Rental Property Tax Deductions

Posted on June 15th, 2018

Own residential rental properties? This article discusses how income from those properties impacts your taxes.

What Constitutes Revenue?

Generally, rental income is defined as any revenue you receive from the occupancy or use of residential property. Rent, obviously, is included in that revenue. Many owners are surprised to learn revenue also includes rent advancements, expenses paid by a tenant and any security deposits not returned to the tenant. In fact, revenue can also include amounts paid to cancel a lease, even if you had to sue the defendant to get it.

Yeah, Yeah, But What Can I Deduct?

Tax deductions associated with rental properties are strikingly similar to those found in any business. Technically, you can deduct any expense reasonably necessary to “manage, conserve or maintain” the property. Obvious deductions include mortgage payments, cleaning expenses, insurance premiums, service payments such as landscape maintenance, repairs, maintenance, etc. Overlooked rental property deductions include:

  1. Expenses incurred in finding tenants,

 

  1. Commissions paid to third parties that arrange for tenants,

 

  1. Paying your accountant and/or lawyer,

 

  1. Mileage for driving to and from the property [I said, “No more parties!”]

 

  1. Depreciation of the property,

 

  1. Depreciation of items in the property such as washing machines, furniture, etc.

 

Imaginary Rent Deduction

A few creative property owners have suggested that they should be able to deduct their customary and standard monthly rent if the property is empty. The argument goes, “If the property is empty, I am not making revenue and should be able to deduct the $1,500 that I am missing out on.” At first glance, this almost makes sense. Sadly, it doesn’t fly from the perspective of the IRS. Since you are not receiving revenues, your total revenues for the year will be reduced by the loss rent. You can’t double dip by deducting the $1,500 from the already reduced yearly revenues. The only things you can deduct are the expenses you incur during this period, and only for so long as you are actively trying to rent the place.

 

Rental properties are a great investment. Even more so if you stay on top of your taxes.

Douglas Business Solutions are Real Estate experts, call us today at 713-842-7243.


Professional Tax Preparation Requires The Right Professional For Your Specific Needs

Posted on June 1st, 2018

Preparing taxes is one of the least enjoyable tasks a person faces each year. While many single or multiple income households feel that they can prepare their taxes on their own each tax season, it is a clever idea to think about taking advantage of professional tax preparation services. In fact, if you’ve ever found yourself wondering if you could take a specific deduction, if you could take advantage of other deductions you don’t know about, if you could be paying less or getting a larger refund, or even if you simple wonder if you are preparing your taxes properly, you should consider professional tax preparation.

 

When you are thinking about using professional tax preparation services, it is important to think about what you are looking for from your accountant. If you would like to have your taxes done as fast as possible, it is probably best to have them done by a nationally recognized service that specializes in quick professional tax preparation. This type of professional tax preparation is designed to have your taxes done as quickly and as thoroughly as possible.

 

If you are looking to make a tax plan for the future, a licensed tax professional is the best option for professional tax preparation. You can choose from either a Certified Public Accountant (CPA) or an Enrolled Agent. A CPA is an accountant who has passed certain examinations and met all other statutory and licensing requirements of a United States state to be certified by that state. This usually includes 150+ hours of business and accounting related college education in addition to a CPA exam that usually runs about 14 hours. Many corporate and small businesses use CPAs for their professional tax preparation as well as special tax circumstances like tax audits.

 

An Enrolled Agent is someone who has successfully completed an IRS test that encompassed all facets of taxation as well as passed a background check. Enrolled Agents must also complete an 8-hour exam over the course of two days. Unlike CPAs or tax lawyers, Enrolled Agents undergo testing by the IRS without intervention from a third party. Enrolled Agents can also have their earned title removed by the IRS for wrongful conduct.

 

If you are considering professional tax preparation because of a specific problem, you will want to find a professional who is trained to handle your specific issue. As with any other product or service, professional tax preparation is available at several different prices and you should compare to find a fee that suits your budget. Not every professional tax preparation service will be able to schedule an immediate appointment, so your tax needs and urgency should be taken into consideration. Most importantly, when you are using professional tax preparation services, you want to make sure that your accountant offers you a guarantee for his or her work.

