By topic: Investments
If you buy a property, fix it up, and then sell it, is that property a dealer or an investor property? The classification boils down to your facts and circumstances. That makes it a tough call for both you and your tax preparer. And if investor status produces long-term capital gains, you want to avoid dealer status, because that causes ordinary income and self-employment taxes.
If you are an employee with company stock in your retirement plan, you can use the net unrealized appreciation tax treatment to save money on your taxes.
How would you like a capital loss storage box that you could call on when you have capital gains that you want eliminated? Your cryptocurrency holdings can create that capital loss storage box without changing the nature of your holdings, as we explain in this article.
When the government allows your rental property losses to offset your other income, it subsidizes your rental property profits. If tax law passive-loss rules deny your current rental losses, your profits go down. Therefore, you need to know how the passive-loss rules work so you can maximize your rental profits and avoid unpleasant visits with the IRS.
If you are looking for a wild ride, examine cryptocurrency. Not only can it rise to $55,000 and then drop to $30,000 in a matter of weeks, but it can also trigger significant tax consequences. And now, the IRS wants to know about you and your cryptocurrency activities.
The federal Rehabilitation Tax Credit provides a 20 percent tax credit for owners or leaseholders to renovate certified historic buildings. Most states offer similar tax credits, with different percentages, providing additional cost savings. But this is tax law, and as you would expect, there are some tricky rules that you need to follow to qualify for these huge subsidies.
College is expensive. Data for the 2019-2020 academic year indicates that the average cost of tuition, fees, room, and board was $30,500. Tax law has provisions to help you cover the costs, including Coverdell, Section 529 savings, and Section 529 tuition plans. There’s more, of course, as you will learn in this article.
If you are the victim of a Ponzi scheme, you absolutely, positively must read this article to learn how the law gives you favored victim status. This includes a safe harbor election that gives you an upfront deduction of up to 95 percent, possible net operating loss treatment, and more.
When you take advantage of the tax code’s offset game, your stock market portfolio can represent a little gold mine of opportunities to reduce your 2020 income taxes. The tax code contains the basic rules for this game, and once you know the rules, you can apply the correct strategies. In addition to saving taxes with the game of offset, you can also avoid paying taxes on stock appreciation by gifting stock to charity, your parents, and your children who are not subject to the kiddie tax.
An unprecedented nationwide moratorium on evictions for non-payment of rent is in place through the end of 2020 (and for even longer in some states). But landlords may still be able to evict some problem tenants, and even sue for overdue rent. Other options include entering into payment plans with struggling tenants, seeking forbearance from lenders, and obtaining low-interest SBA loans. That’s the practical problem—and then you have the tax issues. Rental losses may or may not be deductible against non-rental income, subject to complex passive loss rules, as we explain here.
The properly used business vacation home or condo does not run up against the oppressive vacation-home, passive-loss, or entertainment-facility rules. That’s a huge plus. And with the COVID-19 pandemic, use of the vacation home for business lodging makes good sense.
The partnership choice of entity allows special allocations of income and expenses to individual partners, which can give the partnership a leg up as your possible choice of business entity. In this article, we explore the allocation rules and give you the ins and outs.
COVID-19 has created many tax breaks for you and your business to mitigate the financial difficulties caused by the coronavirus. In this article, we explain how you may be able to take money from your IRA and other retirement accounts, avoid early withdrawal penalties, and have generous options on repayment (or not). We also explain when you don’t have to take the required minimum distribution from your IRA.
If you operate as a sole proprietor or are the sole owner of an S or C corporation, the solo 401(k) can create the ideal retirement plan if you don’t have employees who work more than 1,000 hours a year for your business. This article provides you with great insights into the solo 401(k).
Talk to a business owner who has been in business for a while, and he or she will tell you to make sure that you put a retirement plan in place. When you are starting out and have modest income, the SIMPLE-IRA can be the perfect plan, as explained in this article.
The Tax Cuts and Jobs Act (TCJA) likely requires that you rethink the tax strategies you were using on your vacant land investments. And the TCJA changes may be such that you have to rethink vacant land as an investment, at least for the years impacted by the TCJA.
As with all financial transactions, divorce comes with tax consequences. And those consequences have changed for tax years 2018 and later thanks to the Tax Cuts and Jobs Act (TCJA). If you are thinking of divorce or are currently in the process, make sure to read this article.
If you plan to buy a building that you are going to rent to your business, you need to know the tax rules to obtain the best benefits. Here, you will learn about an income tax election that you can make on your IRS Form 1040 to avoid the passive loss rules that deny current-year rental losses.
When you take advantage of the tax code’s offset game, your stock market portfolio can represent a little gold mine of opportunities to reduce your 2019 income taxes. The tax code contains the basic rules for this game, and once you know the rules, you can apply the correct strategies. In addition to saving taxes with the game of offset, you can also avoid paying taxes on stock appreciation by gifting stock to charity, your parents, and your children who are not subject to the kiddie tax.
Section 1202 allows you to sell a qualified small business corporation on a tax-free basis. Now, add to this no-tax-on-sale benefit from the 21 percent corporate tax rate from the Tax Cuts and Jobs Act, and you have a significant tax planning opportunity.
When you have both personal and rental use of a dwelling, you trigger some tricky tax code rules you need to know. With both personal and rental use, you create the possibility of tax-free rent, rental property deductions, and additional personal residence deductions.
The IRS publication on rental properties contains an error. It states that you may not deduct mortgage insurance on your rental property. That’s wrong, as we explain in this article.
What rules apply for purposes of the new 20 percent deduction under Section 199A when you rent an office or other building to your personally owned C corporation?
To operate successfully as a corporation, you need to be good at paperwork. Also, you may not treat the advance account on the corporate books as your personal slush fund.
Applying the Section 199A deduction to your rental activity isn’t easy. If you’ve got multiple rental activities, it’s more complex with additional complications. Don’t worry, though—we’ll go step by step through the considerations so that you know you’ve got all your bases covered.
The Roth IRA is an excellent way to grow your retirement savings, but the ability to make contributions to a Roth is phased out beyond certain income limits. A backdoor Roth allows you to make an end run around the limits.
How does the tax law treat the classic or antique car when you use it for business? Can you deduct it just as you would any car you use in business? Learn how some tax law changes enabled the classic or antique car as a business asset and why that can work to your advantage.
The IRS safe harbor that you find in Notice 2019-7 may well represent a red herring for you because your rental properties likely already qualify as a business for the Section 199A deduction. If so, you can avoid the complexities of the safe harbor.
Do you have an inside buildup of cash value in your life insurance policy? Are you taking loans from the policy or letting the policy ride with premiums being paid from the cash value? If yes, make sure you know the tax consequences of your actions.
You operate your professional practice as a C corporation. Your spouse rents your office to your C corporation on a triple net lease. Does your spouse qualify for the Section 199A deduction on the rental income, and if not, what can be done about it?
Qualified opportunity funds are a new tax-planning strategy created by the Tax Cuts and Jobs Act tax reform. The new funds have the ability to defer current-year capital gains, eliminate some of them later, and then on the new investment make capital gains tax-free. To put the benefits in place, you need to navigate some new rules and time frames.
Your stock market portfolio can represent a little gold mine of opportunities to reduce your 2018 income taxes when you take advantage of the tax code’s offset game. The tax code contains the basic rules for this game, and once you know the rules, you can apply the correct strategies. In addition to saving taxes with the game of offset, you can also avoid paying taxes on stock appreciation by gifting stock to charity, your parents, and your children who are not subject to the kiddie tax.
The first good news is that you can be both real estate investor and real estate dealer with respect to your real estate portfolio. The next good news is that you are in control, and by knowing just a few rules about dealer and investor classifications, you can do much to increase your net worth.
Tax reform made a lot of changes that impact your choice of entity for your business. And if your business is in the cannabis industry, this is especially true. We’ll explain how Section 199A and other Tax Cuts and Jobs Act provisions impact your entity choice for a cannabis business.
The proposed Section 199A regulations give us guidance on whether rental activities qualify for the 20 percent deduction. If you use triple-net leases for your rental properties, you may wonder if you’ll get your deduction. We’ll discuss what we know and whether triple-net leases qualify for the deduction.
You could be like most taxpayers and think your IRA accounts have locked away your money until age 59 1/2 unless you are willing to pay a 10 percent penalty to access the monies. But that’s not correct: we’ll show you three ways you can take your money out of your IRAs tax-free or penalty-free, or both, regardless of age or reason.
To deduct your passive losses as a tax law–defined real estate professional, you or your spouse, or both, must prove time spent. Since you need proof of time spent to deduct rental property losses, use the tactics in this article to keep track of your time and also increase your overall profits on the rentals.
Section 199A gives you up to a 20 percent tax deduction for your pass-through business income. Do your rental activities count? We’ll go over what the proposed Section 199A regulations say about your rental activities and whether those activities qualify you as an individual for this possible 20 percent tax deduction.
If you have high income and operate an out-of-favor specified service business, you may think your Section 199A deduction is gone for good. But there is hope: we’ll explain how a conservation easement may be the solution to your problem. And if the numbers work out, you could get a large tax windfall in the process.
Calculating your Section 199A deduction with one business is complicated. When you have multiple businesses, including businesses with losses, it gets even worse. We’ll clearly explain the rules related to multiple businesses along with how the new proposed regulations may allow you to aggregate certain businesses.
Here’s a resource guide that gives you the Tax Cuts and Jobs Act tax reform articles published at the Bradford Tax Institute from January 1 through July 31, 2018, including for each article the (a) topic, (b) code section, (c) prior law, (d) new law, and (e) link.
Cost segregation has always been a valuable strategy in your tax strategy toolkit. And now, thanks to tax reform’s recent changes to bonus depreciation, cost segregation is even better. We’ll show you the value of a cost segregation study post–tax reform, strategies you can use that involve cost segregation, and potential problems to avoid.
When moving your retirement money to an IRA, you should follow this one rule of thumb. If you fail to follow it, you can face two big problems. First, your check will be shorted by 20 percent. Second, you will be on the search for replacement money.
Tax reform changed the tax treatment of certain self-created intangible property. Does this affect goodwill? We’ll review the tax treatment of goodwill in light of tax reform.
Congress created the qualified improvement property category in the Tax Cuts and Jobs Act with the idea that you could fully expense such qualified property with bonus depreciation. But Congress made an error in the law, and now you can’t use bonus depreciation for qualified improvement property. Don’t worry—we’ll explain how you might be able to fully expense it anyway.
Passive foreign investment companies, or PFICs, are subject to some of the most complex provisions of the tax law. You may own one and not even know it. In this article, we give you the basic rules so that you know what PFICs are and the different ways you can pay tax on them (yes, you have options!).
The new and improved Section 179 deduction gives you more ways to take advantage of immediate tax deductions. It’s somewhat like having a flexible tax shelter in your back pocket for when you need it (and also need the property, of course).
The recent tax reform, known as the Tax Cuts and Jobs Act (TCJA), added some good benefits to your real estate rentals, both commercial rentals and residential rentals. Notably, your qualified business income from your real estate rentals creates a possible 20 percent tax deduction with no effort on your part. And if you want less taxable income, the TCJA gives you enhanced bonus depreciation and new avenues for Section 179 expensing.
