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Taxbot
October 11, 2019

Do you have income from any rental properties that you own? If so, you may be eligible for a juicy tax break: The 20% qualified income deduction.

Subject to some rules, self employed and owners of S Corps and partnerships and LLCs can write off 20% of their qualified business income. This means that you can take a deduction of 20% of your business income net of your business expenses. While you can also take this deduction on rental property positive cash flow, the rules are a bit thorny. 

NOTE: Let’s face it, Congress isn’t going to ever make things easy.

The rental activity must generally rise to the level of a trade or business. However, this standard isn’t very well defined in the tax law. There is a safe harbor to help mitigate this uncertainty. Under the safe harbor rule, if you own real estate investments for 4 years or more, you need to spend at least 250 hours devoted to rental activities by you or by your employees. This requirement of 250 hours must be met in at least 3 out of the five most recent tax years. 

So what type of work qualifies under the 250 hours? This includes: repairs and maintenance, tenant services, property management,advertising, collecting rents, negotiating leases and supervising workers.. What doesn’t count are hours incurred for: arranging financing, constructing long term capital improvements (go figure), and driving to and from the real estate. Also, the safe harbor rule doesn’t apply to triple net leases, or property used by you or your family for the greater of 14 days or 10% of the days rented.

KEY: Users of the safe harbor rule must meet strict record-keeping requirements with contemporaneous records (think records like Taxbot). These records should detail hours worked, dates and descriptions of work. If work is done by contractors or employees, you need to keep logs of work done by them as well as proof of payment. Also, each year, you want to use the safe harbor rule, you need to attach a statement to your tax return as shown in revenue procedure 2019-38.

If you own multiple properties, you can either treat each property separately regarding this rule or aggregate them. Commercial properties can be aggregated with other commercial properties and residential properties can be aggregated with other residential properties. 

In short, this can be a great benefit for you if you own investment property. See your tax professional to be sure that you are compliant and meeting the rules.

Sandy Botkin Co-founder at Taxbot
Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).

For additional postings by Taxbot, click HERE

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Taxman
October 10, 2019

IRS Tax Tip 2019-142, October 10, 2019

Taxpayers who donate to a charity may be able to claim a deduction on their tax return. These deductions basically reduce the amount of their taxable income. Taxpayers can only deduct charitable contributions if they itemize deductions.

Here are some resources for people making donations:

Tax Exempt Organization Search
Taxpayers must give to qualified organizations to deduct their donations on their tax return. They can use this tool to find out if a specific charity qualifies as a charitable organization for income tax purposes.

Publication 526, Charitable Contributions
This pub explains how taxpayers claim a deduction for charitable contributions. It goes over:

  • How much taxpayers can deduct.
  • What records they must keep.
  • How to report contributions.

Publication 561, Determining the Value of Donated Property
Taxpayers generally can deduct the fair market value of property they donate. This publication helps determine the value of donated property.

Form 8283, Noncash Charitable Contributions
Taxpayers must file form 8283 to report noncash charitable contributions if the amount of this deduction is more than $500. The instructions for this form walk taxpayers through how to complete it.

Schedule A, Itemized Dedications
Taxpayers deducting donations do so on Schedule A. The instructions for this form include line-by-line directions for completing it.

Frequently asked questions: Qualified charitable distributions
Taxpayers age 70 ½ or older can make a qualified charitable distribution from their IRA – up to $100,000 – directly to an eligible charity. It’s generally a nontaxable distribution made by the IRA trustee to a charitable organization. A QCD counts toward their minimum distribution requirement for the year.

More information:

Taxman
October 9, 2019

IRS Tax Tip 2019-141, October 9, 2019

Taxpayers who claim at least one child as their dependent on their tax return may be eligible to benefit from the child tax credit. It’s important for people who might qualify for this credit to review the eligibility rules to make sure they still qualify. Taxpayers who haven’t qualified in the past should also check because they may now be able to claim the credit.

Here are some details about this credit:

  • The maximum amount of the credit is $2,000 per qualifying child.
  • Taxpayers who are eligible to claim this credit must list the name and Social Security number for each dependent on their tax return.
  • The child must be younger than 17 on the last day of the tax year, generally Dec 31.
  • The child must be the taxpayer’s son, daughter, stepchild, foster or adopted child, brother, sister, stepbrother, stepsister, half-brother or half-sister. An adopted child includes a child lawfully placed with them for legal adoption. They can also include grandchildren, nieces or nephews.
  • The child must have not provided more than half of their own support for the year.
  • The taxpayer must claim the child as their dependent on their federal tax return.
  • The child cannot file a tax return for the same year with the status married filing jointly, unless the only reason they are filing is to claim a refund.
  • The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  • In most cases, the child must have lived with the taxpayer for more than half of 2019.
  • The IRS Interactive Tax Assistant tool Is My Child a Qualifying Child for the Child Tax Credit? helps taxpayers determine if a child qualifies for this credit.
  • In some cases, a taxpayer qualifies and gets less than the full credit. These taxpayers must have earned income of at least $2,500 to  receive a refund, even if they owe no tax, with the additional child tax credit.
  • The credit begins to phase out at $200,000 of modified adjusted gross income. This amount is $400,000 for married couples filing jointly.
  • Taxpayers can use the worksheet on page 6 of Publication 972, Child Tax Credit (PDF), to determine if they can claim this credit.