 

Douglas Business Solutions can help, call us today! 713-842-7243

 


Home Based Business: Your Ultimate Tax Shelter

Posted on May 18th, 2018

Starting and operating your own home-based business is the ultimate tax shelter.

 

Although this article has been written from a Canadian income tax perspective, the principles should be practical in other tax jurisdictions.

 

  1. Non-Deductible Personal Living Expenses

 

All of us have expenses that we incur in everyday living.

Either you rent an apartment or house, or you own your residence. Utilities, insurance, rent, mortgage interest, property taxes, and maintenance and repairs are typical costs of operating your home.

Likely, you have a vehicle which also consumes large amounts of cash.

Add to this, dining out, entertainment, gifts, alcoholic beverages, office supplies, telephone and many other expenditures, and you have a significant cash outflow.

In most cases, as an employee, retired person, investor, student, or homemaker, few of these expenses are tax-deductible to you.

This means that you must earn a considerable income, pay your income taxes first, and then use what is left to pay all your expenses.

Some employees may be able to write-off some of their employment related expenses, if such are required by their contract of employment. However, even in this situation, the tax deductions are very limited.

 

 

  1. Your Own Home-Based Business Means Tax Deductions

 

Now consider the situation where you decide to start your own home-based business.

Suddenly, many of your everyday expenses are now being used for business purposes and are now tax-deductible.

If you use one quarter of your home exclusively for business use, you will be able to deduct (or write-off) one quarter of all related occupancy costs. These expenses may include maintenance and repairs (that are not capital in nature), rent, mortgage interest, house or apartment insurance, power, heat, water, and property taxes.

As well, your vehicle expenses used for business purposes are another tax write-off. If you use your car ninety percent for business purposes, you can deduct ninety percent of your vehicle insurance, gas and oil, maintenance and repairs, car washes, license and registration, auto club, loan interest (within certain limits), and other costs from your income. You may also write-off one hundred percent of your business-related parking. Capital Cost Allowance (C.C.A.) on your vehicle is also allowed for income tax purposes; depreciation is the accounting term for this tax deduction.

The Canadian government also allows as a deduction, fifty percent of your business-related entertainment expenses.

Also tax-deductible are business related telephone expenses, Internet access, office supplies, travel, books, memberships, and a host of other expenditures.

 

  1. Income Splitting with Your Home-Based Business

 

If you have a high paying job, you will pay higher taxes because the rates of tax increase as your income does.

With your own business, you can pay reasonable wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.

This tax saving technique is called income splitting. It is another good reason why your own home-based business is the ultimate tax shelter.

 

  1. Even a Part-Time Home-Based Business Works

 

Even if you have a full-time job, running a part-time business can be advantageous.

Of course, you must actually run a real, moneymaking business. Any attempts to write unprofitable hobbies off will ultimately fail with the taxation authorities.

If you earned eight thousand dollars during the year from your part-time business and were able to deduct eight thousand dollars in car expenses, home office expenses, entertainment costs, office supplies, and other business-related expenditures, you would have a net business income of nil. You would pay no tax on this additional income.

Don`t miss this important point! Although these tax deductions are actual, legitimate business expenses, these are expenditures you would probably have made anyway, whether you had a business or not.

Thus, by rearranging your affairs to start and operate a home-based business, you have been able to convert non-deductible personal expenditures into legally deductible business expenses. You have successfully sheltered your income from tax and have split your income with family members in lower tax brackets.

 

Yes, indeed, your home-based business has become your ultimate tax shelter.

 


Flipping Real Estate Has Tax Consequences

Posted on May 4th, 2018

If you are looking at making a quick hundred-thousand on real estate flipping, you may find it is quick, but not as lucrative as you thought.

 

With housing prices on the rise across the nation, flipping has become the hottest investment trend. You buy a property and quickly resell it at a higher price.

 

Most people even believe flipping to be more lucrative than the stock market. Plus, you get the rush of making a deal. Plus there is a physical object to look at to judge your investment by.

 

But if you aren’t careful when flipping that real estate, your investment strategy could be a party that the IRS attends.