Section 1031 exchanges are perfect when you are going to stay in the real estate rental or investment business. When it’s time to cash out, you need to look at different strategies that help you avoid taxes and give you cash to spend (liquidity).
Having a business or activity operated as a partnership means extra tax return filings and compliance headaches. But you might qualify to elect out of partnership treatment. Here, we discuss the two elections available, when you qualify or not, and the impact of making an escape election.
The legal marijuana industry is booming across the U.S. But there are tax problems: since marijuana is still a federally controlled substance, selling it comes with costly federal tax consequences. The good news is that with knowledge of the law in this area and some planning, you can cut the tax bill that Uncle Sam would otherwise send you.
If you are buying a business that will include more than one co-owner, you need a buy-sell agreement—period. You have multiple reasons to put the buy-sell agreement in place and not one reason not to have a buy-sell agreement. But when you start to put the agreement in place, you need to consider the planning strategies in this article.
More businesses are accepting bitcoins as payment. To the IRS, bitcoin is not the same as cash. You should know the tax implications of accepting bitcoins in your business and the major pros and cons of doing so.
You generally buy an existing business because you believe that the existing business represents less of a risk than starting a new business from scratch. That may be true. And you help make that true when you do your due diligence.
Each state’s LLC act provides default rules for governing your LLC and the members’ rights and responsibilities. Odds are they don’t provide what you want. Luckily, the defaults can be overridden by an operating agreement.
When you buy a business, you probably don’t want the former owners competing with you—at least not for a while. To prevent the competition, you generally enter into a noncompete with the former owners. This has tax implications that you need to consider.
When you are looking to buy a business and then operate that business as a C corporation, you should consider the tax benefits you can realize by creating debt as part of the corporate capital structure. If you do this, you need to put the debt in place so that the IRS will respect the debt as debt and not treat it as equity.
Looking for that extra boost to your retirement savings? Your first thought may have been to contribute to a traditional IRA. But before you do that, we have something else to show you. Consider a health savings account (HSA). That’s right. An HSA can be more than just funds you set aside to cover those copays. This is one surprisingly powerful savings tool that provides a much-needed boost to your retirement savings. See why an HSA provides some big benefits you won’t get with a traditional IRA.
When you can buy the target’s stock and treat the deal as an asset purchase, you have a real possibility of bringing tax-benefit smiles to both you and the seller. So if you are buying a business, make sure you know when the tax rules allow you to buy the stock of the target and treat that stock purchase as the purchase of the target’s assets.
Business owners continue to get caught in the complex rules of the self-rental trap. A recent case taken from the Tax Court to the Fifth Circuit shows how business owners can get into tax trouble with self-rentals. But with proper tax planning and possible use of special rules called “grouping,” you can minimize and even eliminate the tax cost of the self-rental trap.
When you operate your own business, don’t pay yourself last. Pay yourself first. That’s a wealth-building strategy. And if you can combine the pay-yourself-first strategy with a retirement plan, you supercharge your wealth strategy.
Special rules apply to inherited traditional IRAs. In this article, we look at non-spousal IRA inheritances that have their own sets of special rules. For the most part, you will like the rules. And in setting up your IRA for your beneficiaries, you should consider the stretch strategy.
You’ve decided to incorporate a new or existing business. Good news: incorporating a business is usually tax-free. But to make this work when traveling this road, you must meet the requirements for a tax-free incorporation and avoid the situations that cause taxes.
When setting up your new or acquired business, you and your co-owners should consider the multi-member LLC, another form of LLC, or the straight-up partnership. This is the last article in our three-part series on the “choices of entity” for a newly acquired business. Make sure to consider the options in this article if you are acquiring or starting a business with more than one owner.
When you are buying a business, you want to buy not only at the right price, but also in a manner that keeps your taxes as low as possible. If you structure your deal as an asset purchase, you can use tax-smart price allocations that give the best tax result. And you likely want to include a stipulation in the purchase agreement that can reduce your chances of an IRS audit.
When buying a business, you face many decisions. One such decision is whether you should buy the assets of the business or the ownership interest. Here, you have both legal and tax issues to consider. Also, depending on the entity you are looking at buying, the ownership purchase option may not be available.
Planning on leaving the U.S.? If so, you have two choices from a tax perspective, but neither is painless. The tax law that applies to foreign living and expatriation can be tricky, so it’s essential that you depart the country correctly.
In this official tax code program, the landlord-investor benefits because he has no vacancies, few hassles, no management fees, and a known cash flow. The tenant-investor benefits because he gets into this home with little or no down payment, builds equity while paying rent, and gets detailed knowledge about the property while living there. At some agreed-upon future point in time, the landlord-investor sells his or her interest in the property to the tenant-investor or the two of them sell the property to a third party.
The government taxes rental income just like any other income. However, a little-known loophole in the tax law may allow you to completely exclude some rental income from your income taxes. The requirements to qualify are simple, but there are some issues that could complicate your ability to use this loophole.
In this part 2 article on choosing the right entity for your newly acquired business, you learn how the three possible corporations work and the advantages and disadvantages of each. In part 1, published last month, you learned about proprietorships and single-member LLCs taxed as proprietorships.
As a successful entrepreneur, you’re used to managing every aspect of your business. So it makes sense to pick a retirement plan like a self-directed IRA that gives you virtually unlimited discretion in your investment choices. But when you take this route, be very careful! You need to know the rules of the road, or you could trigger the collapse of your IRA and incur a retirement-ruining tax bill.