Taxpayers whose dependent does not qualify for this credit might be able to the claim the credit for other dependents.

Taxman
October 7, 2019

IRS Tax Tip 2019-139, October 7, 2019

The earned income tax credit benefits working people with low-to-moderate income. Last year, the average credit was $2,445. EITC not only reduces the amount of tax someone owes, but may also give them a refund, even if they don't owe any tax at all.

Here are a few things people should know about this credit:

  • Taxpayers may move in and out of eligibility for the credit throughout the year. This may happen after major life events. Because of this, it's a good idea for people to find out if they qualify.
  • To qualify, people must meet certain requirements and file a federal tax return. They must file even if they don't owe any tax or aren't otherwise required to file.
  • Taxpayers qualify based on their income, the number of children they have, and the filing status they use on their tax return. For a child to qualify, they must live with the taxpayer for more than six months of the year.

Here's a quick look at the income limits for the different filing statuses. Those who work and earn less than these amounts may qualify.

Married filing jointly:

  • Zero children: $21,370
  • One child: $46,884
  • Two children: $52,493
  • Three or more children: $55,952

Head of household and single:

  • Zero children: $15,570
  • One child: $41,094
  • Two children: $46,703
  • Three or more children: $50,162

The maximum credit amounts are based on the number of children a taxpayer has. They are the same for all filing statuses:

  • Zero children: $529
  • One child: $3,526
  • Two children: $5,828
  • Three or more children: $6,557

Taxpayers who file using the status married filing separately cannot claim EITC.

Taxman
October 3, 2019

IRS Tax Tip 2019-138, October 3, 2019

Taxpayers with dependents may qualify to claim a few different tax credits. One of these is the child tax credit. The child tax credit benefits people whose dependent meets a series of tests. If the dependent doesn't meet those qualifications, the taxpayer may be able to claim the credit for other dependents.

Here's some info about the credit for other dependents. These details can help taxpayers find out if they can claim it when they file their taxes next year.

  • A taxpayer can't claim the credit for other dependents for a child who qualifies for the child tax credit or the additional child tax credit.
  • A qualifying individual could be the taxpayer's older child, parent or cousin. It could even be someone who is not related to the taxpayer. To qualify, the unrelated person must have lived with the taxpayer for the entire tax year.
  • The maximum amount of the credit is $500 per qualifying dependent.
  • The dependent must be a U.S. citizen, a U.S. national, or a U.S. resident alien.
  • Taxpayers who are eligible to claim this credit must list the name and Social Security number or individual taxpayer identification number for each dependent they claim on their tax return.
  • The credit begins to phase out at $200,000 of modified adjusted gross income. This amount is $400,000 for married couples filing jointly.
  • Taxpayers can use the worksheet on page 6 of Publication 972, Child Tax Credit (PDF), Child Tax Credit, to determine if they can claim this credit.

Taxman
October 2, 2019

IRS Tax Tip 2019-137, October 2, 2019

Now that fall is here and school has started, many teachers are dipping into their own pockets to buy classroom supplies. Doing this throughout the year can add up fast. Fortunately, eligible educators may be able to defray qualified expenses they paid in 2019 when they file their tax return in 2020.

Educators who work in schools may qualify to deduct up to $250 of unreimbursed expenses. That amount goes up to $500 if two qualified educators are married and file a joint return. However, neither spouse can deduct more than $250 of his or her qualified expenses when they file.

Taxpayers qualify for this deduction if they:

  • Teach any grade from kindergarten through twelfth grade.
  • Are a teacher, instructor, counselor, principal or aide.
  • Work at least 900 hours during the school year.
  • Work in a school that provides elementary or secondary education.

Qualified expenses include:

  • Professional development courses.
  • Books.
  • Supplies.
  • Computer equipment including related software and services.
  • Supplementary materials.
  • Athletic supplies only for health and physical education.

Eligible taxpayers can claim this deduction when they file their taxes. The IRS encourages teachers to consider using tax software to help guide them through the process of claiming the deduction.

Many teachers may qualify to use online software for free with IRS Free File.

Taxbot
October 1, 2019

No one likes paying taxes. This is especially true for business owners that put so much effort into making the earnings they receive. Thankfully, there are things you can do as a business owner to lower your tax burden so you can keep more of your profits and reinvest them into your company. One way you can do this is through tax deductions. In fact, there are some business tax deductions you may have not even considered before.