 

Bill Rucci of Rucci, Bardaro and Barrett says that many of today’s real estate investors are completely uninformed when they begin their transactions.

 

“There is a huge misconception on part of some people who think they can buy a residential home, not necessarily their personal residence, fix it up and sell it; and then get what we used to call the old rollover provisions, where you used the money you made to buy another property for more than what you sold,” explained Rucci.

 

But there are two problems with that approach. “One, that rule existed for personal residences only; and two, it doesn’t exist anymore,” he said.

 

The rollover rule was replaced in 1997 with current law that allows for the tax-free sale of personal property in many cases. This works great if you are selling your primary residence after living in it for many years, but if you’re selling a house you haven’t lived in, your in a different group. The residence will be considered an investment property, and the tax considerations are completely different and more costly.

 

“We have tens of thousands of people getting into real estate,” says Mark Zilbert, a Realtor. “The majority of buyers understand that they can flip for a profit, understand what it means dollar wise, but they don’t understand that taxes could reduce just how much of a profit they make.”

 

Instead of running a fast game, a tax-smart flipper could benefit from a slower investment pace.

 

Investment profit, whether stocks or real estate, is considered capital gain and is taxed at two levels. The tax rate depends on how long you own the property.

 

Keep it for less than a year and your short-term gains will be taxed as ordinary income. That means you could be facing up to 35%. If you hold the property longer than a year, you will pay a long-term capital gains rate that maxes out a 15% for most taxpayers.

 

Not all flippers have a year to wait. Not even for taxes.

 

But you must beware how much you flip.

 

When you complete several transactions in a short time, the IRS could consider your transactions as a business rather than an investment strategy. Then you have to pay the higher ordinary income tax rates.

 

The IRS is watching flippers closely.

 

“The IRS is out looking for these transactions,” says Rucci. “If the IRS decides your investment is a business; that what you are doing is to earn a living, the property changes from a capital asset to a means of producing income that’s subject to ordinary tax rates, plus the additional burden of another 15.3% in self-employment taxes. That is what the government is pushing for.”

 

Tax costs won’t deter many flippers. One way of looking at it is that you don’t pay taxes unless you make money.

 

The easiest way to pay less tax on a flip is using the capital-gains technique. Simply hold onto the property for more than a year and pay the long-term capital gains. You can try to time your real estate sale during the same tax year you suffer a loss on another long-term asset. Then use the loss to offset your gain.

 

If you want to avoid taxes altogether on the property, simply move in. You must live there for two years out of the last five years. When you sell it, up to $250,000 of your profit is excluded from taxation, double that if you are married and file jointly.

 

You can also defer paying taxes on your real estate gain by exchanging the property for another property, known as a like-kind or Section 1013 exchange.

 

No matter what you do, make sure that you keep good records. You can really benefit from proper documentation when claiming real estate investment deductions.

 


Cost Segregation: Why are 90% of Real Estate Investors overpaying federal income tax?

Posted on April 20th, 2018

By ignoring generous IRS guidelines when establishing depreciation schedules, over 90% of real estate investors are unintentionally overpaying federal income taxes. In addition they are paying federal income taxes earlier than necessary, typically years or decades earlier than necessary. Although these IRS guidelines are relatively new, they provide substantial benefits. Since this is a relatively new issue, many accountants have not integrated the new IRS depreciation guidelines into their practice. Savings for real estate investors are meaningful- exceeding $50,000 to $1,000,000 in the first year. Cost segregation converts income taxed at 35% (ordinary income) to income taxed at 15% (capital gains). Cost segregation also defers payment of income taxes, often for 5 to 10 years.

 

Effects of higher depreciation

 

Most real estate investors do not understand the benefits of increasing real estate depreciation. They often ask, “doesn’t increasing my depreciation just mean that I will be shifting taxes from now until when I sell the property?”

 

This is a popular misconception and the answer is a resounding “no”. There are two benefits of increasing depreciation:

 

  1. Converting ordinary income into capital gains income
  2. Deferring income until a gain on the sale of the property is realized.