The Protecting Americans from Tax Hikes (PATH) Act enacted last December created a new (somewhat hidden) tax break when you make improvements to your nonresidential property. Nonresidential property is any real property you don’t use for dwellings, such as offices, stores, warehouses, hotels, and motels. Don’t be one of the thousands who overlook this new tax break. It’s easy to qualify for, and it can put big, immediate dollars in your pockets.
When you start a business either from scratch or by purchase, you need to consider the business entity in which you will operate. In this article, we discuss the sole proprietorship and the single-member LLC as possibilities. Both of these entities offer income tax simplicity.
If you have investments that generate foreign income, including U.S. mutual funds, you likely pay foreign taxes on that income. You can use one of two methods to reduce your U.S. taxes for any foreign taxes paid, and one method generally leads to a greater tax savings than the other. Not maximizing this benefit can cost you thousands in extra taxes over the years.
You may have heard that options are the perfect way to increase profits on real estate investments and rentals. Well, perfect is probably an overstatement, but good profits are available when you know what you are doing. You also need to know the tax rules to avoid clauses, charges, and events that can turn options into sales and trigger taxes when you least expect them.
You face special tax laws when you attempt to buy a rental property and that purchase attempt fails. In general, the rules work to help you with that failed purchase, but you need to know how and when the rules work for you.
You have tax decisions to make every year when you own a vacant lot and/or unproductive land. It starts with the interest and property taxes and what you can or cannot deduct as itemized deductions. If you can’t deduct some or all of the interest and property taxes, then you can capitalize them by making a formal election in your tax return. But if you incur other costs, you likely sit in a Catch-22 where you simply suffer the 2 percent floor on miscellaneous itemized deductions and the alternative minimum tax (AMT).
Take advantage of the government’s tax-free $250,000 home-sale-profit exclusion ($500,000 if married) by selling your home to an S corporation that you establish. This gives you two things: (1) tax-free income and (2) a step-up in basis for the rental house.
When you sell a business, you and the buyer may structure a contingency that can vary the selling price. The tax code gives you three basic reporting possibilities for contingent prices, and, of course, the three possibilities give you planning opportunities.
The tax implications for your office building and rentals have changed. Now when you fix up and improve those buildings, you need to be alert to additional savings that were not available in some prior years. Further, if you are buying a new building, you absolutely need to examine how you can create deductions where none existed before.
The IRS is pursuing taxpayers with foreign accounts and activities. You are likely aware of the FBAR and Form 8939 filing requirements, but the tax code has many other lesser-known required filings that carry large penalties for non-filing. Get onboard now. Learn the tax code’s requirements and how you might fix noncompliance and avoid huge penalties.
Get ready to thank the IRS. With the new tangible property regulations you can write off replaced components and achieve two types of tax savings. Before the new regulations, if you replaced a roof, you likely continued to depreciate the old roof and also depreciated the new roof. The old roof—the ghost roof—usually triggered additional recapture taxes. You are going to like the new rules, especially the two new types of tax savings.
If you are selling your S or C corporation, you have plenty to think about. And of course, the buyer has much to think about too. By using an election in the tax code, you and the buyer can get on the same page so you can sell with one level of taxation and also give the buyer what the buyer wants most—a step-up in basis of the assets acquired.
What happens if you die? Or, in particular, what happens if you own an S corporation with others and one owner dies? Will you want to deal with the heirs? If not, how will you pay off the heirs? You might find the answer in an employer-owned life insurance policy, as discussed in this article.
If you sold your home using seller financing, you likely don’t look forward to your buyer defaulting on your loan. Here’s a twist: It may not be a bad thing in the end. Under the right circumstances, you could walk away with more cash in your pocket—and you could make some or all of that cash tax-free! But there’s one big trap that you need to avoid.
When you sell your business, you face two types of federal income taxes: (a) regular and (b) capital gains. Capital gains are better—much better. If you sell the assets rather than the business interest, your sale of self-created intangibles likely produces capital gains. Of course, the best bet is to sell the business interests rather than the assets, assuming you operate as other than a proprietorship, which can sell assets only.
Do you ever worry that people or businesses that owe you money might not pay up? Do you take some comfort from the idea that if you end up on the short end of the stick, at least you can salvage a tax write-off out of it? Don’t count on it if you haven’t read this article.
Your stock market portfolio can represent a little gold mine of opportunities to reduce your 2015 income taxes when you take advantage of the Tax Code’s offset game. The Tax Code contains basic rules for this game, and once you know the rules, you can apply the correct strategies. In addition to saving taxes with the game of offset, you can also avoid paying taxes on stock appreciation by gifting stock to charity, your parents, and your children who are not subject to the kiddie tax.
Do you have significant insurance needs? If so, the captive insurance company might save you money on your insurance, create a nice tax shelter, and produce a pile of cash. To achieve this agreeable result, you have to follow the rules and consider the tax code safe harbors.
Do you rent property to your business? Under the self-rental rule, you could forfeit your expected tax breaks and end up on the hook for unexpected taxes. This is true even if you create a separate entity to rent the property to your business.
Tax law places your collectible activity in one of four tax categories: (1) hobby, (2) investment, (3) trader, or (4) dealer. This means your collectible activity can, depending on category, trigger the AMT, capital gains, and self-employment taxes. When you know the rules that place you in these categories, you can make adjustments. Sometimes the adjustments are easy; at other times, they require rethinking the collectibles activity.
Use These Strategies to Avoid Getting Slammed with Taxes When You Roll Over a Traditional IRA to a Roth
A Roth IRA is an extremely attractive option for retirement savings, since you can grow those earnings completely tax-free. You can convert your traditional IRA to a Roth IRA no matter how high your income. But you could get slammed with a hefty tax bill when you make the switch without a plan. In this article, you find three surefire strategies that will not only minimize your tax bill when you roll over those funds to a Roth IRA, but in some cases also eliminate the additional taxes completely!
