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How Real Estate Agents Save Big on Self-Employment Tax

If you are a real estate agent or broker, you are most likely subject to the self-employment tax. We will go over how you can potentially save thousands on your tax bill.

If you’re like many real estate agents and brokers, you are paid as independent contractor.

As an independent contractor, you are considered self-employed and subject to the full 15.3% self-employment tax. W-2 employees pay 7.65% and their employer pays the other 7.65%

Electing to have you LLC to be taxed as an S-Corporation allows you to hire yourself as a W-2 employee and split your earnings between salary and distributions.

It is very important to work closely with a CPA to set a reasonable compensation for yourself to avoid IRS scrutiny. Creating an entity and electing to be taxed as an S Corp has its advantages and can potentially lower your tax liability, but has many considerations which are warranted before making the tax election and changing your company structure.

Contact our team today to discuss you entity selection in detail as it related to your specific financial circumstances.

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What Meals Can You Deduct After the 2018 Tax Law Changes?

On 22 December 2017, the President signed tax reform legislation known as the Tax Cuts and Jobs Act (TCJA). While the full implications of the Tax Cuts and Jobs Act are still unraveling, a number of tax-planning opportunities have presented themselves.

The Tax Cuts and Jobs Act of 2017 has also made significant changes to the deductibility of business meals and entertainment starting in 2018.

Generally, entertainment expenses are nondeductible and most meals are 50 percent deductible. Previously entertainment expenses were 50 percent deductible and a most meals were 100 percent deductible.

We anticipate this area of tax reform will be heavily scrutinized by the IRS. It is important that your accounting records accurately categorize these activities.

How Does It Work

In order for meals to be considered 50 percent deductible business must be discussed during the meal. If no business is discussed the meal is not deductible for tax purposes and thus should be entered as entertainment. Meals with employees/coworkers where business is discussed along with meals while travelling are considered 50 percent deductible as well. Company activities, such as holiday parties, birthday and anniversary celebrations, picnics, etc. are fully deductible.

Here at Camuso CPA, we offer a wide array of tax services for investors including tax preparation and tax planning. Financial service and technology companies are transitioning from employee driven revenue models to information driven revenue models. Camuso CPA strives to deliver useful insights and offer relevant explanations about the latest tax and financial topics.

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What Rising Property Taxes Means for Charlotte Apartment Owners and Renters

Mecklenburg County will be issuing 365,000 property tax valuations this January. This will impact not only apartment owners and real estate owners but also renters.

While property taxes typically have the biggest up-front impact on homeowners, who get the bills directly, this year’s revaluation is raising property values far more for commercial properties. That could mean higher property taxes for those apartments when bills go out in July, and apartment owners are likely to pass at least some of that increased cost to tenants.

According to the U.S. Census, almost half of the residents in Charlotte rent. The county plans to finish its initial revaluation of every property in Mecklenburg by the end of the year. Some of the commercial properties that are likely to see the biggest tax increases since the 2011 revaluation appear to be older apartments, many of which have been bought by investors in recent years.

If you searching for local CPA firms in Charlotte to assist you with reporting income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from real estate on your taxes or any other service provided by a certified accountant, Camuso CPA can help.

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Accelerate Your Financial Retirement With Cash Balance Plans

How it Works

Cash balance plans offer owner-employees in professional practices a vehicle to defer tax on income more than the annual contribution limits of traditional Sec. 401(k) and profit sharing plans. Professional practices currently account for the highest use of cash balance plans, with the highest concentration in the medical field. Cash balance plans are appealing to this demographic of doctors, dentists, lawyers, and accountants because these professionals often larger annual salaries and get a later start in accumulating personal retirement savings.

Benefits

One valuable method of tax deferral is contributing to a retirement plan. Federal tax limits on contributions to Sec. 401(k) and profit sharing plans limit benefits that can be realized from this tax-planning strategy. The maximum contribution into defined contribution plans is $54,000 in 2017.

Since cash balance plans are considered defined benefit plans contributions are not subject to this federal tax limit. The limitation on cash balance plans is on the annual payout the plan participant may receive at retirement. To optimize tax deferral and retirement savings, a cash balance plan can be used in conjunction with a Sec. 401(k) plan and a profit sharing plan.

Additional Benefits

Cash balance plans offer the added benefit of allowing the taxpayer to make significant retirement contributions over a compressed period.

