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Archives for April 2017

Hidden Benefit of Cost Segregation Studies

Cost Segregation studies allow tax payers to capture accelerated depreciation deductions by reclassifying components of a building into accelerated recovery periods. Most commercial properties are depreciated over 39 or 27.5 years. Cost segregation studies are an approved method from the IRS that requires engineers and CPAs to reclassify portions of commercial properties to shorter depreciation lives, as short as 5 years. These accelerated deductions apply to both federal and state income taxes, allowing for significant cash flow increases.

Any commercial property is eligible for a cost segregation study. For every dollar, a cost segregation reclassifies from 39-year property to 5-year property results in an estimated 22 cent benefit. Cost segregation studies can provide a substantial return on investment: http://bit.ly/CamusoCostSeg

The largest benefit to a cost segregation study is captured by accelerating depreciation deductions and using the increased cash flows in an effective method to capitalize on the time value of money.

An additional advantage that is often not an area of focus is that if a building component subsequently needs replacement, taxpayers can write off its remaining tax basis. Generally, if the taxpayer does not do a cost segregation study, no loss could be taken because the component’s tax basis and the basis of the building would not be separately stated.

Traditionally, many CPA’s do not have the expertise and depth within their professional network to deliver cost segregation studies.

Our team and systematic process takes a comprehensive approach to cost segregation, by leveraging our network of licensed professional civil engineers, cutting edge technology and top-tier knowledge, our team can efficiently do properties of any size without an in-house team of engineers and consultants. If you need commercial tax help in Charlotte, we are the CPA firm to call.

Camuso CPA PLLC offers comprehensive services to develop and tailor a first-rate tax plan for your business needs.  Reach out to our team regarding any questions about cost segregation or establishing a comprehensive tax plan.

Contact Us Today: https://www.camusocpa.com/contact/#/

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Real Estate Professional Case Study

There are significant tax benefits for investors who can qualify with the IRS for real estate professional status. Of course, these benefits do not come without trade-offs and a necessity for careful planning. To qualify as a Real Estate Professional for tax purposes, a taxpayer must meet a two-part test. To read more information regarding IRS investor classifications click here: http://bit.ly/RealCPA1

The following example is a fact pattern I recently came across with a client that illustrates the power of incorporating this strategy into a tax plan.

Case Study

Consider a married couple with one individual that works a full-time job, receiving a W-2, making $225,000 per year while their spouse is a stay at home parent. This couple strategically purchases rental properties which the stay at home spouse manages. While designing their rental portfolio and business plan, the couple strategically structured the activities to meet the real estate professional qualifications outlined in previous articles.

The stay at home parent is now considered a Real Estate Professional. If this individual spends more than 750 hours actively involved in their rentals, they can use the excess losses on the rentals to offset the W-2 income without limitations.

There are negative implications to achieving the IRS status of real estate professional and the associated tax benefit. If you are considered a Real Estate Professional, the IRS considers your short-term gains and income as ordinary income.  This income will be subject to self-employment tax; more on mitigating this issue here: http://bit.ly/RECPA

Tax benefits and incentives should not drive overall investment portfolios and strategies.  Reach out to our team regarding any questions about the Real Estate Professional Status or establishing a first-rate comprehensive tax strategy that is tailored to your real estate portfolio.

Camuso CPA PLLC’s focus and specialization delivers a unique perspective on best industry practices to provide the most value to clients.  Contact us today for financial and tax planning and get your finances in order: https://www.camusocpa.com/contact/#/

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Drawbacks of Real Estate Professional Status

There are significant tax benefits for investors who can qualify with the IRS for real estate professional status. Of course, these benefits do not come without trade-offs and a necessity for careful planning. To qualify as a Real Estate Professional for tax purposes, a taxpayer must meet a two-part test. To read more information regarding IRS investor classifications click here: http://bit.ly/RealCPA1

  1. The taxpayer must spend the majority of their time in real property businesses
  2. And the taxpayer must spend 750 hours or more in the real property business and rentals in which they materially participate

There are negative implications to achieving the IRS status of real estate professional and the associated tax benefit. If you are considered a Real Estate Professional, the IRS considers your short-term gains and income as ordinary income.  This income will be subject to self-employment tax.

To mitigate the increased tax exposure for real estate investors that are considered real estate professionals, S-corporations can be incorporated into their real estate portfolio. To reduce your self-employment tax bill, you can create an S corporation and hire yourself as an employee. You pay yourself, who is classified as an employee, for a reasonable wage for your work. If there is profit left over at the end of the year, it is characterized as a distribution rather than wages. Self-employment tax is only paid on wages — not on the company profit which results in significant tax savings. 