 

The conversion of ordinary income into capital gains income has to do with the technical nature of the allocation of the gain on the sale. Many, if not most, accountants initially believe it is simply a timing issue. However, when the mechanics of recognizing gain on sale are discussed, accountants quickly realize increasing depreciation leads to paying taxes at the capital gains rate as opposed to the ordinary income rate.

 

Correcting a depreciation schedule makes a difference if you recently sold a property since the additional depreciation will be taxed at the capital gains rate instead of the ordinary income rate. For example, assume an investor sold a property in late 2005, does a cost segregation study, and increases depreciation by $100,000. The net result is the ordinary income taxes will be reduced by $35,000 ($100,000 x 35%) and the capital gains taxes will be increased by $15,000 ($100,000 x 15%). This nets the owner $20,000 in federal tax savings by simply correcting an error in the depreciation schedule after the property has already been sold.

 

When told it is possible to increase depreciation and reduce federal taxes, most real estate investors ask, “doesn’t my accountant take care of this for me?”

 

Our experience, after reviewing thousands of depreciation schedules for real estate, is that less than 5% of depreciation schedules have been properly established. Most real estate investors have a good relationship with their accountant and believe, as a matter of faith, that their accountant is doing everything possible to minimize their taxes. Unfortunately, many accountants have not focused time or attention on this issue for several reasons. Some accountants are aware of cost segregation as an option to increase depreciation and reduce federal taxes but believe it is very expensive (at least $10,000 per property) and is financially feasible only for large properties (typically over $10 million). Many of the providers started out either as big four firms or big four spin-offs who charged between $10,000 and $50,000 per property. Many of these providers were not interested in properties with a cost basis under $10 million and only did cost segregation for newly built properties. Other accountants have not focused on the topic.

 

Cost segregation clearly makes sense for properties with an improvement basis of at least $500,000. In many cases it makes sense for smaller properties. While accountants are becoming more and more active in reviewing options for depreciating real estate, in many cases the owner needs to take the lead role in proposing cost segregation as a mechanism to reduce and defer federal taxes.

 

Property owner involvement

 

Many property investors proudly take the stance that, “my federal tax return is too complicated; my accountant handles it.”

 

It is almost a rite of passage that a “serious” real estate investor is one whose tax return must be prepared by a third party because it has become too complicated for the investor to complete. Only about 2-5% of depreciation schedule in federal tax returns have short life property properly separated to minimize the owner’s federal taxes. While many parts of the federal tax return may be too complicated for an investor to understand and prepare, this area is simple: if you pay federal taxes and can use additional depreciation, you benefit from obtaining cost segregation studies. Most investors are not aware of cost segregation and do not understand the benefits it provides. Those who are familiar with cost segregation think it only makes sense for large properties (over $10 million). Regrettably, there is limited and inaccurate information regarding a material issue that could sharply reduce federal taxes for many real estate investors.

 

Proportion of short life property

 

The proportion of short life property typically ranges from 20% to 50% of the cost basis of the improvements. Items which typically effect whether it is at the low end of the range or the high end of the range include the age, condition, intensity of landscaping, amount of surface parking, and land value.

 

Catch-up

 

What is known in cost segregation jargon as “catch-up” is reporting depreciation that has been underreported in prior years since the property was purchased or built in the current year. A real estate investor can “catch-up” underreported depreciation by having his accountant file a form 3115 with the current tax return. The IRS has reported that filing a form 3115 is not a red flag for an audit. Some investors seem concerned this is too good to be true; however, when their accountant reviews the IRS rules and guidelines they quickly find out that you can indeed catch-up underreported depreciation by filing the form 3115.

Getting started

 

Ask yourself the following questions when deciding whether you can benefit from a cost segregation study:

 

  1. Do you pay federal income taxes?
  2. Do you own investment real estate?
  3. Can you use additional depreciation?

 

Some owners are passive while others are active. If you are a passive real estate investor you may not be able to use additional depreciation. On the other hand, if you are an active investor or a real estate professional, which includes people in a wide variety of activities from real estate broker to mortgage broker to leasing agent, you are entitled to deduct additional depreciation.

