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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 To Do If You Have Not Reported Your Real Estate Investments On Last Year’s Tax Return

Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.

The IRS can go back up to three years to prosecute cases of tax evasion, and in cases where they find substantial error, they can decide to go back up to six years or more. If you did not report your real estate transactions properly in prior years the best course of action is to file an amended tax return.

Step 1: Calculate Your Tax Liability

When preparing your tax return, you are going to have to figure out your taxable income from your real estate investments for the year. This involves figuring out how much of your assets were sold for capital gains. Additionally, if you own rental properties you will have to determine the amount of taxable income to report from your portfolio.

If doing real estate tax is proving to be a challenging feat, you should consider enlisting the services of a qualified CPA at a professional tax firm such as Camuso CPA.

Step 2: Amend your return

Once you have determined your capital gains and tax liabilities, you should download a current IRS Form 1040X, Amended U.S. Individual Income Tax Return

Step 3: Mail in your amended return

After preparing your amended tax return to reflect your real estate transactions they will be mailed to the IRS along with all applicable tax payments.

While paying taxes can at times be painful, it is very important that you include your real estate businesses and portfolio properly on your tax return. Ultimately, if you choose not to file your gains/losses and/or income, you will be committing blatant tax fraud to which the IRS can enforce a number of penalties, including criminal prosecution, five years in prison, along with a fine of up to $250,000.

Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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How Real Estate Syndicators Are Impacted By Tax Law Changes To Business Interest

Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.

Tax reform, also known as the Tax Cuts and Jobs Act (TCJA), was enacted at the end of 2017, resulting in considerable changes to the federal tax code including a new limitation on the business interest deduction.

Business interest expense was generally deductible under the previous law. Beginning in 2018, however, the business interest deduction may be limited to the sum of a taxpayer’s business interest income for the tax year and thirty percent of the taxpayer’s adjusted taxable income for the tax year.

Syndicators can elect out of this limit by electing to be a real estate trade or business for tax purposes. The drawaback then is that real property has to follow a longer depreciation schedule. And may not be eligible for 100% bonus or accelerated depreciation on property with useful lives of 5,7, or 15 years.

Syndications can be a powerful tax planning tools ,but can also have negative tax consequences if you’re not careful. Be sure to speak with a qualified CPA before investing or starting a syndication.

Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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How To Calculate Depreciation On Rental Portfolios

Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.

How To Calculate Depreciation On Rental Portfolios

If you own a rental property and want to take advantage of the tax breaks one of the most useful tax tools at your disposal is depreciation. Rental property depreciation allows investors to write off the structure and improvements to the property over a period of time. This is non-cash expense that you can use as a write-off on your taxes. Depreciation is one of the biggest benefits to real estate investing because it can reduce reportable net income and therefore, your taxes

Depreciation is the loss in value to a building over time due to age, wear and tear, and deterioration. You can also include land improvements you’ve made and items inside the property that are not part of the building like appliance and carpeting. You can only depreciate the improvements to the structure itself – not the land.

Depreciation deductions are spread out over the useful life of a property. The IRS allows an owner to depreciate the value of the home over a 27.5 year period. The time periods of depreciation can be adjusted based on the components of the property which can offer even larger tax planning opportunities. We cover this in other articles here.

It is important for all real estate investors to deeply understand depreciation and how it applies to their portfolio. There are many tax planning opportunities available related to depreciation.

Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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How To Treat Earnest Money Deposits for Tax Purposes

Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.

Many investors think earnest money deposits are an expense when in fact they are treated as an asset. Although an earnest money deposit is no longer in your possession once paid, it will give you a direct value in the near future whether you purchase a property or whether you receive a refund of your earnest money deposit.  When you pay the earnest money deposit, you are creating a current asset, and when you purchase the property, the earnest money deposit reduces your cash payment that is a reduction of a current asset.

While it is very important to track earnest money deposits for any real estate investor, it becomes increasingly important for flippers and investors who are purchasing real estate on a large scale.  When you expand your business or portfolio and there are multiple purchases taking place in a short amount of time, earnest money deposits can be overlooked.

Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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Can I invest in a syndication using a 1031 Exchange?

Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.

Do you have a rental property that you’re looking to sell using 1031 exchange?

