Real Estate Is Taxing

Anyone with a 1065 Partnership or 1120-S S-Corporation should have bookkeeping in my opinion, but if you don't...this episode is for you. This is your head-start on getting everything together for your tax professional to file your 2024 business tax return. Facebook Group for Tax Professionals Facebook Group for Real Estate Investors Introduction[00:00:00] Welcome to Real Estate is Taxing, where we talk about all things real estate tax, and break down complex concepts into understandable, entertaining tax topics. My name is Natalie Kolodij, I'm your host, and I am so excited that you've decided to join me.[00:00:23] Hello. Hello everyone. We have just made it past the first fall extension deadline. Any 10 65 partnerships or 1120-S S corporations were due on September 16th this year. So we've just passed that hurdle. And part of what I realized this year is that there are a lot of people who don't know they've created an entity.[00:00:49] They're not aware that they have a partnership. I've talked about this before. Or there are people who create the entity, they create a partnership or they create an S corporation, but they don't really know. Or their tax professional didn't give them a good rundown on what the differences are, what is required for filing, and what will be different because you now have this entity.[00:01:12] So if you are someone who has a partnership or an S corporation, and you do not have formal bookkeeping, you don't have full QuickBooks, you don't have a bookkeeper, then this episode is for you. So I will note if you are using Tessa for your rental properties and you have a partnership, this is not formal bookkeeping.[00:01:33] It's not a true bookkeeping system or a true double-entry platform. So while Tessa is great for keeping track of a profit and loss, and just keeping track of your income and your expenses for a property, once you move into a separate tax return, once you move into a 10 65 partnership filing, there's more information we need to keep track of, and it doesn't do this very well.Preparing for 2024 Tax Year[00:01:57] For today's show, I'm going to talk through some of the differences, like why we need more information for these returns and what information you should start gathering now to help prepare for the upcoming filing for the 2024 tax year.[00:02:18] So I'm trying to give you a little bit of a head start. It's quarter four, so you have time to either find and hire a good bookkeeper to help you get books before the end of the year or start gathering all of the information I'm going to talk about so that you have a jump on all of the information your accountant is going to need. If you go to a tax professional and they're not asking for all of this information, while they might technically be doing your tax return, they're doing it in the most surface level numbers on forms way possible.[00:03:00] What kind of talk about that a little bit more. But I recently had a new client who went to a large well-known tax and attorney firm. And last year for their entity return, where they didn't have full books, they just had the client complete an organizer.[00:03:09] So they just used whatever information he told them—whatever amounts for bank account balances, etc. They did not ask for any of the actual documents to check any of this. And if that's the case, there's close to a 0% chance your return is accurate.Costs of Entity Creation[00:03:27] So let's dive into it. Let's start off with what happens when you create a partnership or an S-corporation.[00:03:35] The first thing that I want people to consider when they are creating a partnership or creating an S corporation is that this creates a whole new, additional tax return. So there's a whole separate filing. Even though something might not have changed with your business last year, you might've had two rentals and they were on your personal return, and this year you have two rentals and now they're in a partnership, there's a whole additional filing.[00:04:05] Entities require more information. There's more we have to track, and there's more you have to do. So the first consideration I want you to be aware of if this is going to be your first year with a partnership or an S-corp is that it's going to cost more money if you go somewhere to have your taxes done.[00:04:21] Now how much more it's going to cost, I can't say for sure because different firms, different locations, and different levels of expertise or specialization are going to impact that pricing. But like with anything, there's going to be higher-end and lower-end and everything in between. The same way you can get a steak at an Applebee's for $8.99, or you can go to a Ruth’s Chris and pay $89, it's across the board.[00:04:50] The price point I most often see for entity preparation at better tax firms is going to be a minimum of $1,500 to $2,000 per return for just the filing.[00:05:02] So keep that in mind when you're looking to create an entity or switch over to being a partnership or an S-corp. Kind of pencil in that ballpark number into your mind as an additional cost. And that number tends to surprise people when they have multiple entities. I think because the big picture price point can add up really quickly, and it's not expected.[00:05:57] If you look at one of the commonly well-known self-prepare software online, you can do your own entity return. It costs $800 for you to do it yourself with their software or $1,750 for you to have one of their quote tax professionals do it for you. If it's going to cost you $800 just to do it yourself, if you're going to a firm and an expert is doing it for less than that, to me, that would be a little bit of a warning.[00:06:00] I would just be a little cautious there.Bookkeeping vs. Tax Preparation[00:06:02] So now you're aware of the additional costs that can come into play for just the filing. What else might you run into? Well, the next consideration is that bookkeeping and tax preparation are typically separate engagements.[00:06:50] So if you are expecting to give someone a pile of receipts and bank statements and all of that, and have them organize it into categories and make sure everything ties together, and then use that ending information of total costs for all of your different expense categories to then prepare a tax return, that is bookkeeping.[00:06:50] So if they're starting with raw information that's not organized at all for the whole entire year, that's going to be an additional cost. That would be a whole separate cost. So be aware of that. If you do not have formal bookkeeping, you don't have QuickBooks and a bookkeeper, at the very least you will want to make sure you have the following information together ahead of time for your tax professional, unless you are also intending to pay for bookkeeping.[00:07:00] If you don't want to do that, you're going to want to listen on because these are the bare mi...

