs
It is important to note that while no state, except Connecticut, mandates a PTE to pay a state PTET, the decision to do so rests with the entity. Election deadlines for PTET vary from state to state.
In most states, a PTET election applies universally to all owners within the PTE, with individual owners usually unable to opt-out. Exceptions to this rule exist in Arizona, California, New York, and Utah.
Connect with Us
If the intricacies of the pass-through entity tax (PTET) raise questions or concerns, please do not hesitate to reach out directly at 757-410-8030. We are here to ensure that you have the clarity and confidence needed to navigate this evolving tax landscape effectively.
Paying taxes is a fact of life, but when the amount is excessive, you may not have the funds to pay in full. Making a mistake on your taxes can be costly as well, and if you plug in the wrong numbers, the IRS will surely come calling.
Whether you owe money to the IRS due to an innocent oversight, a lack of funds, or something else, ignoring the problem will not make it go away.
Once you owe money to the IRS, the clock is ticking, and all the while penalties and compounded interest will be piling up. So what should you do if you owe back taxes? Here are some critical steps to take.
Until you know how deep the hole is, you will not be able to start digging your way out. Before you do anything else, you should assess the situation, going through your old tax returns, reviewing communications from the IRS, and adding up what you owe the tax agency.
Once you have assessed the situation, you will be in a better position to make concrete plans. If you owe a lot of money, you may not be able to pay it off all at once, but with the help of a tax relief professional, you may be able to come up with a suitable repayment plan or you may be able to settle for less than you owe.
Owing money to the IRS is no fun, but you will have to resolve this one way or another. Hopefully, you can work out a more favorable payment plan
with the IRS, one that might allow you to pay a reduced amount, but that will depend on your income, your allowable expenses, and your assets, if any.
It is important to review your monthly household budget carefully if you owe back taxes to the IRS. Every dollar you can pay back is one less dollar you will owe interest on, so think about where you can cut back and how you might be able to free up some cash.
The bad news is that you owe back taxes to the IRS. The good news is you may be able to settle the entire amount, including penalties and interest, for a fraction of what’s owed through the IRS’s offer in compromise program.
If you qualify for one of those programs, you may be able to settle your debt for less than you owe, but this is not something to tackle on your own. Work with a tax-relief expert, both to identify the proper programs and to make negotiating with the tax agency easier and more effective.
You can use the budget you reviewed earlier to identify sources of income and resources you have access to. Once that information is presented, the tax-relief expert can help you find a suitable tax compromise plan that just might save you a lot of money.
Time is of the essence when you owe money to the IRS. Once those back taxes are assessed, the clock is ticking, and every day that passes will mean higher penalties, and compounding interest.
If you want to put your tax debt behind you once and for all, you will want to act fast. The sooner you start working on your tax resolution plan, the sooner you can take your financial life back.
To help ease the stress from your situation, we offer a free, no-obligation consultation with one of our tax resolution experts. You don’t have to worry about confidentiality or cost because the consultation is free with zero gimmicks or commitments. Schedule an appointment with one of our tax resolution specialists today by clicking on this link: https://calendly.com/premiersmlbus/consult .
One of the biggest stories in the world of business is the growing shift toward self-employment. An ever-increasing number of men and women are saying goodbye to their colleagues, their cubicles, and their corporate overlords, choosing instead to make their own way in life.
If you are one of these self-employed individuals or a new member of the gig economy, tax filing season could be more complicated than you think. Instead of merely plugging in the numbers from your W2, you will need to gather multiple forms, crunch the numbers, seek out deductions and look for solutions to tax problems you did not even know existed.
Faced with those difficulties, you will want to start your tax planning early. Here is a step-by-step plan for making the April 15 tax filing deadline a little bit less daunting.
Note: If you find yourself in tax debt, owe back taxes or are under audit, our firm can help negotiate with the IRS and potentially settle your tax debt. As a tax resolution firm, we always recommend that you reach out to a professional who knows how to aggressively negotiate and defend you against the IRS on your behalf. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about. https://calendly.com/premiersmlbus/consult
Verify Your Advance Tax Payments
The only thing worse than paying money to the IRS is not getting credit for it. As a self-employed individual or gig worker, you have probably made advance payments to the tax agency on a quarterly basis, so dig out those canceled checks, grab those receipts and get ready for tax time.
When you file your taxes you will need to input the dates you submitted those quarterly payments, and those days may or may not coincide with the formal schedule laid out by the IRS. Keep in mind that a small inaccuracy could create a big problem, so gather the documentation and get it right.
Add Up Your Income
Even if you are relying on your clients to issue 1099 forms, it is a good idea to tally up your income on your own. Keep in mind not all clients may issue 1099s, and the ones that do could report inaccurate or incomplete figures, and by adding it up on your own you will be able to catch these problems early, while replacement forms can still be issued.
Adding up your income will also serve a number of other purposes, each important to your timely tax filing and the maximizing of your hoped-for refund. For one thing, knowing how much you earned will allow you to maximize retirement plan contributions aimed at the self-employed, a big potential savings you might otherwise miss out on. Adding up your earnings will also allow you to estimate your tax due or refund, giving you time to prepare and helping you avoid an unpleasant shock when April 15 rolls around.
Tally Your Expenses
The world of self-employment can be taxing, but there are also potential savings to be had. As a self-employed individual or member of the gig economy, you may be able to write off everything from office supplies and furniture to computers and gasoline for your car.
Now is the time to tally your expenses so you do not miss out on a valuable deduction when filing season rolls around. Be sure to look at expenses that may have been paid automatically as well, including recurring payments for routine costs like internet access and phone service.
