Posted by Redmond CPAs on October 25, 2013 · Leave a Comment
You need to ascertain that all professional services and costs are set up adequately and thoroughly documented for the purposes of taxation conformity, now that you have decided to rent out property for profit. Let’s take a look at these expenditures.
Insurance
Insurance coverage installments are pre-paid prior to the designated time frame. Example: You bought insurance on the rental property in March 2012 for $1200. The protection time span is from April 2012 to March 31, 2013. Because the coverage time period will extend past the current tax year, you have to apportion and allocate the insurance premiums pertinent to the present year only and then bring forward the balance for the upcoming filing year. In this example the allowable premium tax deduction would be $900 (9 months April to Dec 2012) or $100 per month of qualified rental property use.
Personal and business customers will often receive a discount rate if their insurance company wants to bundle their premium packages. Only the company rental property relevant fraction can be deductible. The private and non-business related use could be deductible with your individual income tax return. Finally, Title insurance will not be applied as an expenditure and has to be inside the Cost Basis of the rental property.
Cleaning and Maintenance
The day to day upkeep of the property is an allowed expenditure granted it is for common places and everyday cleaning. These expenditures will also be confined to the days which are allowed rental days rather than personal use days. To make certain the rental property is in good condition and running order, you could do what other property owners do, and employ a local hired service to keep up with the property. This might include such professional services as window cleaning, dusting, appliance cleaning and repairs. Just these kinds of professional services are permitted, any structural maintenance and/or alterations will have to be allocated to the Cost Basis of the property.
Repairs
There are often projects which don’t need major renovation of the structure of the rental property such as repainting or appliance maintenance. These types of costs that are normal and essential are deductible depending on the leasing time period.
You must note that these kinds of expenses that are normally tax deductible against the earnings of the property, you mustn’t incorporate the times which are regarded as personal times of use. Just those expenses that are directly related to the authorized leasing period are allowed.
- You can obtain the different reports defined in this article on the IRS’s site. If you want more information, see IRS Publication 527.
Redmond CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Redmond CPAs on October 17, 2013 · Leave a Comment
The specific utilization of your own private automobile or any other motor vehicles may be deducted as an expense according to some specific factors if they are typical and vital. You may write off travel costs pertaining to maintenance duties and collecting rental payments. Note that commuting to work will be considered a private cost and is not tax deductible. All expenses sustained as a result of traveling to a rental property to make improvements aren’t allowable either. A cost recovery system such as depreciation will cover this.
Actual Expenses
All deductible expenses resulting from travel connected to your residences may be recorded with this method. IRS Publication 463, Chapter 5 identifies the way these expenses should be recorded and supported with invoices. Certain software program apps can be found via iPod, Quick Books, Mint, as well as others which will help you keep track of these records; but you will need touchable documents to support any tax deductions. You are required to report this in your Schedule C or Schedule E along with supporting forms. For people who have two or more rental properties, your expenses need to be allotted to the property where expenses incurred. Remember to not add in any kind of private use or any other use other than that specifically related to the rental property.
Mileage Method
Here you may deduct your actual mileage driven. If you traveled 1200 miles throughout 2012, you’ll apply the latest standard mileage rate of $0.55.5 per mile in accordance with existing tax rates and deduct the total.
You must have documentation to support use of local transport like car rentals, metro bus service, and Zip Cars. To demonstrate the fact that public transit use is only business relevant, it is advised that you keep a record of fare costs. Another good idea is to maintain business accounts tied directly to your rental property for any Zip Cars and car rental expenses you incur.
Quick Note: You can obtain the different documents outlined in this information on the IRS’s webpage. Check with IRS Publication 527 for additional information.
Redmond CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Redmond CPAs on October 9, 2013 · Leave a Comment
The following article is focused on all the Revenue Service tax documents you will require as a property manager so as to accurately record, and report, your rental property revenues to the Internal Revenue Service. Depending upon the kind of legal organization that is the owner of the rental, the tax documents that are required will change, as discussed in this article (individual, partnership, corporation, or LLC). View the article called Best Rental Property Ownership, included within this Guide, for further information about legal entity property ownership.
NOTE: Each of the forms mentioned here are accessible on the IRS’s website, at: http://www.irs.gov/Forms-&-Pubs. All the required documents will likely be available in any tax preparation software programs, should you use one of them.
Individual Ownership
Mutual property ownership with a spouse, joint tenancy with right of survivorship, and also tenancy in common are actually included in this.
Form 1040. All individual taxpayers must use Form 1040, and that is exactly where you’ve got to start. At line 17 of the first page of Form 1040 is your net leasing revenue or losses, subjected to taxation. You aren’t able to take advantage of the easy Forms 1040A or 1040-EZ, as a property owner with rental property activity.
Schedule E. Schedule E is one addendum of Form 1040. Of Schedule E’s numerous purposes, the usage of reporting rental property profit and expenditures is relevant to you. The single part of Schedule E that you should fill out is the part marked “Part I”. There are relevant tips you should be aware of, which include: when reporting on a rental property that you mutually own with a person, who isn’t your significant other, you just need to report the costs you accrued along with the earnings that you collected. In addition, remember that if you rented for just a part of the year, or you have been renting part of your personal property, you’ll need to allocate expenses regarding rental and non-rental use. View the series of articles entitled Tax Deductible Rental Property Expenses, available in this Guide, for further tips.
Form 4562. Form 4562 is employed to quantify depreciation on your rental property, which you’ll deduct at line 18 of Schedule E. To get more advice, look at the article entitled, Depreciation Expenses for Rental Property, that’s in this Guide.
Partnership/Corporate Ownership
A general or limited partnership, or S corporation is an example.
Form 1065/1120-S. If you’ve got a joint venture, you will need to employ Form 1065, the tax form a collaboration uses to report all of its organization activities. Form 1120-S is used by an S corporation to report enterprise activities. Your annual net rental revenue or financial loss should be reported on Schedule K, line 2 of Form 1065 or 1120-S (Such forms are integrated with Schedule K).
Form 8825. This document acts just like Schedule E, but is for partnerships and S corporations. It is actually in essence a lot like Schedule E. Make certain that all earnings and expenditures accrued by the corporation or partnership are included in their complete sums (these are divided among each business partner or shareholder later).
Schedule K-1. This tax document reports the total rental property income or financial loss owing to each partner or investor in accordance with that business partner or investor’s property ownership interest. The details of the K-1 provided to each individual business partner has to be reported on their own Form 1040, Schedule E, Part II.
Limited Liability Co-ownership
You’ll be able to file as if you are an independent owner because, for taxation purposes, a single-member LLC is really a disregarded entity (look above). A multiple-member LLC has the option to be taxed either as a partnership or as an S corporation (see above).
Auburn CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Redmond CPAs on February 22, 2013 · Leave a Comment
This article from the Rental Property Tax Guide centers on the different deductible expenses of your gross rental income so as to determine net rental income. As there is a variety deductible expenses, this Rental Property Tax Guide divides the topic into four different forms. This first chapter will deal with professional fee expenses, advertising, and interest incurred.
Interest
If you’re renting a room in your home, or if it is a duplex and you’re occupying the other unit, you will need to pro rate the mortgage expense. (See the article titled Personal Use of Rental Property, included in this guide, for more on how to calculate personal use). Now if you are renting the property as its own living unit, you can deduct all of the mortgage interest you paid on Schedule E. Also, if you own only a part interest in the rental, you must multiply the total amount of mortgage interest paid on the property by your ownership interest. Be aware, however, that certain expenses you pay to obtain a mortgage (such as title/recording fees and commissions) are capitalized as part of your depreciable basis for the property, and are not expensed. See the article titled Depreciation Expenses for Rental Property, included in this Guide, for more on depreciation expense. Other types of interest may also be deductible, if you incurred the interest solely for the benefit of the rental property.
Advertising
Ads in a local newspaper or any paid online marketing for example are deductible expenses when promoting a rental property on the open market.
Professional fees
You can deduct professional fees you incur in connection with the rental. For example, if you paid an attorney at law to write a rental contract, or even to initiate legal action to evict an errant tenant, you can deduct these fees. On top of that, you’ll be able to deduct fees paid to a Redmond CPA for preparing the Schedule E of your return from the past year. Make sure to pro rate the total fee between the Schedule E and the remainder of the tax return dependent upon the percentage of time the respective sections of the return took. Any fees for preparation of any part of the return separate from Schedule E have to go on Schedule A as a personal tax preparing expense. Finally, in cases where you pay any commissions or management fees to a professional realtor for managing your rental, then you should deduct these payments too.