September 16th is the filing deadline for S-Corporations and Partnerships that filed for a 6-month extension. In this episode we'll discuss what creates those entities, some options if yours may be late, and a few other nuances to make this week a little easier. Facebook Group For Tax Professionals Facebook Group For Real Estate Investors IRS List of Qualified Disaster Areas Rev-Proc 84-35 Introduction to the September 15th (16th) Deadline[00:00:00] Hello. Hello everyone. And welcome to today's show. So we are only a few days away from the extended deadline for entity tax returns. This deadline specifically applies to pass-through entities, which typically include partnerships and S-Corporations. Normally, this deadline is September 15th, but this year, because the 15th falls on a weekend, the deadline is technically extended to Monday, September 16th. While this is the extended deadline for entities, keep in mind that the extended personal tax return deadline remains October 15th.--- Entities Affected by the Deadline[00:00:37] Today’s show is going to focus on the September 15th (16th) deadline—who it applies to, common misconceptions about it, and what your options are if you think you might miss this deadline. To start, this deadline applies to S-Corporations and partnerships, both of which are pass-through entities. These tax returns are typically due on March 15th. However, if you filed for an extension, you were granted an additional six months to file, pushing the deadline to September 15th (or 16th this year). It’s important to note that an extension to file does not mean an extension to pay any taxes owed, just like with your personal return.--- Recap: What Are S-Corps and Partnerships?[00:01:18] Let’s quickly recap what qualifies as an S-Corporation or a partnership. Many people may not even realize that they have one of these entities. An S-Corporation is either a C Corporation that has elected to be taxed as an S-Corp or an LLC that has chosen to be taxed as an S-Corp. To make this election, you would file Form 2553. You don’t need to change your LLC into a corporation first—it’s a single step to make this election. On the other hand, partnerships are formed in various ways, but they typically involve more than one person operating the business. Even without a formal entity, if more than one person is involved, you may have created a partnership. ---Understanding Partnerships: Common Situations[00:02:28] The other common type of entity that is affected by this deadline is partnerships. Partnerships can be formed in a variety of ways, but the most common is the general partnership, where more than one person operates a business, even without a formal legal entity. Additionally, any LLC with more than one member (a multi-member LLC) will generally be considered a partnership for tax purposes unless it has made a different tax election. This often surprises people, as they might set up an LLC and add a spouse or a business partner without realizing they’ve created a partnership, requiring them to file Form 1065, the partnership tax return. For example, if you and a friend create an LLC to invest in real estate and split the proceeds 50/50, you’ve inadvertently formed a partnership and must file the corresponding tax return.---When a Multi-Member LLC is a Partnership[00:03:31] This situation is particularly common with multi-member LLCs. Often, people will set up an LLC and add their spouse to it, not realizing that in many states, they are now required to file a partnership return. Another frequent scenario occurs when individuals join forces for a small business venture, such as a real estate deal with a friend, where they both list themselves as owners on the LLC. Without knowing it, they’ve created a partnership and will need to file Form 1065. However, there is an exception for married couples in community property states: if the only members of the LLC are you and your spouse, and you live in a community property state, you may not have to file a partnership return at all. Instead, you might be able to treat the LLC as a disregarded entity.--- Special Considerations for Married Couples in Community Property States[00:04:27] If you are married and live in a community property state, and the only members of your multi-member LLC are you and your spouse, you might be able to treat the LLC as a disregarded entity, avoiding the need to file a partnership return. If you and your spouse are operating a business without any formal entity, you have the option of filing as a qualified joint venture. In this case, you would each report your share of the business income and expenses on separate Schedule C forms as part of your individual tax returns, instead of filing a partnership return. These are a few nuances where you might not be required to file a partnership return, but in most cases, having a multi-member LLC will necessitate filing Form 1065.---Filing Deadline for Entities: March 15th or Extended to September 15th[00:05:00] Remember, if you have an S-Corp or partnership, your tax return is normally due on March 15th. If you file for an extension, you get an additional six months, pushing the deadline to September 15th (or in this year’s case, September 16th, since the 15th falls on a weekend). Even if you file for an extension, be aware that this doesn’t extend your time to pay any taxes owed. If you haven’t filed yet, or if you’re not ready, it’s crucial to get your return filed as soon as possible to avoid late filing penalties.---Importance of Filing on Time[00:05:16] Even if you don’t have the money to pay right now, filing late and paying late is worse than just paying late. You should aim to file your S-Corp or partnership return by the September 16th deadline (or October 15th for personal returns), even if you can’t pay what you owe at the moment. Filing late can lead to significant penalties, so it’s always better to file on time and pay later if necessary. However, I understand that sometimes these things are unavoidable—whether it's because you didn’t realize you had a partnership, forgot to file an extension, or your books aren’t ready.--- Solutions for Late Filing: Rev Proc 84-35 (Partnerships Only)[00:06:00] If you think you might miss the deadline for filing your entity return, there are a few potential solutions depending on your circumstances. One option, specifically for partnerships (this does not apply to S-Corporations), is the IRS Rev Proc 84-35. If your partnership qualifies under this procedure, you can request relief from late-filing penalties. The small partnership exception under Rev Proc 84-35 allows penalties to be waived if the partnership meets certain criteria and the late filing was due to reasonable cause.--- Rev Proc 84-35: Criteria for Penalty Relief[00:07:00] Let’s go over the criteria to see if you qualify for penalty relief under Rev Proc 84-35. First, your partnership must have no more than 10 partners. Second, all partners must either be individuals or estates of deceased partners—no trusts, LLCs, or corporations as partners. Third, the allocation of income, deductions, and c...

Examples of the 121 Exclusion which showcase how small changes, can lead to huge tax impacts. In this episode of 'Real Estate is Taxing,' host Natalie Kolodij breaks down the intricacies of the 121 exclusion, which allows homeowners to exclude a significant amount of capital gains on the sale of their primary residence. . She details various scenarios to highlight how specific timelines and conditions—such as rental periods, military duty, and temporary absences—affect eligibility for the exclusion. By understanding these nuances, listeners can avoid costly tax errors and optimize their exclusion benefits.IG: @RE_Tax_Strategist Transcript [00:00:00] Welcome to Real Estate is Taxing, where we talk about all things real estate tax and break down complex concepts into understandable, entertaining tax topics. My name is Natalie Kolodij I'm your host, and I am so excited that you've decided to join me.[00:00:23] Have you ever pulled into the McDonald's drive through at 10 40 in the morning on a Sunday to get McDonald's breakfast? Only to find out the location near your house stopped serving breakfast at 10 30, you just missed it. And you were so sure you had till 11 o'clock to get that. Amazing egg McMuffin. [00:00:45] You've been thinking about all week. Imagine that feeling times a thousand or more. That's what today's episode is about. And the best way I could think of. To describe the [00:01:00] impact of when someone thinks they are going to qualify. For the full 1 21 exclusion and have up to a half million dollars tax free. Only to find out that the timing or the way they executed it fell a little bit short. On today's episode. I'm going to walk you guys through several different scenarios of the potential application of the 1 21 exclusion. And really point out the way a few key, little bitty timing impacts. Can lead to either a partial exclusion or in some cases, no exclusion at all. When this comes up, it is obviously something that people are pretty upset to find out. So hopefully hearing this episode ahead of time will prevent a few people from living through that experience. [00:02:00] [00:02:00] And maybe this episode will also remind you to check the cutoff time for your egg McMuffin this weekend. [00:02:06] You are the guardian of your own destiny. So let's get into things, manifest it, and to make sure we are not missing these crucial timing cutoffs. [00:02:16] [00:02:16] If you knew me, you know, the 1 21 exclusion is a code section that I can talk about for hours and hours and hours, there is so much unique complexity to it. For today's episode, we are just going to break it down into a few simplistic parts. We're taking this at a thousand foot view. So that you can recognize the reason why these situations we're going to walk through will or will not work. [00:02:43] And you'll be able to see how these small timing differences can create a huge difference in the taxable outcome. The 1 21 exclusion. Allows a taxpayer to exclude up to [00:03:00] $250,000 of gain or 500,000 if married. On the sale of their primary home, as long as they have owned and occupied it for two out of the most recent five years. [00:03:13] The first nuance to break out. That will relate to today's episode. Is those two out of five years are actually a calculation to the literal day. So two years is actually 730 days. Five years is going to be 1,825 days. For simplicity, we're ignoring leap years. So it is a literal to the day calculation. That's why a slight misjudgment on when you should move or sell, et cetera. Can have a huge impact. The next piece to be aware of for today's episode is something called non-qualified use. In a nutshell, any time when [00:04:00] that primary home. Is used for something other than being a primary home. Those years are considered. [00:04:06] Non-qualified use. And the gain related proportionately to those years. Typically can't be excluded under the 1 21 exclusion. Now this code provision didn't come into play until 2009. So any time of non-qualified use before that. Doesn't count does not come into play here. And there are also three key exclusions. To what is considered non-qualified use. The first one would be any rental use. That occurs after. The taxpayer's most recent use of the home as a primary residence. The second exclusion. Is if someone is active duty military. They can have potentially up to a 10 year gap. Due to [00:05:00] being active duty. Where that time, where the home is rented or not being used as a primary home. That does not count as non-qualified use. And the final exclusion. Is that a taxpayer can have up to a two year temporary absence. That can be disqualified from being non-qualified use. [00:05:21] So if there's a temporary absence of. Two years or less. Due to a health circumstance or a job related change or some kind of major unforeseen circumstance. That two year or less window also does not count against the calculation for the gain as non-qualified use. [00:05:44] Now that you are all filled in on the key items we need for today's episode. Let's run through these examples. In all of the examples I am going to walk through. We are assuming that the taxpayer [00:06:00] originally buys this property to be a primary residence the day they buy it, it is for the purpose of moving in and living in this house. So example one. Taxpayer purchases, the primary home. They own and occupy it for 730 days. [00:06:21] And then. They decide to sell the residence. They have occupied it and owned it for two years or more. That's 730 day mark. So in this scenario, they would qualify for their full amount of the 1 21 exclusion. [00:06:37] Situation too. The taxpayer purchases, a primary home. They own and occupy it for 720 days. And then they go to sell the home. Because they were shy of that 730 day mark. The amount of exclusion they qualify for is [00:07:00] going to be $0. That two year minimum. Is required unless there's an unforeseen circumstance. We're not getting into that in today's episode. So if they just decided to sell because they wanted to, there was no other reason. If they have only lived in it for that 720 days. They don't get any part of an exclusion. [00:07:26] There's no rounding. If they have only met that 720 day mark. Their entire gain is going to be taxable. There will be no 1 21 exclusion. [00:07:39] So are you starting to see why these slight differences in a calculation can have a huge impact? Let's get into a few more tricky circumstances. In the next example. Let's say the taxpayer purchases, a primary home. They own and occupy it for [00:08:00] 750 days. They then move out and rent it for 1000 days. That's 750 days gets them that two year minimum of at least seven 30. And as long as they rent it for no more than three years. They don't have any non-qualified use and they still have their full 1 21 exclusion. Three years would be 1095 days. So in this example, because the taxpayer did occupy for the minimum of 730 days. And then they did not rent it for any more than three years or 1095 days. They can sell the home at the end of this and receive their full 1 21 exclusion. The only thing that will be taxable. Is, they will have, do have payback of the depreciation they took while it was a rental. [00:08:53] There's going to be unrecaptured 1250 depreciation or some depreciation recapture. But otherwise. [00:09:00] That circumstance allows for a full 1 21 exclusion. The fact that it was ...