There is a common misconception that you can simply do a 1031 exchange directly into a syndication. However, this is not possible because when you invest in a syndication, you are purchasing part of an entity that owns real estate not the real estate itself.

A viable option as an alternative which can use a 1031 exchange is a tenant in common structure or Delaware Statutory Trust . While these options are similar to syndications, they are not syndications.

Delaware Statutory Trust are derived from Delaware Statutory law as a separate legal entity and formed as private governing agreements for the purposes of managing, administering, investing and or operating real, tangible and intangible property; or business or professional activities for profit that are carried on by one or more individuals who act as trustees for the benefit of a party who is entitled to a beneficial interest in the trust property. Delaware Statutory Trusts are not new, in 2004, the IRS came out with an official Revenue Ruling detailing how a DST could be structured in such a way that it would qualify as a property replacement vehicle for 1031 Exchanges.

Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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Why Do People Love The Tax Benefits of Rental Portfolios

Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.

For most, tax season is a time of year they do not enjoy. We understand that most people do not like taxes and most definitely do not like paying them. Real estate investors enjoy great advantages in building wealth and passive income while keeping tax liabilities down. There are even greater benefits for those who expand real estate investments or get started with real estate investing in 2018.

Depreciation

This is a non-cash deduction that spreads the cost of an asset over multiple years. This paper expense can protect other income from taxes and reduce your tax bill.  The Tax Cuts and Jobs Act has opened a new window of opportunity for investors and property buyers to enjoy a 100% first-year bonus depreciation deduction. This break is retroactive for 2017 tax filings on property acquired and in service by September 2017. This break will be available until 2022, when it begins to be reduced by 20% per year until phased out.

Leverage

Many investors use debt leverage to buy real estate. Leverage magnifies the profits mentioned above. The interest on debt is deductible as a business expense.

To raise cash most investors consider selling investments. This leads to taxes or complicated procedures to minimize taxes. Another option is t pull capital out of an investment tax-free by refinancing.

Reduced Pass-Through Taxes

Pass-through income from business entities such as LLCs now gets a 20% deduction on qualified income. This allows successful existing real estate firms to expand and enjoy better profitability while making it more appealing and advantageous to launch new real estate startups or get started in real estate investing through legal entities like limited liability companies.

1031 Tax-Deferred Exchange

A 1031 Exchange is a transaction in which a taxpayer is allowed to exchange one investment property for another by deferring the tax consequence of a sale. The transaction is authorized by 1031 of the IRS Code. Executing and completing a 1031 exchange requires meeting specific criteria.

Installment Sales

When a taxpayer sells a capital asset on an installment note with the buyer making payments over time can choose to spread the income from the sale over the life of the installment note. Spreading the capital gains income over multiple years can reduce the amount of tax compared to reporting the entire gain in one year.

The key benefit of the installment sale strategy is spreading capital gains income over time.

Retirement Account Investments And Contributions

IRAs and 401k retirement plans are incredible tools to build wealth while minimizing taxes. Taxpayers can self-direct these to invest in real estate rather than tradition investment vehicles. While self-directed IRAs are a great tax planning tool, there are many pitfalls and strict rules to be aware of.

Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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Qualified Opportunity Zones: What Investors Should Know About Tax Benefits

Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.

What is an Opportunity Zone?

An Opportunity Zone is a community nominated by the state and certified by the Treasury Department as qualifying for this program. As of June 14, 2018, the department certified zones in all 50 states, Washington, D.C., and U.S. territories.  

How does this program work?

To defer a gain, a taxpayer has 180 days from the date of the sale or exchange of appreciated property to invest the realized gain into a Qualified Opportunity Zone Fund. The fund then invests in Qualified Opportunity Zone Property.

The taxpayer may invest the return of principal as well as the recognized capital gain, but only the portion of the investment attributable to the capital gain will be eligible for the exemption from tax on further appreciation of the Opportunity Zone Investment. The Opportunity Zone program allows for the sale of any appreciated assets, such as stock with a reinvestment of the gain into an Opportunity Zone Fund. There is no requirement to invest in a like-kind property to defer the gain.

Qualified Opportunity Zone Fund

A Qualified Opportunity Zone Fund is any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 percent of its assets in qualified opportunity zone property.