Seek Out Additional Deductions
The calendar year may be over, but you still have time to reap some valuable deductions. Now that you know how much you have earned in self-employment income, you have the opportunity to seek out new deductions and maximize the ones you have already taken.
If you participate in a retirement program for the self-employed, for instance, you can contribute additional money up to the tax filing deadline, giving you a chance to pile current earnings in and apply them against the taxes that would otherwise be due. These generous tax breaks for retirement savings are among the most valuable for the self-employed, and you still have time to take advantage of them.
It goes without saying that you should consult a tax expert for specific questions about retirement plan contributions, possible deductions, and other applicable subjects. Even if you plan to file your own taxes, consulting with an expert could save you a lot of money.
Run the Numbers through a Tax Estimator
For many in the self-employed community, early filing is simply not an option. If you have investments in a brokerage account, for instance, you may not receive the tax forms you need until well into February or even March, making tax planning that much more difficult.
The fact that your personal tax filing season will likely be delayed is certainly frustrating, but it does not mean you cannot run the numbers on your own. You can estimate your tax bill online using the figures you have already compiled, giving you a good idea of what to expect when the real filing season rolls around.
A number of tax preparation companies, including big names like H&R Block and Intuit, provide free online calculators, so you can assess your tax situation well in advance. If you prefer you can simply enter the numbers you do have into your favorite tax filing software program for a fast and easy estimate.
Tax filing season is stressful for nearly everyone, but it can be a particularly challenging time for gig workers and the self-employed. From chasing down forms from reluctant clients to finding deductions that will lower the tab, the self-employed and members of the gig economy must overcome many hurdles by the time the tax filing deadline rolls around, and the sooner they get started the easier their lives will be. The tips listed above will help you slay your own personal tax demons, so you can rest easy and focus on building your business.
If you find yourself a large surprise tax bill or a collection notice from the IRS, the steps you take next are absolutely critical. Trying to take on the IRS on your own is a dangerous, and potentially expensive, thing to do, and you should always contact a tax resolution firm.
By working with an expert, you can gain access to vital information about small business settlement programs the IRS offers. You can gain access to the expertise you will need to settle your tax bill for less than you owe and get back in the good graces of the IRS. Time is of the essence when the IRS comes calling, and with the interest and penalty clock ticking you do not have one second to waste. So call us, your tax resolution expert, for a case evaluation. https://calendly.com/premiersmlbus/consult
Whether you are expecting a nice tax refund or preparing to write a big scary check, you know that April 15 is the annual tax filing deadline. What you may not know, however, is that tax day is every day at the IRS, and the tax agency is always reviewing the information taxpayers and business owners have provided.
That means that keeping tax records is about more than just smart bookkeeping – it is an integral form of self protection. You see, millions of Americans get letters from the IRS stating they owe back taxes or requesting more information about their tax returns.
It may be disconcerting, but the IRS has the right to request additional information months, or even years, after the return you filed has supposedly been processed and accepted. In fact, the much feared tax agency can request additional documentation for up to three years after the annual tax deadline has come and gone.
We help people resolve their back tax problems and often settle with the IRS for less than the amount they owe, but in order to do this, we need to provide the right records. Thats where having your tax records saved can be the difference between settling your tax debt or not.
As a result, it is important to retain your tax records and keep certain tax documents on hand, just in case the IRS asks for them. Here are the most common tax records and how long you should keep them around.
If you owe back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about. [https://calendly.com/premiersmlbus/consult]
In most cases the IRS will have up to three years to question the figures you reported on your tax return, or otherwise challenge the information you provided. You may think the tax year is over, but for the IRS the final curtain does not fall for a full 36 months.
For this reason, it is generally a good idea to keep your old tax returns for a minimum of three years. You do not necessarily have to print and retain hard copies of your tax returns – electronic documents are fine as long as you will be able to access them quickly should you need them.
If you fail to keep copies of your tax returns, you can still access them by asking the IRS for transcripts. It is best to keep your own records, and doing so will make your life a lot easier.
As with the tax returns themselves, it is generally a good idea to keep your W2 forms for a minimum of three years. This will provide you with the documentation you need should the IRS find a discrepancy between the amount of income you reported to the agency and the figures your employer provided.
It is also a good idea to retain at least your year-end pay stubs, not only to help reconcile them with the W2 forms but also for other forms of income documentation. If you are applying for a mortgage, for instance, the lender may ask to see several years worth of tax returns, pay stubs and other income documents, and having them on hand will make the application process faster and easier.
The IRS looks at all of the income you report when you complete and submit your tax returns, but the agency does not just take your word for the accuracy of those figures. Instead the IRS uses sophisticated matching programs to compare the amount of income you reported from various sources with what they receive from third party sources.
Those third party sources could include your bank and credit union, your brokerage firms and mutual fund companies and any other places that provide you with income. It is therefore a good idea to hold onto any income related forms you receive for at least three years, and possibly longer if you run your own business or earn income from gig work or freelancing.
Once again, these income documents can do double duty, serving as backup if the IRS questions the numbers on your tax return but also giving you the information lenders and others might need down the road. If you store these documents electronically you will not even need to worry about buying a file cabinet, so there is really no reason to not keep them around.
Filing taxes can be a stressful experience, but the difficulty does not end when you click send on your e-filed tax return. Even after that return has been filed and accepted, the IRS could still question or challenge your numbers, and that is why it is so important to retain the backup documentation until the challenge window has passed. Now that you know what to retain and for how long, you can rest a little easier when tax time rolls around.
If you do run into tax trouble or the IRS states you owe back taxes, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem. [https://calendly.com/premiersmlbus/consult]