 3 Common Mistakes When Issuing 1099 FormsEpisode 17: Hiring Your Kids: Tax Savings Strategy Or Really Risky Move https://www.natalie.taxhttps://www.incite.taxIn this episode of 'Real Estate is Taxing,' host Natalie Kolodij breaks down the three  common mistakes made by business owners when issuing 1099 forms. She discusses the misclassification of children employed in the business, the obligations of landlords operating rental properties, and the incorrect issuance of 1099s to owner shareholders who should be receiving wages. 00:00 Introduction to Real Estate Taxing00:23 Common Mistakes in Issuing 1099s00:44 Employing Your Children: Tax Strategies and Pitfalls03:36 Landlords and 1099 Requirements06:38 1099s for Shareholders: Avoiding Common Errors11:20 Conclusion and Final Advice

Maximize Tax Benefits by Employing Your Children: Key Strategies and Pitfallshttps://www.natalie.taxhttps://www.incite.taxIn this episode of 'Real Estate is Taxing,' host Natalie Kolodij delves into the strategy of employing your children in your business. She outlines the numerous benefits, including significant tax savings and the opportunity to fund a Roth IRA at an early age. Natalie also discusses crucial compliance requirements to avoid costly mistakes, such as treating the children as actual employees, paying reasonable wages, and issuing W-2 forms instead of 1099s. The episode provides essential guidelines to help business owners implement this strategy correctly and reap the financial advantages.00:00 Introduction to Real Estate Taxing01:41 Why Employing Your Children is Beneficial02:29 Tax Benefits of Employing Your Children08:17 Common Mistakes to Avoid13:50 Entity Types and Payroll Taxes14:55 Proper Documentation and Compliance23:59 Recap and Final Thoughts

How much should you be paying a tax professional? Share your thoughts on Facebook: Real Estate Investors: https://www.facebook.com/groups/REIKnowledgeVault Tax Pros: https://www.facebook.com/groups/realestatefortaxprosShare your thoughts on IG:https://www.instagram.com/re_tax_strategist/In this episode, we delve into the complexities of determining the cost of tax preparation and planning. Using a real-world example where someone faced a significant tax bill, we explore the core factors that influence these costs. We dissect the differences between tax preparation and tax planning, both of which can vary significantly in price. We also discuss the current shortage of skilled tax professionals in the industry, exacerbated by high retirement rates and the impact of COVID-19. Finally, we touch on how individual circumstances uniquely shape the cost of tax services. Tune in to gain valuable insights into why tax preparation prices can be so varied and what you can expect when seeking professional tax services.00:00 Introduction: Shocking Tax Preparation Costs00:28 Understanding Tax Return Pricing01:44 Tax Preparation vs. Tax Planning01:57 The Impact of Industry Shortages07:01 Supply and Demand in Tax Services14:49 Common Misconceptions and Translations25:35 National Survey Insights32:07 Conclusion: What Should You Pay?