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COSTLY Tax Myths Frequently Taught to Investors at Educational Seminars

Any business decision you make, especially directly related to your finances and business structure, should be made with a defined cost, benefit and purpose. The focus should be on maximizing your time and money by focusing on how much money you are saving versus the time it took to save that money. Some solutions seem advantageous, and are hyped up and do not lead to the savings or benefits promised when you implement them.

When you attend educational seminars or events, always consider how the company makes money (“Cui Bono”) and be sure that your goals are in alignment with their business goals. Companies profiting mainly from marketing and branding may not be offering you the most effective or pragmatic solutions.

Here are some of the biggest issues we see working with clients who have bought into some of the most common real estate education programs:

  1. Form a C-corporation
    1. Most “gurus” tell new investors to form c-corporation. Then they get killed on taxes and compliance.  This is a legitimate strategy given the right circumstances, but particularly for new investors who are just starting out, this is almost always not worth it and leads to additional unnecessary costs.
  1. Deduct your passive losses
    1. Many real estate education seminars use the fact that real estate is a powerful tax planning tool as a talking point during the marketing presentations. They fail to cover many of the details that cost new investors significant amount of wealth at tax time. More on passive losses here: https://www.camusocpa.com/real-estate/real-estate-professional-status-a-cpas-perspective/#/
  2. Form a Nevada or Wyoming Corporation to save on taxes or protect assets
    1. If you are doing business in a state they are going to tax you on the profit you make. Additionally, if you need to register your company in your home state where you are doing business, the courts will apply your state’s laws when it comes to asset protection. There are specific instances when setting up in Nevada or Wyoming makes sense but this is a thoughtlessly oversold and overhyped strategy for real estate investors.
  3. Form an LLC to save taxes
    1. LLC’s are designed to provide asset protection. They are for holding assets or for partnership relationships between individuals or corporations. You can have an LLC treated as an S-Corporation or C-Corporation for tax purposes, but LLC’s help to minimize taxes.

We offer continuous access to top-tier tax, accounting, and finance services.  We are building a community of entrepreneurial minded real estate professionals across the country.

Ongoing relationships with a CPA is what delivers the greatest value to organizations. Camuso CPA real estate memberships eliminates disincentives and unexpected fees for contacting your business adviser while eliminating the need for costly real estate education programs.

Our goal is to become your dedicated financial expert that is a fundamental part of your business. By integrating ourselves into your business on an ongoing basis we gain a greater perspective of your finances and can deliver more value in the form of time and money.

Our membership provides ongoing access to a financial expert focused on the real estate industry. We are building an organization that focuses on building long-term relationships with clients and developing a financially focused real estate community. We take the time and care to guide our clients and to deliver them valuable information, updates, and financial tools to optimize their business and expand their real estate financial knowledge focusing on traditional CPA services, ongoing support, and financial/real estate education.

Contact Us Today To Build Your Dedicated Financial Team and Receive Expert Real Estate Guidance: Charlote Tax Help For Beginning Investors.

https://www.camusocpa.com/contact/#/

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5 Biggest Benefits of Streamlined Accounting System For Small Businesses and Investors

Maintaining records allows you to gain perspective on your company and provides a basis for business decision making. The level of documentation and systems that you invest time and money into utilizing will depend on your level of business development and financial sophistication. ((http://bit.ly/CamusoCPAAcctI)

Business owners and investors in earlier stages of business often do not keep records or have very poor record-keeping systems which exposes their business to an unnecessary level of risk. The business owner or investor does not know how their business or investments are performing throughout the year and they cannot properly substantiate deductions.

Here are the top 5 benefits to establishing and maintaining a streamlined accounting system:

  1. Tax Minimization: Capture all expenses and write-offs
  2. Business Success: Make better management decisions throughout the year with a clear set of data
  3. Peace of Mind: Minimize stress and frustration knowing your books are in order and you know the financial health of your company
  4. Cut Costs: Save money and time by hiring a bookkeeper to manage your books rather then doing them yourself or leaving them disorderly until tax season
  5. Preemptive Support: Do proactive tax planning throughout the year saving more taxes when it’s tax time

Camuso CPA PLLC  offers a series of services to develop and tailor a first-rate accounting system for your business needs.  Reach out to our team regarding any questions about commingling funds or establishing a first-rate accounting system. Or give us a call for tax help for small businesses and investors in Charlotte.