Important Considerations

Owner-employees of professional practices can realize significant tax savings by using a cash balance plan but should undertake a comprehensive retirement and business analysis with a top-tier firm like Camuso CPA to determine whether it is appropriate for them.

Entities with established cash balance plans must pay into them every year, so cash balance plans are more suitable for established practices with a steady cash flow.

Although the annual pay-in does not have to equal the sum of the principal credits, the business must still meet the same minimum funding requirements as other defined benefit plans.

Cash benefit plans can also be costly to administer since businesses bear the costs of working with actuaries to determine pay-in amounts in addition to costs of general fund management.

When establishing a cash balance plan, it is also important to consider the effect of participation by non-owner employees during financial planning.

Consult with a trusted CPA before executing investment decisions or initiating any substantial changes to your retirement and 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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Common Questions Regarding Charitable Remainder Trusts

Do I have to take the income now?

You can set up the trust and take the income tax deduction now, but postpone taking the income until later. By then, with good management, the trust assets could have appreciated considerably in value, potentially resulting in more income for you

How is the income tax deduction determined?

The deduction is based on the amount of income received, the type and value of the asset, the ages of the people receiving the income, and the Section 7520 rate, which fluctuates.

It is usually limited to 30% of adjusted gross income, but can vary from 20% to 50%, depending on how the IRS defines the charity and the type of asset. If you can’t use the full deduction the first year, you can carry it forward for up to five additional years. Depending on your tax bracket, type of asset and type of charity, the charitable deduction could possibly reduce your income taxes by 10%, 20%, 30% or in some cases even more.

Who should be the trustee?

You can be your own trustee. But you must be sure the trust is administered properly—otherwise, you could lose the tax advantages and/or be penalized.

Most people who name themselves as trustee have the paperwork handled by a qualified third party administrator.

However, because of the experience required with investments, accounting and government reporting, some people select a corporate trustee (a bank or trust company that specializes in managing trust assets) as trustee. Some charities are also willing to be trustees.

Before naming a trustee, it’s a good idea to interview several and consider their investment performance, services and experience with these trusts.

 

Sounds great for me. But if I give away the asset, what about my children?

If you are concerned about replacing the value of the assets that you place into the charitable remainder trust for your children you can take the income tax savings, and part of the income you receive from the charitable remainder trust, and fund an irrevocable life insurance trust (ILIT) or what is referred to as a Wealth Replacement Trust. The trustee of the insurance trust could then purchase enough life insurance to replace the full value of the asset, or more, for your children or other beneficiaries from the income generated.

 

What are my income choices?

You can receive a fixed percentage of the trust assets which is referred to as a unitrust. The amount of your annual income will fluctuate depending on investment performance and the annual value of the trust.

The trust will be re-valued at the beginning of each year to determine the dollar amount of income you will receive. If the trust is well managed, it can grow quickly because the trust assets grow tax-free. The amount of your income could increase assuming the value of the trust grows.

Sometimes the assets contributed to the trust, like real estate or stock in a closely-held corporation, are not readily marketable, so income is difficult to pay. In that case, the trust can be designed to pay the lesser of the fixed percentage of the trust’s assets or the actual income earned by the trust. A provision is usually included so that if the trust has an off year, it can make up any loss of income in a better year.

You can elect instead to receive a fixed income, in which case the trust would be called a charitable remainder annuity trust. This means that, regardless of the trust’s performance, your income will not change.

 

Who can receive income from the trust?

Trust income, which is generally taxable in the year it is received, can be paid to you for your lifetime. If you are married, it can be paid for as long as either of you lives.

 

The income can also be paid to your children for their lifetimes or to any other person or entity you wish, providing the trust meets certain requirements. In addition, there are gift and estate tax considerations if someone other than you receives it. Instead of lasting for someone’s lifetime, the trust can also exist for a set number of years (up to 20).

 

Do I have to take the income now?

No. You can set up the trust and take the income tax deduction now, but postpone taking the income until later. By then, with good management, the trust assets could have appreciated considerably in value, potentially resulting in more income for you

 

How is the income tax deduction determined?

The deduction is based on the amount of income received, the type and value of the asset, the ages of the people receiving the income, and the Section 7520 rate, which fluctuates. (Our example is based on a 3.0% Section 7520 rate.) Generally, the higher the payout rate, the lower the deduction.

 

It is usually limited to 30% of adjusted gross income, but can vary from 20% to 50%, depending on how the IRS defines the charity and the type of asset. If you can’t use the full deduction the first year, you can carry it forward for up to five additional years. Depending on your tax bracket, type of asset and type of charity, the charitable deduction could possibly reduce your income taxes by 10%, 20%, 30% or in some cases even more.

 

What kinds of assets are suitable?

The best assets are those that have greatly appreciated in value since you purchased them, specifically publicly traded securities, real estate and stock in some closely-held corporations. (S-corp stock does not qualify. Mortgaged real estate usually won’t qualify, either, but you might consider paying off the loan.) Cash can also be used.

 

Who should be the trustee?

You can be your own trustee. But you must be sure the trust is administered properly—otherwise, you could lose the tax advantages and/or be penalized. Most people who name themselves as trustee have the paperwork handled by a qualified third party administrator.

 

However, because of the experience required with investments, accounting and government reporting, some people select a corporate trustee (a bank or trust company that specializes in managing trust assets) as trustee. Some charities are also willing to be trustees.

 

Before naming a trustee, it’s a good idea to interview several and consider their investment performance, services and experience with these trusts. Remember, you are depending on the trustee to manage your trust properly and to provide you with income.

 

For more information on charitable remainder trusts, or questions about getting CPA tax help in Charlotte, give us a call today.

 

 

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What Taxpayers Need to Know About the Home Office Deduction

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes.

This is a valuable tax deduction that should not go overlooked by taxpayers determined to effectively maximize profits and minimize taxes. Taxpayers cannot deduct more than the net business profit. Any unused home office deduction, is carried over to the following year.

There are two basic requirements for your home to qualify as a deduction:

Regular and Exclusive Use

You must regularly use part of your home exclusively for conducting business.

Principal Place of Your Business

You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.

Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:

Your business use must be for the convenience of your employer, and

You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.

There are two methods that can be used when approaching home office deductions.

 Simplified Option

For taxable years starting on, or after, January 1, 2013 the simplified option can significantly reduce record-keeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage ($5 per square foot limited to 300 square feet)  of the office in lieu of determining actual expenses.

Regular Method

Taxpayers using the regular method instead of the optional method, must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use.

Depreciation and Recapture

Depreciation taken as part of the regular method to deduct home office expenses provides a larger deduction but is recaptured in later years if taxpayers decide to sell the home.

If the regular method is used to calculate the home office deduction all allowed or allowable depreciation must be considered at the time of sale.  For most taxpayers who have a business office, the simplified method is generally preferable when the cost of the residence is $200,000 or less. When the cost of the residence is $300,000 or more, the actual-cost method is preferable. When the cost of the residence is between $200,000 and $300,000, the decision to use the simplified method depends on the marginal tax rate and the business use percentage.

The depreciation will produce a taxable gain if/when the residence is sold, because of the special Sec. 121 recapture rules. Normally, the gain on the sale of a personal residence is tax free provided the gain falls within the allowable exclusion limits but, gains attributable to the accumulated depreciation taken on the residence is taxed at 25% or the taxpayer’s marginal tax rate, if less.

To avoid depreciation recapture taxpayers can utilize the simplified method. Under this option, depreciation is treated as zero and won’t reduce the basis of the home.

Your personal and business finances are the foundation of your success. Contact Camuso CPA today to build your dedicated financial specialist team: https://www.camusocpa.com/contact/#/

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Common Questions Regarding Charitable Remainder Trusts

Do I have to take the income now?

You can set up the trust and take the income tax deduction now, but postpone taking the income until later. By then, with good management, the trust assets could have appreciated considerably in value, potentially resulting in more income for you.

 

How is the income tax deduction determined?

The deduction is based on the amount of income received, the type and value of the asset, the ages of the people receiving the income, and the Section 7520 rate, which fluctuates.

It is usually limited to 30% of adjusted gross income, but can vary from 20% to 50%, depending on how the IRS defines the charity and the type of asset. If you can’t use the full deduction the first year, you can carry it forward for up to five additional years. Depending on your tax bracket, type of asset and type of charity, the charitable deduction could possibly reduce your income taxes by 10%, 20%, 30% or in some cases even more.

 

Who should be the trustee?

You can be your own trustee. But you must be sure the trust is administered properly—otherwise, you could lose the tax advantages and/or be penalized.

Most people who name themselves as trustee have the paperwork handled by a qualified third party administrator.

However, because of the experience required with investments, accounting and government reporting, some people select a corporate trustee (a bank or trust company that specializes in managing trust assets) as trustee. Some charities are also willing to be trustees.