Why Purchase Price Doesn't Matter When Deciding If You Should Do A Cost Seg Tax Professionals- https://www.incite.tax/In this episode of Real Estate is Taxing, host Natalie Kolodij delves into the complexities of cost segregation studies. She explains what they are, their benefits, and crucially, when they should be considered by real estate investors. With detailed analysis, she outlines different scenarios, including how depreciable value and income levels affect the decision-making process. Natalie also touches upon practical considerations like DIY studies, professional studies, associated costs, and tax implications, offering a well-rounded understanding of this often misunderstood tax strategy.00:00 Introduction to Real Estate Taxing01:59 Understanding Cost Segregation Studies03:51 When to Consider a Cost Segregation Study04:13 Types of Cost Segregation Studies04:51 Cost and Feasibility of Studies06:17 Depreciable Basis and Property Value08:59 Utilizing Losses and Tax Benefits13:21 Special Considerations and Strategies20:13 Conclusion and Community Invitation

When Renting Real Estate to your S-Corp leads to a deficiency $500,000+ The Gregory and Laura  Schnackel Tax Court Saga: A Tale of Extravagance and DeceptionTaxnotes Case Review: https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/no-deductions-28000-month-condo-no-business-purpose/7kjhlAre you a tax professional looking for an online community focused on growing technical knowledge? Where all responses require a citation? Check out Incite! InCite Tax Community: https://www.incite.tax/In this episode, we delve into the dramatic and intriguing tax court case of Gregory and Laura Shackle as detailed in Tax Court Memo 2024-76. Gregory, the owner of an engineering and design S-Corp, purchases a lavish $3 million New York City condo, furnishes it with $300,000 worth of high-end items, and tries to pass off much of these costs as business expenses. Amidst extramarital affairs and questionable spending, Gregory fails to maintain proper records, resulting in significant penalties and tax deficiencies. Laura, with minimal involvement in the business, successfully applies for innocent spouse relief, while the courts determine the substantial amounts owed. This tale is a striking example of the potential fallout from attempting to misuse business write-offs, and the responsibilities that come with tax reporting, even when using a tax professional. The episode concludes with the fallout from Gregory and Laura’s divorce and the consequential financial and personal unraveling.00:00 Introduction to the Case00:27 Background of Gregory and Laura00:38 Gregory's Business Ventures02:57 The New York Condo Purchase05:32 Questionable Business Practices09:02 Luxury Furnishings and Personal Use12:49 The Range Rover Purchase15:41 The Affair and Financial Misconduct17:56 Innocent Spouse Relief19:07 IRS Penalties and Court Rulings25:46 Lessons and Final Thoughts

Sign Up For 4 Websites To Earn Free AA Miles: AAdvantage Shopping Portal: https://www.aa.com/web/i18n/aadvantage-program/overview.htmlSimply Miles Portal : https://www.simplymiles.comShell Fuel:  https://www.shell.us/motorist/ways-to-save/american-airlines-teams-up-with-shell-and-the-fuel-rewards-program.htmlSurveys For Miles:   https://www.milesforopinions.com Unlocking Free American Airline Miles: Simple Hacks and TipsIn this episode of Real Estate is Taxing, host Natalie Kolodij shifts gears from tax topics to explore travel hacking. 00:00 Introduction to Real Estate is Taxing00:27 Today's Special Topic: Travel Hacking01:20 Earning American Airline Miles: An Overview04:04 Method 1: Taking Surveys for Miles05:38 Method 2: Earning Miles at Shell Gas Stations07:09 Method 3: SimplyMiles Program10:57 Method 4: AAdvantage Shopping Portal18:42 Advanced Tips and Conclusion 

 Understanding Authority Hierarchy in TaxDid you know the IRS isn't actually who makes tax laws? And IRS Publications aren't actual Authority? Let's find out who does and what is. From Congress-created laws in the Internal Revenue Code (IRC) to U.S. Treasury regulations, court case rulings, and IRS publications, she explains the hierarchy and reliability of these sources. She emphasizes the importance of basing tax positions on substantial authority rather than simplified IRS guidance or social media information. Tax professionals are urged to be thorough in their research and not dismiss clients' internet findings outright, as they often contain elements of truth. This episode serves as a guide for tax professionals to better understand and utilize authoritative tax sources. Introduction to Real Estate Taxing Exploring Facebook Tax Groups Understanding Tax Authority Levels Internal Revenue Code: The Holy Grail Treasury Regulations Explained Judicial Authority and Court Cases IRS Guidance and Its Limitations Practical Advice for Tax Professionals Conclusion and Final Thoughts 