Contact Us Today: https://www.camusocpa.com/contact/#/

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Streamline Your Accounting System – A CPA’s Perspective Part II

In the last article on upgrading your accounting system (http://bit.ly/CamusoCPAAcctI), we discussed developing basic recordkeeping systems for beginning investors and small business owners. As your finances become increasingly complex your focus will shift towards accounting automation, outsourcing accounting and hiring an in-house CFOs.

Automated accounting systems such as Quickbooks or Xero will increase your expenses but save you time and costly errors. As businesses expand, monthly revenue and expenses will continue to increase making it untenable to effectively manage your finances using a spreadsheet.

A system such as QuickBooks or Xero enables all your business bank accounts and credit cards to be linked in one central location. Further, each income and expense item is charted to specific income and expense categories to ensure the most accurate and advantageous tax position when filing.

At this level of financial sophistication, Camuso CPA recommends having a top-tier CPA set up and chart your account but to manage your monthly accounting tasks yourself to cut costs.

As your business and investments continues to expand to the point where the time investment combined with the risk of error outweighs the savings, it is time to outsource your accounting function to a top tier CPA firm. This is a significant business investment, but allows you to focus on your highest value tasks while still receiving accurate and professional financial reports. Generally, businesses and investors sped about 3-6% of annual gross revenues on accounting.

The transition to working with an outsourced accountant from a self-managed process usually takes about two to three months in which you should be virtually removed from the management of your accounting.

Camuso CPA PLLC  offers a series of services to develop and tailor a first-rate accounting system for your business needs.  Reach out to our team regarding any questions about commingling funds or establishing a first-rate accounting system.

Contact Us Today: https://www.camusocpa.com/contact/#/

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New to Real Estate Investing? Read This Before Investing In Education or Gurus!

Camuso CPA offers an alternative to overpriced, real estate gurus, who charge a high fees, often not even providing advantageous financial or business advice. We see a lot of investors who have invested time and money into courses and coaches who often do not give them the level of personal guidance they require and many times provide them with misinformation that leads to costly decisions regarding entity structure and other business decisions.

Investors, new and experienced, require a dedicated CPA that is part of their financial team that can provide them with accurate, preemptive advice to optimize their investments and business.

Contact Us today at http://bit.ly/CamusoCPA to build your real estate team and gain ongoing guidance from a real estate focused CPA.

The most common issues we see with new clients who have invested in these type of programs is that they are rushed into forming S corporations or other costly entity structures. S corporations are a great tax planning tools but pose a higher compliance cost which should be considered along with tax benefits. Many times, investors could benefit by simply forming a single member LLC but are misled to form an S corporation before it is necessary.

More on S corporations here:  http://bit.ly/SCorps

A decision like this can compound in errors if investors are not working with a knowledgeable CPA to follow best practices in maintaining and planning for taxes with S corporations. Additionally, many accounting firms will also rush clients into S corporations since it means a higher price tag on the client’s compliance needs.

Often, CPAs do not provide comprehensive support to clients regarding tax planning for S corporations; around March or April when investors finally reach out to their CPA they realize they have made costly errors throughout the year which could have easily been avoided.

Camuso CPA is changing the local Charlotte CPA firm landscape. A CPA firm delivering clients relevant and proactive insights for tax minimization, cash flow improvement, profit improvement and of course, overall compliance.

As a response to the shift of CPA firms serving in an advisory role from a compliance role, Camuso CPA is part of a new generation of firms focused on building business relationships not collecting clients.

The goal is to become a financial expert that is a fundamental part of your business. By integrating into your business on an ongoing basis we gain a greater perspective of your finances and can deliver more value in the form of time and money.

Our memberships address three unique needs of real estate investors:

  1.  Traditional tax and finance needs
  2.  Ongoing, dedicated support from a CPA
  3.  Financial education

Clients receive ongoing access to a financial expert focused on the real estate industry. We are building an organization that focuses on building long-term relationships with clients and developing a financially focused real estate community. We take the time and care to guide our clients and to deliver them with valuable information, updates, and financial tools to optimize their business and expand their real estate financial knowledge.

Camuso CPA PLLC takes an industry focused approach to offering a tailored, comprehensive financial solution focused on cash flow improvement, profit improvement, tax minimization, and financial retirement. If you’re looking for help with real estate taxes in Charlotte, we are the people to call.