If you are selling a rental property or your home, you should consider seller financing as a possible method to achieving a rate of return better than you are receiving from your current investments. This article gives you six ways to improve the structure of your seller financing so you can pocket more cash.
You may want to consider seller financing when you sell a rental property. It can boost your rate of return. Now, you might say “Yeah, but what happens if the buyer doesn’t pay up?” There could be a big silver lining here that you haven’t considered, and that’s why you should read this article now.
A Roth IRA is not your average retirement plan. It’s a retirement savings, boondoggle savings, down payment savings, college savings, and emergency savings plan all wrapped into one. But to realize the benefits, you need to know how to avoid taxes and penalties when you take the money out. The good news: do this right and you can tap that Roth IRA and pay ZERO taxes and ZERO penalties.
Selling Your Business: It Might Be Worth More Than You Think, and the Tax Implications Are Probably Crucial
You need to know a number of tax rules when it comes to selling your business. For example, you likely want tax-favored capital gains, but your buyer may not like that idea, as it cuts into the buyer’s tax deductions. This article is the first in a series of articles on selling your business, and it will help you understand how this process is going to work.
The IRS is making an unusually nice offer to you as a business or rental property owner—but it’s good for just a few months. You can take extra deductions right now if you performed certain major renovations on your business or rental property in prior years. If you think this applies to you, act fast so you do not miss the October (or September, if incorporated) 2015 deadline.
Would you like to use a Roth IRA for your retirement investments, even though you make too much money to contribute to the account directly? You can. Congress has “accidentally on purpose” created loopholes to allow even high-income earners to contribute to Roth retirement accounts. But you can’t contribute directly. You have to bring your money in through the back door.
Deduct More of Your Rental Property Losses by Qualifying as a Real Estate Professional—Even If You Don’t Work in Real Estate!
Your rental property is worth more to you than simply the generation of rental income. Your property may also create tax losses that you can use to offset your income from other sources. It’s not as easy as it used to be to make your rental property a legal tax shelter, but you can still do this if you put in the right number of hours toward the right type of work.
How C-Corporation Owners Can Pay Zero Taxes on Gains: Tax Law Allows a Windfall “Wait to Sell” Strategy
2015 is the first year that stockowners can sell their C corporation stock completely tax free under Section 1202 of the tax code. If you started a C corporation or purchased stock recently and you qualify for this rule, you need to determine the date you acquired the stock and wait five years before you sell. This waiting period could save you thousands and even potentially millions of dollars in taxes.
Twenty years after the Tax Court approved a strategy that grants you extra deductions for your second home, the IRS would like you to forget it ever happened. Even though the case remains current law, you won’t find any mention of this strategy in IRS guidance to taxpayers. Unless you just happened to know old cases—or read this article—you might never have known how you could save thousands in taxes on your second home.
The IRA double-win strategy allows you to get a tax benefit when you first contribute to your retirement plan and then again when you withdraw the money. This article reviews how the strategy works and answers some member questions we received regarding the process.
Claim a Home-Office Deduction for Your Rental Property Business—But Be Prepared to Meet IRS “Gray Area” Requirements
You enter a muddy legal area when you claim a home-office deduction in connection with your rental properties. Why? You must prove that you operate the rental properties as a trade or business. This article shows you the best way to meet that “trade or business” test and safeguard your deductions (and escape self-employment tax in the process).
Your traditional IRA comes with a looming tax bill. Sure, you deduct your contributions, but you have to pay tax on 100 percent of the money you eventually withdraw. Fortunately, the tax code gives you a great year-end planning technique that you can use to minimize this future tax. You can strategically roll your traditional IRAs forward (and backward) to Roth IRAs, which allow you to withdraw qualified distributions tax-free.
If you own stock, you can take action now to escape the tax that you will incur when you ultimately decide to sell. By strategically timing sale and repurchase transactions, you can take advantage of the zero percent bracket for capital gains and gradually eliminate most or all of your tax before you ultimately dispose of the stock.
Your stock market portfolio is a great place to look for year-end tax planning opportunities. First, it’s a place where you can avoid paying taxes on stock appreciation by gifting stock to charity, your parents, and your children. Second, it’s a place where you can play a simple game of offset where you cancel out high taxes. This article gives you seven strategies that reduce your taxes and make you smile.
Would a unique downtown historic building be the perfect site for your office? It may be more affordable than you think. Your state and federal governments want you to rehabilitate these buildings and give you a financial incentive to do so. Here is their offer to you: if you invest in and restore a historic building, the governments will give you tax credits to offset a huge chunk of the cost of restoration.
If you invest in gold, stamps, or antiques but you don’t know the tax rules governing collectors, you’re probably falling into costly tax traps that you could easily avoid with tax knowledge. When you put yourself in position to improve your tax situation, you put more money in your pocket (which gives you more money to build your collection). Read this article to discover how you can deduct your collection expenses and also minimize your taxes when you sell your items for a profit.
Your home may be your biggest investment and storehouse of cash. While interest rates remain low on home loans and home equity lines of credit, you may be tempted to pull money out of your home with a loan. Before you act, you need to know 1) how much interest you can deduct, 2) what the limitations are on those deductions, and 3) when you get slammed by the alternative minimum tax (AMT). Read this article and find out how to make sure that your home equity interest produces tax benefits for you.
If you buy a property, fix it up, and then sell it, is that property a dealer or an investor property? The classification boils down to your facts and circumstances. That makes it a tough call for both you and your tax preparer. And if investor status produces long-term capital gains, you want to avoid dealer status, because that causes ordinary income and self-employment taxes.