 

If you have determined you can use additional depreciation and are paying federal taxes, call a cost segregation expert and request a preliminary analysis. There should be no fee for this initial consultation. The preliminary analysis will estimate the amount of 5, 7, and 15-year property, which can likely be identified and will also identify the catch-up depreciation. This analysis will not involve a site inspection and will not be precisely correct. However, it should be accurate enough to help you decide whether a cost segregation study is financially feasible.

 

Once you obtain the preliminary analysis, you should consult your accountant, since he/she will be completing and signing your tax return. In many cases, it makes sense for the accountant, the property owner, and the cost segregation advisor to meet and discuss the options and issues.

 

Assuming you decide a cost segregation study does make sense, you should further review whether the extra depreciation should be used in a prior year, which would involve filing amended tax returns, or whether to use it in the current year. To minimize federal income taxes, make obtaining a cost segregation study a routine part of future real estate investments.

 

Correctly calculating real estate depreciation is important because it substantially reduces federal taxes for real estate investors. The process of fine-tuning the depreciation schedule is called cost segregation. The adoption rate for cost segregation is under 5% because of limited knowledge by many owners and accountants. In addition, there are misconceptions regarding the cost of obtaining cost segregation studies and the smallest properties for which cost segregation studies are financially feasible. As awareness of the practice and affordable service providers increase among real estate investors and accountants, the adoption rate will increase dramatically.

Let Douglas Business Solutions help, call us today at 713-842-7243.


Becoming an Expat: Tax Information

Posted on April 6th, 2018

First of all, tax information about moving overseas is important because of the fact that it allows people to budget their finances. When a person moves overseas, the experience would be like beginning a new life. This means every detail, especially finances, needs to be taken into account.

 

Some people, when they are anticipating expenses tend to forget taxes. Although people hate paying taxes, they know that it is a necessary part of life and they often choose to disregard it. Except during auditing periods, people usually try to forget about taxes. Of course, people pay taxes, but they like to do so in such a way that they would not actively pay taxes. Most have it deducted straight from their income.

 

Having tax information about moving overseas enables a person to anticipate the expenses. It will give the person an idea of how to save cash on moving. This, of course, will help a person have a great start in his or her new world.

 

Having tax information about moving overseas also gives you a glimpse of your destination. As we all know, taxes are set by governments. By knowing tax information about moving oversea, you can draw some conclusions regarding the government of your destination. Of course, all taxes tend to be seen by people as unreasonably high. Because of your own bias, you need to have some sort of standard to base your judgment on. The best thing to do is to compare the tax rate of your destination with the tax rate of your origin. If you see some significant differences, that would reflect the difference in the economic development of the two places.

 

Where do you get tax information about moving overseas?

 

Well, usually, this can be provided by various government offices like the DFA. It is also possible that you can get this information from a consulate. However, this can be a bit inconvenient and not to mention difficult ordeal. The best thing you can do is research on the internet. On the internet, various overseas moving companies would be willing to give you the tax information about moving overseas that you need.

 

As we all know, the internet today is the largest and most comprehensive source of information. Its power is actually only matched by its accessibility. The internet today lets people connect with each other wherever they are in the whole world. This means that you would not only get tax information about moving overseas, you would also get various tips and advice regarding what to do with that information.

 

Tax information about going overseas can be valuable in the same manner as all types of information can be valuable. It needs the right person to give it the right value. Because of this, it is always important to consider the value of a piece of information carefully before dismissing it. You need to know that the right information in the right hands can be a very powerful thing.

 


Accounting Outsourcing Nitty-Gritty that you need to Know

Posted on March 23rd, 2018

Are you dreading about clearing the accounting and bookkeeping work which has piled up in your desk in view of the approaching tax season? Simply opt for accounting outsourcing to deal with the issue with ease and perfection. This is the simplest way for accounting firms and CPA’s to deal with heavy workload to meet customer demand during the peak tax season. Simply undertaking accounting outsourcing will not serve your purpose, until you have proper knowledge about all the aspects of outsourcing.

Imagine you are going to give out your entire business process to be handled by another organization. I am sure you will want to know all you can about this particular aspect. You will surely not want to be caught unaware; if goes wrong with the entire process. Research and more research is the answer for you to meet such eventualities.