Redmond Accountant +John Huddleston has written numerous articles on accounting and other tax issues of concern to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
Posted by Redmond CPAs on January 11, 2013 · Leave a Comment
Particular expenses incurred in readying a property for rental (previous to ultimately renting) are deductible. Let’s look at several of these expenses.
Note: Startup expenses laid out here, are dissimilar to the expenses allowable as a deduction (in Internal Revenue Code section 195.) Within this section, certain expenses incurred as startup expenditures in an active trade or business are deductible up to $5,000, with a balance amortizable over a fifteen-year period. However, in this section 195 of the Internal Revenue Code, rental activity is not included because rental activity is thought to be a passive activity not as an active trade or business. See the article Tax Deductible Rental Losses, included in this Guide, for more on passive activity rules.
NOTE: Rental activity starts when you place a property on the market, not when you have actually have a tenant or a renter.
Obtaining a Mortgage Expenses
Recording fees, mortgage fees, and abstract fees (amongst others) are capitalized and so become part of your basis in the rental property. Rather than expensing these fees all at once, you must depreciate the expenses.
Points
What are points? They are charges paid by a borrower to take out a mortgage or a loan. This points or charges may also be called origination fees, or premium charges, or maximum loan charges. Points are deductible as interest, but require that you amortize the points over the life of the loan. Determining the amount of points to amortize per year, is task beyond the scope of this article. Seek the counsel of a tax professional.
Repairs versus Improvements
You must capitalize and depreciate all improvements you make to the property in advance of putting the property on the market. Improvements are those that prolong the use of the property or materially add to the property’s market value. On the other hand, you may freely deduct all repair expenses. A repair maintains your property in good working condition without adding to its value or prolonging its use. See the series of articles about deductions and depreciation, included in this Guide, for more information.
Redmond Accountant +John Huddleston has written numerous articles on accounting and other tax related subjects. He is a graduate of Washington State University and the University of Washington.
Posted by Redmond CPAs on December 28, 2012 · Leave a Comment
Let’s launch off by having a look at the various entity selection types that are available. Each has pros and cons. As a rule of thumb, you’ll aim to protect your property from unsecured creditors and limit your liability. So let’s unroll the list and see what we’ve got here.
TIP: To form any of the entities presented below, the applicable registration form and fee will have to be filed with the Washington Secretary of State’s office. Gain access to the forms at: SOS.WA.GOV
Note: This guide wont serve to replace the expert council of a Redmond CPA or attorney. You should seek qualified professional help when setting up an entity and transferring ownership of a rental property.
Individual Ownership
This is the simpler and most common method of establishing ownership. This is when you purchase a rental property in your own name. A significant disadvantage of this form of ownership is that your creditors may be able to force a sale of the rental property if they receive a court order, or they might compel you into involuntary bankruptcy. A main plus to this form of ownership is that the process is simple, without tricky forms or heavy filing fees.
Legal Entity Ownership
Legal entities include limited liability companies, corporations, general partnerships, and limited partnerships. Let’s look at the difference a bit later. First let’s look at the leading benefit of entity ownership, that being with entity ownership your personal creditors cannot force a sale of the rental property. The only entity type that does not require registration with the secretary of state is a general partnership. Regarding taxes, you’ll see the entity type doesn’t matter that much because in most cases rental income is taxed on your personal tax return, See the article titled “Necessary Tax Forms for Reporting Rental Activity,” which is included in the Landlord Tax Guide.
General partnership. This form of ownership takes place when two or more persons co-own a for profit business. Now with this general partnership the partners have equal management privileges, however each partner is personally liable for any incurring debts of the partnership. And thereby a general partnership is most often not preferred.
Limited partnership. This entity is more complex than the general partnership as it requires at least one limited partner and one general partner. The general partner has sole management rights, along with personal liability for any resulting debts. Whereas, the limited partner isn’t personally liable for debts of the partnership and moreover has no management rights.
Limited liability partnership or limited liability company. A limited liability partnership and a limited liability company are similar forms of entity selection. Both of them provide limited liability to the members and partners. Meaning that you are not personally liable for the debts of the entity, that is, unless the debts result from your own wrongdoing. This form of ownership is often preferable as it lessens liability and reveals fewer formalities than those of the corporation.