Here’s a trick question: should you operate your real estate activities as a business or as an investor? If you operate as a business, you can deduct trips to real estate seminars and conventions. But if you are flipping houses, you don’t want business status because that makes you a dealer and taxes you at high ordinary tax rates rather than lower tax-favored capital gains rates. Check out this article about deducting seminars and insights into how the tax law treats dealers, investors, rental properties, and more.
If you are looking for creative ways to get rid of a house that won’t sell, consider the lease-option. This strategy only works with the right tenant and your correct use. But get this right and it’s a nice deal for everyone involved. Make sure you avoid the traps that blow up the deal and add extra taxes to your tax bill. After all, your real purpose with the lease-option is to increase your cash flow and keep your taxes to a minimum.
Learn how employee use of your ski cabin or beach home produces a 100 percent business asset with deductions for depreciation, operating expenses, and mortgage interest. This can make for a great fringe benefit for both the employees and you. It also can make for a profitable investment.
Do you employ 50 or fewer employees? Are you looking to do something on the health care front, but not interested in the group health insurance option? Health savings accounts (HSAs) could be exactly what you are looking for, especially as Obamacare becomes law.
The new 3.8 percent Obamacare tax on investment and passive income makes its debut on your 2013 tax return. Are you ready? Have you made a plan to avoid or minimize the tax? You should. And you can. In this tax-planning article, you’ll find five real-world tax reduction strategies to keep your money safe, happy, and in that place where it belongs—your pocket.
You can achieve year-end tax benefits by offsetting your stock market gains and losses in the right way. You also can make a gift of appreciated stock to charity, which will increase your tax benefits over what you would achieve with a cash gift. Be careful here though, as a gift of depreciated (versus appreciated) stock to a charity decreases your charitable deductions, costs you cash, and makes you unhappy when you find out what you’ve done.
If you are a sole business owner and also have 10 unrelated rental properties, what are the tax ramifications of the rental properties? How is the income from those properties reported to the IRS? What is the best way to structure ownership of those properties to limit your liability exposure? This article addresses these questions and more.
Say you inherit an annuity. That’s nice. But when you examine the annuity you find that it’s a bad investment; what can you do about it? Answer: plenty! This article shows you how a Section 1035 tax-free exchange can work to your benefit. Note the words “tax free.” That’s lovely, a tax-free fix for a bad annuity.
Have you considered buying a personal seat license so that you can buy season tickets to watch your favorite football, basketball, hockey, baseball, soccer, or other team? Would you use the tickets for business purposes? If so, then you need to know if you can claim tax deductions for the cost of the seat license. This article tells you what you need to know.
The rental property tax-shelter game is for those who know how the rules work. Your rental property acts as a tax shelter when you can claim tax deductions for your rental property losses against your other sources of income. To qualify your rental properties for tax shelter benefits, you need proof of hours worked on your rentals. You win the tax shelter test when you (1) pass a 750-hour test, (2) pass a second, more-hours-in-real-estate test, and (3) pass an hours-worked material participation test for each shelter property or group of properties, if elected.
Our rental property analyzer reveals the truth about your rental property and gets you to bottom-line results that you can fully understand. The new higher tax rates impact your rental property. We suspect that you already knew that. But did you know that the higher tax rates could give you a better bottom line (i.e., more after-tax cash in your pocket from the investment)? This article explains how higher taxes work to your benefit.
If you own rental properties, enjoy being in that business, and want to grow that rental property business, you need to know the ins and outs of the Section 1031 exchange. The word “exchange” is misleading; what you really do in a 1031 is sell an existing property and then buy a new property, but you do this using an exchange intermediary. It’s easy and the intermediary is not expensive. In this article you will learn how to avoid Mr. Adams’s fate as we follow him to court with an exchange that involved a rental to his son that raised issues with the IRS.
Have you considered the options that are available to you in designing your retirement plan? In this article, you will see how you might put away as much as $214,404 when you earn only $140,000. On the other hand, you might not want to put anything into retirement this year, and this article explains how your plan design can enable a zero contribution.
What happens if you buy a timeshare and then sell it at a loss? Is the loss deductible or not? Your answer depends on how you used the timeshare. Did you allow it to be rented to others? Did you use it for business stays? What about personal use?
The fiscal cliff is coming on December 31 unless lawmakers do something. What does that mean to you? Does it mean you should pay more taxes this year? Perhaps. For insights into what you need to consider, read this article.
How does the tax law treat the classic car when you use it for business? Can you deduct it just as you would any car you use in business? Learn how some tax law changes enabled the classic car as a business asset and why that can work to your advantage.
When you draw Social Security benefits before you reach full retirement age, you lose 50 cents on the dollar for each dollar that exceeds the earnings limit. With respect to the earnings limit, you find both good and bad news in 401(k) contributions.
Are thinking about harvesting your tax losses? You should be. Leaving tax-deductible losses on the table at the end of the year is very disappointing. And then there’s the stock gift to charity. Are you doing these correctly so as to maximize your tax benefits? Make sure by reading this article now.
Do you invest in real estate? Are you an investor or a dealer? Make sure you put the nine factors to work for you in your proof of investor or dealer status.
Tax law’s passive-loss rules are pretty much the grim reaper of current-year tax benefits from your rental properties. Note the words “current year.” Those passive losses trapped this year are available down the road. With planning, you might be able to release those trapped tax benefits when you want.
Buy the Building, Rent It to Your Business, Avoid the Self-Rental Trap, and Create Legal Protection with Tax-Deduction Shelter
As you know from last month’s article, the self-rental rules can catch you unaware and alter your rental property tax benefits. You can solve the self-rental problems by eliminating the rental and having your business own the building. That’s one solution. This article gives you a second solution that you might like better. Here, we show you how to qualify for a special election that allows you to treat your rental and your business as one activity for federal tax purposes. This can give you the best of both worlds: (1) legal protection and (2) tax shelter.
Changes in the tax law cause tax-law casualties. If you are the casualty, that’s bad. But if the IRS is the casualty and you are the beneficiary, that’s good. That’s what happened with antiques, and it could happen with a paperweight made of gold.
Your timeshare can qualify as a second home for the mortgage interest deduction easily if you don’t rent or attempt to rent it. Once you introduce rent into your timeshare equation, you trigger two tough rules: (1) a special mortgage-interest-deduction rule for the personal part of the timeshare and then (2) the dreaded vacation-home rental rules for the rental part.
When you rent to a business in which you and/or your spouse work 500 hours or more, you engage in a self-rental that limits your loss deductions and taxes your profits. In other words, you get tax law’s double whammy. There is one solution to this problem.
The IRS does not like offshore and foreign bank accounts that are not reported on the FBAR, IRS Form 8938, and Schedule B of IRS Form 1040. Millions of U.S. taxpayers have perfectly legal and properly reported offshore and foreign bank accounts. But legal or illegal, they must be reported on the two income tax forms and the FBAR.
Tax-deductible business expansion beats both capitalization and start-up expense classification. Capitalization basically means no tax deduction until you get out of the business. Start up means you can deduct up to $5,000 and then must amortize the remaining start-up expenses over 15 years.
If you are looking to buy a business individually, this article explains the tax deductions you achieve when you begin to think about the business you want to buy. If your corporation is going to buy the business, this article explains how to apply the process of thinking about it to the corporation. The rules for buying an existing business are different from those explained last month for creating a business from scratch.
The taxpayer in this case made three major mistakes, one of which was the probable cause of his IRS audit. His assertion of being an investor and not a dealer defied most of the nine factors the courts use in deciding the dealer versus investor question.
Tax law gives choices to the executors who are handling the estates of those who died in 2010. Choice one is to apply the 2010 rules. Choice two is to apply the newly enacted 2011 and 2012 estate tax rules.
As a business owner, you should have your health insurance in a tax-advantaged position. If it is not possible or practical to utilize the Section 105 medical reimbursement plan, consider the health savings account.
Here is the big picture on how the health savings account (HSA) works for the proprietor, S corporation owner, and C corporation owner. The good news is threefold: (1) the tax deduction for the high-deductible insurance, (2) the tax deduction for the HSA investment account, and (3) the tax-deferral and tax-free use of the HSA investment account.
You need time and rate of investment return on your side to make your HSA investment grow to your satisfaction. One consideration for a higher rate of return is a self-directed HSA that allows you to invest in individual stocks, real estate, and mortgages.
Revenue Procedure 2010-13 requires disclosure of the business and rental groups you form to avoid the disallowance of losses under the passive-loss rules. At first glance, you might think, “Oh, no, not more disclosures.” But further examination shows an audit-proofing aspect to this disclosure that is most appealing.
This issue contains 21 last-minute tax tips that you can use for 2010. We broke the tips into two articles: one for vehicles and one not related to vehicles. This article contains 12 last-minute tax tips that are not related to vehicles.
This article contains our Rental Property Analyzer software to help you analyze your possible real estate investments in an absolutely understandable and meaningful way. If you are thinking of buying a rental property, you absolutely, positively must read this article and use this software, which is included in your subscription.
You want to deduct your business, rental, and non-rental losses when possible, because those deductions put cash in your pocket. The sooner you get the cash, the faster you can put that cash to work for you building your net worth. This article helps you realize those losses sooner.
Renting to your corporation can produce tax advantages. Even failing to collect the corporate rent, as the individual did in this court case, can produce tax advantages.
Learn how you treat monies spent when your attempted purchase of a rental property fails. Tax law provides you with a path of special, mostly favorable tax rules.
Should you buy or rent your home? What gives you the best quality of life and monetary value? Here is what you need to consider.
Tax law allows an individual to be a real estate dealer with respect to his dealer properties and a real estate investor with respect to his investor properties.
The tax strategy of renting property you own personally to your businesses needs your attention if you want tax benefits. Similarly, special recharacterization rules apply to rentals of land and also when land is a big part of the rental.
The first good news is that you can be both real estate investor and real estate dealer with respect to your real estate portfolio. The next good news is that you are in control, and by knowing just a few rules about dealer and investor classification, you can do much to increase your net worth.
If you own rental properties, you don’t want the tax law to call the rentals an investment. Instead, you want the rental properties to qualify as a trade or business so that you achieve tax favored Section 1231 treatment and other tax breaks.
Section 1031 exchanges are perfect when you are going to stay in the real estate rental or investment business. When it’s time to cash out, you need to look at different strategies that help you avoid taxes and give you cash to spend (liquidy).
Section 1237 grants a safe-harbor to qualified taxpayers who want to subdivide land. The safe-harbor requires the taxpayer to pass seven tests, but then rewards the taxpayer with tax-favored capital gains treatment (versus ordinary income treatment).
Good tax planning can avoid ordinary income treatment on the subdivision of land. The planning involves avoiding the partnership entity and using an S corp. for development.
The business bad debt generates the best bad debt tax breaks, except when the debt is incurred to protect, enhance, or continue your employee relationship (i.e, keep the corporation in business so you have a place to work).
Lawmakers hate taxpayers’ hobbies. They apply the most draconian of all taxes to hobbies. If you have a hobby or are thinking of a hobby, read this article before you take step one.