Choose the right outsourcing company to do your accounting outsourcing work. Numerous outsourcing come up with attractive and lucrative offers to do the work for accounting firms like yours. Find out carefully as many things as you can about the company before you actually let them do your work.

The internet is a storehouse of information and utilizing it in the best possible manner is in your hands. Check out the services provided by the various companies. Also try to get testimonials from firms who have already done accounting outsourcing from the particular outsourcing company.

Check out the various security measures put in place by the company to protect your company and customer data. This is an important aspect of with which you must take special care. In this internet age, people have become increasingly skeptical about giving out information about their financial details online. Security measures must be stringent enough to deal with this issue and to also bring back the faith of customers to the entire process of accounting outsourcing.

Your work will be done very quickly and you will be able to meet customer deadlines with plenty of time to spare. Highly qualified professionals are always hired for doing outsourcing work. So this means that you serve your customer’s with the best possible service that you can afford with in your budget. Accounting outsourcing work is done faultlessly by the professionals.

Monetary wise accounting outsourcing works out just perfectly for your accounting firm. You do not need to undertake any additional financial investment for the process. In fact you can earn through accounting outsourcing. Imagine you do not spend an extra cent and yet end up earning profits. This is just incredible; you must not waste time pondering over pros and cons of accounting outsourcing.

Check to see if the outsourcing firm provides any offers for free trails. You can actually take up this opportunity to see for yourself the quality of the work done by the firm. Based on this work done, you can decide whether you actually want to work any further with the company for accounting outsourcing work or not.

Accounting outsourcing can turn out to be beneficial to you in many ways. All of these benefits are subject to your working with the right accounting outsourcing company. So try outsourcing your accounting and experience a faster and more efficient way of doing business today!

Let Douglas Business Solutions help with all your outsourcing needs, call us today at 713-842-7243.


10 Ways To Reduce Tax Burden For Your Small Business

Posted on March 9th, 2018

An ideal lawyer will not just have a string of impressive credentials or gold lettering on his door. He or she will be caring, concerned, and devoted to their work. You need to think carefully before laying your trust in a lawyer after all in some cases your life, future, money or property will be in his hands.

 

Apart from doing extensive research to short list possible lawyers you must ensure that there is not conflict of interest, that you understand everything the retainer agreement states, and that you have checked the references and details regarding the practice.

 

You will know the lawyer you have chosen is the perfect one if:

 

  1. He makes an effort to spend time to understand your case himself. He will not assign a legal assistant to take facts of the case down.
  1. From experience and knowledge he will know what is relevant and what is not. He will set aside and ignore irrelevant facts, opinions, and personal emotions that cloud the case on hand.
  1. He will insist that the footwork for the case be done thoroughly. All facts must be checked for accuracy and solid arguments jotted down with backing of earlier rulings.
  1. He will not just focus on the problem at hand but examine the problem from all sides. This will create a complete picture highlighting all factors of relevance and the different ways one can approach the case.
  1. He will use his foresight and anticipate moves by the opposition or opinions of the jury or judge and plan way ahead. Like a master chess player he will plan the case not by the day but by many hearings ahead.
  1. He will not waste time beating around the bush or create verbose statements—many words strung together which look impressive but mean nothing. He will insist that the case and its arguments be clearly stated.
  1. He will be self-disciplined, thorough, and self confident. Courteous at all times he will respect you as well as all the staff who work for him.
  1. He is recommended by not just his friends and relatives but by other professionals of good standing and from his field.
  1. He will not just present to you his victories but be happy to tell you why and how he lost certain cases.
  1. He will lay the cards on the table and tell you clearly whether your case stands to win or loose. He will not claim that winning is guaranteed. He will be honest and upfront about his opinions and advice.

 

The bottom line is that the lawyer must be worthy of your trust. Use your inborn instincts and don’t go by the lawyer’s good looks or fancy car or office. After all it is competence in law and in court that is of essence to you.