 Mid-Year Tax Check-Up: Adjusting Your WithholdingsIt's July! Time to review your paystub while you may be only halfway off track.  Drawing from a real case where a client's withholding dropped significantly due to changes in income and bonus structure, the episode offers a reminder to check the percentage of taxes being withheld from your pay. It advises taking a close look at recent pay stubs and the updated W-4 form to ensure accurate withholding, especially if any changes in employment or payroll processors have occurred. Key takeaways include checking if your withholding is under 10% and making necessary adjustments to avoid surprises at the end of the year.00:00 Introduction and Purpose of the Episode00:20 Importance of Mid-Year Tax Check-In00:45 Case Study: Tax Withholding Issues02:42 Steps to Review Your Withholding04:20 Understanding the Updated W-4 Form05:20 Final Reminders and Encouragement 

Join me as we debunk some of the most common myths & misconceptions around taxes.1. Myth: Tax Return and Tax Refund are InterchangeableThese two terms are often confused, but they are not the same thing. A tax return is the form you fill out and submit each year, like the 1040 form for most people. A tax refund is money you get back if you overpaid your taxes. Many people mistakenly say they're waiting on their tax return when they mean their refund. 2. Myth: You Need a License to Prepare Tax ReturnsYou don't actually need a license to prepare tax returns. While there are professional credentials like the Enrolled Agent (EA) or Certified Public Accountant (CPA), they are not required. All you need is a Preparer Tax Identification Number (PTIN) from the IRS to file tax returns electronically. Check your tax professional's credentials, as many practitioners are uncredentialed. 3. Myth: Living in a Home for Two Years Makes It’s Sale Tax-FreeMany believe that simply living in a home for two out of the last five years allows you to sell it tax-free. However, the IRS has rules regarding "non-qualified uses" for periods when the property was not your primary residence. Even if you lived in it for two years, gains related to earlier non-qualified use periods will be taxable. 4. Myth: LLCs Provide Tax SavingsAn LLC is a legal entity and does not provide tax benefits by itself. If you set up an LLC and are the sole owner, it is disregarded for federal tax purposes. The taxes you pay and deductions you claim remain the same whether or not you have an LLC. Its primary purpose is legal protection, not tax savings. 5. Myth: You Don’t Need To Issue W-2 When Employing Your KidsIf you employ your children in your business, you still need to file W-2s and comply with all employer filing requirements. Just because their income may be non-taxable doesn't absolve you of this responsibility. Issuing W-2s also allows them to qualify for benefits like funding a Roth IRA. 6. Myth: Gifts Over $18,000 Cause Taxable EventsThe $18,000 annual gift tax limit is just a threshold for when you need to file a gift tax return, not a trigger for tax liability. Taxes on gifts only become relevant once you exceed the lifetime exclusion amount, which is currently over $13 million. So, making gifts beyond $18,000 in a year does not mean you'll owe taxes.7. Myth: Bonuses are Taxed at a Higher RateBonuses are not taxed at a higher rate. They are subject to withholding at a higher rate, generally 22% or even higher if the bonus exceeds a million dollars. At the end of the year, your actual tax rate is calculated, and you may receive a refund if too much was withheld.8. Myth: 0% Capital Gains Rate Only Determined By Gain AmountThe 0% capital gains rate applies to your total income, not just the capital gain itself. If your combined income and capital gains exceed the threshold, only the portion of income within that bracket qualifies for the 0% rate. 9. Myth: Income Below $600 from Self-Employment Isn’t TaxableRegardless of whether you receive a 1099 form, all earned income from self-employment is taxable. If you earn over $400 in self-employment income, you are required to file a tax return, even if no single client paid you more than $600.10. Myth: Moving Into a Higher Tax Bracket Taxes All Income at The Higher RateOnly the portion of your income that falls within the higher tax bracket is taxed at the higher rate. For instance, if you earn enough to move from the 10% to the 12% bracket, only the income above the 10% threshold is taxed at 12%, not your entire income. This misconception often deters people from accepting bonuses or promotions unnecessarily. 