This article gives you the nuts and bolts of the Section 1031 real estate exchange, including how with proper planning the Section 1031 real estate exchange can be nothing more than the sale of your old real estate and the purchase of the replacement real estate.
To deduct a loss on a charter fishing activity, you must materially participate in the activity. When the activity is organized as an LLC, you have more choices for material participation than a limited partner.
If you understate your gross income by more than 25 percent, the IRS can adjust that return for six years, rather than the traditional three-year statutory period for audits. In this clarifying regulation, the IRS explains that an overstatement of basis counts as an understatement of gross income for the 25 percent test.
Distributing the assets of an estate needs a tax plan to ensure the favorable results embedded in the tax law.
You can be a dealer with respect to some properties and an investor with respect to others. You can also subdivide lots and obtain tax-favored capital gain treatment, but you need the right numbers and a good plan.
If you are the victim of a Ponzi scheme, you absolutely, positively must read this article to learn how the law gives you favored victim status. This includes a safe harbor election, possible carryback of the losses to one of five years, net operating loss treatment, and more.
Your home equity loan can give you a full, partial, or no deduction for your interest. If you will get zero or a reduced benefit, make the necessary changes to protect your tax benefits.
If you are using home equity loan proceeds for your rental property LLC, you need to pay attention to both the legal and tax aspects of that transaction. The legal part is needed for liability protection. The tax part is needed to ensure your tax deductions.
Ownership and involvement in your business may not be sufficient if your business suffers an operating loss. To deduct a business loss, you must materially participate in the business.
A new IRS rule says that you may deduct investment interest above the line when you pay interest on debt incurred in the conduct of certain trade or business activities. Above the line interest reduces your gross income. This is good news.
Learn from one taxpayer’s mistakes: know the details regarding seminars and training! Investors cannot deduct training, so you have to follow a few of our tips to help make one-on-one seminars deductible. Also, we give you important information about tax reform and tax changes.
Good prices and low interest rates make this a good time to buy real estate. Also, tax law favors investing in real estate over stocks and bonds. Use the after-tax adjusted rate-of-return formula to see your after-tax results of your investment.
If you have a land easement on the property you are selling, you can get up to $250,000 tax-free. We show you how to do it with a home sale exclusion
As a person who buys and sells stocks, you will see a huge difference in how the law treats you if you’re a dealer, trader, or investor.
Dealer versus investor tax status is a heavily litigated issue. Choosing between dealer or investor status is often a tough call, as is in the case of this taxpayer. There can be a huge tax difference between classification as a dealer or classification as an investor.
To rent or to buy? That is a question. Use this easy software that comes with this article to find what’s best, after taxes—no guesswork. Identify 12 reasons why renting is best. Identify 11 reasons why buying is best. Consider everything in just a few minutes.
If you sell stock to your relatives at a loss, don’t lose possible deductions – know the related party rules!
Shahrooz Jamie, a physician in West Virginia, had a side-business as a trader of securities. In his court case, he tried defending his net operating loss carryovers to offset the net income from his medical practice. The court ruled against him, imposing substantial overstatement penalties.
If you have a business that goes under, and want to deduct it, you will need to prove to the IRS that it indeed was a business, and not a hobby. Assets, rental space, time spent, and other details will support your position.
This real estate boot camp deduction is allowed to the taxpayer who is classified as being “in the business” of renting real estate, but not to the taxpayer classified as an “investor in real estate.”
Incorporated and unincorporated businesses can use the solo 401(k) to benefit the owner (including a husband and wife). In most cases, the solo 401(k) allows the one-owner or husband-and-wife owners to put away more than they could in other plans (up to $49,000 this year, depending on age and earnings—adjusted for inflation in future years).
Four Major Rental Property Questions Answered: (1) Deducting Rental Losses, (2) Grouping Properties, (3) Tracking Rental Property Time, and (4) Material Participation
To treat your rental property as a tax shelter and deduct your rental property losses against non-passive income, you first need classification as a real estate professional and then you need material participation on the individual properties, or if grouped, on the group. Good and proper tracking of time spent by you and, if married, your spouse is required to prove both your real estate professional status and material participation.
At a meeting of landlords, the guest lawyer stated that the S corporation terminates with too much passive income. Many attendees heard this comment incorrectly. The too much passive income termination problem applies to S corporations which were previously C corporations.
The properly used business condo does not run up against the vacation-home, passive-loss, or entertainment-facility rules.
Shared equity is tax law’s officially designed rent-to-own your home program. For this to work, it takes two parties: (1) a landlord-investor and (2) a tenant-investor. The landlord-investor benefits because he has no vacancies, few hassles, no management fees, and a known cash flow. The tenant-investor benefits because he gets into this home with little or no down payment, builds equity while paying rent, and gets detailed knowledge about the property while living there. At some agreed future point in time, the landlord-investor sells his or her interest in the property to the tenant-investor or the two of them sell the property to a third party.
Historic rehab tax credits can put you in Donald Trump’s self-proclaimed favorite spot. Tax credits often exceed the cash you invest in the project making the historic rental or office building a “nothing down” deal for you. Add nonrecourse financing to the package and you have no personal risk. None of your cash in the deal and no personal risk—this is Mr. Trump’s favorite spot. You might do as many Congressional leaders do: Donate your personal home’s historic facade to charity so can realize big tax credits.
This taxpayer takes out a $4 million mortgage and makes the interest on $1 million of the mortgage deductible as home-mortgage interest and the interest on the remaining $3 million of the mortgage deductible as investment interest.
Interest paid on a loan used to buy an investment is considered investment interest. Investment interest is deductible to the extent of investment income. The loan used to buy this life insurance is not a loan to buy an investment.