What To Know About Tax Implications

It is important to note that the tax cannot be deferred indefinitely – only until 2026. Any tax due on capital gains invested in the fund within the 180-days is deferred until the fund is divested, or December 31, 2026, whichever occurs first. Qualifying for deferral does not require an intermediary, and the taxpayer has 180 days from a sale to invest the gains into an Opportunity Zone Fund.

The new program offers a deferral of short or long-term capital gains tax due, a potential reduction of short and long-term capital gains tax due, and lastly a potential permanent exclusion from taxable income for any capital gains generated in any qualified investment made in the Opportunity Zone Funds.

If investment in the fund is held at least 5 years, there will be a 10 percent basis step up, while if the investment is held at least 7 years, the basis step up will be 15 percent. If the investment in the fund is held for at least 10 years, the taxpayer is exempt from paying any capital gain on the sale of the newly created opportunity zone fund investment.

Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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What Charlotte Business Owners Need to Know About 2018 Tax Changes

Here at Camuso CPA, we offer a wide array of tax services for small business owners in Charlotte 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. Be sure to contact our team today for any immediate tax needs or questions.

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. Here we will outline how these changes impact small business owners.

THE NEW CORPORATE TAX RATE IS LOWER — AND PERMANENT

The new corporate tax rate is 21 percent. And this change will live on past 2025, which is when most of the other tax-law changes are set to expire. The new rate is also a flat tax, meaning it’s the same for all C corporations — that’s different from the previous corporate tax rates, which were 15, 25, 34 and 35 percent.

THE CORPORATE AMT IS ELIMINATED

Similar to the individual alternative minimum tax, corporate AMT was an additional way to calculate taxes to help ensure corporations paid a minimum amount of tax. Eliminating the corporate AMT also means getting rid of some of the tax liabilities for corporations that used to factor into the AMT calculation.

PASS-THROUGH BUSINESSES GET A LARGE DEDUCTION

The Tax Cuts and Jobs Act (TCJA). This is primarily known for reducing corporate tax rates to 21%, but the new Section 199A provides non-corporate taxpayers with a potential 20% deduction against taxable income, which, when applicable, effectively discounts the maximum 37% non-corporate rate to 29.6%.

The 20% discount requires a complicated formulaic deduction equal to: (1) 20% of newly defined qualified business income plus (2) 20% of the sum of (a) REIT dividends and (b) publicly traded partnership income. For taxpayers with income over certain minimal thresholds, the 20% of qualified business income deduction is limited to the greater of: (a) 50% of the W-2 wages paid by the qualified business, or (b) 25% of the W-2 wages paid by the qualified business, plus 2.5% of the unadjusted basis of depreciable property held by the business.

Taxpayers should consider evaluating the choice of entity used to operate their businesses. The 21-percent reduced corporate tax rate may increase the popularity of corporations. However, factors such as the new 20-percent deduction for pass-through income, expected use of after-tax cash earnings, and potential exit values will significantly complicate these analyses. The potential after-tax cash benefits ultimately realized by owners could make choice-of-entity determinations one of the most important decision taxpayers will now make.

NOL CARRYBACKS ARE ELIMINATE AND CARRYFORWARDS REDUCED

Previously, businesses were able to offset current taxable income by claiming net operating losses (NOLs), generally eligible for a two-year carryback and 20-year carryforward.  Now NOLs for tax years ending after 2017 cannot be carried back, but can be indefinitely carried forward. In addition, NOLs for tax years beginning in 2018 will be subject to an 80-percent limitation. Companies will have to track their NOLs in different buckets and consider cost recovery strategy on depreciable assets in applying the 80-percent limitation.

ACCOUNTING METHOD CHANGES

Under the new law, accrual basis taxpayers must now recognize income no later than the taxable year in which such income is taken into account as revenue in an applicable financial statement.

However, new provisions also provide favorable methods of accounting that were not previously available. That, coupled with the reduction in tax rates, creates a favorable and unique environment for filing accounting method changes.

2018 will see the first significant tax reform since 1986. This reform affects everything in the economy as well as everyone in the country. The ways it will affect individuals, couples, corporations and small business owners will vary, but everyone will see changes in 2018.

If you are searching for local CPA firms in Charlotte to assist you with taxes, contact Camuso CPA. Whether you need tax preparation services, personal or business tax planning for the new tax law changes, Camuso CPA can help.

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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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