Contact Our Team Today: https://www.camusocpa.com/contact/#/

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What Advisors Are Not Telling You – Unlock Cash Flow With This IRA Investment Opportunity

Many individuals and investors are unaware of their accessibility to options that provide them with control over the IRA investments. If a substantial amount of your life savings are locked up in a retirement account this can provide a great opportunity to make a large investment in a  non-traditional investment vehicle.

Generally, major financial institutions that manage most U.S. retirement accounts don’t see the profit in offering real estate or nonpublic traded assets in retirement plans as this would create a substantial administrative burden among other considerations. This leads to self-directed IRAs, which are IRAs where the custodian of the account allows the IRA to invest into any investment allowed by law, to become widely overlooked as a viable option.

When employing this investment strategy it is crucial to ensure you have a truly self-directed retirement fund with an independent trustee or custodian. Many plans may appear to be self-directed but limit choices to a custodian’s list of pre-approved investments.

These investments typically include real estate, promissory notes, precious metals, and private company stock.

Under current law, a retirement account is only restricted from investing in the following:

  • Collectibles such as art, stamps, coins, alcoholic beverages, or antiques
  • Life insurance
  • S corporation stock
  • Any investment that constitutes a prohibited transaction
  • Any investment not allowed under federal law

Self-directed retirement accounts are exposed to prohibited transaction. The rules detail restrictions regarding whom your IRA may transact with.  Prohibited transaction rules restrict your retirement account from engaging in a transaction with a disqualified person.

Disqualified persons include:

  • The account owner
  • Spouse
  • Children
  • Parents
  • Business Partners

Consult with a trusted CPA before executing investment decisions or initiating any substantial changes to your investment plans.  CPAs know your finances better than any other advisor and should have the expertise and network to offer valuable, preemptive recommendations.

Investors and business owners of all types should look for an advisor that serves as a partner; an ideal CPA is a financial expert with companies within your industry that can provide ongoing financial and business advice when you need it most.

Camuso CPA PLLC’s focus and specialization delivers a unique perspective on best industry practices to provide the most value to clients.

Contact us today for financial and tax planning and get your finances in order: https://www.camusocpa.com/contact/#/

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Streamline Your Accounting System – A CPA’s Perspective

Maintaining records allows you to gain perspective on your company and provides a basis for business decision making. The level of documentation and systems that you invest time and money into utilizing will depend on your level of business development and financial sophistication.

Business owners and investors in earlier stages of business often do not keep records or have very poor recordkeeping systems which exposes their business to an unnecessary level of risk. The business owner or investor does not know how their business or investments are performing throughout the year and they cannot properly substantiate deductions.

The first step to implementing a proper system is to develop a better system for documenting all income and expenses and maintaining them properly.  Business owners and investors can do this by first establishing a separate business bank account and following best practices detailed in an earlier article regarding commingling funds: https://www.camusocpa.com/finance/commingling-funds-a-cpas-perspective/#/

All payments that are made to vendors or creditors should be paid by cash or credit to maintain a document trail to track payments. All receipts and miles driven for businesses should be tracked and recorded in apps that allow ease of use and accessibility.

Additionally, before allowing any contractor to perform work for your business, they should be required to complete a W-9. All work and payments that you make should be codified in a signed agreement.

All records should be maintained on a business computer, with two backup versions maintained on the cloud and a thumb drive with a folder hierarchy that allows you to easily find and sort data.

Following the above guidelines is the first step to developing a system that will allow you to gain value from utilizing comprehensive software as your business advances.

After business owners or investors have established and integrated a documentation system they can utilize technology to help organize and file applicable documents. This will allow greater freedom to generate financial information so that you can measure business or investment performance.

At this level of financial sophistication and business activity taxpayers do not need comprehensive automated accounting systems but do need timely and accurate financial information for personal and bank purposes. This can be accomplished through a combination of the use of spreadsheets and banking tools.

Business owners and investors should create separate checking accounts for each business, rental property, or investment that they own.

This streamlines the process of tracking expenses and developing financial statements. Each quarter take the time to analyze and log your income and expenses into an excel spreadsheet, reconcile your bank accounts, and review your financial position with your CPA. https://www.camusocpa.com/contact/#/

In the next article on upgrading your accounting system, we will discuss accounting automation and outsourcing your accounting function: http://bit.ly/CamusoAcctII

All investors, agents and business owners should implement best practices regarding business account segregation and general accounting practices.  Maintaining separate personal and business accounts is the first step to establishing foundational accounting practices for your finances.

