What Does a CPA Actually Do?
CPAs & Accountants
Most people have a misunderstanding about the basic job description of a CPA. The dictionary defines a CPA as follows:
The dictionary defines a CPA as follows:
A certified public accountant, or CPA, is a person who has passed the very difficult CPA Exam and has been licensed by one of the 50 U.S. states (or one of five other jurisdictions). The CPA’s license is renewed if the state’s requirements continue to be met including continuing professional education credits.
While this may sound like a job that could be fairly easy, especially if all you do is crunch numbers all day, you would be mistaken to assume so. CPAs perform several critical business functions; if a CPA fails to perform these functions adequately, there is a very real possibility that the business will fail. Here are just a few of these vital functions:
Prepare Profit & Loss Statements
Preparing profit & loss statements will show your company what is going on with all of its finances from beginning to end. This helps eliminate issues later in the year when a company could come to you asking why their finances are suffering.
Reconcile Reports
As a CPA, it is your responsibility to keep track of all the money that is spent, and also to determine to desirability of all company spending. Money management is a key part of an accountant’s job.
Create & Improve Upon Accounting Procedures
Any time an accounting problem is found within your business it’s probably because of a failing internal procedure. Part of an accountant’s job is to always make sure that they be constantly improving accounting procedures and to develop new procedures when existing ones fail.
Analyze Reports of Profit & Loss
Analyzing reports of profit & loss not only shows where your business is doing well but also where your business is suffering.
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Private Use of Rental Property
The guidelines associated with the personal and leasing utilization of premises are included in this article in the Landlord’s Tax Guide. This may be either because you are leasing out a space in the same property which you are living in, or you have got a vacation residence that you might privately employ a few weeks out of the calendar year and rent the remainder of the time. This information will not apply to you at all if you never use your rental property for personal use. However, if you do, you will want to keep reading.
Property rented for less than fifteen days. Any time you leased your property for less than fifteen days total in the past year, you don’t have to file any of your rental revenue. If this is the scenario, then the real estate property is going to be considered personal for taxation considerations, and on Schedule A of Form 1040, it is possible to deduct any of the property associated expenditures as personal.
Employing Your Holiday Home as a Part Time Rental
Personal use test. It’s important to work with some type of numeric formula to determine the total number of days during which the rental property was used for personal use. That is the personal use test. How you deduct your rental expenses is going to largely be determined by whether or not the personal use test is satisfied. Finding out the actual quantity of days in the past year in which the real estate property was leased out at fair market value is the initial step in calculating the personal use test. The next step is to multiply that number of days by ten percent. We will label the outcome the “total days rented” or “TDR” for short. The next stage will be to figure out how many days the rental property was employed for private use. We can label this “personal use days” or “PUD” abbreviated. Look at the table below for a vision of the personal use test.
NOTE: “Personal use” consists of use by you, any other owners of the home and property, plus the families of all individuals who own the property, unless of course your family member is paying out rent at fair market value.
|
If TDR is… |
and PUD is… |
then the personal use test is… |
|
over 14 |
less than TDR |
not satisfied |
|
under 14 |
less than 14 |
not satisfied |
|
over 14 |
more than TDR |
satisfied |
|
under 14 |
more than 14 |
satisfied |
If test is satisfied. If the personal use test is satisfied, you will deduct your rental expenses only to the extent of the rental income. A net rental loss will not be attainable, but when there are any additional expenditures you do not write off this year, they can be moved forward to later years, provided that there is an adequate sum of rental earnings in the tax year in which you claim them.
If test is not satisfied. Your own leasing costs will never be restricted by the rental income if the personal use test is not satisfied. You could deduct your rental costs and also have a net rental loss. There could be a few passive activity rules, however, which may still restrict the rental loss tax deduction.
Computing all of your rental expenditures. A number of expenses should be allocated between leasing and personal application. These include expenditures that will have already been charged no matter the use, such as real estate taxes and mortgage interest. Find out the whole number of personal use days. Then, you will need to determine the total quantity of TDR. After that, divide rental days by the sum of PUD and rental days. The end result is the rental percentage. Finally, you have to multiply the total cost of your expenses by the leasing percentage that you have established, and then the result will be the rental deductible part.
Leasing a Section of Your House
You need to expressly allot all your costs in between private usage and leasing use if you rent out a part of your own personal home. The IRS allows a little versatility with the method you employ; just make sure it’s consistent from year to year. Some people choose the option of taking the number of rooms within their residence along with the number of rooms within the home, and divide them. Dividing the rented sq . ft . by the residence’s total sq . ft . is another option that lots of people go for. You’ll end up with rental costs and personal costs. Those allotted to the leasing income can be deducted as such, and you can use Schedule A of Form 1040 to deduct what’s left.
Redmond CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is the owner of his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.
For more information on rental property deductions check out this video from Huddleston Tax CPAs:
