Year: 2021

Rental Real Estate Tax Tips – Income, Deductions and Recordkeeping

As a rental real estate owner, it’s important to be aware of your federal tax obligations. Knowing this information up front will prevent you from getting into a problematic situation. The first thing to understand is the method of reporting you use will depend on whether you’re a cash basis or accrual method taxpayer. The next important topic is knowing the exact classification of rental income.

The IRS states that “generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of the property. You must report rental income for all your properties.” They also explain that other forms of payment may need to be reported on your tax return, including advance rent, payments for canceling a lease and security deposits that you end up keeping.

 

More Types of Rental Income (Plus Tips on Deductions)

Another area that can get confusing is expenses paid by a tenant. As the IRS explains, “expenses paid by tenant occur if your tenant pays any of your expenses. You must include them in your rental income. You can deduct the expenses if they are deductible rental expenses.” Other income areas to be aware of include property or services received lease with option to buy and part interests in rental properties.

 

Now that we’ve covered all the different types of income that the IRS expects rental real estate owners to report, you’re probably wondering what kind of deductions are available. Deductible expenses can include mortgage interest, property tax, operating expenses, depreciation, and repairs. The IRS allows you to deduct the ordinary and necessary expenses for managing, conserving and maintaining your rental property. Interest, taxes, advertising, utilities, certain supplies, and maintenance are all examples of deductions that rental real estate owners can generally make.

 

One deduction that’s not allowed is the cost of improvements. The IRS makes it clear that a “rental property is improved only if the amounts paid are for a betterment or restoration or adaptation to a new or different use.” However, it can be possible to recover some or all of your improvements by using Form 4562 to report depreciation beginning in the year your rental property is first placed in service, and beginning in any year you make an improvement or add furnishings.

 

As you can see from both the income and deductions side, there’s a lot that goes into staying on track with your tax obligations as a rental real estate owner. These obligations are why it’s vital to keep good records. The IRS makes it clear that you “must be able to document all information if your return is selected for audit. If you are audited and cannot provide evidence to support items reported on your tax returns, you may be subject to additional taxes and penalties.”

 

If you have any other tax questions related to rental real estate, you can easily get a free consultation with Donohoo Accounting Services by calling 513-528-3982.

Do Nonprofits Need to File Annual Tax Returns?

Many nonprofits are exempt from paying federal taxes. As a result of this exemption, there are often questions around whether or not this type of organization needs to file an annual tax return. Even though a nonprofit may not have to pay any taxes with the federal government, they generally are required to file an annual tax return.

The specific return that most nonprofits need to file is Form 990. This form is specifically designed for organizations that are exempt from federal taxes. The purpose of this form is so the IRS can understand how a nonprofit is handling its operations. This form can also be used by members of the general public to understand the specifics of a nonprofit they may be interested in supporting. By looking at the different elements of Form 990, which include information about a nonprofit’s mission, programs, and finances, it’s possible to be aware of any potential red flags.

More Information About Form 990

Just as individuals may need to file different types of tax returns, there are different versions of Form 990. The specific version that an organization is required to file depends on its size. Larger nonprofits with gross receipts of more than $50,000 file Form 990 or 990-EZ, while smaller nonprofits with gross receipts of less than $50,000 file Form 990-N (e-Postcard). And private foundations need to use Form 990-PF.

If your nonprofit does need to file this form, the due date is the 15th day of the 5th month after the end of your organization’s taxable year. So for an organization that follows a standard calendar year (January 1 – December 31), May 15th would be the annual due date.

Exemptions and Penalties

Although the majority of nonprofits are required to file a version of Form 990, there are certain organizations that are exempt from this requirement. Those organizations include most faith-based organizations, religious schools, missions or missionary organizations, as well as subsidiaries of other nonprofits. Government corporations are often exempt from needing to file, as are state institutions that provide essential services. Nonprofits should always consult directly with the IRS if they have any questions about whether or not they’re required to file.

The reason it’s crucial to know if you need to file Form 990 is the failure to do so three years in a row will result in an automatic loss of tax-exempt status. Over the last five years, more than half a million nonprofits have lost their tax-exempt status for this very reason. Given that the IRS has no appeal process for automatic revocations due to failure to file an appropriate Form 990 for three years, this is an issue that needs to be a top priority for your organization.

For expert help with your nonprofit tax return preparation, contact Donohoo Accounting Services by calling 513-528-3982.

 

 

Garnishment 101

The term garnishment means that debt collectors can take payment for what they’re owed directly from someone’s bank account or paycheck. Although that sounds quite scary, it’s important to understand that garnishment is generally viewed as a last option for debt collectors. But even though the road to garnishment is long, it does happen, which is why we want to help you better understand the details of this process, along with what you can do about it.

The Basics of Garnishment

The two types of garnishment are wage and nonwage. With the former, a creditor will be able to legally obligate your employer to give part of what you earn each month for your debts. And with nonwage garnishment, creditors can legally tap your bank account to help pay debts.
As mentioned above, both types of garnishment come after a debt collector has made multiple attempts to secure some type of payment for what they’re owed. However, wage garnishment is still surprisingly common. A study of thirteen million employees found that 7.2% had their wages garnished over the course of a year. For employees between the ages of 35 and 44, over ten percent were impacted by wage garnishment. Of the nearly million employees identified in this report, the most common reasons for wage garnishment were child support, consumer debts, student loans and then tax liens.

The standard process for garnishment occurs after a debt goes unpaid for a period of time, which is often six months. The debt is then often sold to a collector, who in turn may try to secure payment and then sue if unsuccessful. Losing this suit or not showing up at all can result in wage or non-wage garnishment. It’s worth noting that in cases involving federal student loans, child support or back taxes, garnishment can occur without requiring a court order.

What You Can Do About Garnishment

Individuals do have some specific rights in regards to garnishment, including receiving legal notification, being able to file a dispute if information is incorrect, exemption of certain forms of income like Social Security and being protected from getting fired over one wage garnishment (although this protection doesn’t apply if you have multiple garnishments).

Once a garnishment is instituted, options for dealing with it include working out a different deal with the creditor, challenging the judgment or paying off the garnishment in a lump sum. Keep in mind that a garnishment will show up on your credit report and stay for as long as seven years, so taking any available steps to prevent the situation from escalating to this point will help you a lot in the long-term.

If you’re dealing with wage garnishment, Donohoo Accounting Services has the expertise to help. Call us now at 513-528-3982 for a free consultation.

 

 

How to Reduce Your Tax Bill in 3 Simple Steps

No one wants to find themselves in a position where they owe additional taxes. This is why we always encourage individuals to think about their tax liability throughout the year. By keeping your taxes in mind, you can take strategic actions like pre-paying your next mortgage payment or making a charitable donation. While these are just a couple of examples of how you can reduce what you owe in taxes each year, they do have a deadline. If you don’t take these actions in a timely manner, you won’t be able to reap any benefits until your next tax filing.

Although we encourage staying on top of your taxes all year, we understand that life gets busy. There are plenty of situations where people have plans to take strategic actions, only to end up missing the deadline. If you find yourself in this situation and wish there was something you could do to help offset what you may owe in taxes, you’ll be happy to learn that there a few options available. Even if you find yourself getting down to the wire with the deadline to file your taxes, here are three different ways you can still reduce what you owe:

1. HSA Contributions

Does your health coverage include an HSA-eligible health insurance plan? If so, making a contribution as a family or individual can provide you with a deduction worth several thousand dollars. Just keep in mind that there have been quite a few changes in recent years as to exactly which plans are eligible, which is why it’s always a good idea to check with a tax professional first.

2. American Opportunity Tax Credit

If you’re the parent of a college student, the American Opportunity tax credit is a break you won’t want to miss. It’s worth up to $2,500 per eligible student for the first four years of college. The reason you can claim this credit even when time is coming down to the wire is all you need is a Form 1098-T, which will provide the EIN you need to include on your return.

3. (SEP) IRA Contribution

Whether you work for a company or are self-employed, you can reduce what you owe in taxes by making an IRA contribution. If you are self-employed and file an extension, you can make your contribution up until your return is officially filed.

At Donohoo Accounting Services, we understand the stress that can go along with planning and filing taxes. That’s why we offer tax planning and tax return preparation services. If you want to work with a team that has over two decades of tax experience, call us at 513-528-3982 for a free consultation.