 

Camuso CPA PLLC  offers a series of services to develop and tailor a first-rate accounting system for your business needs.  Reach out to our team regarding any questions about commingling funds or establishing a first-rate accounting system.

Contact Us Today: https://www.camusocpa.com/contact/#/

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Cost Segregation: Accelerated Cash Flows and Opportunities For Growth

Cost Segregation studies allow tax payers to capture accelerated depreciation deductions by reclassifying components of a building into accelerated recovery periods Most commercial properties are depreciated over 39 or 27.5 years. Cost segregation studies are an approved method from the IRS that requires engineers and CPAs to reclassify portions of commercial properties to shorter depreciation lives, as short as 5 years. These accelerated deductions apply to both federal and state income taxes, allowing for significant cash flow increases.

Any commercial property is eligible for a cost segregation study. For every dollar, a cost segregation reclassifies from 39-year property to 5-year property results in an estimated 22 cent benefit. Cost segregation studies can provide a substantial return on investment.  A top-quality CPA firm with high-quality cost segregation services will be able to provide a fee proposal and estimated tax savings to determine the cost/benefit of the analysis and compliance. Contact Camuso CPA PLLC (CamusoCPA.com) today for a free initial consultation regarding a comprehensive cost segregation study, if eligible you will receive a free quote.

Case Study:

An apartment building with a tax basis of $1.5 million, with one year of standard 27.5 year accumulated depreciation can accelerate $263,424 in tax deductions in just 4 years with $143,314 in year 1.

Take a look at the chart below for an illustration, the red represents the accelerated cash return from the cost segregation study while the yellow represents a conservative estimated rate of return you can get from the accelerated cash flows.

Technology Disruption Offers Opportunity to Small Investors and Small Businesses

Traditionally, many CPAs do not have the expertise and depth within their professional network to deliver cost segregation studies.

Our team (CamusoCPA.com) and systematic process takes a comprehensive approach to cost segregation, by leveraging our network of licensed professional civil engineers, cutting edge technology and top-tier knowledge our team can efficiently do properties of any size.

Cost Segregation is now cost effective for smaller properties by using cutting edge technology and online software designed for CPAs who are strategically aligned with engineers that are experts in cost segregation.

Traditionally, cost segregation studies would only be recommended for larger properties with a tax basis over $1,000,000. The cost segregation industry is being disrupted, offering a great opportunity to smaller investors and business owners who can recognize this opportunity and capitalize on it to accelerate cash flows to improve their business or secure an additional strategic investment on properties with a tax basis as lows as $100,000 to $200,000.

Here is an additional article regarding technology disruption in the cost segregation industry: https://www.linkedin.com/pulse/technology-disruption-offers-tax-maximazation-small-camuso-cpa

The Process

The cost segregation process utilizes an engineering approach to identify assets that can be reclassified for accelerated depreciation, evaluating all available information and presenting the conclusions in a professionally documented format.

  • Review of all cost detail for the property
  • Inspection of facilities
  • Review of all blue prints
  • Reconciliation of all construction costs and estimates to the actual amounts incurred by tax life
  • Pro-rata allocation of soft costs

Timing

Tax regulations allow for taxpayers to retrospectively capture missed deductions provided by a cost segregation study.

Cost segregation studies can be performed at any time but in order to maximize tax deductions one should be performed as soon as possible.

Estate Planning Opportunities

Cost segregation studies can be a powerful estate planning tool.  Cost segregation studies offer an additional opportunity to reduce the decedent’s original tax basis for real estate assets that are recorded on their tax depreciation schedule before death. A cost segregation study can be done after a death occurs, but must be completed before filing the decedent’s final income tax return.

This can generate accelerated depreciation that can eliminate tax owed on the final federal income tax return, while reducing the building’s pre-stepped up tax basis. Since the federal income tax basis of the building is reset to fair market value on the date of death, neither the decedent nor the heirs realize any offset to future deductions typically associated with cost segregation studies.

Additionally, the recapture tax that is paid upon sale of the property on the accelerated depreciation deductions does not occur in estate planning situations.

Additional Strategies

Cost segregation studies can be combined with 1031 exchanges as a powerful tax planning toolset, allowing investors to accelerate the growth of their portfolios by capturing large tax deductions and deferring gains on the sale of properties.

Additionally, cost segregations can be combined with other studies, incentives and tax planning strategies including bonus depreciation, 179D Deductions, 45L Energy Credits, Insurance Replacement Appraisals, Tangible Property, Repairs & Maintenance Studies and much more.

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