Tag: tips and tricks

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.

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.

 

The Best Ways to Reduce Your Tax Prep Bill

Working with a reputable professional to file your taxes can save you a lot of time. It can also save you money. However, plenty of people worry that they’re going to end up paying more than they want for tax prep services. While the savings you’ll get from working with someone who understands all the nuances of the tax code will almost always exceed the fee you pay, we want to take things a step further and share some tips on how you can keep your tax prep bill to a minimum:

Avoid the Temptation to Procrastinate

Tax season is a very busy time of the year. Tax professionals have a lot of people coming to them for help. So if you go to your CPA with a huge pile of documents that aren’t organized, chances are you’re going to be charged a higher fee due to the extra amount of work that’s involved. You can prevent this from happening by committing to staying on top of all your tax documentation throughout the year instead of trying to rush and bring it all together as the filing deadline is ticking down.

Create a System for Documentation

The reason so many people do procrastinate with their taxes is they think dealing with all the documentation is a major hassle. Even though it can be a little complicated, it doesn’t have to be a huge burden. The key is creating a system for how you’re going to keep all your documentation. Whether that involves physical folders or scanning your documents into a piece of software like Evernote, picking a system that works for you and then sticking with it will make a huge difference.

Check in Throughout the Year

Once you decide on your system for managing your documentation and then start using it, you’ll want to review how everything is going every few months. If you realize that something isn’t working as well as you expected, don’t hesitate to tweak your approach right away.

Get Rid of Documents You Don’t Need

This is an example of what you can gain by checking in throughout the year. You may discover that some of the documents you kept aren’t actually important. If that is the case, don’t keep them in your system. Getting rid of clutter will make it much easier for everyone when tax filing season comes around.

Whether you want our expert help filing your tax return or want to get a jump on things by working with us on tax planning, we’re here to help! Simply give us a call at 513-528-3982 to arrange a free consultation.

 

Don’t Pass Up the Earned Income Tax Credit

Anyone who works should see if they qualify for the Earned Income Tax Credit. While the EITC is most often associated with families, it can still work for certain people who are single and don’t have children. The reason it’s worth looking into this credit is it can reduce the taxes you owe. In fact, it will be refunded even if you don’t end up owing any taxes. Given that more than twenty percent of the people who are eligible for this credit fail to claim it (with single workers who have no children being the largest demographic within this group), looking into this topic is something that can pay off for you in a significant way.

 

2016 EITC Income Limits and Credit Amounts

As mentioned above, both single and married taxpayers may qualify for the EITC. The income limits we’re going to cover apply to both earned and adjusted gross income. This credit is available to an individual with no children who makes less than $14,880. The limit goes up to $39,296 for one child, $44,648 for two children and $47,955 for three or more children.

For a married couple filing jointly with no children, the limit is set at $20,430. It goes up to $44,846 for one child, $50,198 for two children and $53,505 for three or more children. Both individual and married filers can only have investment income of up to $3,400.

The amount of the EITC depends on how many children a filer has. This credit starts at $506 for those with no children, then increases to $3,373 for filers with one child. The maximum EITC for two children is $5,572 and $6,269 for those with three or more children.

 

A Quick Note About Delays

Because of the PATH Act, early filers who claim the EITC or Additional Child Tax Credit may experience a slight delay in getting their refund. For a full explanation of this issue, be sure to read our previous post – New Federal Tax Law May Affect Some Refunds Filed In Early 2017.

 

The Simplest Way to Check and Claim the EITC

If you have any questions about your eligibility for this credit or have concerns about making a mistake in claiming it, Donohoo Accounting Services can help. With over two decades of experience, our tax return preparation service will take care of checking your EITC eligibility, calculating the exact credit amount and ensuring all necessary information is filed out to claim it. You can also easily get in touch with our office by calling 513-528-3982.