 Avoiding  Accidental Partnerships in Real Estate  **Correction** : Hey everyone! I misspoke in this episode. The guidance on rev proc 84-35 references the old consolidated audit procedures that impact older returns.  The CPAR (Consolidated Partnership Audit Regime) that impacts current returns does NOT impact the ability to use Rev proc 84-35 for late relief. InCite Tax Professional Community: https://www.incite.tax/ Facebook for Tax Professionals: https://www.facebook.com/groups/realestatefortaxprosFacebook for Real Estate Investors: https://www.facebook.com/groups/REIKnowledgeVault Electing out of CPAR: https://www.irs.gov/businesses/partnerships/elect-out-of-the-centralized-partnership-audit-regimeSmall Partnership Late Filing Relief Rev Proc 84-35 : https://www.taxnotes.com/research/federal/irs-private-rulings/legal-memorandums/small-partnerships-are-not-automatically-exempt-from-filing-returns/1w8vnRev Proc Spousal LLC Filing as a QJV instead of a 1065: https://www.irs.gov/pub/irs-drop/rp-02-69.pdfIn this episode of 'Real Estate is Taxing,' host Natalie  breaks down the common issue of accidental partnerships in real estate, explaining how they are often unknowingly created and the complications they bring to tax filings. She outlines the key facts about partnerships, including the forms and reports required, and provides multiple solutions for managing these accidental situations, such as treating them as disregarded entities or qualified joint ventures. Listeners also get strategic advice on dealing with late partnerships and ensuring they do not fall foul of regulations. Natalie emphasizes the importance of understanding the tax implications when setting up LLCs with co-owners, which is crucial to avoiding unexpected tax complications.00:00 Introduction to Real Estate Taxing00:58 Understanding Partnerships and Form 106504:17 Common Accidental Partnerships05:43 Solutions for Accidental Partnerships14:47 Late Filing Relief and CPAR21:34 Conclusion and Real-Life Example 

 Understanding Short-Term Rental Tax Loopholes: Key Court Cases and Revenue Rulings Natalie discusses various court cases and revenue rulings that provide crucial guidance on this topic, including cases from 1965 to 2023. She highlights differing tax treatments based on the nature of services provided, whether the property is subject to self-employment tax, and the importance of understanding context to accurately apply tax laws. Tune in for a comprehensive overview of significant rulings and their implications for short-term rental property owners.Link To Court Cases:   https://www.natalie.tax/blog/strcasesFB Group For Tax Professionals:https://www.facebook.com/groups/realestatefortaxpros FB Group For Real Estate Investors:https://www.facebook.com/groups/REIKnowledgeVault 00:00 Introduction to Real Estate Taxing00:28 Understanding the Short-Term Rental Loophole01:01 Court Cases and Legal Guidance01:55 Debunking Myths About Short-Term Rental Laws02:59 Case Study: 1965 US Court of Appeals07:34 Revenue Rulings and Their Impact13:06 Two-Step Approach to Analyzing Services15:26 Exploring Substantial Services in Real Estate15:52 Court Cases on Retirement Benefits and Real Estate16:28 The Holohan v. Heckler Case Analysis19:28 Comparing Substantial Services in Different Contexts22:11 The Woodworth Case: Partnership and Self-Employment Tax25:46 The Morehouse Case: Land Rental and Government Programs28:34 Recent Developments in Short-Term Rentals and Tax Implications30:39 Conclusion and Further Resources 

 Understanding Real Estate Audits and Proactive Defenses If You've Done a Cost Segregationhttps://www.facebook.com/groups/realestatefortaxproshttps://www.facebook.com/groups/REIKnowledgeVaultIn this episode of 'Real Estate is Taxing,' host Natalie, minimizes the fear around audits by highlighting their low risk and focusing on practical steps to avoid common pitfalls. Key points include detailed guidance on mileage deductions, maintaining thorough records for real estate professional status, and tips on conducting cost segregation studies. Emphasizing the need for detailed and accurate record-keeping, Natalie also discusses audit trends and offers solutions to common issues faced by real estate taxpayers.00:00 Introduction to Real Estate Taxing00:40 Understanding Audits in Real Estate01:55 Mileage Deduction Tips05:40 Real Estate Professional Status10:17 Cost Segregation Insights25:47 Conclusion and Final Tips 

Cost Segregation Studies- What they are, how they're done, when to use them...and what type of study should you choose. Have tips for making the most out of conferences? I want to hear about them! Email Contact@Cretaxstrategist.com or join the facebook group below to share your thoughts and ideas.  Facebook Groups: Tax Professionals: https://www.facebook.com/groups/realestatefortaxprosReal Estate Investors: https://www.facebook.com/groups/REIKnowledgeVaultA comprehensive exploration of cost segregation studies, detailing what they are, their benefits, types of studies, and cautionary advice. Also included are practical examples and IRS guidelines to help both real estate investors and tax professionals leverage these studies for tax planning. Stay tuned for all this and more, along with a teaser for an upcoming episode focused on potential pitfalls in cost segregation.00:00 Introduction to Real Estate is Taxing00:28 The Importance of Conferences02:10 Networking Tips for Conferences06:50 Cost Segregation Studies Explained15:03 Types of Cost Segregation Studies20:58 Important Considerations and Elections30:37 Conclusion and Final Thoughts 