Corporations. Corporations enable limited liability and perpetual existence. However on the other hand, they demand the observance of certain formalities so as to maintain the limited liability shield. Without these formalities, a court may “pierce the corporate veil” and hold you personally responsible. It is for this reason that LLPs and LLCs are usually more desirable for a rental property owner. Furthermore, for tax purposes, corporations are split into s-corporations and c-corporations. If the corporation is taxed as a “C” corporation, it will pay tax on the rental income, and then you will pay tax once more when the corp pays out dividends. And you should steer clear of this “double taxation” snare.
Redmond Accountant +John Huddleston has written articles for many years on accounting and taxes. He is a graduate of the University of Washington School of Law, with a Juris Doctorate and a Masters in Tax Law.
Posted by Redmond CPAs on October 25, 2012 · Leave a Comment
It is a very important that you give yourself due consideration in deciding where to buy, how to go about it, and what kind of practice to purchase.
Do Your research
Dentists must not rush into a purchase, and need to manage their expectations, understanding that the process will take some time. There is no need to hurry through important steps and be impatient. Buying the right dental practice for you matters more than closing a deal quickly when the first opportunity presents itself.
Choosing the Best Location
Think about where you might like to live. You’ll want to be a big part of this community, so you’ll need to make sure it’s a good fit. Participating in local activities and mingling with neighbors will help your business grow. And ensuring a shorter commute could also pay off. Trading off time spent in commute with time spend amongst family and friends is not a bad deal.
Establish yourself amongst people you can relate to and people you can enjoy. Your practice and your interpersonal life will reap the benefit. Intercity or rural–what’s best for your family? Let the location of your competition inform your decision. Will your spouse be able to find work? Will your kids end up in a school district that will nurture them and grant you piece of mind?
Deciding on the Ideal Practice for You
Lay out a working business plan. What size of dental practice do you anticipate? And do be careful to leave room for growth. Will you be establishing a specialized or generalized dental practice. Can you establish relationships with other practices in the community that can give you referrals? Do you prefer a long client list with a five-day-a-week-schedule? Or maybe you’d prefer a smaller practice that allowed for more time off. Naturally, these decisions will affect your finances and may dictate your level of day-to-day stress too.
Seek a Valuation
Get a CPA or CVA to perform a business appraisal on the proposed business purchase. They can find out how much other dentists have paid for similar practices. This is going to give you a leg up in negotiating your purchase.
Round-up the Troops
Trying to save money by being completely self-sufficient is a poor decision when you plan on purchasing a dental practice. In the long-run, investing in advisors will save you a lot of trouble. Here are a few people you’ll need:
- A CPA who has experience guiding dental practices and other small businesses on how to stay compliant and reduce their tax burden. You will need an accountant who can help you develop tax-saving strategies. You’ll want an accountant to advise you on the best entity structure for your small business (LLC, PLLC, Sole Proprietorship, S-Corp, C-Crop).
- A Bookkeeper who is experienced in a bookkeeping system like Quickbooks. A certified Quickbooks ProAdvisor means they are certified by the makers of Quickbooks as skilled with the accounting software.
- An attorney at law to protect your interests and review documents.
- A consultant for your new dental practice will prove invaluable in helping you navigate toward success.
- Establish a relationship with a bank early on. Getting prequalified, and ready to finance, helps you keep perspective on how much you can afford and how to put in a good offer.
- An insurance representative will assess the value of your business and evaluate risk to see how much coverage you will have to have.
- It never hurts to seek the help of a mentor or business confidant of some kind, perhaps a veteran dentist who once went through the same process you’re going through now.
- A marketing pro that knows online marketing.
Purchasing your first dentistry practice is a huge step in the career of any DDS. Be prepared for success.
ax CPA John Huddleston has a law degree and masters in tax law from the University of Washington School of Law. He has been a guest tax expert on the radio. He advises small businesses in the Seattle Bellevue Tacoma & Everett area on various tax and accounting issues. His firm, Huddleston Tax CPAs, also provides tax preparation service, quickbooks consulting, business valuation, general accounting and bookkeeping service. Profile information on CPA John Huddleston and the CPAs employed by Huddleston Tax CPAs is available at CPA tax accountant profile. Seattle CPA John Huddleston is a frequent publisher of tax saving ideas.