 

Everyone worries about taxes and looks for ways and means of reducing the tax burden. When you have a small business of your own you must up date your knowledge of tax laws that pertain to “small businesses.” As a business owner you must understand clearly about accounting systems and tax planning. Sit down with your accountant and plan on ways of maintaining business expenses, filing receipts, planning on “tax saving” investments, and a strategy for running  the business in the most beneficial way.

 

Did you know that:

 

  1. According to law you can reduce your tax liability by hiring family members to carry out work in your business. Pay your children and spouse to perform assigned duties. This way you can shift from higher tax rates to lower ones.
  1. Consider hiring independent contractors instead of employees. You will save on payroll taxes. However ensure that you meet the IRS’s criteria.
  1. Think about “deferring income” postpone receiving money to January instead of December. This means that payments received will be up for “tax” calculations a year away. However ask your accountant’s advice as the benefits are dependent on profit and losses for the year and your corporate legal structure.
  1. Take advantage of tax deductions allowed for charitable donations. Make donations in November or December instead of January so that you can include the donations for tax deductions in the current year.
  1. Maximize your expenditure on equipment and office supplies. Buy in advance for a quarter and use the tax deductions allowed in the current fiscal year.
  1. Include expenses of business related travel in the current year.
  1. Pay all bills due before the end of the year. Payment to cell services, rent, insurance, and utilities related to the business can be included for accounting and applicable tax waivers.
  1. Plan a retirement plan and make payments before the end of the year. This will reduce your income for the year and proportionately the tax due. Be sure to check on the limits. Plan a feasible and beneficial strategy with your accountant.
  1. Be sure to deduct from your taxable income money paid to licensing fees, businesses taxes, and annual memberships to businesses related organizations. Be sure to deduct interest paid on borrowings for running the business and related fees. Insurance premiums paid to insure the business office and machinery are eligible for tax deductions. Make a list of your memberships and check which ones are eligible for tax deductions.
  1. Check whether you have deducted management and administration expenses as well as money spent on maintenance and repairs of equipment.

 

Decide whether a cash accounting system or accrual one will benefit your business. The tax deductions are different depending on the system you use. When setting up your small business take the advice of a tax and accounting professional as to which accounting system would be most suitable.

Let Douglas Business Solutions help, call us today at 713-842-7243.


4 Reasons People Get Into Trouble With the IRS

Posted on February 23rd, 2018

 

You don’t want to mess with the Internal Revenue Service. One small mix-up when handling your finances can cost you big.

 

For example, in recent years the IRS has increased its filing of levies, liens and wage garnishments. In fact, in 2004 alone, approximately 2.5 million levies were filed.

 

The experts at JK Harris & Co., one of the nation’s largest tax resolution firms, offer this list of common ways people get into trouble with the IRS.

 

  1. Filing too many exemptions. An exemption gives you a major tax deduction, and some taxpayers can’t resist the temptation to report more exemptions than they’re entitled.

 

You can only claim exemptions for yourself, a spouse and for all “dependents.” Dependents have to meet specific criteria, however, so make sure you follow the IRS guidelines so that you don’t mistakenly file an extra exemption.

 

  1. Being unaware of taxes levied for early withdrawal from certain retirement plans. If you withdraw from a retirement fund such as a 401(k) or IRA before you’re 59 1/2, you may face a 10 percent federal penalty on your investments, as well as a state penalty and an income tax on the money withdrawn.

 

  1. Not paying enough taxes when self-employed. Many people who own their own businesses don’t know how much they have to pay in taxes. The tax structure for a self-employed person – what to pay, how to pay and what can be deducted – is decidedly complex, so it’s easy to become confused.

 

  1. Not paying taxes on winnings. It is necessary to report all gambling winnings, including winnings from lotteries, casinos and horse races, as income.

 

For people who are in trouble with the IRS, there are various programs available that can provide debt relief if a taxpayer qualifies. JK Harris helps its clients determine if they meet the requirements for one of these IRS programs. Its staff includes former IRS agents, certified public accountants, attorneys, enrolled agents and other experts that offer tax services, financial planning, small business services and other assistance.

Let Douglas Business Solutions help ensure you don’t get in trouble, call us today at 713-842-7243.