And Why "You Can't Buy a Primary Home With A 1031 Exchange" Is wrong. Facebook Groups: Tax Professionals ---> https://www.facebook.com/groups/realestatefortaxprosReal Estate Investors ---> https://www.facebook.com/groups/REIKnowledgeVaultEpisode Topic Suggestions --> Contact@Cretaxstrategist.comLike the Show? ---> Rate it 5 ⭐️ In this episode of 'Real Estate is Taxing,' host Natalie Kolodij delves into the synergy between two tax code sections: the 1 21 exclusion and the 10 31 exchange. She explains the primary conditions under which each applies and explores scenarios where both can be utilized together in cases of mixed-use properties or properties transitioning between personal and business usage. Natalie also provides insights on handling depreciation recapture and answers common questions about using these provisions to maximize tax advantages. Join her for a detailed discussion aimed at demystifying complex tax strategies in real estate.00:00 Introduction to Real Estate Taxing00:52 Understanding the 1 21 Exclusion02:04 Exploring the 10 31 Exchange02:39 Combining 1 21 Exclusion and 10 31 Exchange02:54 Mixed-Use Properties and Tax Benefits05:04 Switching Between Primary Residence and Rental10:04 Depreciation Recapture and Tax Strategies12:39 Common Questions and Scenarios20:14 Conclusion and Final Thoughts

Join The Conversation On Facebook - Tax Professionals - https://www.facebook.com/groups/realestatefortaxprosReal Estate Investors - https://www.facebook.com/groups/REIKnowledgeVaultWant To Attend An Event or Have Natalie Speak at Your Event?Upcoming Speaking and Teaching Events - https://www.natalie.tax/Referenced In This Episode: TC Summary 2017-31  -https://casetext.com/case/nielsen-v-commr-2In this episode of 'Real Estate is Taxing,' host Natalie Kolodij discusses the intricacies of real estate tax, focusing on depreciation and the importance of allocating land and building value when setting up a rental property. Natalie explains how depreciation allows rental property owners to write off the value of the building and improvements over time, emphasizing that land cannot be depreciated because it does not wear out. She outlines acceptable methods for dividing purchase price into land and building values. Natalie also debunks common misconceptions and provides guidance on ensuring accurate depreciation schedules. 00:00 Introduction to Real Estate Tax Education00:27 Upcoming Tax Education Opportunities01:40 Deep Dive: Depreciating Rental Properties02:31 Understanding Depreciation: The Basics03:21 Adding Costs to Your Property's Basis04:07 Navigating Escrow and Loan Costs09:38 The Importance of Separating Land Value16:04 Choosing the Right Method for Land Valuation21:27 Avoiding Common Depreciation Mistakes27:20 Conclusion and Invitations

Demystifying the Short-Term Rental Tax StrategyThe podcast episode delves into the intricacies of leveraging the short-term rental 'loophole' for tax benefits, clarifying the often misunderstood and oversimplified strategy. It begins with an explanation of passive vs. non-passive income and the tax implications of each, particularly focusing on the limitations of deducting passive losses. The episode highlights how short-term rentals, under certain conditions, can be classified as non-passive, allowing investors to bypass these limitations. By maintaining an average guest stay of seven days or less and demonstrating material participation in the rental's operations, investors can take full advantage of this tax strategy. The episode further explores the role of cost segregation studies in maximizing depreciation deductions and the implications of bonus depreciation. Additionally, it addresses common pitfalls and audit risks associated with improperly implementing this strategy and underscores the importance of diligent documentation and adherence to IRS guidelines. The episode concludes with advice on operational considerations for those looking to explore short-term rentals as a tax strategy, emphasizing the need for careful planning and record-keeping.00:00 Kicking Off with a Tax Conference Highlight03:53 Diving Deep into the Short-Term Rental Loophole04:57 Understanding Passive vs. Non-Passive Income08:10 Maximizing Deductions with Cost Segregation Studies13:10 Navigating the Challenges of Material Participation16:16 Audit-Proofing Your Short-Term Rental Strategy21:11 Navigating Depreciation and Cost Segregation for Tax Benefits22:47 The Power of Short-Term Rental Tax Strategies25:41 Managing Property Types and Depreciation Life29:32 Understanding Mid-Term Rentals and Self-Employment Tax33:25 Correcting Schedule C Misclassifications and Final Thoughts

This episode delves into the 121 Exclusion, also known as the primary home sale exclusion, which allows significant tax savings for Americans selling their primary home, assuming they meet specific criteria. Covering the fundamental conditions of the 121 Exclusion, emphasizing the necessity of owning and occupying the home for at least 730 days out of the last 1,825 days to qualify. Detailed explanations are provided for five common mistakes related to this tax provision, including misconceptions about rental use, house hacking scenarios, and the prorating of exclusions under unforeseen circumstances. 00:00 Introduction to the 121 Exclusion00:47 Understanding the Basics of the 121 Exclusion05:06 Common Mistakes with the 121 Exclusion12:38 Special Cases and Exceptions in the 121 Exclusion25:32 Conclusion and Final Thoughts