Work Related Vehicle Expenses

If you use your vehicle for work, you probably know you can deduct vehicle related business expenses. Just keep records proving you used it for business. This includes things like gas and oil changes. However, there are other expenses you can deduct you may have not considered. If you are painter, you may need to keep paint, brushes and other supplies in your truck bed under a tarp. You can actually deduct the price of truck bed tarps from income taxes.

Office Furniture

One business tax deduction that many business owners overlook is deducting the price of office furniture. If you are just starting your business, you’re allowed to deduct up to $5,000 in office furniture. Your trip to IKEA may in fact be deductible.

Professional Services

The legal business code in most jurisdictions is extremely complex. Chances are you’ll need the services of an attorney at some point to help you figure out things like legal contracts. Thankfully, professional services like attorney’s or accountant’s fees are deductible as long as they are for necessary and ordinary business purposes.

Computer Software

Computer software is another business expensive that few business owners actually deduct from their taxes. Deducting computer software can sometimes be complicated. It is classified as an intangible under the tax code and needs to be amortized over a period of 15 years if it is bought with hardware. If it’s purchased separately, deducting it is easier. There are many kinds of business related software you can deduct including things like Microsoft Office, Adobe Photoshop or even an Adobe Creative Cloud suite.

Janitorial Services

The physical cleaning of your office or other facilities can also be deducted. If you have to pay for outside help to handle that cleaning and can produce the records to prove it, you can certainly deduct those janitorial services. Just make sure those cleaning expenses are for your business and not your home. Running a business can be extremely difficult. You have to struggle just to make a meager profit. Having to send a percentage of what you made to the IRS can be frustrating. Thankfully, you can use business tax deductions to shrink your tax burden.


Kara Masterson is a freelance writer from Utah. She enjoys tennis and spending time with her family.

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Taxman
September 11, 2019

IRS Tax Tip 2019-125, September 11, 2019

With school back in session, parents and students should look into tax credits that can help with the cost of higher education. They do this by reducing the amount of tax someone owes on their tax return. If the credit reduces tax to less than zero, the taxpayer may get a refund.

Taxpayers who pay for higher education in 2019 can see these tax savings when they file their tax returns next year. If taxpayers, their spouses or their dependents take post-high school coursework, they may be eligible for a tax benefit.

There are two credits available to help taxpayers offset the costs of higher education. The American opportunity tax credit and the lifetime learning credit may reduce the amount of income tax owed. Taxpayers use Form 8863, Education Credits, to claim the credits.

To be eligible to claim the American opportunity tax credit, or the lifetime learning credit, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution.

The American opportunity tax credit is:

  • Worth a maximum benefit up to $2,500 per eligible student.
  • Only for the first four years at an eligible college or vocational school.
  • For students pursuing a degree or other recognized education credential.
  • Partially refundable. This means if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit, up to $1,000, is refundable.

The lifetime learning credit is:

  • Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students qualify.
  • Available for all years of postsecondary education and for courses to acquire or improve job skills.
  • Available for an unlimited number of tax years.

Taxman
August 26, 2019

Starting a business can be very rewarding. It can also be a little overwhelming. From business plans to market strategies, and even tax responsibilities…there are many things to consider. Here’s what new business owners can do to help get off to a good start.

Taxpayers interested in starting a business can find information for some industries on the Industries/Professions Tax Centers webpage. Each state has additional requirements for starting and operating a business. Prospective business owners should visit their state's website for info about state requirements.

 

IRS Tax Tip 2019-116, August 26, 2019

Taxbot
August 23, 2019

 

love tax credits. They are a yummy dollar-for-dollar reduction in your taxes. It is like receiving free tax-free money. One such credit that we will be discussing is the dependent care credit.

Generally expenses for the care of children under age 13 and for qualifying relatives, such as aging parents who live with you for more than 6 months during the year and be unable to care for himself or herself, qualify for the credit if these expenses are incurred so you can work or look for a job. 

So how much is this credit? The credit is worth 20% to 35% depending on your income of up to of up to $3,000 in eligible child care expenses per kid; however, the maximum credit that is allowable is on up to $6,000 of expenses if you have two or more kids.

Tax tip: if you sent your child or children to any day camps this summer, such as those for sports, computers, math, theater or just general fun, don’t forget about this tax break. The same goes for camps to help improve your child’s reading or summer skills. However, expenses for summer school, tutoring programs and overnight camps don’t qualify. Go figure.

Also, before and after school- care programs are also eligible for the credit.

Sandy Botkin
Co-founder at Taxbot

For information on the Taxbot services, click HERE

Website:  https://spendingtracker.isrefer.com/go/2019package_ns/wcc/

WealthCare Connect may receive compensation from Taxbot for purchases make through link(s) on this website.

 
Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).