Before naming a trustee, it’s a good idea to interview several and consider their investment performance, services and experience with these trusts.

 

Sounds great for me. But if I give away the asset, what about my children?

If you are concerned about replacing the value of the assets that you place into the charitable remainder trust for your children you can take the income tax savings, and part of the income you receive from the charitable remainder trust, and fund an irrevocable life insurance trust (ILIT) or what is referred to as a Wealth Replacement Trust. The trustee of the insurance trust could then purchase enough life insurance to replace the full value of the asset, or more, for your children or other beneficiaries from the income generated.

 

What are my income choices?

You can receive a fixed percentage of the trust assets which is referred to as a unitrust. The amount of your annual income will fluctuate depending on investment performance and the annual value of the trust.

The trust will be re-valued at the beginning of each year to determine the dollar amount of income you will receive. If the trust is well managed, it can grow quickly because the trust assets grow tax-free. The amount of your income could increase assuming the value of the trust grows.

Sometimes the assets contributed to the trust, like real estate or stock in a closely-held corporation, are not readily marketable, so income is difficult to pay. In that case, the trust can be designed to pay the lesser of the fixed percentage of the trust’s assets or the actual income earned by the trust. A provision is usually included so that if the trust has an off year, it can make up any loss of income in a better year.

You can elect instead to receive a fixed income, in which case the trust would be called a charitable remainder annuity trust. This means that, regardless of the trust’s performance, your income will not change.

Who can receive income from the trust?

Trust income, which is generally taxable in the year it is received, can be paid to you for your lifetime. If you are married, it can be paid for as long as either of you lives.

The income can also be paid to your children for their lifetimes or to any other person or entity you wish, providing the trust meets certain requirements. In addition, there are gift and estate tax considerations if someone other than you receives it. Instead of lasting for someone’s lifetime, the trust can also exist for a set number of years (up to 20).

Do I have to take the income now?

No. You can set up the trust and take the income tax deduction now, but postpone taking the income until later. By then, with good management, the trust assets could have appreciated considerably in value, potentially resulting in more income for you

How is the income tax deduction determined?

The deduction is based on the amount of income received, the type and value of the asset, the ages of the people receiving the income, and the Section 7520 rate, which fluctuates. (Our example is based on a 3.0% Section 7520 rate.) Generally, the higher the payout rate, the lower the deduction.

It is usually limited to 30% of adjusted gross income, but can vary from 20% to 50%, depending on how the IRS defines the charity and the type of asset. If you can’t use the full deduction the first year, you can carry it forward for up to five additional years. Depending on your tax bracket, type of asset and type of charity, the charitable deduction could possibly reduce your income taxes by 10%, 20%, 30% or in some cases even more.

What kinds of assets are suitable?

The best assets are those that have greatly appreciated in value since you purchased them, specifically publicly traded securities, real estate and stock in some closely-held corporations. (S-corp stock does not qualify. Mortgaged real estate usually won’t qualify, either, but you might consider paying off the loan.) Cash can also be used.

Who should be the trustee?

You can be your own trustee. But you must be sure the trust is administered properly—otherwise, you could lose the tax advantages and/or be penalized. Most people who name themselves as trustee have the paperwork handled by a qualified third party administrator.

However, because of the experience required with investments, accounting and government reporting, some people select a corporate trustee (a bank or trust company that specializes in managing trust assets) as trustee. Some charities are also willing to be trustees.

Before naming a trustee, it’s a good idea to interview several and consider their investment performance, services and experience with these trusts. Remember, you are depending on the trustee to manage your trust properly and to provide you with income.

 

For more information on charitable remainder trusts, or questions about getting CPA tax help in Charlotte, give us a call today.

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Single Member LLC’s (SMLLC)

Single-Member LLC’s offer significant benefits to their owners’; whether such an entity is beneficial for your business depends on the details of your own personal situation.

As the name implies, a Single-Member LLC is a limited liability company with only one owner.

Single-Member LLCs protect personal assets from the liabilities associated with the business conducted by the LLC.  If you use an LLC to hold rental property, and a tenant sues that plaintiff will be required to sue the LLC, not you personally.  If the plaintiff wins the lawsuit, they will only be able to come after the assets owned by the LLC, not the owner.

Single-Member LLCs are treated as disregarded entities for federal income tax and its profit or loss will be reported on an individual member’s Schedule C as if it were a sole proprietorship. This will save the member time and money for tax preparation of tax returns, since the separate LLC is not required to file an additional tax return.

A Single-Member LLC is beneficial if you own one or only a few rental properties. As the number of your rental properties grow, it is easy and cost effective to establish a Multi-Member LLC or Multi-Entity Structure from this original structure.

Single-Member LLCs are beneficial for operational businesses that are just beginning or recently established.  As the business grows the Single-Member LLC can convert to an S-Corporation when your income reaches a level to justify the cost/benefit analysis: https://www.camusocpa.com/tax/is-s-corporation-structure-right-for-your-business/#/

https://www.youtube.com/watch?v=rmVq5OSDCNA

 

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 Charlotte business finance and tax planning, and get your company in orderhttps://www.camusocpa.com/contact/#/

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Steps to Establishing An LLC

The requirements for establishing an LLC can vary from state to state, but there are commonalities across states. The name of your LLC must comply with the rules of your state’s LLC division.

  • the name cannot be the same as the name of another LLC on file with the LLC office
  • the name must end with an LLC designator, such as “Limited Liability Company” or “Limited Company,” or an abbreviation of one of these phrases (such as “LLC,” “L.L.C.,” or “Ltd. Liability Co.”),
  • the name cannot include certain words prohibited by the state, such as Bank, Insurance, Corporation or City

You also must ensure that the name you choose does not violate another company’s trademark. Further, you will want to reserve the website domain for your new business entity and confirm that it is available.

After choosing a name, the next step is to prepare and file the articles of organization with your state’s LLC filing office.

You will be required to list the name and address of a person, usually one of the LLC members, who will act as your LLC’s registered agent which means the person designated to receive legal papers in any future lawsuit involving your LLC.

https://www.youtube.com/watch?v=ca2XWhNtajg

Operating agreements are not required to be filed with the LLC filing office and are rarely required by state law, but it is essential that you create one. In an LLC operating agreement, owners set out rules for the ownership and operation of the business.

A typical operating agreement includes:

  • the members’ percentage interests in the business
  • the members’ rights and responsibilities
  • the members’ voting power
  • how profits and losses will be allocated
  • how the LLC will be managed
  • rules for holding meetings and taking vote

Some states require the newly established company to publish a notice in a local newspaper, stating that you intend to form an LLC. Owners are required to publish the notice several times over a period of weeks and then submit an affidavit of publication to the LLC filing office.

After completing the steps above, owners must obtain the licenses and permits that all new businesses must have to operate. These may include a business license, a federal employer identification number, a sellers’ permit, or a zoning permit.

Camuso CPA PLLC’s focus and specialization delivers a unique perspective on best industry practices to provide the most value to clients. If you are setting up a business in Charlotte, you can save a lot of money enlisting our help establishing an LLC.

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

 

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Tax Planning For S-Corporation Health Insurance Deductions

If you are a more than 2 percent shareholder of an S corporation, you must take the correct measures to capture a health insurance deduction.

The first step is for the S-corporation to pay the insurance company directly for the cost of the health insurance. Next, the S-corporation includes the cost of the health insurance as additional compensation to the shareholder-employee on the employee’s W-2 which is subject to income tax withholding but exempt from Social Security, Medicare, and unemployment taxes. The W-2-reported health insurance is treated as a cost of self-employed health insurance. This amount is deducted on page 1 of Form 1040.

This is an area where tax planning is imperative. The S-corporation must reimburse you for all medical insurance that you pay for yourself and your family. This includes Medicare and accident and health premiums paid to schools and athletic programs to cover your children.

S-corporation owners can pay health insurance costs personally. In this case, the owner must have the S corporation reimburse the cost of the insurance to the owner-employer to qualify for the health insurance tax deduction.

Taxpayers may have to pay payroll taxes on the amount included in wages for your insurance premiums If the corporation does not provide health insurance to your non-owner employees, then you are exposed to payroll taxes. If the corporation does provide health insurance to your non-owner employees, you are not exposed to payroll taxes. If the corporation has no other employees, you are not exposed to payroll taxes.

If you are eligible to participate in an employer-subsidized health plan maintained by either you or your spouse’s employer, you may not claim the self-employed health insurance deductions for the months when you were eligible to participate in an employer plan.

If a taxpayer pays for the health insurance themselves and does not submit it to the corporation, the  cost of health insurance becomes an itemized deduction suffering from both  the 10 percent of adjusted gross income floor and  the phaseout of itemized deductions, possibly completely eliminating the deduction.

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

 

 

 

 

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